MARIANO TORRES Y CHAVARRIA, PETITIONER, VS. THE HONORABLE COURT OF APPEALS, FRANCISCO E. FERNANDEZ AND FE FERNANDEZ, ROSARIO MOTA CUE, ERNESTO MEDINA CUE AND THE NATIONAL TREASU…

This is a petition for review of the decision of the Court of
Appeals in CA-G.R. No. 62248-R entitled “Mariano Torres Y Chavarria v. Francisco E. Fernandez, et al., etc.,”
which reversed the decision of the then Court of First Instance of Manila,
Branch 7, by holding that it is the respondent Rosario Mota
who is legally entitled to the disputed realties, being an innocent mortgagee
and later the highest bidder when the properties were supposedly foreclosed,
and not the petitioner Mariano Torres, the defrauded owner thereof; and of the resolution of that Court denying Torres’ motion
for reconsideration.

The parcel of land located at the corner of Quezon
Boulevard and Raon Street (now Gonzalo Street), and
the building erected thereon known as “M. Torres Building” is owned
by Mariano Torres, the herein petitioner, as evidenced by Transfer Certificate
of Title No. 53628-Manila issued in his name. 
As far as the records show, Torres was and still is in possession of the
realties, holding safely to his owner’s duplicate certificate of title, and, at
least until 1971, paying the real estate taxes due thereon, and collecting
rentals from his tenants occupying the building.

Sometime in 1966, Francisco Fernandez, Torres’ brother-in-law,
filed a petition with the Court of First Instance of Manila, docketed as LRC
GLRO Cad. Rec. No. 133, where he, misrepresenting to be the attorney-in-fact of
Torres and falsely alleging that the owners’ duplicate copy of TCT No. 53628
was lost, succeeded in obtaining a court order for the issuance of another copy
of the certificate.

Once in possession thereof, Fernandez forged a simulated deed of
sale of the realties in his favor.  Whereupon TCT No. 53628 in the name of Torres was cancelled and TCT
No. 86018 was issued in Fernandez’ name.

On various dates from December, 1966 to November, 1967 Fernandez
mortgaged the realties to Rosario Mota, wife of
Ernesto Cue, and also to Angela Fermin, who later
assigned her credit to the spouses Cue. 
The mortgages were annotated at the back of TCT No. 86018 and so was the
deed of assignment.

Torres, who up to this time still had possession of his owner’s
duplicate certificate of title and who was still collecting rentals from the
occupants of the subject building, upon learning of the fraud committed by
Fernandez, caused, on March 18, 1968, the annotation on the latter’s TCT a
notice of adverse claim.

On March 30, 1968,
Torres filed Civil Case No. 72494 against Fernandez to annul TCT No. 86018 as well
as the proceedings in LRC GLRO Cad. Rec. No. 133.  On April
2, 1968, a notice of lis pendens was annotated at the back of Fernandez’ TCT.

In the meantime, Fernandez failed to pay his various loans which
prompted the Cues to institute an extrajudicial foreclosure of the mortgage.

On February 11, 1969,
Fernandez filed Civil Case No. 75643 against the spouses Cue for the annulment
of the mortgage with preliminary injunction.

After the foreclosure was enjoined, the parties entered into an
amicable settlement, approved by the court, whereby it was stipulated that
Fernandez acknowledged and promised to pay his debt to the Cues for Five
Hundred Sixty-Two Thousand Nine Hundred Fifty-Five and 28/100 (P562,955.28)
Pesos on or before, March 30, 1970, while the spouses bound themselves to
execute and deliver, within ten (10) days from receipt of the sum mentioned
such documents as are necessary to release the mortgages in favor of defendants
on plaintiffs’ property.

Before Fernandez could pay his obligation under the settlement
agreement, a decision was rendered in Civil Case No. 72494 where it was
declared that the proceedings held in LRC GLRO Cad. Rec. No. 133 was void and
that TCT No. 86018, issued in the name of Fernandez, is without force and
effect as TCT No. 53628 in the name of Torres is the true and legal evidence of
ownership of the subject immovables.  Fernandez appealed from this decision to the
Court of Appeals where it was docketed as CA-G.R. No. 46386-R.  The Court of Appeals, on April 20, 1979, affirmed the decision of the
trial court.  There being nothing on the
records that would indicate that the judgment of the appellate court was
elevated here, it would appear that it had become final and executory.

