FELICISIMA PINO, PETITIONER, VS. COURT OF APPEALS, DEMETRIA GAFFUD, ROMUALDO GAFFUD, ADOLFO GAFFUD & RAYMUNDO GAFFUD, RESPONDENTS.

The decision of respondent
Court of Appeals in CA-G.R. CV No. 21457 which affirmed in toto,
the decision of the Regional Trial Court of Echague, Isabela, Branch 24 in Civil Case No. 24-0190, the dispositive portion of which latter decision reads:

“WHEREFORE, premises considered, judgment is hereby rendered:

“1.  Declaring the Deed of Absolute Sale made by
Rafaela Donato Vda. de Gaffud in favor of the
defendant on June 10, 1970
over Lot 6-B of the subdivision plan (LRC) Psd-68395
being a portion of Lot 6 of the Echague
Cadastre LRC Cad. Rec. No. 1063, containing an area of 11,095 square meters,
more or less, null and void insofar as the shares of Cicero Gaffud
and Raymundo Gaffud are
concerned, which is one-half-thereof, or approximately 5,547.5 square meters,
more or less;

“2.  Ordering
the cancellation of TCT No. 49380 in the name of the defendant;

“3.  Ordering the defendant to reconvey
one-half of the property subject of this proceeding to the plaintiffs within
ten (10) days from finality of this Decision, failing which the same shall be
done at the cost of the defendant by the Clerk of Court and such act, when so
done, shall have like effect as if done by her;

“4.  Ordering the defendant to pay the plaintiffs
P5,000.00 by way of attorney’s fees.

“No costs.

“SO ORDERED.” (pp. 20-21, Rollo)

is now being
assailed in the instant petition for Certiorari upon the ground –

THAT RESPONDENT COURT OF APPEALS COMMITTED
A GRAVE ABUSE OF DISCRETION, AMOUNTING TO LACK OF JURISDICTION –

I

WHEN IT ERRED IN CONCLUDING THAT THE
PETITIONER IS NOT AN INNOCENT PURCHASER OF THE SUBJECT PROPERTY;

II

WHEN IT ERRED IN CONCLUDING THAT PRESCRIPTION WOULD NOT LIE TO BAR PRIVATE
RESPONDENTS’ ACTION; and

III

WHEN IT ERRED IN NOT DECLARING AS VALID THE TRANSFER OF THE SUBJECT PROPERTY
FROM THE ORIGINAL REGISTERED OWNERS TO RAFAELA DONATO;

The pertinent background facts as found by the trial court and
adopted by the respondent Court of Appeals in its now assailed decision are the
following:

The property subject of the controversy is a parcel of land
situated in Echague, Isabela,
identified as Lot 6-B of the Subdivision Plan (LRC) Psd-68395, being a portion
of Lot 6 containing an area of 11,095 square meters, more or less.

Lot 6 has an area of 12,799 square meters,
more or less.  It was acquired in 1924 by
the spouses Juan Gaffud and Rafaela Donato.  Juan Gaffud died in 1936. 
On January 11, 1938, Lot 6 was originally registered in the Registration
Book of the Office of the Register of Deeds of Isabela,
under Original Certificate of Title No. 4340 pursuant to Decree No. 650247
issued under L.R.C. Cadastral Record No. 1063 in the names of Rafaela Donato, Raymundo Gaffud and Cicero Gaffud (Raymundo and Cicero are the sons of the spouses) as
co-owners thereof in fee simple subject to such of the incumbrances
mentioned in Section 39 of said act and to Section 4, Rule 74, Rules of
Court.  The said lot was sold to Rafaela Donato through a Deed of Transfer which cancelled O.C.T.
No. 4340 and in lieu thereof T.C.T. No. T-30407 was issued in the name of
Rafaela Donato.

On February 25, 1967, Rafaela Donato
sold a portion of said Lot 6, consisting of 1,704 sq. m., more or less in favor
of Fortunato Pascua.  The aforesaid sale caused the subdivision of
the said Lot 6 into Lot 6-A
containing an area of 1,704 sq. m., more or less, and Lot
6-B containing an area of 11,095 sq.m., more or less, under Subdivision Plan (LRC) Psd – 68395.

