PHILIPPINE NATIONAL BANK, PETITIONER, VS. HON. INTERMEDIATE APPELLATE COURT (FOURTH CIVIL CASES DIVISION), JOSE B. DELFIN, AMADO E. ERGINA, MIGUEL CABREROS, EPIFANIA CABREROS, P…

The instant petition for review on certiorari seeks to
annul and set aside the July 29, 1985
decision of the Intermediate Appellate Court in AC-G.R. CV No. 66183 which
reversed and set aside the April 20,
1979 decision of the trial court dismissing this case for gross
insufficiency of evidence.

The late Fr. Venerando Reynes filed a petition before the then Court of First
Instance of Cebu for consolidation and subdivision of
two parcels of land numbered 5761 and 5764 pursuant to a plan duly approved by
the Director of Lands.  The court issued
an order approving the plan and directing the Register of Deeds of Cebu to issue transfer certificates of title covering the
lots in the name of Fr. Reynes.

One of the lots involved in the above proceeding was technically
described as a “Public Open Space” with an area of 709 square
meters.  However, when TCT No. 12135
covering this lot was issued, the title did not contain an annotation that it
was a public open space nor did it carry any restriction or limitation as to
its use or disposition.  The controversy
arose from this omission.

Fr. Reynes donated the lot subject of
the controversy to the spouses Luis Romero and Rosario Suarez.  The deed of donation was annotated at the
back of TCT No. 12135 on January 14,
1965.  A new transfer certificate of title (TCT
No. 31180) was later issued in favor of the donees.  The latter on different dates twice mortgaged
the property to Philippine Commercial and Industrial Bank.

On August 5, 1975,
the spouses mortgaged once again the property to petitioner Philippine National
Bank for the loan of P30,000.00.  Two years later they sold the property to
spouses Ildefonso Mercado and Isabel Palacio who assumed the loan with the said bank.  The lot was again subdivided and two titles,
TCT Nos. 69839 and 69840 were issued in the name of the buyers.

On January 18, 1978, the subdivision owners and/or residents of
the Friendship Village commenced an action alleging that the lot in question
had been reserved as a park or playground for the use of the residents of the
village, adding that as early as 1960 a concrete basketball court with steel
goals had been constructed at the expense of the City Government of Cebu and that Father Reynes acted
in bad faith by using his influence in the issuance of TCT No. 12135 without
the necessary annotation that the lot is a “Public Open Space.”

The trial court rendered judgment dismissing the complaint as
well as the counterclaim of the defendants.

On appeal, the Court of Appeals reversed the decision below and a
new one was rendered annulling TCT Nos. 12135, 31180, 68939 and 69840 and
ordering the Register of Deeds to issue another title in the name of Fr. Venerando Reynes or his
successors in interest covering the lot, to wit:

“WHEREFORE, the decision appealed from is hereby reversed and
another one is rendered annulling Transfer Certificates of Title Nos. 12135,
31180, 69839 and 69840, ordering the Register of Deeds of Cebu
to issue another title in the name of Fr. Venerando Reynes, or his
successors in interest, covering lot 9, Block 1, of the consolidation and
subdivision plan Pcs-2742, being a portion of the consolidated Lots 5761 and
5764 of Cebu Cadastre, G.L.R.O. Cad. Record No. 9467,
situated in the City of Cebu, as an “public open
space”, free from the mortgage encumbrance in favor of the
defendant-appellee Philippine National Bank covering
the loan of P30,000.00 of the defendants-appellees Luis Romero and Rosario Suarez assumed by defendants-appellees Ildefonso Mercado and
Isabel Palacio, and ordering defendants?appellees Ildefonso Mercado and
Isabel Palacio to vacate the property in
question.  No costs.” (Rollo, p. 33)

Unhappy with the reversal of the decision by the appellate court,
the petitioner brings the case to us.

The questions now raised before us are these:  Is the ruling on the failure to annotate on
the title that the land covered by TCT No. 12135 is a public open space or one
subjected to restrictions or limitations as to its use and disposition a
reversible error?  What is the effect of
this non-annotation on the transferees of the land?

Registration is the operative act that gives validity to the
transfer or creates a lien upon the land (See Sec. 51, PD No. 1529).  All persons dealing with property covered by
a Torrens Certificate of Title are not required to go beyond what appears on
the face of the title (Quimson v. Suarez, 45 Phil.
901 [1924]).  These basic rules are
applicable to the case at bar.

A Torrens title is the certificate of
ownership issued under the Torrens system of
registration by the government through the Register of Deeds, naming and
declaring the owner in fee
simple of the real property described therein free from all liens and
encumbrances except such as may be expressly noted thereon or otherwise
reserved by law.  The liens and
encumbrances which may be subsisting despite their non-annotation in the
certificate of title are the following:

“First, Liens, claims or rights arising or existing under the
laws and Constitution of the Philippines which are not by law required to
appear of record in the Registry of Deeds in order to be valid against
subsequent purchasers and encumbrancers of record;

“Second, Unpaid real estate taxes levied and assessed within
two years immediately preceding the acquisition of any right over the land by
an innocent purchaser for value, without prejudice to the right of the
government to collect taxes payable before that period from the delinquent
taxpayer alone;

“Third, Any public highway or private way established or
recognized by law or any
government irrigation canal or lateral thereof, if the certificate of title
does not state that the boundaries of such highway or irrigation canal or
lateral thereof have been determined;

“Fourth, Any disposition of the property or limitation in the
use thereof by virtue of or
pursuant to Presidential Decree No. 27 or any other law or regulation on
agrarian reform.  (Sec. 44, Presidential
Decree No. 1529).

The case at bar does not in any way fall within the exceptions
mentioned above.  In fact it is the
general rule which applies.  Every
registered owner receiving a certificate of title in pursuance of a decree of
registration and every subsequent purchaser of registered land taking a certificate of title for value and in
good faith shall hold the same free from all encumbrances not noted on the
title.  (Sec. 50, PD No. 1529)

When transfer certificates of title were issued in favor of the
transferees (the donees and the purchaser) nothing
was said therein about the land having been reserved for a public open
space.  Persons dealing with a property
covered by a Torrens Certificate of Title are not required to go beyond what
appears on the face of the title (Vda. de Median v.
Cruz, 161 SCRA 36 [1988]).  When there is
nothing on the face of the title to indicate any cloud or vice in the ownership
of the property or any encumbrances thereon, the purchaser is not required to
explore further than what the Torrens Title upon its face indicates in quest for
any hidden defect or inchoate right that may subsequently defeat his right
thereto (National Grains Authority v. IAC, 157 SCRA 380 [1988]).  Thus, a bank is not required before accepting
a mortgage to make a detailed investigation of the history of the title of the
property being given as security.  And
where innocent third persons like the mortgagees relying on the certificate of
title acquire rights over the property, their rights cannot be disregarded.

WHEREFORE, the decision appealed from is REVERSED and SET
ASIDE.  A new one is issued upholding the
validity of the donation inter vivos and sustaining
the validity of the real estate mortgage executed by the spouses Luis Romero
and Rosario Suarez in favor of the petitioner Philippine National Bank.

SO ORDERED.

Feliciano and Cortes, JJ., concur.

Fernan, C.J., (Chairman), No part. Formerly counsel for the Estate of Fr. Venerando Reynes.

Bidin, J., No part. He was one of the concurring members in the Intermediate
Appellate Court.