But meanwhile, prior to the Court of Appeals’ decision mentioned
above, Fernandez failed to comply with his obligation under the amicable
settlement and whereupon the Cues applied for and were granted a writ of
execution.  The subject realties were
then levied upon and sold at public auction where Rosario Mota
was the highest bidder.

On August 31, 1971,
the redemption period for the subject immovables
having lapsed without Fernandez nor Torres redeeming
the properties, Rosario Mota was issued the Sheriff’s
Deed of Sale.  Thereafter, TCT No. 86018
was cancelled and TCT No. 105953 was issued in her name.

On December 7, 1971
Mota, through her lawyer, notified the tenants
occupying “M. Torres Building” that she is the new owner thereof and
henceforth, payment of their rentals should be made to her.

On December 17, 1971
Torres filed a complaint, which later gave rise to this petition, with the
Court of First Instance of Manila, docketed as Civil Case No. 85753, against
Fernandez and his spouse and the Cues to restrain the latter from collecting
rentals and for the declaration as void TCT No. 105953.  The Cues in turn filed a cross-claim against
Fernandez spouses and a third party complaint against the National Treasurer as
the custodian of the Assurance Fund.

During the proceeding, Mariano Torres, having died sometime in
1974, was substituted by his widow.  On
June 3, 1977, the trial court rendered its decision declaring TCT No. 105953 in
the name of Rosario Mota null and void as it upheld
the validity of TCT No. 53628 in the name of Torres as the true evidence of
title to the disputed realties, and at the same time dismissing the Cue’s third
party complaint and cross claim.

The decision was reviewed by the respondent court at the instance
of the Cues which, as aforementioned, reversed the trial court in its decision
dated July 30, 1982 and the
Resolution of January 14, 1983.  Hence, this petition.

There is nothing on the records which shows
that Torres performed any act or omission which could have jeopardized his
peaceful dominion over his realties.  The
decision under review, however, in considering Mota
an innocent mortgagee protected under Section 55 of the Land Registration Law,
held that Torres was bound by the mortgage. 
Inevitably, it pronounced that the foreclosure sale, where Mota was the highest bidder, also bound Torres and
concluded that the certificate of title issued in the name of Mota prevails over that of Torres’.  As correctly pointed out by Torres, however,
his properties were sold on execution, and not on foreclosure sale, and hence,
the purchaser thereof was bound by his notice of adverse claim and lis pendens
annotated at the back of Fernandez’ TCT. 
Moreover, even if We grant Mota
the status of an innocent morgagee, the doctrine
relied upon by the appellate court that a forged instrument may become the root
of a valid title, cannot be applied where the owner still holds a valid and
existing certificate of title covering the same interest in a realty.  The doctrine would apply rather when, as in
the cases for example of De La Cruz v. Fabie, 35 Phil.
144 [1916], Fule v. De Legare,
No. L-17951, February 28, 1963, 7 SCRA 351, and Republic v. Umali,
G.R. No. 80687, April 10, 1989, the forger thru insidious means obtains the
owner’s duplicate certificate of title, converts it in his name, and subsequently
sells or otherwise encumbers it to an innocent holder for value, for in such a
case the new certificate is binding upon the owner (Sec. 55, Act 496; Sec. 53,
P.D. No. 1529).  But if the owner holds a
valid and existing certificate of title, his would be indefeasible as against
the whole world, and not that of the innocent holder’s.  “Prior tempore potior jure” as We have said in Register of Deeds v. Philippine National
Bank, No. L-17641, January 30, 1965, 13 SCRA 46, citing Legarda
v. Saleeby, 31 Phil. 590, Roman Catholic Bishop v.
Philippine Railway, 49 Phil. 546, Reyes v. Borbon, 50
Phil. 791.

In C.N. Hodges v. Dy Buncio & Co., Inc., No. L-16096, October 30, 1962, 6 SCRA 287, 292, We laid down the doctrine that:

“The claim of indefeasibility of the petitioner’s title under
the Torrens land title system would be correct if
previous valid title to the same parcel of land did not exist.  The respondent had a valid title x x x.  It never parted with it; it never handed or
delivered to anyone its owner’s duplicate of the transfer certificate of title;
it could not be charged with negligence in the keeping of its duplicate
certificate of title or with any act which could have brought about the
issuance of another certificate upon which a purchaser in good faith and for
value could rely.  If the petitioner’s
contention as to indefeasibility of his title should be upheld, then registered
owners without the least fault on their part could be divested of their title
and deprived of their property.  Such
disastrous results which would shake and destroy the stability of land titles
had not been foreseen by those who had endowed with indefeasibility land titles
issued under the Torrens system.  Veronica Bareza
perpetrated the fraud by making false representations in her petition and the
title issued to her being the product of fraud could not vest in her valid and
legal title to the parcel of land in litigation.  As she had no title to the parcel of land, in
the same way that a thief does not own or have title to the stolen goods, she
could not transmit title which she did not have nor possess.”