Upon registration of said sale in favor of Fortunato Pascua, Transfer
Certificate of Title No. T-­30407 was cancelled, and in lieu thereof,
Transfer Certificate of Title No. T-32683 was issued in the name of Rafaela Donato on March 2, 1967 covering the land designated as Lot
6-B of the subdivision Plan (LRC) Psd-68395, being a portion of Lot 6 of the Echague Cadastre, LRC Cad. Rec. No. 1063, containing an
area of 11,095 sq.m., more or less, which is the subject
land.  (RTC
Decision dated November 15, 1988, p. 310 Record).

On June 10, 1970 Rafaela Donato sold to
petitioner Felicisima Pino
said Lot 6-B in consideration of P10,000.00 as evidenced by the Deed of
Absolute Sale she executed in favor of petitioner Felicisima
Pino which was notarized by her lawyer, Atty. Concepcion Tagudin (Exh. 1).

Rafaela Donato undertook to register
the Deed of Absolute Sale with the Register of Deeds of Isabela
and on July 13, 1970 the
sale was inscribed therein under Entry No. 9286 and Transfer Certificate of
Title No. T-­49380 was issued in the name of Felicisima
Pino.

On September 30, 1980,
Cicero Gaffud died survived by his wife Demetria Gaffud and sons Romualdo Gaffud and Adolfo Gaffud who are the private respondents herein.

On March 9, 1982,
private respondents filed a complaint for nullity of sale and reconveyance against petitioner – Felicisima
Pino. 
Incidentally, the sale of the other portion (Lot
A) of the same lot to Fortunato Pascua
is not assailed by private respondents.

During the pendency of the case before
the trial court, Rafaela Donato (who was not a party
to the case) died on November 26,
1982.

On November 15, 1988,
the trial court rendered its decision (the dispositive
portion of which was earlier quoted in this decision) which was affirmed on
appeal by the Court of Appeals, in its now assailed decision, the pertinent
portion of which reads:

“The defense of an innocent purchaser for value would be of no help
to appellant in the absence of the
document on extra-judicial partition indicating that the conjugal
property has been adjudicated to Rafaela Donato Vda. de Gaffud
and which would be the source of her authority in transferring the subject
property to defendant.  The sensible
thing to do by any prudent person is to examine not only the certificate of
title of said property but also all the factual circumstances necessary for him to determine if there are any flaw in
vendor’s capacity to transfer the land.

“Nor would prescription of action lie.  An ordinary action for reconveyance
based on fraud prescribes in four (4) years (Lanera
v. Lopos, 106 Phil. 70).  Appellant was a party to the alleged
fraudulent transfer of the subject property, consequently, appellees
have four (4) years to file an action to annul the deed of sale from the
discovery of the fraudulent act.  In the case at bar, appellees learned
about the fraud on July 6, 1981 when they received a letter from the appellant
(Exhibit D).  The
filing, therefore, of the complaint on March 9, 1982 (p. 1. Rec.) was within the prescriptive
period.” (pp. 62-63, Rollo)

In elevating the judgment of the respondent Court of Appeals to
Us for review petitioner prays that the appealed decision be reversed and
another one entered declaring as valid (1) the sale of the subject property
executed on June 10, 1970 in favor of petitioner Felicisima
Pino by Rafaela Donato Vda. de Gaffud
and (2) the Transfer Certificate of Title No. T-49380 issued in the name of petitioner by the Register of Deeds of
Isabela on July 13, 1970 upon the grounds –

“(a)  that private respondents has (sic) no cause of
action against petitioner because she is an innocent purchaser for value of the
subject property;

“(b)  that the action of
private respondents was already barred by prescription when it was filed; and

“(c)  that the transfer of
the subject property from the original registered owners to Rafaela Donato was valid.” (pp. 61-62, Rollo)

The rule applicable to this controversy is well?settled.  Where the certificate of title is in the name
of the vendor when the land is sold, the vendee for value has the right to rely
on what appears on the certificate of title. 
In the absence of anything to excite
or arouse suspicion, said vendee is under no obligation to look beyond
the certificate and investigate the title of the vendor appearing on the face
of said certificate.  The rationale for
the rule is stated thus:

