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[ GR No. 25694, Dec 31, 1926 ]



49 Phil. 838

[ G. R. No. 25694, December 31, 1926 ]




This  is  an appeal from an order of the Court of First Instance of Tarlac setting aside a  decree of  registration entered in a land registration case.

It apears from the  record  that one Leocadia Angelo on July 2, 1920, made application for the registration of 659 hectares of land alleged to be situated in the barrios  of Barang  and  Mabilang,  municipality  of Paniqui,  Tarlac.

The case did not come up for final hearing until the 20th of September, 1923, when a decision was rendered ordering the registration of the land in favor of the applicant.  Final decree was entered on July 16, 1924, and a certificate of title was issued in favor of Leocadia Angelo two days later.  In the meantime Leocadia had executed  a deed for the sale of the land  to Cipriano  Pacheco, to  whom transfer certificate of  title  No. 786  of the  registry of deeds of Tarlac was issued by virtue  of the  deed  immediately upon  the completion of the registration in favor of the vendor.   Five days later, on July  23, 1924, Cipriano Pacheco executed a deed ostensibly evidencing a sale of the land to Lucia F. de Valle Cruz  for P15,000 with pacto de retro for the term of five years, the transaction being noted by memorandum upon transfer certificate of title No. 786.  The deed provided that  Pacheco  was to remain in possession of the land as a tenant paying the sum of P150 per month as rent.

On October 6, 1924, the Director of Lands filed a petition in the aforesaid land registration case for a review of the decree under section  38 of the  Land Registration Act, it being alleged that the decree was obtained by fraud  and that the land was occupied by several hundred adverse claimants, who through the fraud of Leocadia Angelo, did not receive any notification neither of the survey  of the land nor of the registration proceedings, and that Leocadia never had possession of the land and  had no title thereto prior to the registration.   On the same date a large number of adverse claimants and occupants of the land also filed petitions for review similar to that  of the  Director of Lands, alleging  substantially the same  facts.   Upon hearing, the Court of First Instance of Tarlac  held that Leocadia Angelo had obtained the decree in question by  fraud; that the sale made to Cipriano Pacheco was  not made in good faith, and that  the  good  faith of Lucia  F. de Valle Cruz was doubtful.  The court therefore declared the decree issued in favor  of Leocadia Angelo  null  and void  and ordered the cancellation of the transfer certificate of title issued in favor of Cipriano Pacheco.  From this judgment, both Cipriano Pacheco and Lucia F. de Valle Cruz appealed.

Upon the record before us, there can be no doubt whatever  that the registration of the land  in question was obtained by fraud.   It is true that there is no testimony showing that the land was occupied by persons other than the applicant  at the time the application for  registration was filed, but it is  alleged  in the duly verified amended petition for review presented by the Director of Lands that there were 350 persons occupying different portions of the land and that this fact was  known to the applicant,  but that she nevertheless  stated  in said application that  she was in the actual, real and peaceful possession  and occupation of the land and  that there were no other claimants thereto.  If that allegation is true, and we must so assume in the absence of a denial, the applicant was guilty of a deliberate misrepresentation which  tended to  prevent the adverse claimants or occupants  from receiving formal notice of the registration proceedings and from  asserting their rights.  That was unquestionably fraud within  the meaning of section 38 of the Land Registration  Act.  It also appears very clearly that Pacheco had full knowledge of the situation before he received his transfer certificate of title and he can therefore not be regarded as a bona  fide holder of the certificate.

