DELA CRUZ VS CA AND PASTOR

ROMERO, J.:
This is a petition for review on certiorari seeking the reversal of the Decision 1 rendered by respondent Court of Appeals in CA-G.R.

No. 56788-B, dated March 7, 1977, affirming the Decision 2 of the then Court of First Instance of Bataan, dated April 6, 1974,
in Land Registration Case No. N-235, adjudicating in favor of herein private respondents the subject two (2) parcels of land.
The undisputed facts of the case are as follows:
On January 29, 1973, spouses Silvestre Manlapaz and Natividad Pizarro (herein private respondents) filed an application before the Court
of First Instance of Bataan, seeking the registration and confirmation of titles to two (2) parcels of land, under Act 496 in relation to Sec. 48
(B) of C.A. No. 141, designated as Lot No. 2855 and Lot No. 2856. The parcels of land applied for are portions of Lot 2749 of Orion
Cadastre covered by plans Sgs-4600-D and Sgs-4601-D, situated at Barrio Damulog, Municipality of Orion, Province of Bataan, containing
an area of 49,954 sq. meters and 54,052 sq. meters, respectively. 3
Prior to the initial hearing of the case, the trial court in its Order dated April 5, 1973, directed the Land Registration Commissioner to submit
his report on whether or not the parcels of land in question had been issued patents or whether the same are subject of pending
decrees. 4 In compliance with this directive, Acting Geodetic Engineer (Chief Surveyor) Amado Masicampo, on behalf of the

Commissioner of Land Registration, filed a manifestation dated April 26, 1973 stating that the subject parcels of land
described on Plans Sgs-4600-D and Sgs-4601-D are portions of Lot 2749, Cad. 241, Orion Cadastre and that the same have
been the subject of registration proceedings in Court Cadastral Case No. 15, LRC (GLRO) Cadastral Record No. 1021
wherein a decision has been rendered although there is no existing record of the same on file because it was among those
records lost or destroyed due to the ravages of the last global war. The record also disclosed that Plans Sgs-4600-D and
Sgs-4601-D, when plotted in the Municipal Index Map through their respective lines conflict with Lot 1, Sgs-2806 which has
been issued Sales Patent No. 5819. 5
The Director of Lands seasonably filed an opposition on the ground that neither the applicants nor their predecessor-in-interest possess
sufficient title to acquire ownership in fee simple of the parcels of land applied for; that they have not been in open, continuous, exclusive
and notorious possession and occupation of the land in question for at least thirthy (30) years immediately preceding the filing of the
present application; and that these parcels of land are portions of the public domain belonging to the Republic of the Philippines, and
therefore, not subject to appropriation. 6
At the hearing on August 21, 1973, the Court issued an order of special default with the exception of the Director of Lands. 7 As prayed

for by private respondents' counsel, the parties were allowed to present evidence before the Clerk of Court who was
commissioned to receive the same and to submit his findings after the termination of the reception of evidence. 8
In order to establish thirty (30) years of open and continuous possession over the subject property, private respondents presented Crisanto
Angeles and Monico Balila, Crisanto Angeles claimed that he first took possession of these two (2) parcels of land in the year 1931 while
he was still twenty (20) years old. He cleared the land and planted different kinds of fruit-bearing trees such as mango, star apple and
bananas, as well as seasonal crops thereon. He likewise converted 5,000 sq. meters thereof into a ricefield which was enlarged to one
hectare. 9 These parcels of land were declared for taxation purposes only in 1966. 10 Meanwhile, in the year 1938, he sold the

parcel containing an area of about five (5) hectares to Pablito Punay, who immediately took possession of the same,
cultivated it and introduced several improvements thereon. 11 In September 1972, after he had already cleared the whole
tract of the second parcel of land, he sold the same to private respondents. 12 Pablito Punay also sold the first parcel of land
he acquired from Crisanto to them. 13 Angeles further stated that he knew all the owners of the adjoining parcels of land but,
on cross-examination, was unable to remember their names. 14 Witness Monico Balila testified that he is the owner of the
parcel of land adjoining private respondent's property. He had seen Angeles clear the same and plant different fruit trees. On
cross-examination, he said that he was twelve (12) years old when he first lived at Bilolo, Orion, Bataan in 1938. His land
holding was five kilometers away from private respondents' land and it was his uncle who was then in possession of the land
he presently owns. 15
Private respondent Silvestre Manlapaz also testified that upon their acquisition of the two (2) parcels of land designated as Lots 2855 and
2856, they immediately took possession of the same, planted coconuts, camotes and other vegetables and expanded the portion planted
to palay. Some portions were converted into two (2) residential lots, one with an area of 276 sq. meters and the other, 105 sq. meters.
They then declared those properties in their names and paid the corresponding land taxes. 16
The Director of Lands, on the other hand, did not present any evidence to support his opposition.
On April 6, 1974, the lower court rendered its decision, the dispositive part of which reads as follows:
WHEREFORE, the title to two parcels of land Identified and shown in plans Sgs-4600-D and 4601-D, situated at Barrio
Damulog, Municipality of Orion, Province of Bataan, containing an area of 49,954 square meters and 54,052 square

meters, respectively, is ordered confirmed in the name of the spouses Silvestre Manlapaz and Natividad Pizarro, both of
legal age, Filipino citizens and residents of Pilar, Bataan.
After this decision shall have become final, let an order issue for a decree of registration in favor of the applicants.
SO ORDERED. 17
18

on May 7,
1977, affirming the decision of the lower court. It found that the defense of res judicata was belatedly raised on appeal. The
omission to include the same in the answer as one of the affirmative defenses constitutes a waiver of said defense. The
manifestation of Mr. Masicampo stating that the two (2) parcels of land have been the subject of registration proceedings was
not enough to support res judicata. It concluded that the 30-year period of continuous possession of private respondents'
predecessors-in-interest has been satisfactorily proved, the Director of Lands not having presented any evidence to
contradict, impugn or impeach the facts established by private respondents.
From said judgment, the Director of Lands interposed an appeal to the Court of Appeals which promulgated its decision

Hence, this petition which assigns the following errors:

I
Respondent Court erred in ruling that petitioner failed to raise the defense of res judicata in the trial court and, hence,
waived the same.
II
Respondent Court erred in ruling that petitioner failed to prove res judicata by competent evidence.
III
Respondent Court erred in ruling that after the cadastral proceedings and the declaration of the subject parcels of land
as public land therein, the same may be the subject of judicial confirmation of imperfect title or claim based on adverse
and continuous possession of at least thirty (30) years, citing the case of Mindanao v. Director of Lands, et al., G.R. No.
L-19535, July 10, 1967. 19
The Court of Appeals committed no error in disregarding res judicata. In the case of Director of Lands v. Court of Appeals,

20

this Court

had addressed a similar contention in this manner:

WE find no legal basis to uphold the foregoing contentions of Petitioner. It is clear from the evidence on record that in the
proceedings had before the Court of First Instance of Batangas, acting as a land registration court, the oppositor Director
of Lands. petitioner herein, did not interpose any objection nor set up the defense of res judicata with respect to the lots
in question. Such failure on the part of oppositor Director of Lands. to OUR mind, is a procedural infirmity which cannot
be cured on appeal. Section 2, Rule 9, Revised Rules of Court of 1964, in no uncertain language, provides that:
SEC. 2. Defenses and obligations not pleaded deemed waived. Defenses and objections not
pleaded either in a motion to dismiss or in the answer are deemed waived; . . .
All defenses therefore not interposed in a motion to dismiss or in an answer are deemed waived. (Santiago, et al. v.
Ramirez, et al.; L-15237, May 31, 1963, 8 SCRA 157, 162; Torrada v. Bonearos, L-39832, January 30, 1976, 69 SCRA
247, 253).
Thus, the defense of res adjudicata when not set up either in a motion to dismiss or in answer, is deemed waived. It
cannot be pleaded for the first time at the trial or on appeal. (Phil. Coal Miners' Union v. CEPOC, et al., L-19007, April 30,
1964, 10 SCRA 784, 789). (Emphasis supplied)
Furthermore, petitioner advanced the view that it is the intendment of the law that a person who fails to prove his title to a parcel of land
which is the object of cadastral proceedings or one who does not file his claim therein is forever barred from doing so in a subsequent
proceeding. Judgment in a cadastral proceeding which is a proceeding in rem constitutes res judicata even against a person who did not
take part in the proceedings as claimant.
We disagree. The above-cited case likewise settled this contention. It said:
But granting for a moment, that the defenses of res adjudicata was properly raised by petitioner herein, WE still hold that,
factually, there is no prior final judgment all to speak of. The decision in Cadastral Case No. 41 does not constitute a bar
to the application of respondent Manuela Pastor; because a decision in a cadastral proceeding declaring a lot public land
is not the final decree contemplated in Section 38 and 40 of the Land Registration Act.

A Judicial declaration that a parcel of land is public, does not preclude even the same applicant from subsequently
seeking a judicial confirmation of his title to the same land, provided he thereafter complies with the provisions. of
Section 48 of Commonwealth Act No. 141, as amended, and as long as said public land remains alienable and
disposable (now section 3 and 4, PD No. 1073,) 21 (Emphasis supplied)
As a rule, the Court respects the factual findings of the Court of Appeals, imparting to them a certain measure of finality. However, the rule
is not without clearly defined exceptions, among which are: ". . . (2) the inference made is manifestly mistaken; . . . (4) the judgment is
based on misapprehension of facts; . . . and (9) when the finding of fact of the Court of Appeals is premised on the absence of evidence
and is contradicted by evidence on record." 22
It must be emphasized that the burden is on applicant to prove his positive averments and not for the government or the private oppositors
to establish a negative proposition insofar as the applicants' specific lots are concerned. 23 Applying this rule to the instant case, the

conclusions reached by the court a quo and respondent Court of Appeals that the private respondents through their
predecessors-in-interest have been in open, continuous, exclusive and notorious possession of the subject land under
a bonafide claim of ownership are not persuasive for the following reasons.
First, the testimony of Crisanto Angeles as to his possession and ownership of the two (2) parcels of land fails to inspire belief. He claimed
that he was in possession of the land way back in 1930. Yet he declared the same for taxation purposes only in 1966. Although tax
receipts are not incontrovertible evidence of ownership, they constitute at least proof that the holder had a claim of title over the
property. 24 He stated that he knew the owners of the adjoining properties, but during the cross-examination, he was unable to

give their names. Nor was he able to explain how he came into possession of the parcel of land and there is no showing of
any title, perfect or imperfect, granted by the state to him or his predecessors.
Second, the attempt of Monico Balila to corroborate Angeles' length of possession over the subject property is less than credible. Having
been an adjoining owner only in 1953 by his own admission, he could not have known how long Crisanto Angeles owned and possessed
the parcels of land.
Third, Pablito Punay, the second predecessor-in-interest of Lot No. 2855 of the private respondents was not made to testify. No reason
was disclosed for his failure to appear before the court.
Lastly, the documents introduced by the applicants merely evidenced the fact that the parcels of land applied for were alienable and
disposable lands of the public domain, 25 but no document has been presented that would clearly establish the length of time of

the possession of their predecessors-in-interest. That the private respondents have paid the corresponding taxes since
1972 26 when they possessed the same is of no moment because what is vital to consider is their predecessors-in-interest's
compliance with the 30-year period.
Undoubtedly, the private respondents have failed to submit convincing proof of their predecessors-in-interest's actual, peaceful and
adverse possession in the concept of owner of the lots in question during the period required, by law. This is of utmost significance in view
of the basic presumption that lands of whatever classification belong to the State and evidence of a land grant must be "well-nigh
incontrovertible." 27
WHEREFORE, premises considered, the May 7, 1977 decision of the Court of Appeals is hereby REVERSED and SET ASIDE, and
judgment is rendered DISMISSING the application for registration and confirmation of titles of Lots No. 2855 and 2656. No pronouncement
as to costs.
SO ORDERED.