“The main purpose of the Torrens System is to avoid possible
conflicts of title to real estate and to facilitate transactions relative
thereto by giving the public the right to rely upon the face of a Torrens
Certificate of Title and to dispense with the need of inquiring further, except
when the party concerned had actual knowledge of facts and circumstances that
should impel a reasonably cautious man to make such further inquiry.  (Pascua v. Capuyoc, 77 SCRA 78) Thus, where innocent third persons
relying on the correctness of the certificate thus issued, acquire rights over
the property, the court cannot disregard such rights.” (Director of Land v. Abache, et al., 73 Phil. 606)

In the case at bar, the evidence on record discloses that when
petitioner purchased the subject property on June 10, 1970, the title thereto
(TCT No. T-32683) was in the name of her vendor Rafaela Donato alone. 
The said TCT No. T-32683 was shown to petitioner which shows on its face
the following:

“is registered in accordance with the
provisions of the Land Registration Act in the name of –

“RAFAELA DONATO, Filipino, of legal age, widow and with residence
and postal address at Centro, Echague, Isabela, Philippines as owner thereof in fee simple,
subject to such of the encumbrances mentioned in Section 39 of said Act as may
be subsisting, and to Section 4, Rule 74, of the Rules of Court.” (Exh. A, p. 169, Record)

The lien imposed by Section 4, Rule 74, Rules
of Court appears as cancelled on April 8, 1969 under the following entry:

Date of Instrument –
March 11, 1969

Date of Inscription –
April 2, 1969

Time: 12:30 p.m.

(Sgd.) ANASTACIO J. PASCUA
ANASTACIO J. PASCUA

Deputy Register of Deeds V”

(Underscoring supplied) (p. 15, Rollo)

Petitioner was advised by her lawyers that she could proceed to buy
the property because the same was registered in the name of the vendor.  Thus, on pp. 13 & 14 of the Transcript of
Stenographic Notes of the hearing of December 12, 1986, petitioner testified as
follows:

Atty. Mallabo:

Q.   Before
you bought this property madam witness, were you shown a copy of the title of
Rafaela Donato vda. de Gaffud on the property?

A.    Yes,
sir, she showed me the title.  And I saw
that the title was in her name.

Q.   When
the offer was made to you and the title was shown to you, do you remember if
you have done anything?

A.    Yes,
sir, before I bought the property, I showed the documents she bought to me to
our lawyer, Custodio Villalva
and Concepcion Tagudin.

Q.   Why did you show them the title Madam witness?

A.    To
be sure that the title does not have any encumbrance and because I do not know
anything about legal matters.

Q.   What
did they advise you?

A.    Yes,
Okey, I can proceed in buying the property, the title
was registered in her name, it was her personal property. 
(pp. 15-16, Rollo)

In the case of Maguiling v. Umadhay, (33 SCRA 99, 103) this Court held:

“However, while the Umadhay spouses
cannot rely on the title, the same not being in the name of their grantor,
respondent Crisanta S. Gumban
stands on a different footing altogether. 
At the time she purchased the land the title thereto was already in the
name of her vendors (T.C.T. 15522).  She
had the right to rely on what appeared on the face of said title.  There is nothing in the record to indicate
that she knew of any unregistered claims to or equities in the land pertaining
to other persons, such as that of herein petitioner, or of any other
circumstances which should put her on guard and cause her to inquire behind the
certificate.  According to the Court of
Appeals she took all the necessary precautions to ascertain the true ownership
of the property, having engaged the services of a lawyer for the specific
purpose and, it was only after said counsel had assured her that everything was
in order did she make the final arrangements to purchase the property.  The appellate court’s conclusion that
respondent Crisanta S. Gumban
was a purchaser in good faith and for value is correct, and the title she has
thereof acquired is good and indefeasible.”

Petitioner paid the sum of P10,000.00 in
consideration of the sale which is fair and reasonable considering that in 1967
Fortunato Pascua paid the
sum of P390.00 for the portion of the land consisting of 1,704 square
meters.  (Exhs.
1 and 5)

The court a quo, however, ruled and this was sustained
by respondent Court of Appeals that petitioner was not an innocent purchaser.

