TIBURCIO SAMONTE, PETITIONER, VS. COURT OF APPEALS, EUGENIA DANGO GADIANO, TEOFILO GADIANO, PETRONILO DANGO, FELICIANA DANGO, NONILO MARAVE AND GERONIMO DANGO, RESPONDENTS.

Samonte versus Court of Appeals

The Case

This is a petition for review on certiorari brought by Tiburcio Samonte against the Court of Appeals and the surviving heirs of Apolonia Abao and Irenea Tolero. The heirs sued to quiet title and recover possession of a parcel of land in Nasipit, Agusan del Norte, asking that the original certificate of title be reinstated and that the later titles, including those held by Samonte, be annulled. The case matters because it tests two defenses every land-lawyer must know: prescription of an action for reconveyance based on fraud, and the good-faith purchaser doctrine under the Torrens system. The Court holds that neither defense saves a buyer who took with notice of the fraud.

Procedural History

Two separate actions were filed in the Regional Trial Court, Branch Two, of Nasipit, Agusan del Norte. The first, an action for quieting of title and recovery of possession over a subdivided portion, was decided in favor of the plaintiffs. The second, involving the entire lot and seeking annulment of the later certificates of title and reinstatement of the original title, was likewise decided for the plaintiffs. The defendants in both cases appealed to the Court of Appeals, which consolidated the appeals and, in a decision dated November 29, 1991, affirmed the trial court and dismissed the appeals. Samonte's motion for reconsideration was denied in a resolution dated February 21, 1992. He then came to the Supreme Court by petition for review on certiorari, assailing only the decision in the second case.

Facts

Lot 216 of the Cadastral survey of Nasipit, containing about 12,753 square meters, was covered by an original certificate of title issued in 1927 in the names of Apolonia Abao and her daughter Irenea Tolero, in equal undivided shares. Apolonia died during the Japanese occupation and Irenea died in 1945, leaving the respondents as their surviving heirs.

In 1957, Ignacio Atupan executed an affidavit of extra-judicial settlement and confirmation of sale in which he falsely claimed to be the sole heir of Apolonia Abao, when in truth he had merely lived and grown up with her. On the strength of that affidavit, the original certificate of title was cancelled and a new title was issued in the names of Irenea Tolero and Nicolas Jadol. The Jadol spouses knew of the falsity. The deeds of sale supposedly confirmed by the affidavit were never presented to the Register of Deeds, and registration was sought only in 1957, eighteen years after the alleged sales and twelve years after Abao's death. The lot was then subdivided, and titles were issued to Jacobo Tagorda and to Samonte.

Samonte bought a portion from the Jadol spouses in July 1957, while the land was still registered in the names of Abao and Tolero, and another portion from Tagorda in 1972. The trial court found that Samonte knew the respondents were the only surviving heirs of Irenea Tolero. The heirs discovered the fraud only during the trial of the first case, and they filed the second case in 1975.

Issues

• Whether or not the respondents' action for reconveyance based on fraud had already prescribed, considering that the fraudulent registration was made in 1957 and the action was filed only in 1975.
• Whether or not Samonte was a buyer in good faith for value, and therefore protected by the Torrens system.

Applicable Provisions

Article 1456 of the Civil Code provides:

If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

This is the basis for treating the Jadol spouses as trustees of the property for the heirs, which in turn fixes the ten-year prescriptive period for the action.

Ruling

On the first issue, the Court held that prescription had not set in. The general rule is that an action for reconveyance based on fraud must be brought within four years from discovery, and discovery is deemed to have taken place upon registration because registration is constructive notice to all persons. But the Court refused to apply that rule mechanically. Relying on its earlier ruling in Adille versus Court of Appeals, it held that the Torrens title does not furnish a shield for fraud, and that the period should be counted from the time the heirs actually discovered the defraudation, which here was only during the trial of the first case. Since the property was acquired through fraud, the Jadol spouses became trustees under an implied trust, and the action prescribes in ten years from the creation of that trust.

On the second issue, the Court held that Samonte was not a buyer in good faith. As to the portion bought from the Jadol spouses, he bought from persons who were not the registered owners, and one who buys from a person who is not a registered owner is not a purchaser in good faith. As to the portion bought from Tagorda, the general rule that a buyer may rely on the Torrens certificate admits of exceptions, among them that the buyer has actual knowledge of facts that would impel a reasonably cautious man to inquire. Samonte already knew that Jadol lacked the capacity to transmit title, so he was in bad faith. The Court put the principle plainly:

A holder in bad faith of a certificate of title is not entitled to the protection of the law, for the law cannot be used as a shield for frauds.

Doctrine

First, registration under the Torrens system is constructive notice of title, but it is not constructive notice of fraud. Where a title is obtained through fraud, the defrauder holds the property as a trustee of an implied trust under Article 1456 of the Civil Code, and the action to enforce that trust prescribes in ten years, counted in a proper case from the actual discovery of the fraud, not from the date of registration.

Second, the protection of the Torrens system extends only to purchasers in good faith. One who buys from a person who is not the registered owner is not a purchaser in good faith. And one who has actual knowledge of facts and circumstances that would impel a reasonably cautious man to inquire into the title cannot be considered an innocent purchaser for value. The indefeasibility of a Torrens title does not extend to a transferee who takes with notice of a flaw.

Disposition

The petition was denied for lack of merit, and the decision and resolution of the Court of Appeals were affirmed in full. The respondents won.

Remember This

Memorize the line that the Torrens title does not furnish a shield for fraud, and that the ten-year period on an implied trust may run from actual discovery. Examiners use this case to test prescription in reconveyance suits and the good-faith purchaser doctrine against a buyer who had notice of the defect.