REPULIC VS HEIRS OF ALEJAGA

PANGANIBAN, J.:
We reiterate the familiar doctrine that a free patent obtained through fraud or misrepresentation is void. Furthermore, the
one-year prescriptive period provided in the Public Land Act does not bar the State from asking for the reversion of
property acquired through such means.
Statement of the Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, assailing the November 15, 2000
Decision[1] of the Court of Appeals (CA) in CA-GR CV No. 44568. The decretal portion of the challenged Decision reads as
follows:
WHEREFORE, the appealed decision is hereby REVERSED, SET ASIDE and RECALLED.*2+
The Facts
The factual antecedents of the case are summarized by the CA thus:
On December 28, 1978, *Respondent+ Felipe Alejaga, Sr. x x x filed with the District Land Office, Roxas City, Free Patent
Application No. (VI-2) 8442 covering a parcel of land identified as Lot 1, Mli-06-000020-D, with an area of .3899 hectares,
more or less located at Dumolog, Roxas City (Exh. A; Exh 9). It appears that on December 27, 1978, when the
application was executed under oath, Efren L. Recio, Land Inspector, submitted a report of his investigation and verification
of the land to the District Land Office, Bureau of Lands, City of Roxas. On March 14, 1979, the District Land Officer of Roxas
City approved the application and the issuance of [a] Free Patent to the applicant. On March 16, 1979, the patent was also
ordered to be issued and the patent was forwarded to defendant Register of Deeds, City of Roxas, for registration and
issuance of the corresponding Certificate of Title. Thereafter, Original Certificate of Title No. P-15 Free Patent No. (VI-2)
3358 was issued to [respondent] by defendant Register of Deeds.
On April 4, 1979, the heirs of Ignacio Arrobang, through counsel in a letter-complaint requested the Director of Lands,
Manila, for an investigation of the District Land Officer, Roxas City, and the Regional Office, Region VI, Iloilo City, for
irregularities in the issuance of the title of a foreshore land in favor of [respondent]. Isagani Cartagena, Supervising Special
Investigator, Legal Division, Land Management Bureau (formerly Bureau of Lands) submitted his Report dated April 17,
1989. The Chief, Legal Division, Land Management Bureau, Manila, recommended to the Director of Lands appropriate civil
proceeding for the cancellation of Free Patent Title No. (VI-2) 3358 and the corresponding Original Certificate of Title No. P15 in the name of [respondent].
In the meantime, *respondent+ obtained a NACIDA loan under the Cottage Industry Guarantee and Loan Fund by the
defendant Philippine National Bank (hereinafter referred to as PNB) executed in Cebu City in the amount of P100,000.00 on
August 18, 1981. The loan was secured by a real estate mortgage in favor of defendant PNB. The promissory note of
appellant was annotated at the back of the title.
On April 18, 1990, the government through the Solicitor General instituted an action for Annulment/Cancellation of Patent
and Title and Reversion against [respondent], the PNB of Roxas City and defendant Register of Deeds of Roxas City covering
Free Patent Application (VI-2) 8442 of the parcel of land with an area of .3899 hectares more or less located at Dumolog,
Roxas City.

On November 17, 1990, while the case is pending hearing, *respondent+ died. He was substituted by his wife Roqueta
Alejaga and his children, namely: Everette Alejaga, Lynnette Alejaga, Felipe Alejaga, Jr., Maria Dulla Alejaga. Roqueta
Alejaga, Jennifer Alejaga and Felipe Alejaga III.
xxx

xxx

xxx

After hearing, the [trial] court in its dispositive portion decreed as follows:
WHEREFORE, judgment is rendered declaring that the approval of Free Patent Application No. 3358 and issuance of
Original Certificate of Title No. P-15 in the name of Felipe Alejaga is by means of fraud hence, null and void ab initio and the
court orders:
a) the cancellation of the approval of the application No. (VI-2) 8442 covering Lot No. 1, Mli-06-000020-D with an area
of .3899 hectares, more or less, located at Dumulog, Roxas City;
b)

the cancellation of Original Certificate of Title No. P-15, Free Patent No. (VI-2) 3358 in the name of Felipe Alejaga;

c)

the land covered thereby as above described is reverted to the mass of the public domain;

d) the defendants, Heirs of Felipe Alejaga Sr. or defendant, Philippine National Bank, Roxas City Branch, to surrender the
owners duplicate copy of above described Original Certificate of Title No. P-15 to the Register of Deeds (now Registries of
Land Titles and Deeds), Roxas City;
e) the defendant, Register of Deeds, Roxas City, to cancel Original Certificate of Title No. P-15 and the owners duplicate
copy of said title surrendered by above stated defendants;
f)

defendants, Philippine National Bank, cross-claim is dismissed.

Costs against the defendants Heirs of Felipe, Alejaga, Sr.*3+

Ruling of the Court of Appeals
In reversing the RTC, the CA ruled that petitioner failed to prove its allegation that respondents had obtained the free
patent and the Certificate of Title through fraud and misrepresentation.[4] The appellate court likewise held that, assuming
there was misrepresentation or fraud as claimed by petitioner, the action for reversion should have been brought within
one (1) year from the registration of the patent with the Registry of Deeds.[5]
Further, the CA brushed aside as hearsay Isagani Cartagenas testimony that Land Inspector Efren L. Recio had not
conducted an investigation on the free patent application of Felipe Alejaga Sr.[6] The CA added that petitioner had failed to
support its claim that the lot covered by respondents free patent and title was foreshore land.*7+
Hence, this Petition.[8]
Issues
Petitioner raises the following issues for this Courts consideration:
I
The Honorable Court of Appeals erred in not finding that the case is already final and executory as against respondent PNB.
II
The Court of Appeals erred in not considering that petitioner has proven the allegations to the Complaint.
III

The Honorable Court of Appeals erred in declaring that the action for reversion is unavailing.*9+
Simply stated, the issues can be summed up into two: (1) the efficacy of the grant of the free patent and (2) the
indefeasibility of the Certificate of Title issued in consequence thereof.
This Courts Ruling
The Petition is meritorious.
First Issue:
Efficacy of the Grant
Petitioner argues that it has proven fraud in the issuance of Respondent Alejagas free patent and Certificate of Title.*10+ It
also avers that Respondent PNB has failed to file a timely Notice of Appeal.
On the other hand, the Alejagas contend that they have acquired a vested right over the parcel of land covered by OCT No.
P-15 by virtue of their proven open, actual, exclusive and undisputed possession of the land for more than 30 years.[11]
At the outset, we must immediately clarify that the records show receipt by Respondent PNB of a copy of the Decision on
October 27, not on October 3, 1993 as alleged by petitioner.[12] Further, the bank filed its Notice of Appeal on November
9, 1993, within the 15-day reglementary period.
In addition, we must point out that the essential issue raised in this Petition -- the presence of fraud -- is factual. As a
general rule, this Court does not review factual matters.[13] However, the instant case falls under one of the exceptions,
because the findings of the CA conflict with those of the RTC and with the evidence on record.[14]
We begin our resolution of this issue with the well-settled rule that the party alleging fraud or mistake in a transaction
bears the burden of proof.[15] The circumstances evidencing fraud are as varied as the people who perpetrate it in each
case.[16] It may assume different shapes and forms; it may be committed in as many different ways.[17] Thus, the law
requires that it be established by clear and convincing evidence.[18]
In the case before us, we find that petitioner has adduced a preponderance of evidence before the trial court, showing
manifest fraud in procuring the patent.[19] This Court agrees with the RTC that in obtaining a free patent over the lot under
scrutiny, petitioner had resorted to misrepresentation or fraud, signs of which were[20] ignored by the Court of
Appeals.[21]
First, the issuance of the free patent was not made in accordance with the procedure laid down by Commonwealth Act No.
141, otherwise known as the Public Land Act.[22] Under Section 91 thereof, an investigation should be conducted for the
purpose of ascertaining whether the material facts set out in the application are true.[23]
Further, after the filing of the application, the law requires sufficient notice to the municipality and the barrio where the
land is located, in order to give adverse claimants the opportunity to present their claims.[24] Note that this notice and the
verification and investigation of the parcel of land are to be conducted after an application for free patent has been filed
with the Bureau of Lands.
In this case, however, Felipe Alejaga Sr.s Application for Free Patent*25+ was dated and filed on December 28, 1978. On the
other hand, the Investigation & Verification Report[26] prepared by Land Inspector Elfren L. Recio of the District Land Office
of the Bureau of Lands of Roxas City was dated December 27, 1978. In that Report, he stated that he had conducted the
necessary investigation and verification in the presence of the applicant. Even if we accept this statement as gospel
truth, the violation of the rule cannot be condoned because, obviously, the required notice to adverse claimants was not
served.