“The defense of an innocent purchaser for value could be of no help
to appellant in the absence of the document on extra-judicial partition
indicating that the conjugal property has been adjudicated to Rafaela Donato Vda. de
Gaffud and which would be the source of her authority
in transferring the subject property to defendant.  The sensible thing to do by any prudent
person is to examine not only the certificate of title of said property but
also all the factual circumstances necessary for him to determine if there are
any flaws in vendor’s capacity to transfer the land.” (p. 10, Rollo)

We do not find any evidence in the record that would sustain such
a finding.  The extra-judicial partition
adverted to in said ruling was executed by the heirs of Juan Gaffud prior to, and as the basis for, the issuance of the
Original Certificate of Title No. 4340 in the names of the heirs of Juan Gaffud, as testified to by witness Demetria
Gaffud in this wise:

Q.   Were
you able to read the title that was kept by your brother in law?

A.    Yes,
sir.

Q.   Who
was the registered owner?

A.    Rafaela Donato, Raymundo Gaffud and Cicero Gaffud, co-owner.

Q.   In
other words, the title you read appears that the owners were Raymundo, Cicero and Rafaela?

A.    Yes,
sir.

Q.   Do
you know what a title is?

A.    Yes,
it is thick.

Q.   You
said that the property was bought by Juan Gaffud and
Rafaela Gaffud, how come that there is no name Juan Gaffud in the title?

A.    Because
he was already dead when I got married.

Q.   Do
you have a knowledge how the title come to have the name of Raymundo,
Rafaela and Cicero?

A.    Yes,
sir.  (p. 66, Rollo)

The extra-judicial settlement, upon which was based the lien
imposed by Section 4, Rule 74, Rules of Court, was executed after the
death of Juan Gaffud in 1936 but before
the issuance of the original title on January 11, 1938 so that the title would be issued in the
names of the heirs of Juan Gaffud, namely:  Rafaela Donato, Raymundo Gaffud and Cicero Gaffud.

This conclusion is supported (a) by the fact that the subject
property was registered only on January 11, 1938, which is around
two (2) years after the death
of Juan Gaffud in 1936,
and therefore the title could not have been issued in the name of Juan Gaffud; (b) by the fact that the lien imposed by Section 4,
Rule 74, Rules of Court was inscribed on the face of the title itself
and was not entered on the Memorandum of Encumbrances as were done with the
mortgages and their releases which were inscribed under their Entry Numbers on
the page for Memorandum of Encumbrances and (c) by the fact that the Original
Certificate of Title was issued in the names of the heirs of Juan Gaffud.

The extra-judicial settlement, therefore, has no bearing on whether
or not there was fraud in the transfer of the subject property to Rafaela Donato.

On the other hand, it was a Deed of Transfer which transferred the subject property from the
original owners to Rafaela Donato as stated in
Exhibit 3 which is the petition to cancel the conditions imposed by Section 4,
Rule 74, Rules of Court, to wit:

“That since the time of the execution of the Deed of Transfer from the
original owners to herein petitioner
in 1967, and also
since the time of the registration of the said transfer at
Register of Deeds of Isabela – last March 2,
1967.  — more
than two (2) years have already elapsed;

“That from the time of the Deed of Transfer
and within the period of two years thereafter, NO CLAIM WHATSOEVER has been
filed against the herein petitioner with respect to the property thus sold
to her.” (p. 67, Rollo)

Even granting that the extrajudicial settlement was the document
which transferred the subject property from the original owners to Rafaela Donato the non-production thereof (private respondents should have presented
it, not petitioner) does not prove that there was fraud committed
in its execution and neither does it prove that petitioner was a party
thereto.  There was no allegation, and
much less any evidence, that the transfer of the subject property from the
original owners to Rafaela Donato was fraudulent.

What private respondents allege as fraudulent was the
extrajudicial settlement of the estate of Juan Gaffud.  But it has been shown that this settlement
was not the basis of the transfer of the subject property to Rafaela Donato, petitioner’s vendor.

That petitioner is an innocent purchaser for value is within the
scope of established jurisprudence.

