RABAJA RANCH DEVELOPMENT VS.

AFP RETIREMENT AND SEPARATION BENEFITS

SYSTEM 592 SCRA 201

FACTS:
- Rabaja Ranch Development Corporation (petitioner), a domestic corporation, is a holder
of Transfer Certificate of Title (TCT) No. T-88513 covering the subject property particularly
identified as Lot 395, Pls 47, with an area of 211,372 square meters more or less, and located
at Barangay (Brgy.) Conrazon, Bansud, Bongabon, Oriental Mindoro.

- Armed Forces of the Philippines Retirement and Separation Benefits System (AFP-
RSBS) is a government corporation, which manages the pension fund of the Armed Forces of
the Philippines (AFP), is a holder of TCT No. T-51382 covering the same subject property.

- September 1, 1998, RABAJA filed a Complaint for Quieting of Title and/or Removal of
Cloud from Title before the RTC.
o September 6, 1955, Free Patent No. V-19535 (Free Patent) was issued in the
name of Jose Castromero (Jose), registered, and Original Certificate of Title
(OCT) No. P-2612 covering the subject property was issued in the name of Jose.
o Jose sold the subject property to Spouses Sigfriedo and Josephine
Veloso (spouses Veloso), and TCT No. T-17104 was issued in favor of the latter.
o Spouses Veloso, in turn, sold the subject property to RABAJA RANCH
DEVELOPMENT CORPORATION for the sum of P 634,116.00 on January 17,
1997, and TCT No. T-88513 was issued in petitioners name.

- AFP-RSBS averred,
o title over the subject property was protected by the Torrens system, as it was a
buyer in good faith and for value; and that it had been in continuous
possession of the subject property since November 1989, way ahead of
RABAJA's alleged possession in February 1997.
o April 30, 1966, Homestead Patent No. 113074 (Homestead Patent) was issued
in the name of Charles Soguilon (Charles).
o On May 27, 1966, the Homestead Patent was registered and OCT No. RP-110
(P-6339) was issued in Charles's name, covering the same property.
o On October 18, 1982, Charles sold the subject property to JMC Farm
Incorporated (JMC), which was then issued TCT No. 18529.
o On August 30, 1985, JMC obtained a loan from AFP-RSBS in the amount
of P7,000,000.00, with real estate mortgage over several parcels of land
including the subject property. JMC failed to pay; hence, after extra-judicial
foreclosure and public sale, respondent, being the highest bidder, acquired the
subject property and was issued TCT No. T-51382 in its name. AFP-RSBS
contended that from the time it was issued a title, it took possession of the
subject property until RABAJA disturbed AFP-RSBS's possession thereof
sometime in 1997.

- RTC ruled in favor of the RABAJA on the ground that RABAJA's title emanated from a title
older than that of AFP-RSBS. Moreover, the RTC held that there were substantial and
numerous infirmities in the Homestead Patent of Charles. The RTC found that there was
NO record in the Bureau of Lands that Charles was a homestead applicant or a grantee of
Homestead Patent No. 113074. Upon inquiry, the RTC also found that a
similar Homestead Patent bearing No. V-113074 was actually issued in favor of one Mariano
Costales over a parcel of land with an area of 8.7171 hectares and located in Bunawan,
Agusan in Mindanao, per Certification issued by the Lands Management Bureau dated February
18, 1998. Thus, the RTC held that Charles's Homestead Patent was fraudulent and
spurious, and respondent could not invoke the protection of the Torrens system, because the
system does not protect one who committed fraud or misrepresentation and holds
title in bad faith.
- Aggrieved, AFP-RSBS appealed to the CA.
o the CA reversed and set aside the RTC's Decision upon the finding that
Charles's Homestead Patent was earlier registered than Jose's Free
Patent. The CA held that Jose slept on his rights, and thus, respondent had
a better right over the subject property. Further, the CA opined that while it is
interesting to note that petitioner's claim that Homestead PatentNo. V-
113074 was issued to Mariano Costales, per Certification issued by the Lands
Management Bureau, there is nothing on record which would show that said
Homestead Patent No. V-113074 and Homestead Patent No. 113074 granted to
Charles were one and the same.

- RABAJA filed a Motion for Reconsideration, which the CA, however, denied.

- Filed a petition in SC.

ISSUE:

WON RESPONDENT'S TITLE WHICH ORIGINATED FROM A FAKE AND

SPURIOUS HOMESTEAD PATENT, IS SUPERIOR TO PETITIONER'S TITLE WHICH ORIGINATED
FROM A VALID AND EXISTING FREE PATENT. (who, between the petitioner and respondent, has
a better right over the subject property)

HELD:
- Petition is DENIED and the assailed Court of Appeals Decision is AFFIRMED

- Petitioner did not convincingly show that the Homestead Patent issued to Charles is indeed
spurious. More importantly, petitioner failed to prove that respondent took part in the alleged
fraud which dated back as early as 1966 when Charles supposedly secured the fake and
spurious Homestead Patent.

- In Republic v. Umali, court held that, in a reversion case, even if the original grantee of a
patent and title has obtained the same through fraud, reversion will no longer prosper as the
land had become private land and the fraudulent acquisition cannot affect the titles of
innocent purchasers for value.

This conclusion rests very firmly on Section 32 of P.D. No. 1529, which states:

SECTION 32. Review of decree of registration; Innocent purchaser for

value. The decree of registration shall not be reopened or revised by reason
of absence, minority, or other disability of any person adversely affected
thereby, nor by any proceeding in any court for reversing judgment, subject,
however, to the right of any person, including the government and the
branches thereof, deprived of land or of any estate or interest therein by such
adjudication or confirmation of title obtained by actual fraud, to file in the
proper Court of First Instance a petition for reopening and review of the decree
of registration not later than one year from and after the date of the entry of
such decree of registration, but in no case shall such petition be
entertained by the court where an innocent purchaser for value has
acquired the land or an interest therein whose rights may be
prejudiced. Whenever the phrase "innocent purchaser for value" or an
equivalent phrase occurs in this Decree, it shall be deemed to include
an innocent lessee, mortgagee, or other encumbrancer for value.