Evidently, the filing of the application and the verification and investigation allegedly conducted by Recio were precipitate
and beyond the pale of the Public Land Act.[27] As correctly pointed out by the trial court, investigation and verification
should have been done only after the filing of the application. Hence, it would have been highly anomalous for Recio to
conduct his own investigation and verification on December 27, 1998, a day before Felipe Alejaga Sr. filed the Application
for Free Patent.[28] It must also be noted that while the Alejagas insist that an investigation was conducted, they do not
dispute the fact that it preceded the filing of the application.[29]
Second, the claim of the Alejagas that an actual investigation was conducted is not sustained by the Verification &
Investigation Report itself, which bears no signature.[30] Their reliance on the presumption of regularity in the
performance of official duty*31+ is thus misplaced. Since Recios signature does not appear on the December 27, 1978
Report, there can be no presumption that an investigation and verification of the parcel of land was actually conducted.
Strangely, respondents do not proffer any explanation why the Verification & Investigation Report was not signed by Recio.
Even more important and as will later on be explained, this alleged presumption of regularity -- assuming it ever existed -- is
overcome by the evidence presented by petitioner.
Third, the report of Special Investigator Isagani P. Cartagena has not been successfully rebutted. In that report, Recio
supposedly admitted that he had not actually conducted an investigation and ocular inspection of the parcel of land.
Cartagenas statement on Recios alleged admission may be considered as independently relevant. A witness may testify
as to the state of mind of another person -- the latters knowledge, belief, or good or bad faith -- and the formers
statements may then be regarded as independently relevant without violating the hearsay rule.[32]
Thus, because Cartagena took the witness stand and opened himself to cross-examination, the Investigation Report[33] he
had submitted to the director of the Bureau of Lands constitutes part of his testimony. Those portions of the report that
consisted of his personal knowledge, perceptions and conclusions are not hearsay.[34] On the other hand, the part
referring to the statement made by Recio may be considered as independently relevant.[35]
The doctrine on independently relevant statements holds that conversations communicated to a witness by a third person
may be admitted as proof that, regardless of their truth or falsity, they were actually made. Evidence as to the making of
such statements is not secondary but primary, for in itself it (a) constitutes a fact in issue[36] or (b) is circumstantially
relevant to the existence of such fact.[37]
Since Cartagenas testimony was based on the report of the investigation he had conducted, his testimony was not hearsay
and was, hence, properly admitted by the trial court.[38]
Based on the foregoing badges of fraud, we sustain petitioners contention that the free patent granted to Felipe Alejaga
Sr. is void.[39] Such fraud is a ground for impugning the validity of the Certificate of Title.[40] The invalidity of the patent is
sufficient basis for nullifying the Certificate of Title issued in consequence thereof, since the latter is merely evidence of the
former.*41+ Verily, we must uphold petitioners claim that the issuance of the Alejagas patent and title was tainted with
fraud.[42]
Second Issue:
Indefeasibility of Title
Petitioner contends that the State has an imprescriptible right to cause the reversion of a piece of property belonging to
the public domain.[43] On the other hand, the Alejagas claim that, pursuant to Section 32 of PD 1529[44] -- otherwise
known as the Property Registration Decree -- the one-year period for reversion has already lapsed.*45+ Thus, the States
Complaint for reversion should be dismissed.
We agree with petitioner.

True, once a patent is registered and the corresponding certificate of title issued, the land covered by them ceases to be
part of the public domain and becomes private property. Further, the Torrens Title issued pursuant to the patent becomes
indefeasible a year after the issuance of the latter.[46] However, this indefeasibility of a title does not attach to titles
secured by fraud and misrepresentation.[47] Well-settled is the doctrine that the registration of a patent under the Torrens
System does not by itself vest title; it merely confirms the registrants already existing one. Verily, registration under the
Torrens System is not a mode of acquiring ownership.[48]
Therefore, under Section 101 of Commonwealth Act No. 141,[49] the State -- even after the lapse of one year -- may still
bring an action for the reversion to the public domain of land that has been fraudulently granted to private individuals.[50]
Further, this indefeasibility cannot be a bar to an investigation by the State as to how the title has been acquired, if the
purpose of the investigation is to determine whether fraud has in fact been committed in securing the title.[51]
In the case before us, the indefeasibility of a certificate of title cannot be invoked by the Alejagas, whose forebear obtained
the title by means of fraud.[52] Public policy demands that those who have done so should not be allowed to benefit from
their misdeed.[53] Thus, prescription and laches will not bar actions filed by the State to recover its own property acquired
through fraud by private individuals.[54] This is settled law.[55]
Prohibition Against Alienation
or Encumbrance
Assuming arguendo that the Alejagas title was validly issued, there is another basis for the cancellation of the grant and
the reversion of the land to the public domain. Section 118 of Commonwealth Act No. 141[56] proscribes the
encumbrance of a parcel of land acquired under a free patent or homestead within five years from its grant.[57] The
prohibition against any alienation or encumbrance of the land grant is a proviso attached to the approval of every
application.[58]
Further, corporations are expressly forbidden by law to have any right or title to, or interest in, lands that are granted under
free or homestead patents; or any improvements thereon. They are forbidden from enjoying such right, title or interest, if
they have not secured the consent of the grantee and the approval of the secretary of the Department of Agriculture and
Natural Resources; and if such lands are to be devoted to purposes other than education, charity, or easement of way.[59]
In the case at bar, Free Patent No. (VI-2) 3358[60] was approved and issued on March 14, 1979. Corresponding Original
Certificate of Title No. P-15[61] was issued on the same date. On August 18, 1981, or two (2) years after the grant of the
free patent, Felipe Alejaga Sr. obtained from Respondent PNB a loan[62] in the amount of P100,000. Despite the
statement on the title certificate itself that the land granted under the free patent shall be inalienable for five (5) years
from the gRant, a real estate mortgage was nonetheless constituted on the parcel of land covered by OCT No. P-15.[63] In
his testimony, Gabriel D. Aranas Jr., then Cashier III of respondent bank, even admitted that the PNB was aware of such
restriction.
COURT You testified Mr. Aranas that you inspected the title also when you credit investigated the loan applicant Felipe
Alejaga and you have personally examined this?
A

Yes, your Honor.

COURT Do you conclude that this Original Certificate of Title is a [free] patent?

Yes, your Honor.

COURT And this [free] patent was granted on March 19, 1979.
A

Yes, your honor

COURT And as such [free] patent it cannot be alienated except [to] the government or within five years from its issuance?
A

Yes, your honor.

COURT Why did you recommend the loan?

A

Because it is just a mortgage.*64+

Thus, the mortgage executed by Respondent Felipe Alejaga Sr. falls squarely within the term encumbrance proscribed by
Section 118 of the Public Land Act.[65] A mortgage constitutes a legal limitation on the estate, and the foreclosure of the
mortgage would necessarily result in the auction of the property.[66]
As early as Pascua v. Talens,[67] we have explained the rationale for the prohibition against the encumbrance of a
homestead -- its lease and mortgage included -- an encumbrance which, by analogy, applies to a free patent. We ruled as
follows:
It is well-known that the homestead laws were designed to distribute disposable agricultural lots of the State to landdestitute citizens for their home and cultivation. Pursuant to such benevolent intention the State prohibits the sale or
encumbrance of the homestead (Section 116) within five years after the grant of the patent.
Further, an encumbrance on a parcel of land acquired through free patent constitutes sufficient ground for the nullification
of such grant, as provided under Commonwealth Act No. 141, which we quote:
SEC. 124. Any acquisition, conveyance, alienation, transfer, or other contract made or executed in violation of any of the
provisions of sections one hundred and eighteen, one hundred and twenty, one hundred and twenty-one, one hundred and
twenty-two, and one hundred and twenty-three of this Act shall be unlawful and null and void from its execution and shall
produce the effect of annulling and canceling the grant, title, patent, or permit originally issued, recognized or confirmed,
actually or presumptively, and cause the reversion of the property and its improvements to the State.
Mortgage over a parcel of land acquired through a free patent grant nullifies the award and constitutes a cause for the
reversion of the property to the state, as we held in Republic v. Court of Appeals:[68]
The foregoing legal provisions clearly proscribe the encumbrance of a parcel of land acquired under a free patent or
homestead within five years from the grant of such patent. Furthermore, such encumbrance results in the cancellation of
the grant and the reversion of the land to the public domain.*69+
To comply with the condition for the grant of the free patent, within five years from its issuance, Felipe Alejaga Sr. should
not have encumbered the parcel land granted to him. The mortgage he made over the land violated that condition.[70]
Hence, the property must necessarily revert to the public domain, pursuant to Section 124 of the Public Land Act.
WHEREFORE, the Petition is GRANTED and the assailed Decision SET ASIDE. The Decision of the RTC of Roxas City (Branch
15) dated October 27, 1993 is REINSTATED. No costs.
SO ORDERED.

HEIRS OF MARASIGAN VS IAC

Who has a better right to the property in question, the party who bought it with a notice of lis pendens annotated at the
back of her title or the party in whose favor the notice of lis pendens was made? The appellate court answered this
question in favor of the party who had the notice annotated and who won the litigation over the property. We affirm.
The disputed property in this case is a residential lot (Lot No. 2-A) covered by Transfer Certificate of Title No. 100612
issued by the Register of Deeds of the City of Manila in the name of one Fe Springael-Bazar, married to Felicisimo
Bazar.
The pertinent facts as disclosed by the record are as follows:
On April 24, 1975, Civil Case No. 97479 entitled "Maria Marron v. Felicisimo Bazar and Fe S. Bazaar" was filed before
the then Court of First Instance of Manila, Branch XIII. The action sought to compel defendants Bazar to execute a
registrable Deed of Absolute Sale of their lot covered by T.C.T. No. 100612 in favor of Maria Marron.
On January 27, 1976, while Civil Case No. 97479 was still pending, the private respondent caused the annotation of a
notice of lis pendens at the back of T.C.T. No. 100612.
On February 24, 1976, judgment was rendered in Civil Case No. 97479. The dispositive portion reads:
WHEREFORE, the Court hereby renders judgment in favor of the plaintiff and against the defendants as follows:
a) Ordering the defendants Fe Springael Bazar and Felicisimo Bazar as vendors (1) to execute in favor of the
plaintiff Maria Marron as vendee a Deed of Absolute Sale in a public instrument over the residential lot covered
by Transfer Certificate of Title No. 100612 issued by the Registry of Deeds of the City of Manila to and in the
name of Fe S. Bazar, married to Felicisimo Bazaar; and (2) to deliver to plaintiff sufficient copies of such deed
of sale, together with the Owner's copy of said Transfer Certificate of Title No. 100612, in order that the plaintiff
can register the Deed of Absolute Sale with the Registry of Deeds of the City of Manila and secure a transfer
certificate of title for the land in her name.
b) Ordering the defendants to pay to the plaintiff the sum of P500.00 Philippine Currency, as and for attorney's
fees; and
c) Ordering the defendants to pay the costs of the suit. (Rollo, p. 15).
The above judgment became final and executory so Maria Marron filed a motion for execution which was granted. A
writ of execution was issued by the court on July 12, 1976. The spouses Bazar, however, refused to surrender their title
to the property in question and to execute the required deed of sale in Marron's favor. On November 29, 1978, the
lower court finally ordered the Clerk of Court to execute the deed of sale in behalf of the erring spouses. When the said
deed was presented to the Register of Deeds of Manila for registration, the Deputy Clerk of Court was advised to
secure a court order in order that the new title issued in the name of herein petitioner Maria Marasigan could be
cancelled.
It appears that on December 18, 1974, a deed of absolute sale of Lot 2-A covered by T.C.T. No. 100612 was executed
by Fe S. Bazar in favor of Maria Marasigan for and in consideration of the sum of Fifteen Thousand Pesos
(P15,000.00). However, it was only on July 5, 1977 that said deed was registered with the Registry of Deeds of Manila.
Consequently, T.C.T. No. 100612 was cancelled and a new title was issued in Maria Marasigan's name. When the
Register of Deeds of Manila issued Transfer Certificate of Title No. 126056 naming Maria Marasigan as the new owner
of Lot 2-A, the notice of lis pendens caused to be annotated by Marron on the Bazar's title was carried over on the said
new title.
Meanwhile, on May 26, 1977, the Bazaars filed a petition for relief from the judgment dated February 24, 1976 in Civil
Case No. 97479. While their petition was still pending, they moved to set aside the said judgment on June 22, 1979 on
the ground of lack of jurisdiction over their persons.
On the other hand, on February 24, 1979, Marron instituted L.R.C. Case No. 7680 captioned "Maria Marron v. Maria
Marasigan" which prayed for a court order requiring the Register of Deeds of Manila to register the deed of sale