But we are unable to find any evidence of bad  faith on the part of the  appellant Lucia F. de Valle Cruz and  she must therefore  be regarded  as  an innocent purchaser for value, a fact  which creates  a peculiar situation.   Section 38 of the Land Registration Act reads as follows:
"If the court  after hearing finds that the applicant  has title as stated in his application, and proper for registration, a decree of confirmation and registration shall be entered. Every decree  of registration shall bind the land, and quiet title thereto,  subject only to the  exceptions stated in the following section. It  shall be conclusive upon  and against all persons, including the Insular Government and all the branches thereof, whether mentioned by name in the application,  notice,  or  citation, or included in the general description 'To all whom it may concern.'   Such decree  shall not be opened  by  reason of the absence, infancy, or other disability of any person affected thereby,  nor by any proceeding  in any court for reversing judgments or decrees; subject,  however,  to the right of any person  deprived of land or of any  estate or interest therein by decree of registration  obtained by fraud to file in the Court of Land Registration a petition  for review within one year after entry of the decree, provided no innocent  purchaser for value has acquired an interest.   If there is  any such purchaser, the  decree of registration shall not be opened, but shall  remain in full force and effect forever, subject only to  the  right of  appeal hereinbefore provided.   But any person aggrieved by such decree in  any case may pursue his remedy  by  action for damages against the applicant or any other person for fraud in procuring the decree.  Whenever the phrase 'innocent purchaser for value' or an equivalent phrase  occurs in this Act, it shall  be deemed to include  an "innocent lessee,  mortgagee, or  other encumbrancer  for value."
It is apparent from the document itself that the transaction evidenced by the so-called deed of sale with pacto de retro executed by Pacheco in favor of Lucia F. de Valle Cruz was in reality  not a sale, but only a  loan of P15,000,  with interest at the rate of 12 per cent per annum and secured by an equitable mortgage upon the land.  Under the last sentence of the section quoted, the mortgagee must nevertheless be regarded as an innocent purchaser for value and, at first blush, it may therefore seem that the remedy provided for in said section for the review of the decree of registration is barred.  But looking to the spirit of the law rather than to the letter, we do not think the law should be so interpreted. The Land Registration Act  was  never  designed to serve as a shield for fraud, and we do not think that the Legislature intended that a person obtaining a certificate of title by fraud should be allowed to escape the consequences of his own fraud  by mortgaging  the land to an innocent third party for a fraction of its value.  The intent of the Torrens System of registration is to protect the innocent party and not the guilty one.   Applying this principle, and bearing in mind that a mortgagee of  registered land, for value and in good faith, cannot be deprived  of  his rights by  the reopening of  the decree of registration, we  find no difficulty in arriving at an equitable solution of the problem before us and in doing justice to all parties.

The record shows that the  occupants of the land, now petitioners for review, were negligent in failing to assert their rights in the  proceedings for the  registration of the land in question.   It is true that they  were  not formally notified of the proceedings and of the hearings thereon, but the land  was duly surveyed in February, 1918, and concrete monuments placed on most of the  corners;  the application for the  registration of the land  was  filed on July 2,  1920,  and the case was not heard until September 20, 1923.  In these circumstances, we  cannot believe that the petitioners for  review  were,  during all those years, ignorant of  the fact that registration Had been applied for, and the boundary lines being indicated by monuments, they must also have had fairly clear idea of the extent and location of the  land which the applicant sought to register. As a matter of fact, a considerable number of the herein petitioners for review did  appear at  the hearing of  the land  registration  case  and presented  their  oppositions, which they afterwards withdrew on  the ground that they had arrived at a satisfactory agreement with the applicant. It is therefore evident that they were partly  to blame for the success  of the  applicant's fraudulent designs, which eventually resulted  in the deceit practiced upon the mortgagee Lucia F. de Valle Cruz.   Her lien upon the land must be respected and, in view of the facts stated, the  adverse occupants are not  in  position  to  complain if we  declare, as we do, that the lien will subsist until the debt secured by it is paid.

For the reasons stated, the order appealed from is modified by declaring that the appellant Lucia F. de Valle Cruz, or her successors in interest, shall have a lien upon  the land described in transfer certificate No. 786 of the registry of deeds of the Province of Tarlac for the sum of P15,000, with  interest  at  the rate of 12 per cent per annum  from July  23, 1924, until paid; that if said sum with interest should not be paid within six months from the date of the notification of this decision, the lien may be foreclosed in the manner provided for in sections  254-259 of the  Code of Civil Procedure, except  that in  the sale under  such foreclosure, the  portions of the land which are  occupied by the herein petitioners, for review shall not be sold until the portions not so occupied have been sold and the proceeds of the  sale found insufficient for the  satisfaction of  the lien.   In all other respects, the appealed order is affirmed without costs in this  instance.  So ordered.

Johnson,  Street,  Malcolm,  Villamor, and Johns,  JJ., concur.

ROMUALDEZ, J.,  with whom concurs  Villa-Real, J.,  dissenting :

In view of the fact that Valle Cruz is a mortgage creditor' in good faith, I believe  neither  the trial court  nor  this court has jurisdiction under section 38 of Act No. 496 to review the decree.  For this reason I dissent.