Upon the expiration of said period of one year, the decree of

registration and the certificate of title issued shall become incontrovertible.
Any person aggrieved by such decree of registration in any case may pursue
his remedy by action for damages against the applicant or any other person
responsible for the fraud. (Underscoring ours)
- No valid TCT can issue from a void TCT, unless an innocent purchaser for value had
intervened. An innocent purchaser for value is one who buys the property of another,
without notice that some other person has a right to or interest in the property, for which a full
and fair price is paid by the buyer at the time of the purchase or before receipt of any notice of
the claims or interest of some other person in the property. The protection given to innocent
purchasers for value is necessary to uphold a certificate of title's efficacy and conclusiveness,
which the Torrens system ensures

- AFP-RSBS is an innocent purchaser in good faith and for value. Thus, as far as respondent is
concerned, TCT No. 18529, shown to it by JMC, was free from any flaw or defect that could give
rise to any iota of doubt that it was fake and spurious, or that it was derived from a fake or
spurious Homestead Patent. Likewise, respondent was not under any obligation to make an
inquiry beyond the TCT itself when, significantly, a foreclosure sale was conducted and
respondent emerged as the highest bidder.

- The general rule that the direct result of a previous void contract cannot be valid will not
apply in this case as it will directly contravene the Torrens system of registration. Where
innocent third persons, relying on the correctness of the certificate of title thus issued, acquire
rights over the property, this Court cannot disregard such rights and order the cancellation of
the certificate. The effect of such outright cancellation will be to impair public confidence in the
certificate of title. The sanctity of the Torrens system must be preserved; otherwise, everyone
dealing with the property registered under the system will have to inquire in every instance as
to whether the title had been regularly or irregularly issued, contrary to the evident purpose of
the law. Every person dealing with the registered land may safely rely on the correctness of
the certificate of title issued therefor, and the law will, in no way, oblige him to go behind the
certificate to determine the condition of the property.

- Respondent's transfer certificate of title, having been derived from the Homestead Patent
which was registered under the Torrens system on May 27, 1966, was thus vested with the
habiliments of indefeasibility.

OTHER NOTES:
A. Fraud is of two kinds: actual or constructive.
Actual or positive fraud proceeds from an intentional deception practiced by means
of the misrepresentation or concealment of a material fact.
Constructive fraud is construed as a fraud because of its detrimental effect
upon public interests and public or private confidence, even though the act is
not done with an actual design to commit positive fraud or injury upon other
persons.

Fraud may also be either extrinsic or intrinsic.

Fraud is regarded as intrinsic where the fraudulent acts pertain to an issue
involved in the original action, or where the acts constituting the fraud were or
could have been litigated therein.
The fraud is extrinsic if it is employed to deprive parties of their day in
court and thus prevent them from asserting their right to the property
registered in the name of the applicant.

B. In Republic v. Court of Appeals, this Court distinguished a Homestead Patent

from a Free Patent, to wit:
Homestead Patent and Free Patent are some of the land patents granted by the
government under the Public Land Act. While similar, they are not exactly the same. A
Homestead Patent is one issued to: any citizen of this country; over the age of 18 years or
the head of a family; who is not the owner of more than twenty-four (24) hectares of land in
the Philippines or has not had the benefit of any gratuitous allotment of more than twenty-four
(24) hectares of land since the occupation of the Philippines by the United States. The
applicant must show that he has complied with the residence and cultivation requirements of
the law; must have resided continuously for at least one year in the municipality where the
land is situated; and must have cultivated at least one-fifth of the land applied for.
 On the other hand, a Free Patent may be issued where the applicant
is a natural-born citizen of the Philippines; not the owner of more than twelve
(12) hectares of land; that he has continuously occupied and cultivated,
either by himself or through his predecessors-in-interests, a tract or tracts of
agricultural public lands subject to disposition for at least 30 years prior to the
effectivity of Republic Act No. 6940; and that he has paid the real taxes
thereon while the same has not been occupied by any person.

Homestead Patent, once registered under the Land Registration Act, becomes as
indefeasible as a Torrens Title. Verily, Section 103 of P.D. No. 1529 mandates the registration
of patents, and such registration is the operative act to convey the land to the patentee, thus:

Sec. 103. . . . . . The deed, grant, patent or instrument of conveyance from the
Government to the grantee shall not take effect as a conveyance or bind the land but shall
operate only as a contract between the Government and the grantee and as evidence of
authority to the Register of Deeds to make registration. It is the act of registration that
shall be the operative act to affect and convey the land, and in all cases under this
Decree, registration shall be made in the office of the Register of Deeds of the
province or city where the land lies. The fees for registration shall be paid by the
grantee. After due registration and issuance of the certificate of title, such land
shall be deemed to be registered land to all intents and purposes under this Decree.
C. The Torrens system is not a mode of acquiring titles to lands; it is merely a system of
registration of titles to lands. However, justice and equity demand that the titleholder
should not be made to bear the unfavorable effect of the mistake or negligence of the
State's agents, in the absence of proof of his complicity in a fraud or of manifest
damage to third persons. The real purpose of the Torrens system is to quiet title to land
and put a stop forever to any question as to the legality of the title, except claims that
were noted in the certificate at the time of the registration or that may arise
subsequent thereto. Otherwise, the integrity of the Torrens system shall forever be
sullied by the ineptitude and inefficiency of land registration officials, who are
ordinarily presumed to have regularly performed their duties