executed by the Deputy Clerk of Court in behalf of the Bazaars pursuant to the order dated November 29, 1978 of the
Court of First Instance, Manila, Branch XIII. L.R.C. Case No. 7680 was tried by the Court of First Instance of Manila,
Branch IV acting as a land registration court. Said case was dismissed for the following reason:
... This court acting as a Land Registration Court, with limited and special jurisdiction cannot act on this petition
under summary proceedings but (sic) should be ventilated before a court of general jurisdiction Branch XIII,
which issued the aforesaid Order dated November 29, 1978, the said petition is hereby dismissed for lack of
jurisdiction without prejudice on the part of the petitioner to institute the appropriate civil action before the
proper court. ... (Annex "A," p. 4, Rollo, p. 138)
On September 6, 1979, Marron filed another case docketed as Civil Case No. 126378 to have Marasigan's TCT
126056 cancelled conformably to the procedure outlined in the decision of the above land registration court. On July
30, 1980, the parties submitted said case for decision.
On February 18, 1982, the Court of First Instance of Manila, Branch IV to which Civil Case No. 126378 was assigned
dismissed Marron's complaint for being premature since the decision rendered by the CFI, Branch XIII in Civil Case
No. 97479 had not yet become final and executory considering that it was still the subject of a petition for relief from
judgment.
On appeal, the Intermediate Appellate Court, on August 7, 1984, ruled that Marron is entitled to the property under
litigation by virtue of the notice of lis pendens annotated at the back of Maria Marasigan's title. The appellate court
further ruled that the decision in Civil Case No. 97479 had become final and executory because the petition for relief
from judgment of the spouses Bazar was filed out of time. The dispositive portion of the appellate court's decision
reads:
WHEREFORE, the appealed decision is hereby REVERSED and another one entered
(a) Ordering the Register of Deeds of Manila to cancel T.C.T. No. 126056 in the name of Maria Marasigan and
issue another in the name of Maria Marron by virtue of the Deed of Sale executed by the Branch Clerk of Court
of Branch XIII;
(b) Ordering the said Register of Deeds, during the pendency of this case, to refrain from registering any deed
of sale pertaining to T.C.T. No. 126056 in the name of Maria Marasigan other than that of the herein plaintiff;
and
(c) Ordering the defendant Maria Marasigan to pay attorney's fees in the amount of P10,000.00. (IAC, Decision.
Rollo, pp. 17-18).
Maria Marasigan who died in the course of the proceedings is now represented by her heirs in the instant petition
which assigns the following errors:
I
THAT THE INTERMEDIATE APPELLATE COURT FAILED TO APPREHEND THAT THE RIGHT OF ACTION OF
RESPONDENT MARIA MARRON (AS PLAINTIFF) IN CIVIL CASE NO. 97479 HAD PRESCRIBED AND SHE
INCURRED IN LACHES.
II
THAT THE INTERMEDIATE APPELLATE COURT FAILED TO APPREHEND THAT RESPONDENT ABANDONED
OR WAIVED HER PROPERTY RIGHTS AND EFFECTS TO/OF THE DECISION IN CIVIL CASE NO. 97479, WHEN
SHE FILED CIVIL CASES NO. 7680 AND 126378, DURING ITS EFFECTIVITY.
III
THAT THE INTERMEDIATE APPELLATE COURT ERRED IN CONCLUDING THAT THE DECISION IN CIVIL CASE
NO. 97479 HAS BECOME FINAL AND EXECUTORY.
IV

THAT THE INTERMEDIATE APPELLATE COURT FAILED TO APPREHEND THE LACK OF JURISDICTION OF THE
TRIAL COURT IN CIVIL CASES NO. 7680 AND 126378 OVER THE PERSONS OF PETITIONERS.
V
THAT THE INTERMEDIATE APPELLATE COURT ERRED IN CONSIDERING THAT THE TRIAL COURT IN CIVIL
CASE NO. 97479 HAS JURISDICTION OVER THE PERSONS OF DEFENDANTS SPOUSES FELICISIMO BAZAAR
AND FE S. BAZAAR.
VI
THAT THE INTERMEDIATE APPELLATE COURT FAILED TO APPREHEND THAT THE DEED OF ABSOLUTE
SALE EXECUTED BY THE DEPUTY CLERK OF COURT, WAS NOT LEGAL AND VALID AND WITHOUT PROOF
AND EFFECT. (Brief for the appellant, pp. 1 and 2)
We find no merit in the present petition.
There is a clear showing that although the late Maria Marasigan acquired the property in question from the Bazaars
pursuant to a deed of absolute sale on December 18, 1974 or a little over four months before the filing of Civil Case
No. 97479, the transaction became effective as against third persons only on July 5, 1977 when it was registered with
the Registry of Deeds of Manila. It is the act of registration which creates constructive notice to the whole world.
Section 51 of Act 496, as amended by Section 52 of the Property Registration Decree (P.D. 1529) provides:
Sec. 52. Constructive notice upon registration. Every conveyance ... affecting registered land shall, if
registered, filed or entered in the office of the Register of Deeds for the province or city where the land to which
it relates lies, be constructive notice to all persons from the time of such registering, filing or entering.
Moreover, there is no question that when the late Maria Marasigan was issued her transfer certificate of title to the
subject property (T.C.T. No. 126056), the Registrar of Deeds of Manila then carried over to the new title the notice oflis
pendens which the private respondent had caused to be annotated at the back of the Bazar's title. In case of
subsequent sales or transfers, the Registrar of Deeds is duty bound to carry over the notice of lis pendens on all titles
to be issued. Otherwise, if he cancels any notice of lis pendens in violation of his duty, he may be held civilly and even
criminally liable for any prejudice caused to innocent third persons (The Director of Lands, et al. v. Reyes, 68 SCRA
177).
A notice of lis pendens means that a certain property is involved in a litigation and serves as notice to the whole world
that one who buys the same does it at his own risk (Rehabilitation Finance Corporation v. Morales, 101 Phil. 171). It
was also a clear notice to Maria Marasigan that there was a court case affecting her rights to the property she had
purchased.
1avvphi1

As earlier stated it was only on July 5, 1977 that the sale between Maria Marasigan and the Bazaars became effective
as against third persons. The registration of the deed of sale over the subject property was definitely subsequent to the
annotation made on January 27, 1976. Consequently, Marasigan was bound by the outcome of the litigation against
her vendors or transferors. (See Rivera v. Tirona, et al., 109 Phil. 505).
We reiterate the established rule that:
... the filing of a notice of lis pendens charges all strangers with a notice of the particular litigation referred to
therein and, therefore, any right they may thereafter acquire on the property is subject to the eventuality of the
suit. The doctrine of lis pendens is founded upon reason of public policy and necessity, the purpose of which is
to keep the subject matter of the litigation within the power of the Court until the judgment or decree shall have
been entered; otherwise, by successive alienations pending the litigation, its judgment or decree shall be
rendered abortive and impossible of execution. ... (Laroza v. Guia, 134 SCRA 34 1)
The late Marasigan's transferors did not interpose any appeal from the adverse judgment dated February 24, 1976 in
Civil Case No. 97479. The 30-day period under the old rule (Rule 41, section 3 of the Revised Rules of court now
amended by Batas Pambansa Bilang 129, section 39) within which the Bazaars may have taken an appeal started to
run from May 12, 1976 when they were served with a copy of the said decision. On June 11, 1976, the February 24,
1976 decision in Civil Case No. 97479 became final and executory. At this point after the finality of the said decision,
the Bazaars no longer had the right to alienate the property subject of the litigation. Any transaction effective during the

period of litigation is subject to the risks implicit in the notice of lis pendens and to the eventual outcome of the
litigation.
Moreover, we agree with the finding of the appellate court that the petition for relief from judgment by the Bazaars
dated May 26, 1977 was filed beyond the two periods provided in Section 3 Rule 38 of the Revised Rules of Court.
There may have been some errors in the computations but the petition itself was out of time.
Rule 38, Section 3 of said Rules provides, in part, that:
Sec. 3. Time for filing petition. ... A petition provided for in either of the preceding sections of this rule must
be verified, filed within sixty (60) days after the petitioner learns of the judgment, order or other proceeding to
be set aside, and not more than six (6) months after such judgment or order was entered or such proceeding
was taken. ...
The 60-day period must be reckoned from May 12, 1976 when the Bazaars were served with a copy of the assailed
decision. Therefore, the 60-day period expired on July 11, 1976. It was only after 379 days or more than 12 months
after they learned of the judgment that the Bazaars filed their petition for relief from said judgment. (See Domingo v.
Dela Cruz, 23 SCRA 1121) The appellate court computed the 6-month period from the date of the judgment was
rendered. Rule 38 states that the counting should commence from the entry of the judgment or order. (See Dirige v.
Biranya, 17 SCRA 840). A judgment is entered only after its finality and Civil Case No. 97479 became final on June 11,
1976. Since the records do not bear the exact date the questioned judgment was entered, the 6-month period can be
counted for purposes of our decision from July 12, 1976 when the writ of execution of the final judgment was issued.
The phrase "or other proceeding" in Section 3 of Rule 38 includes a writ of execution (Aquino v. Blanco, 79 Phil. 647).
The 6-month period from July 12, 1976 lapsed on January 8, 1977. A period of ten (10) months had already lapsed
when the Bazaars filed their petition for relief from judgment on May 26, 1977. Obviously, the petitioners cannot now
question the effects of the final and executory judgment in Civil Case No. 97479. In the words of Laroza v. Guia
(supra) they cannot render the final judgment abortive and impossible of execution. The deed of sale executed by the
Deputy Clerk of Court on behalf of the Bazar spouses pursuant to the court's judgment was valid and binding.
The petitioners cannot also raise before us the issues of prescription or laches and lack of jurisdiction over the persons
of the Bazar spouses in Civil Case No. 97479. This cannot be done in this petition which stems from Civil Case No.
126378 in the trial court and AC-G.R. No. 00183 in the appellate court. The Bazaars were the proper parties who ought
to have raised them as defenses either in a motion to dismiss or in their answer. Since they did not do so, the same
were deemed waived. (See Rule 9, section 2 of the Revised Rules of Court; MD Transit & Taxi Co., Inc. v. Estrella, 113
SCRA 378; Torreda v. Boncaros, 69 SCRA 247; Visayan Electric Co., Inc. v. Commissioner of Internal Revenue, 39
SCRA 43; Republic v. Mambulao Lumber Company, 6 SCRA 858).
WHEREFORE, in view of all the foregoing, the petition is hereby DISMISSED for lack of merit. The appellate court's
decision is AFFIRMED.
SO ORDERED.