We have applied this doctrine in the case of the Register of
Deeds v. P.N.B., supra, where We noted that said ruling is “a mere
affirmation of the recognized principle that a certificate is not conclusive
evidence of title if it is shown that the same land had already been registered
and an earlier certificate for the same land is in existence.” Again in
the case of Baltazar v. Court of Appeals, G.R. No.
78728, December 8, 1988, 168 SCRA 354, We held that as between two persons both
of whom are in good faith and both innocent of any negligence, the law must
protect and prefer the lawful holder of registered title over the transfer of a
vendor bereft of any transmissible rights.

In view of the foregoing, to hold, for the purpose of enforcing
the mortgage, that Mota was an innocent mortgagee
would be futile because, as above shown, no certificate of title covering the
subject realties in derogation of Torres’ certificate of title may validly be
issued.

Then it becomes evident that the remaining possible remedies of
the Cues are to go against Fernandez or the Assurance Fund, as they in fact had
done in the lower court by filing a cross claim and third party complaint.  The lower court dismissed the Cues’
cross-claim against Fernandez reasoning out that their remedy is to cause the
final judgment (compromise agreement) in Civil Case No. 75643 executed.  This, of course, is correct since the rights
and obligations of both parties had been determined in that case.

The trial court also dismissed the Cues’ third party complaint
against the Treasurer of the Philippines
as custodian of the Assurance Fund after finding them negligent in protecting
their interest.  The trial court
recognized the principle that a person dealing with registered lands need not
go beyond the certificate of title but nevertheless pointed out that there are
circumstances in this case which should have put the Cues on guard and prompted
them to investigate the property being mortgaged to them, thus:

“The property in question is a very valuable property, in fact
accepted by defendants Mota and Medina Cue as
collateral for more than half a million pesos in loans granted by them to
Fernandez.  Its value lies principally in
its income potential, in the form of substantial monthly rentals.  Certainly, the registered title does not
yield any information as to the amount of rentals due from the building, much less
on who is collecting them, or who is recognized by the tenants as their
landlord.  Any prospective buyer or
mortgagee of such a property, if prudent and in good faith, is normally
expected to inquire into all these and related facts and circumstances.

“Besides, by the course of visible dimensions of the M. Torres
Building, it should be readily obvious to any one that the area of the two lots
x x x covered by TCT No.
86018 cannot accommodate the building, as in fact it also rests upon a lot
covered by TCT No. 56387, and partly upon a lot leased by (Torres) from the
City of Manila.  Had
(the Cues) known of this fact would they have accepted the mortgage alone over
TCT No. 86018?  The answer is
obvious.  And yet, to all indications,
they never bothered to look into this fact about the M. Torres Building.

“x x x.

Another thing that defendants Mota and
Medina Cue must have investigated, as any prudent buyer or mortgagee should
before consummating any transaction on real property, is the matter of payment
of taxes on the property.  After all, the
big value of the property in question necessarily means that even real estate
taxes on it alone would involve big amounts of money, and if there are tax
arrearages, any buyer or subsequent owner of the property will have to come
face to face with the tax lien attaching to the property wherever its owner may
be.  x x x. ” (p. 257, Record on
Appeal)

We likewise take note of the manifestation of the Office of the
Solicitor General that the Cues failed to contest the ruling of the trial court
negating the liability of the Assurance Fund. 
For these reasons, We hold that the Cues’ remedy merely is to go against
Francisco Fernandez or rather his estate since record shows that he died
sometime in 1983.

ACCORDINGLY, the decision and resolution under review are
REVERSED and the decision of the then Court of First Instance, Branch 7, Manila in Civil Case No. 85753 is
REINSTATED.

SO ORDERED.

Narvasa, Cruz, and Gancayco, JJ., concur.

Grino-Aquino, J., for personal reason takes no part.