“The decision of the lower court would set at naught the settled
doctrine that the holder of a certificate of title who acquired the property
covered by the title in good faith and for value can rest assured that his
title is perfect and incontrovertible.” (Benin v. Tuason,
57 SCRA 531, 581)

x x x x x

“Guided by previous decisions of this Court, good faith consists in
the possessor’s belief that the person from whom he received the thing was the
owner of the same and could convey his title (Ariola
v. Gomez dela Serna, 14 Phil. 627).  Good faith, while it is always presumed in
the absence of proof to the contrary, requires a well-founded belief that the
person from whom title was received by himself the owner of the land, with the
right to convey it (Santiago v. Cruz, 19 Phil. 148).  There is good faith where there is an honest
intention to abstain from taking any unconscientious
advantage from another (Fule v. Legare, 7 SCRA 351).  Otherwise stated, good faith is the opposite
of fraud and it refers to the state of mind which is manifested by the acts of the individual concerned.  In the case at bar, private respondents
(petitioner in this case), in good faith relied on the certificate of title in
the name of Fe S. Duran (Rafaela Donato in this case)
and x x x ‘even on the
supposition that the sale was void, the general rules that the direct result of
a previous illegal contract cannot be valid (on the theory that the spring
cannot rise higher than its source) cannot apply here for We are confronted
with the functionings of the Torrens System of
Registration.  The doctrine to follow is
simple enough:  a fraudulent or forged
document of sale may become the ROOT
of a valid title if the certificate of title has already been transferred from
the name of the true owner to the name of the forger or the name indicated by
the forger.’” (Duran v. Intermediate Appellate Court, 138 SCRA 489, 494).

x x x x x

“Thus, where innocent third persons relying on the correctness of
the certificate of title issued, acquire rights over the property, the court
cannot disregard such rights and order the total cancellation of the
certificate for that would impair public confidence in the certificate of title; otherwise everyone
dealing with property registered under the torrens
system would have to inquire in every instance as to whether the title had been
regularly or irregularly issued by the court. 
Indeed, this is contrary to the evident purpose of the law.  Every person dealing with registered land may
safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind
the certificate to determine the condition of the property.  Stated differently, an innocent purchaser for
value relying on a torrens title issued is
protected.  x x
x” (Duran
v. Intermediate Appellate Court, 138 SCRA 489, 494-495).  (pp. 68-70, Rollo)

In the case of Centeno v. Court of Appeals (139 SCRA 545, 555) the same
rule was observed by this Court when it ruled –

“x x x Well
settled is the rule that all persons dealing with property covered by torrens certificate of title are not required to go beyond
what appears on the face of the title. 
When there is nothing on the certificate of title to indicate any cloud
or vice in the ownership of the property, or any encumbrance 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.  (William Anderson v.
Garcia, 64 Phil., 506; Fule v. Legare,
7 SCRA 351).” (p. 71, Rollo)

Petitioner being an innocent
purchaser for value, private respondents will have no cause of action against
her.  “The issue alone that petitioner is
a purchaser in good faith and for value sufficiently constitutes a bar to the
complaint of private respondents x x x.” (Medina v. Chanco,
117 SCRA 201, 205).

If an action for reconveyance based on
constructive trust cannot reach an innocent purchaser for value, the remedy of
the defrauded party is to bring an action for damages against those who caused
the fraud or were instrumental in depriving him of the property.  And it is now well-settled that such action
prescribes in ten years from the issuance of the Torrens Title over the
property.  (Armerol
v. Bagumbaran, 154 SCRA 396, 407; Caro
v. Court of Appeals, 180 SCRA 401, 407; Walstron v. Mapa, Jr., 181
SCRA 431, 442).

Transfer Certificate of Title No.
T-32683 was issued in the name of Rafaela Donato on
March 2, 1967.  The present action for reconveyance was filed only on March 9, 1982.  Clearly then, the action has already
prescribed because it was filed fifteen (15) years after the issuance of TCT
No. T-32683. 
Even if the period were to be reckoned from the registration of the deed
of absolute sale in favor of petitioner on July 13, 1970, which is also the
date of the issuance of Transfer Certificate of Title No. T-49380 in the name
of petitioner, the action of private respondents had already prescribed because
a period of eleven (11) years, seven (7) months and twenty-six (26) days has
elapsed from July 13, 1970 to March 9, 1982.

WHEREFORE, the petition is GRANTED; the assailed decision
of the Court of Appeals is REVERSED and SET ASIDE and another one rendered
dismissing Civil Case No. Br. V-756, of the Regional Trial
Court, Branch 24, Echague, Isabela.

SO ORDERED.

Melencio-Herrera, (Chairman),
Padilla, and Regalado,
JJ., concur.

Sarmiento, J., on leave.