SAJONAS VS CA
Facts:
The case is for cancellation of the inscription of a Notice of Levy on Execution from a certificate of Title covering a
parcel of real property. The inscription was caused to be made by the private respondent on Transfer Certificate
of Title No. N-79073 of the Register of Deeds of Marikina, issued in the name of the spouses Uychocde, and was
later carried over to and annotated on Transfer Certificate of Title No. N-109417 of the same registry, issued in
the name of the spouses Sajonas, who purchased the parcel of land from the Uychocdes, and are now the
petitioners in this case.
The subject property was bought by Sajonas spouses on September 1983 and caused the annotation of their
adverse claim on August 1984. The Deed of Sale was executed upon the full payment of the purchase price and
the same was registered only on August 1985.
Meanwhile, without the petitioners' knowledge, there has been a compromise agreement between the spouses
Uychocde and Pilares (Uychocde's judgment creditor), and a notice of levy on execution was issued on February
12, 1985. On February 12, 1985, defendant sheriff Roberto Garcia of Quezon City presented said notice of levy
on execution before the Register of Deeds of Marikina and the same was annotated at the back of TCT No.
79073 as Entry No. 123283.
Issue:
Which should be preferred between the notice of levy on execution and the deed of absolute sale.The Deed of
Absolute Sale was executed on September 4, 1984, but was registered only on August 28, 1985, while the notice
of levy on execution was annotated six (6) months prior to the registration of the sale on February 12, 1985.
Decision:
The annotation of the adverse claim is equivalent to notice to third persons of the interest of the claimant. The
provision of the law (PD 1529) that the adverse claim is only valid for 30 days cannot be upheld. Clearly, the
intention of the law is otherwise as may be gleaned on the following discussion:
Sec. 70 Adverse Claim- Whoever claims any part or interest in registered land adverse to the registered owner,
arising subsequent to the date of the original registration, may, if no other provision is made in this decree for
registering the same, make a statement in writing setting forth fully his alleged right or interest, and how or under
whom acquired, a reference to the number of certificate of title of the registered owner, the name of the registered
owner, and a description of the land in which the right or interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse claimants residence, and a place at
which all notices may be served upon him. This statement shall be entitled to registration as an adverse claim on
the certificate of title. The adverse claim shall be effective for a period of thirty days from the date of registration.
After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a verified petition
therefor by the party in interest: Provided, however, that after cancellation, no second adverse claim based on the
same ground shall be registered by the same claimant.
Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of First Instance
where the land is situated for the cancellation of the adverse claim, and the court shall grant a speedy hearing
upon the question of the validity of such adverse claim, and shall render judgment as may be just and equitable. If
the adverse claim is adjudged to be invalid, the registration thereof shall be ordered cancelled. If, in any case, the
court, after notice and hearing shall find that the adverse claim thus registered was frivolous, it may fine the
claimant in an amount not less than one thousand pesos, nor more than five thousand pesos, in its
discretion. Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the Register
of Deeds a sworn petition to that effect.

Construing the provision as a whole would reconcile the apparent inconsistency between the portions of the law
such that the provision on cancellation of adverse claim by verified petition would serve to qualify the provision on
the effectivity period. The law, taken together, simply means that the cancellation of the adverse claim is still
necessary to render it ineffective, otherwise, the inscription will remain annotated and shall continue as a lien
upon the property. For if the adverse claim has already ceased to be effective upon the lapse of said period, its
cancellation is no longer necessary and the process of cancellation would be a useless ceremony.
To interpret the effectivity period of the adverse claim as absolute and without qualification limited to thirty days
defeats the very purpose for which the statute provides for the remedy of an inscription of adverse claim, as the
annotation of an adverse claim is a measure designed to protect the interest of a person over a piece of real
property where the registration of such interest or right is not otherwise provided for by the Land Registration Act
or Act 496 (now P.D. 1529 or the Property Registration Decree), and serves as a warning to third parties dealing
with said property that someone is claiming an interest or the same or a better right than the registered owner
thereof.
Petition was granted. The inscription of the notice of levy on execution on TCT No. N-109417 is ordered
CANCELLED

FULE VS LAGARE
This is a petition for certiorari to review the decision of the Court of Appeals, promulgated on November 16, 1960, in Civil
Case No. 15728-R, entitled" Emilia E. Legare, plaintiff-appellant, versus Conrado C. Fule and Lourdes F. Aragon,
defendants-appellants..
The facts of this case as found by the Court of Appeals in its decision are as follows:
This is an action for annulment of certain deeds of sale and conveyance covering a parcel of land, together with the
improvements existing thereon, situated in the municipality of San Juan, province of Rizal, and for damages.
It appears in evidence that the plaintiff, Emilia E. de Legare, was the owner of a parcel of land, together with a
residential house erected thereon, situated at No. 146 Sta. Mesa Boulevard Extension, San Juan, Rizal, her
ownership being evidenced by Transfer Certificate of Title No. 21253, issued by the Office of the Register of Deeds
of the province of Rizal. She was living in that house together with defendant John W. Legare, her adopted son, and
a maid named Purita Tarrosa. On September 26, 1951, the plaintiff, thru a public deed, constituted on the above
mentioned house and lot a first class mortgage in favor of defendant Tomas Q. Soriano to guarantee the payment of
a loan in the amount of P8,000.00. This deed of mortgage was on the same date recorded in the Office of the
Register of Deeds of the province of Rizal and annotated in the memorandum of encumbrances of transfer certificate
of title No. 21253. On account of certain partial payments made by the plaintiff and the contracting by the latter of
additional loans in small amounts from Tomas Q. Soriano the debt guaranteed by the above mentioned mortgage
was reduced to the sum of P7,000.00 as of February 23, 1953. These transactions, however, were not annotated on
the memorandum of encumbrances of the above mentioned certificate of title.
At about 9:00 o'clock in the evening of March 29, 1953, while the plaintiff, John W. Legare, and Purita Tarrosa were
seated in the drawing room of the house above referred to, an unknown man intruded into the room, approached the
plaintiff, covered her mouth, and, pressing a knife on her side, demanded that she give him P10,000.00 if she did not
like to be killed. The plaintiff replied that she did not have that amount. Thereupon, the intruder told the plaintiff to
raise the necessary amount as he would come back the following morning and once more threatened to kill her if she
would fail to do so. After having made that threat, the intruder left the house. John W. Legare did not call for help nor
made any attempt to defend his mother, and when Purita Tarrosa stood up to go down the house to call for a
policeman, he held the latter by the hand and slapped her on the face when she persisted in going down, telling her
that the man had companions waiting downstairs.
After the intruder was gone John W. Legare approached the plaintiff, and exhibiting to her a paper told her to sign it
as with the same he could secure from the U.S. Veterans Administration the amount which they needed to deliver to
that intruder. The plaintiff, who did not know how to read nor write, although she could sign her name, asked John W.
Legare what that paper was. The latter answered that it was an application for payment of compensation. As plaintiff
had confidence in John W. Legare and prior to that occasion she had received from the U.S. Veterans Administration
a letter concerning some compensation she was to receive, she signed that paper. After the paper was signed by the
plaintiff, John W. Legare had Purita Tarrosa sign it as a witness, without however, allowing the latter to read it.
After that paper was thus signed, John W. Legare told the plaintiff and Purita Tarrosa to pack up their things as they
were leaving the house to hide in a hotel, adding that the men who came earlier that evening were Huks. Early the
next morning John W. Legare took the plaintiff and Purita Tarrosa to the Windsor Hotel in the City of Manila, and
after conducting them to a room in the hotel, told them not to leave the room or peep out of the window as they might
be seen by the men who came to their house in the previous evening. This advise given, John W. Legare left the
hotel. The plaintiff and Purita Tarrosa stayed in that hotel for about a month and a half. John W. Legare occasionally
visited them there. In one of said occasional visits the plaintiff told John that she wanted to go home. The latter told
her that it was not yet safe for her to go home. On May 7, 1953, however, John W. Legare came to the hotel, gave
the plaintiff a five-peso bill, and told her that she could use the amount for transportation expenses if she wanted to
leave the hotel. On the following morning the plaintiff and Purita Tarrosa left the hotel and went direct to her house at
Sta. Mesa Boulevard Extension. When they arrived at the house, however, they found that it was occupied by
strangers, and that all her furniture and personal belongings had disappeared. Inquiring from those strangers how
they happened to occupy the house, the latter told her that John W. Legare had sold the house to them and that it
was no longer hers. The plaintiff thereupon sought the help of her attorney. It was then discovered that the paper
which John W. Legare had the plaintiff and Purita Tarrosa sign in the evening of March 29, 1953 was a deed of sale
of the lot and house in question in favor of John W. Legare for the sum of P12,000.00, and that it was supposed to
have been executed on the 7th day of April, 1953, and acknowledged before a notary public on that date. Exhibit X.

It further appears that sometime prior to May 9, 1953, John W. Legare approached Elias B. Fermin, the real estate
broker who intervened in the securing of the loan contracted by the plaintiff from Tomas Q. Soriano, and sought said
broker's help to sell the lot and house in question. Elias B. Fermin accepted the commission and offered the property
in sale to defendants spouses Conrado C. Fule and Lourdes F. Aragon. Conrado C. Fule read the title papers in the
hand of John W. Legare and inspected the premises, and satisfied with the result of his inspection, he agreed to
purchase the property for P12,000.00 on condition that the sum of P7,000, the unpaid balance of plaintiff's
indebtedness to Tomas Q. Soriano secured by a mortgage thereon, would be deducted from the price, and that he
would assume said mortgage. The terms offered by Conrado C. Fule being acceptable to John W. Legare and
Tomas Soriano, the parties proceeded to formalize the contract. Accordingly, on May 9, 1953, defendant Tomas Q.
Soriano executed a deed of absolute sale thereof, free of all liens and encumbrances, in favor of defendant spouses
Conrado C. Fule and Lourdes F. Aragon, Exhibit X-2, and said spouses in turn executed in favor of Tomas Q.
Soriano a deed of mortgage covering the property for the sum of P7,000.00. Exhibit X-3. These three deeds,
together with transfer certificate of Title No. 21253, issued in the name of the plaintiff, were on that same date
presented for registration in the Office of the Register of Deeds of the province of Rizal. The latter, following the
usual procedure, recorded, first, the deed of sale executed by the plaintiff in favor of defendant John W. Legare
(Exhibit 1) and issued in the name of the latter transfer certificate of title No. 30126 which cancelled transfer
certificate of title No. 21253 (Exhibit Y), then the deed of sale executed by John W. Legare in favor of the spouses
Conrado C. Fule and Lourdes F. Aragon (Exhibit X-2) and issued in favor of the latter transfer certificate of title No.
30127 (Exhibit Y-1), which cancelled transfer certificate of title No. 30126, and then annotated on the memorandum
of encumbrances of transfer certificate of title No. 30127 the deed of mortgage (Exhibit X-1) executed in favor of
Tomas Q. Soriano by said spouses. Once these were accomplished, Elias B. Fermin and John W. Legare went back
to the house of the spouses Conrado C. Fule and Lourdes P. Aragon and gave the transfer certificate of title No.
30127. Thereupon said spouses delivered to John W. Legare the balance of the purchase price of the property after
deducting therefrom the amount of the mortgage constituted thereon in favor of Tomas Q. Soriano, the brokerage
fees and the expenses incident to the execution and registration of said deeds and issuance of new certificates of
title, which amounted to a little P4,000.00.
Upon the evidence, the trial court rendered judgment, the dispositive part of which reads as follows:
IN VIEW OF ALL THE FOREGOING, this Court hereby orders:
1) the cancellation of Certificates of Title Nos. 30127 and 10126, thereby leaving valid TCT No. 21253 in the name of
Emilia E. de Legare together with the encumbrance thereon in favor of Tomas Q. Soriano;
2) the delivery of the possession of the premises to the plaintiff and the monthly rental of P150.00 a month from May
9, 1953, up to and including the date on which the delivery is to be made, this obligation being understood to be joint
and several insofar as the defendants Fule and Aragon are concerned;
3) the award of P5,000.00 as moral damages in favor of the plaintiff and enforceable against John W. Legare for the
fraud perpetrated by the latter on the former;
4) the award of P1,000.00 as attorney's is fees enforceable against the defendants Fule and Aragon;
And on the cross-claim, the court orders
1) John W. Legare to refund to the spouses Fule and Aragon the amount paid by the latter on account of the sale
contained in Exhibit X-2 plus interest thereon at the legal rate from the date of the cross-claim;
2) the award of P5,000.00 as moral damages in favor of the spouses Fule and Aragon and enforceable against John
W. Legare for the misrepresentation made by him;.
3) the reimbursement to the spouses Fule and Aragon by John W. Legare of all amounts which may be paid by the
former to the plaintiff by way of rentals for the premises involved herein, as well as attorney's fees in the amount of
P1,000.00.
SO ORDERED.
The Court of Appeals, in deciding the appeal, entered a judgment the dispositive portion of which follows:.
WHEREFORE, modified as indicated above, i.e., the transfer certificate of title No. 21253 issued in the name of
Emilia E. de Legare is revived with the mortgage in favor of appellee Tomas Q. Soriano annotated on its
memorandum of encumbrances but reduced to the amount of P7,000.00, and that the award of attorney's fees in the

amount of P1,000.00 to be paid by the spouses Conrado C. Fule and Lourdes F. Aragon, in favor of the plaintiff, is
eliminated therefrom, the judgment appealed from is hereby affirmed in all other respects, without special
pronouncement as to costs in this instance.
IT IS SO ORDERED.
In elevating the judgment of the Court of Appeals to this Tribunal for review, herein petitioners discussed 6 assignments of
error. However, this Court is of the view that, in effect and substance, only one issue was raised.We have always refrained
from reviewing factual findings of the Court of Appeals and the first two errors assigned were but attempts at disputing the
same. The other four were simply detailed aspects of the one, sole issue, to wit:
Were the herein petitioners purchasers in good faith and for value of the properties here contested?
Guided by the facts found by the Court of Appeals, We hold the herein petitioners innocent purchasers for value of the house
and lot here disputed. In consequence, they are here adjudged the lawful owners thereof.
A purchaser in good faith is one who buys property of another, without notice that some other persons has a right to, or
interest in, such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of
the claim or interest of some other persons in the property. Good faith consists in an honest intention to abstain from taking
any unconscientious advantage of another (Cui and Joven v. Henson, 51 Phil. 606). We have measured the conduct of the
petitioner spouses by this yardstick.
These facts were uncontroverted. The negotiation and transaction which eventually caused the certificate of title to be
transferred from the herein respondent to the petitioner spouses were conducted by a real estate broker licensed since 1938.
Nothing in John W. Legare's person or behaviour suggested anything suspicious. He was the adopted son of the herein
respondent, and, to the time that he was contracting with the petitioner spouses, he had not been known to commit crime or
dishonesty. On the contrary, John has had previous dealings with the real estate broker during which he exhibited the
expected degree of trustworthiness.
It should be noted that the deed of sale was regular upon its face, and no one would have questioned its authenticity since it
was duly acknowledged before a notary public. Moreover, even if the petitioners had the opportunity to compare the
signature of the respondent on the deed of conveyance with a specimen of her genuine signature, the effort, nonetheless,
would have been in vain since the respondent's signature on the document was admittedly hers. Lastly, it should not be
overlooked that the respondent, during the whole period of the negotiation, was nowhere available to confirm or deny the
execution of the deed. She was then in hiding, or, hidden, at the Windsor Hotel in Manila.
The diligence and precaution observed by the petitioners themselves could hardly have been wanting. The records show that
they did not rely solely and fully upon the deed of sale in favor of John W. Legare and the fact that John had then in his
possession the corresponding certificate of title of the registered owner. They demanded more. They insisted that the sale in
favor of John W. Legare be first registered and that the transfer in their favor be thereafter likewise registered. It was only
after all these were complied with that they paid the purchase price. In other words, the petitioner spouses relied not really on
the documents exhibited to them by John W. Legare, but, on the registerability of those documents. This in Our view,
satisfies the measure of good faith contemplated by law.
It is true that at the time the herein petitioners purchased the properties from John W. Legare, he was not yet the registered
owner of the same. This fact alone, however, could not have caused the herein petitioners to lose their status as innocent
purchasers for value. It should be recalled that although the title was in the name of the respondent Emilia E. de Legare, the
certificate of title was in the possession of her adopted son, John. Under Section 55 of Act 496, as amended, John's
possession of the certificate and his subsequent production of it to the herein petitioners operated as a "conclusive authority
from the registered owner to the register of deeds to enter a new certificate."
SEC. 55.

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The production of the owner's duplicate certificate whenever any voluntary instrument is presented for registration
shall be conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a
memorandum or registration in accordance with such instrument, and the new certificate or memorandum shall be
binding upon the registered owner and upon all persons claiming under him, in favor of every purchaser for value
and in good faith. ....
While it was true that the transfer in favor of John was still unregistered when he sought to sell the property to the herein
petitioners, it was not true that the latter observed no precaution whatsoever from the complication of such non-registration.
As already discussed above, the petitioners required that the registration of the previous sale (from the respondent to John
W. Legare) be first attended to and completed. After that was done and the certificate of title thereof was issued to John by

the Register of Deeds, they still withheld payment till the second sale (from John to the petitioners) has in turn registered and
the corresponding certificate of title therefor was issued in their names. It was only after all these were followed that the
entire negotiation was terminated with the payment of the balance of the purchase price. All these, We hold, were adequate
safeguards against the objection interposed. A contrary conclusion would operate to weaken the reliance of the general
public on the indefeasibility of titles registered under the Torrens System.
We have so far demonstrated the good faith of the petitioner spouses. By the very facts established by the Court of Appeals,
however, there is still another reason why the property herein in question should be adjudged to the petitioners.
Although the deed of sale in favor of John W. Legare was fraudulent, the fact remains that he was able to secure a registered
title to the house and lot. It was this title which he subsequently conveyed to the herein petitioners. We have indeed ruled
that a forged or fraudulent deed is a nullity and conveys no title (Director of Lands v. Addison, 49 Phil. 19). However, We
have also laid down the doctrine that there are instances when such a fraudulent document may become the root of valid
title. One such instance is where the certificate of title was already transferred from the name of the true owner to the forger,
and while it remained that way, the land was subsequently sold to an innocent purchaser. For then, the vendee had the right
to rely upon what appeared in the certificate (Inquimboy vs. Cruz, G.R. No. L-13953, July 28, 1960).
Wherefore, the parties respectfully pray that the foregoing stipulation of facts be admitted and approved by this Honorable
Court, without prejudice to the parties adducing other evidence to prove their case not covered by this stipulation of facts.

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We have been constrained to adopt the conclusion here set forth because under the Torrens system, "registration is the
operative act that gives validity to the transfer or creates a lien upon the land (Secs. 50 and 51, Land Registration Act).
Consequently, where there was nothing in 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 farther 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. If the rule were
otherwise, the efficacy and conclusiveness of the certificate of title which the Torrens system seeks to insure would entirely
be futile and nugatory. (Reynes vs. Barrera, 68 Phil. 656; De Lara and De Guzman vs. Ayroso, 50 O.G. No. 10, 4838). The
public shall then be denied of its foremost motivation for respecting and observing the Land Registration Act. In the end, the
business community stands to be inconvenienced and prejudiced immeasurably.
Furthermore, when the Register of Deeds issued a certificate of title in the name of John W. Legare, and thereafter
registered the same, John W. Legare, insofar as third parties were concerned, acquired a valid title to the house and lot here
disputed. When, therefore, he transferred this title to the herein petitioners, third persons, the entire transaction fell within the
purview of Article 1434 of the Civil Code. The registration in John W. Legare's name effectively operated to convey the
properties to him.
ART. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or
grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.
This Court sympathizes with the respondent. It is aware of the treacherous, painful fraud committed on her by her adopted
son. But positive provisions of law and settled jurisprudence cannot be subordinated to that feeling.
Besides, the records of this case reveal that the herein respondent is herself not entirely free from blame. We note that when
John presented to her the document which turned out to be a bed of conveyance in his favor, she readily affixed her
signature thereto upon the simple representation of John that it was a document pertaining to her claim with the U.S.
Veterans Administration. She could have asked her maid to read the contents of the same for her and yet she did not. These,
We believe, amount to a lack of prudence and precaution on the part of Mrs. Emilia de Legare.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals is hereby reversed and set aside. A new one is here
entered dismissing the respondent's complaint and declaring the petitioners herein the lawful owners of the properties here
involved. Without pronouncement as to costs.

TOMAS VS TOMAS
DE CASTRO, J p:
Plaintiff spouses, Florentino S. Tomas and Francisca Cario, are the owners of a parcel of land located in Malasian, Santiago, Isabela
(now Saguday, Nueva Vizcaya) since 1929, which they obtained through a homestead patent with Original Certificate of Title No. 14620. Through fraud and misrepresentation, one Eusebia Tomas succeeded in having OCT No. 1-4620 cancelled, and obtained in her
name TCT No. 8779, Isabela, now TCT 350 Nueva Vizcaya, with which she obtained a loan from the Philippine National Bank branch in
Santiago, Isabela, as a security, mortgaging the land with the bank for the loan of P2,500.00. Florentino Tomas discovered the
fraudulent acts of Eusebia Tomas when he himself applied for a loan from the Philippine National Bank, and offered as a collateral the
same land already mortgaged by Eusebia Tomas to the bank.
In the action plaintiffs filed on April 14, 1964 to declare TCT - 350, Nueva Vizcaya, null and void, against Eusebia Tomas, it was found by
the court (Court of First Instance of Nueva Vizcaya) that Eusebia Tomas succeeded in having plaintiffs' OCT No. I-4620 (Isabela) 1
cancelled and having TCT No. 8779 (Isabela) 2 issued in her name, by executing a deed of extra-judicial settlement 3 in which she made
it appear that she is the lone heir of the registered owner, Florentino Tomas, to whom she was not even known before, and who was at
the time very much alive. She then petitioned for the issuance of another owner's duplicate of OCT No. I-4620, alleging loss of said
owner's duplicate. On Order of the court (Court of First Instance of Isabela) where the petition was filed, a new owner's duplicate was
issued to Eusebia Tomas as the petitioner. Upon the registration of the deed of extra-judicial settlement (Exhibit "J"), OCT No. I-4620
was cancelled, and TCT No. 8779, now TCT - 350 Nueva Vizcaya was issued in the name of Eusebia Tomas on March 14, 1957.
In the same action, the Philippine National Bank was made a co-defendant as the mortgagee of the land, the plaintiffs alleging that the
mortgage is null and void, the mortgagor not being the owner of the property mortgaged. After trial in which Eusebia Tomas never
appeared to present any evidence, the court a quo rendered judgment dated June 9, 1967, the dispositive portion 4 of which reads:
"IN VIEW OF ALL THE FOREGOING CONSIDERATIONS, decision is hereby rendered in favor of the plaintiffs and against the defendants:
(a) declaring Transfer Certificate of Title No. T-8779, now Transfer Certificate of Title No. T-350 in the name of defendant Eusebia Tomas
null and void; (b) declaring the deed of extra-judicial settlement executed by defendant Eusebia Tomas null and void; (c) declaring
Original Certificate of Title No. I-4620 and its file and owner's copy revived; (d) condemning defendant Eusebia Tomas to pay the
plaintiffs in the amount of P950.00 as attorney's fee and P55.80 representing the Actual expenses of the plaintiffs; (e) declaring the
mortgage in favor of the Philippine National Bank without force and effect against the plaintiffs, and (f) ordering defendant Eusebia
Tomas to pay the costs of this proceedings."
From the portion of the foregoing judgment declaring the mortgage in its favor without force and effect, the Philippine National Bank
appealed to the Court of Appeals, 5 which, however, certified the appeal to this Court, the issue presented being purely legal. 6
The only issue to be resolved is whether the mortgage of the land in favor of the appellant bank is valid or not as against appellees.
There is no dispute that the mortgagor Eusebia Tomas is not the owner of the land in question, the true owner being the appellees, who
had always been in possession of said land since they applied for it by way of homestead patent. The owner's duplicate of OCT No. I4620 covering the land in favor of appellee Florentino Tomas had always been with the latter, and was never lost as falsely and
fraudulently misrepresented by Eusebia Tomas in her petition for a new owner's duplicate of OCT No. I-4620. Alleging however, good
faith so as to invoke the protective provision of the Land Registration Act (Section 39, Act 496), pointing to the fact that the certificate
of title, TCT - 350 Nueva Vizcaya presented by Eusebia Tomas as mortgagor was in her name, and showed no encumbrance over the
land, the appellant bank contends that its right as mortgagee must be fully respected, as a mortgagee in good faith.
Verily, the resolution of the issue raised in this appeal hinges on whether the appellant is a mortgagee in good faith and for value, for if
it is, and without anything to excite suspension as it claims, it is protected in the same way as a purchaser in good faith and for value is
protected under Section 39 of Act 496, otherwise known as the Land Registration Act.
In claiming good faith as a mortgagee, and for value, appellant bank claims that no proof to the contrary was presented by appellees in
the trial court. 7 It is a fact, however, that incontrovertible proofs have seen adduced showing that Eusebia Tomas, the mortgagor, was
not the owner of the property mortgaged. This is all that appellees had to prove that would place appellant bank on obligation to show
good faith, as in fact, it was the bank that alleged good faith as its defense. 8 It would be more legally correct, therefore, to say that it

was incumbent on appellant to prove its affirmative allegation of good faith rather than appellee to show the contrary. In any case, to
the statement in Appellees' brief that appellant bank "did not object when appellees presented evidence in the lower court regarding
negligence of appellant, like their failure to send field inspector to the land to discover who is the real owner of the land being offered
as security to the loan of impostor Eusebia Tomas," no denial was made in a reply brief which appellant should have filed if it wanted to
deny this assertion of appellees. The allegation that appellees presented no proof of lack of good faith on the part of appellant bank
may, therefore, not altogether be accurate.
The facts as properly taken note of by the lower court would seem to bring the instant case within the ruling of the case of Pichay vs.
Celestino, 9 the essence of which is as between two innocent persons, the mortgagee and the owner of the mortgaged property, one of
whom must suffer the consequence of a breach of trust, the one who made it possible by his act of confidence must bear the loss. This
is a principle that accords more with justice and equity, in the light of the common practice of banking institution, which is a matter of
public knowledge, as observed by the trial court in the case aforecited, with which this Court agreed, before approving a loan, to send
representatives to the premises of the land offered as collateral and investigate who are the true owners thereof. Incidentally, the
ruling cited herein was against the same appellant bank, the Philippine National Bank, with reference to a mortgage entered into under
similar circumstances. Banks, indeed, should exercise more care and prudence in dealing even with registered lands, than private
individuals, for their business is one affected with public interest, keeping in trust money belonging to their depositors, which they
should guard against loss by not committing any act of negligence which amount to lack of good faith by which they would be denied
the protective mantle of the land registration statute, Act 496, extended only to purchasers for value and in good faith, as well as to
mortgagees of the same character and description. This is evidently the rationale of the doctrine laid down in the case of Pichay vs.
Celestino, supra, which as in the instant suit, involved also a mortgage of a land covered by a certificate of title, mortgaged by the
defendant who was not the owner. The latter, however, succeeded in canceling the original certificate of title in the name of the real
owner, by forging a deed of sale, purportedly executed by the said registered owner in his favor, upon the registration of which, he
obtained a transfer certificate of title in his name, presenting a new owner's duplicate certificate he obtained by falsely alleging that the
first owner's duplicate was burned in an ex-parte petition with prayer for the issuance of another owner's duplicate which the court
granted.
Thus, the facts of the instant case so closely resemble, if they are not exactly the same as, those in the Pichay vs. Celestino case, as to
make the application of the ruling in said case to the one at bar unavoidable and compelling. There were only 12 days between the
cancellation of OCT No. I-4620 on March 14, 1957 and the constitution of the mortgage on March 26, 1957, which shows that the
application for the loan must have been filed within days only from the receipt of the new TCT No. 8779 by Eusebia Tomas. This fact
should have aroused suspicion for appellant bank to send representative to the premises to ascertain who the true owner is,
considering that homestead patents are generally applied for by male applicants, and are very infrequently sold or alienated, the policy
of the law being against sale or alienation.
The decision of this Court in the aforecited case promulgated on May 30, 1967 preceded the decision of the lower court in this case
dated June 7, 1967, by only a few days. However, the court a quo went along the doctrine as laid down in the Pichay vs. Celestino case
even perhaps without having actually read the decision, although a similar rule had earlier been laid down in Blondeau, et al. vs. Nano,
et al. 10 We, therefore, find no error in the holding of the court a quo that the mortgage executed by Eusebia Tomas, appellant's codefendant in favor of said appellant bank over the land in question which the former never owned, is without effect as against
appellees herein.
We, indeed, find more weight and vigor in a doctrine which recognizes a better right for the innocent original registered owner who
obtained his certificate of title through perfectly legal and regular proceedings, than one who obtains his certificate from a totally void
one, as to prevail over judicial pronouncements to the effect that one dealing with a registered land, such as a purchaser, is under no
obligation to look beyond the certificate of title of the vendor, for in the latter case, good faith has yet to be established by the vendee
or transferee, being the most essential condition, coupled with valuable consideration, to entitle him to respect for his newly acquired
title even as against the holder of an earlier and perfectly valid title. There might be circumstances apparent on the face of the
certificate of title which could excite suspicion as to prompt inquiry, such as when the transfer is not by virtue of a voluntary act of the
original registered owner, as in the instant case, where it was by means of a self-executed deed of extra-judicial settlement, a fact which
should be noted on the face of Eusebia Tomas' certificate of title. Failing to make such inquiry would hardly be consistent with any
pretense of good faith, which the appellant bank invokes to claim the right to be protected as a mortgagee, and for the reversal of the
judgment rendered against it by the lower court.
WHEREFORE, the judgment appealed from is hereby affirmed, without pronouncement as to costs.

REYES VS DE LEON
Rodolfo Lanuza and his wife Belen were the owners of a two-story house built on a lot of the Maria Guizon Subdivision
in Tondo, Manila, which the spouses leased from the Consolidated Asiatic Co. On January 12, 1961, Lanuza executed
a document entitled "Deed of Sale with Right to Repurchase" whereby he conveyed to Maria Bautista Vda. de Reyes
and Aurelia R. Navarro the house, together with the leasehold rights to the lot, a television set and a refrigerator in
consideration of the sum of P3,000. The deed reads:
DEED OF SALE WITH RIGHT TO REPURCHASE KNOW ALL MEN BY THESE PRESENTS:
That I, RODOLFO LANUZA, Filipino, of legal age, married to Belen Geronimo, and residing at 783-D
Interior 14 Maria Guizon, Gagalangin, Tondo, Manila, hereby declare that I am the true and absolute
owner of a new two storey house of strong materials, constructed on a rented lot Lot No. 12 of the
Maria Guizon Subdivision, owned by the Consolidated Asiatic Co. as evidenced by the attached
Receipt No. 292, and the plan of the subdivision, owned by said company.
That for and in consideration of the sum of THREE THOUSAND PESOS (P3,000.00) which I have
received this day from Mrs. Maria Bautista Vda. de Reyes, Filipino, of legal age, widow; and Aurelia
Reyes, married to Jose S. Navarro, Filipinos, of legal ages, and residing at 1112 Antipolo St., Tondo,
Manila, I hereby SELL, CEDE, TRANSFER, AND CONVEY unto said Maria Bautista Vda. de Reyes,
her heirs, succesors, administrators and assigns said house, including my right to the lot on which it
was constructed, and also my television, and frigidaire "Kelvinator" of nine cubic feet in size, under the
following conditions:
I hereby reserve for myself, my heirs, successors, administrators, and assigns the right to repurchase
the above mentioned properties for the same amount of P3,000.00, without interest, within the
stipulated period of three (3) months from the date hereof. If I fail to pay said amount of P3,000.00,
within the stipulated period of three months, my right to repurchase the said properties shall be forfeited
and the ownership thereto shall automatically pass to Mrs. Maria Bautista Vda. de Reyes, her heirs,
successors, administrators, and assigns, without any Court intervention, and they can take possession
of the same.
1wph1.t

IN WITNESS WHEREOF, we have signed this contract in the City of Manila, this 12th day of January,
1961.

s/t RODOLFO LANUZA

Vendor

s/t MARIA BAUTISTA VDA. DE REYES

Vendee

s/t AURELIA REYES

Vendee

WITH MY MARITAL CONSENT:

s/t JOSE S. NAVARRO

When the original period of redemption expired, the parties extended it to July 12, 1961 by an annotation to this effect
on the left margin of the instrument. Lanuza's wife, who did not sign the deed, this time signed her name below the
annotation.
It appears that after the execution of this instrument, Lanuza and his wife mortgaged the same house in favor of Martin
de Leon to secure the payment of P2,720 within one year. This mortgage was executed on October 4, 1961 and
recorded in the Office of the Register of Deeds of Manila on November 8, 1961 under the provisions of Act No. 3344.
As the Lanuzas failed to pay their obligation, De Leon filed in the sheriff's office on October 5, 1962 a petition for the
extra-judicial foreclosure of the mortgage. On the other hand, Reyes and Navarro followed suit by filing in the Court of
First Instance of Manila a petition for the consolidation of ownership of the house on the ground that the period of
redemption expired on July 12, 1961 without the vendees exercising their right of repurchase. The petition for
consolidation of ownership was filed on October 19. On October 23, the house was sold to De Leon as the only bidder
at the sheriffs sale. De Leon immediately took possession of the house, secured a discharge of the mortgage on the

house in favor of a rural bank by paying P2,000 and, on October 29, intervened in court and asked for the dismissal of
the petition filed by Reyes and Navarro on the ground that the unrecorded pacto de retro sale could not affect his rights
as a third party.
The parties1 thereafter entered into a stipulation of facts on which this opinion is mainly based and submitted the case
for decision. In confirming the ownership of Reyes and Navarro in the house and the leasehold right to the lot, the court
said:
It is true that the original deed of sale with pacto de retro, dated January 12, 1961, was not signed by Belen
Geronimo-Lanuza, wife of the vendor a retro, Rodolfo Lanuza, at the time of its execution. It appears, however,
that on the occasion of the extension of the period for repurchase to July 12, 1961, Belen Geronimo-Lanuza
signed giving her approval and conformity. This act, in effect, constitutes ratification or confirmation of the
contract (Annex "A" Stipulation) by Belen Geronimo-Lanuza, which ratification validated the act of Rodolfo
Lanuza from the moment of the execution of the said contract. In short, such ratification had the effect of
purging the contract (Annex "A" Stipulation) of any defect which it might have had from the moment of its
execution. (Article 1396, New Civil Code of the Philippines; Tang Ah Chan and Kwong Koon vs. Gonzales, 52
Phil. 180)
Again, it is to be noted that while it is true that the original contract of sale with right to repurchase in favor of
the petitioners (Annex "A" Stipulation) was not signed by Belen Geronimo-Lanuza, such failure to sign, to the
mind of the Court, made the contract merely voidable, if at all, and, therefore, susceptible of ratification. Hence,
the subsequent ratification of the said contract by Belen Geronimo-Lanuza validated the said contract even
before the property in question was mortgaged in favor of the intervenor.
It is also contended by the intervenor that the contract of sale with right to repurchase should be interpreted as
a mere equitable mortgage. Consequently, it is argued that the same cannot form the basis for a judicial
petition for consolidation of title over the property in litigation. This argument is based on the fact that the
vendors a retro continued in possession of the property after the execution of the deed of sale with pacto de
retro. The mere fact, however, that the vendors a retro continued in the possession of the property in question
cannot justify an outright declaration that the sale should be construed as an equitable mortgage and not a sale
with right to repurchase. The terms of the deed of sale with right to repurchase (Annex "A" Stipulation) relied
upon by the petitioners must be considered as merely an equitable mortgage for the reason that after the
expiration of the period of repurchase of three months from January 12, 1961.
Article 1602 of the New Civil Code provides:
"ART. 1602. The contract shall be presumed to be in equitable mortgage, in any of the following cases;
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"(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed.
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In the present case, it appears, however, that no other instrument was executed between the parties extending
the period of redemption. What was done was simply to annotate on the deed of sale with right to repurchase
(Annex "A" Stipulation) that "the period to repurchase, extended as requested until July 12, 1961." Needless to
say, the purchasers a retro, in the exercise of their freedom to make contracts, have the power to extend the
period of repurchase. Such extension is valid and effective as it is not contrary to any provision of law. (Umale
vs. Fernandez, 28 Phil. 89, 93)
The deed of sale with right to repurchase (Annex "A" Stipulation) is embodied in a public document.
Consequently, the same is sufficient for the purpose of transferring the rights of the vendors a retro over the
property in question in favor of the petitioners. It is to be noted that the deed of sale with right to repurchase
(Annex "A" Stipulation) was executed on January 12, 1961, which was very much ahead in point of time to the
execution of the real estate mortgage on October 4, 1961, in favor of intervenor (Annex "B" Stipulation). It is
obvious, therefore, that when the mortgagors, Rodolfo Lanuza and Belen Geronimo Lanuza, executed the real
estate mortgage in favor of the intervenor, they were no longer the absolute owners of the property since the
same had already been sold a retro to the petitioners. The spouses Lanuza, therefore, could no longer

constitute a valid mortgage over the property inasmuch as they did not have any free disposition of the property
mortgaged. (Article 2085, New Civil Code.) For a valid mortgage to exist, ownership of the property mortgaged
is an essential requisite. A mortgage executed by one who is not the owner of the property mortgaged is
without legal existence and the registration cannot validate. (Philippine National Bank vs. Rocha, 55 Phil. 497).
The intervenor invokes the provisions of article 1544 of the New Civil Code for the reason that while the real
estate mortgage in his favor (Annex "B" Stipulation) has been registered with the Register of Deeds of Manila
under the provisions of Act No. 3344 on November 3, 1961, the deed of sale with right to repurchase (Annex
"A" Stipulation) however, has not been duly registered. Article 1544 of the New Civil Code, however, refers to
the sale of the same property to two or more vendees. This provision of law, therefore, is not applicable to the
present case which does not involve sale of the same property to two or more vendees. Furthermore, the mere
registration of the property mortgaged in favor of the intervenor under Act No. 3344 does not prejudice the
interests of the petitioners who have a better right over the property in question under the old principle of first in
time, better in right. (Gallardo vs. Gallardo, C.B., 46 O.G. 5568)
De Leon appealed directly to this Court, contending (1) that the sale in question is not only voidable but void ab initiofor
having been made by Lanuza without the consent of his wife; (2) that the pacto de retro sale is in reality an equitable
mortgage and therefore can not be the basis of a petition for consolidation of ownership; and (3) that at any rate the
sale, being unrecorded, cannot affect third parties.
We are in accord with the trial court's ruling that a conveyance of real property of the conjugal partnership made by the
husband without the consent of his wife is merely voidable. This is clear from article 173 of the Civil Code which gives
the wife ten years within which to bring an action for annulment. As such it can be ratified as Lanuza's wife in effect did
in this case when she gave her conformity to the extension of the period of redemption by signing the annotation on the
margin of the deed. We may add that actions for the annulment of voidable contracts can be brought only by those who
are bound under it, either principally or subsidiarily (art. 1397), so that if there was anyone who could have questioned
the sale on this ground it was Lanuza's wife alone.
We also agree with the lower court that between an unrecorded sale of a prior date and a recorded mortgage of a later
date the former is preferred to the latter for the reason that if the original owner had parted with his ownership of the
thing sold then he no longer had the ownership and free disposal of that thing so as to be able to mortgage it again.
Registration of the mortgage under Act No. 3344 would, in such case, be of no moment since it is understood to be
without prejudice to the better right of third parties.2 Nor would it avail the mortgagee any to assert that he is in actual
possession of the property for the execution of the conveyance in a public instrument earlier was equivalent to the
delivery of the thing sold to the vendee.3
But there is one aspect of this case which leads us to a different conclusion. It is a point which neither the parties nor
the trial court appear to have sufficiently considered. We refer to the nature of the so-called "Deed of Sale with Right to
Repurchase" and the claim that it is in reality an equitable mortgage. While De Leon raised the question below and
again in this Court in his second assignment of error, he has not demonstrated his point; neither has he pursued the
logical implication of his argument beyond stating that a petition for consolidation of ownership is an inappropriate
remedy to enforce a mortgage.
De Leon based his claim that the pacto de retro sale is actually an equitable mortgage on the fact that, first, the
supposed vendors (the Lanuzas) remained in possession of the thing sold and, second, when the three-month period
of redemption expired the parties extended it. These are circumstances which indeed indicate an equitable
mortgage.4 But their relevance emerges only when they are seen in the perspective of other circumstances which
indubitably show that what was intended was a mortgage and not a sale.These circumstances are:
1. The gross inadequacy of the price. In the discussion in the briefs of the parties as well as in the decision of the trial
court, the fact has not been mentioned that for the price of P3,000, the supposed vendors "sold" not only their house,
which they described as new and as being made of strong materials and which alone had an assessed value of
P4,000, but also their leasehold right television set and refrigerator, "Kelvinator of nine cubic feet in size." indeed, the
petition for consolidation of ownership is limited to the house and the leasehold right, while the stipulation of facts of the
parties merely referred to the object of the sale as "the property in question." The failure to highlight this point, that is,
the gross inadequacy of the price paid, accounts for the error in determining the true agreement of the parties to the
deed.
2. The non-transmission of ownership to the vendees. The Lanuzas, the supposed vendors did not really transfer their
ownership of the properties in question to Reyes and Navarro. What was agreed was that ownership of the things
supposedly sold would vest in the vendees only if the vendors failed to pay P3,000. In fact the emphasis is on the

vendors payment of the amount rather than on the redemption of the things supposedly sold. Thus, the deed recites
that
If I (Lanuza) fail to pay said amount of P3,000.00 within the stipulated period of three months, my right to
repurchase the said properties shall be forfeited and the ownership thereto automatically pass to Mrs. Maria
Bautista Vda. de Reyes . . . without any Court intervention and they can take possession of the same.
This stipulation is contrary to the nature of a true pacto de retro sale under which a vendee acquires ownership of the
thing sold immediately upon execution of the sale, subject only to the vendor's right of redemption.5 Indeed, what the
parties established by this stipulation is an odious pactum commissorium which enables the mortgages to acquire
ownership of the mortgaged properties without need of foreclosure proceedings. Needless to say, such a stipulation is
a nullity, being contrary to the provisions of article 2088 of the Civil Code.6 Its insertion in the contract of the parties is
an avowal of an intention to mortgage rather than to sell.7
3. The delay in the filing of the petition for consolidation. Still another point obviously overlooked in the consideration of
this case is the fact that the period of redemption expired on July 12, 1961 and yet this action was not brought until
October 19, 1962 and only after De Leon had asked on October 5, 1962 for the extra-judicial for closure of his
mortgage. All the while, the Lanuzas remained in possession of the properties they were supposed to have sold and
they remained in possession even long after they had lost their right of redemption.
Under these circumstances we cannot but conclude that the deed in question is in reality a mortgage. This conclusion
is of far-reaching consequence because it means not only that this action for consolidation of ownership is improper, as
De Leon claims, but, what is more that between the unrecorded deed of Reyes and Navarro which we hold to be an
equitable mortgage, and the registered mortgage of De Leon, the latter must be preferred. Preference of mortgage
credits is determined by the priority of registration of the mortgages,8 following the maxim "Prior tempore potior jure"
(He who is first in time is preferred in right.)9 Under article 2125 of the Civil Code, the equitable mortgage, while valid
between Reyes and Navarro, on the one hand, and the Lanuzas, on the other, as the immediate parties thereto, cannot
prevail over the registered mortgage of De Leon.
Wherefore, the decision appealed from is reversed, hence, the petition for consolidation is dismissed. Costs against
Reyes and Navarro.