G.R. No.

L-8936

October 2, 1915

CONSUELO LEGARDA, with her husband MAURO PRIETO, plaintiffs-appellants,

vs.
N.M. SALEEBY, defendant-appellee.
Singson, Ledesma and Lim for appellants.
D.R. Williams for appellee.

JOHNSON, J.:
From the record the following facts appear:
First. That the plaintiffs and the defendant occupy, as owners, adjoining lots in the district of Ermita in the city of
Manila.
Second. That there exists and has existed a number of years a stone wall between the said lots. Said wall is
located on the lot of the plaintiffs.
Third. That the plaintiffs, on the 2d day of March, 1906, presented a petition in the Court of Land Registration for
the registration of their lot. After a consideration of said petition the court, on the 25th day of October, 1906,
decreed that the title of the plaintiffs should be registered and issued to them the original certificate provided for
under the torrens system. Said registration and certificate included the wall.
Fourth. Later the predecessor of the defendant presented a petition in the Court of Land Registration for the
registration of the lot now occupied by him. On the 25th day of March, 1912, the court decreed the registration of
said title and issued the original certificate provided for under the torrens system. The description of the lot given
in the petition of the defendant also included said wall.
Fifth. Several months later (the 13th day of December, 1912) the plaintiffs discovered that the wall which had
been included in the certificate granted to them had also been included in the certificate granted to the defendant
.They immediately presented a petition in the Court of Land Registration for an adjustment and correction of the
error committed by including said wall in the registered title of each of said parties. The lower court however,
without notice to the defendant, denied said petition upon the theory that, during the pendency of the petition for
the registration of the defendant's land, they failed to make any objection to the registration of said lot, including
the wall, in the name of the defendant.
Sixth. That the land occupied by t he wall is registered in the name of each of the owners of the adjoining lots.
The wall is not a joint wall.
Under these facts, who is the owner of the wall and the land occupied by it?
The decision of the lower court is based upon the theory that the action for the registration of the lot of the
defendant was a judicial proceeding and that the judgment or decree was binding upon all parties who did not
appear and oppose it. In other words, by reason of the fact that the plaintiffs had not opposed the registration of
that part of the lot on which the wall was situate they had lost it, even though it had been theretofore registered
in their name. Granting that theory to be correct one, and granting even that the wall and the land occupied by it,
in fact, belonged to the defendant and his predecessors, then the same theory should be applied to the
defendant himself. Applying that theory to him, he had already lost whatever right he had therein, by permitting
the plaintiffs to have the same registered in their name, more than six years before. Having thus lost hid right,
may he be permitted to regain it by simply including it in a petition for registration? The plaintiffs having secured
the registration of their lot, including the wall, were they obliged to constantly be on the alert and to watch all the
proceedings in the land court to see that some one else was not having all, or a portion of the same, registered?

If that question is to be answered in the affirmative, then the whole scheme and purpose of the torrens system of
land registration must fail. The real purpose of that system is to quiet title to land; to put a stop forever to any
question of the legality of the title, except claims which were noted at the time of registration, in the certificate, or
which may arise subsequent thereto. That being the purpose of the law, it would seem that once a title is
registered the owner may rest secure, without the necessity of waiting in the portals of the court, or sitting in the
"mirador de su casa," to avoid the possibility of losing his land. Of course, it can not be denied that the
proceeding for the registration of land under the torrens system is judicial (Escueta vs. .Director of Lands, 16
Phil. Rep., 482). It is clothed with all the forms of an action and the result is final and binding upon all the world.
It is an action in rem. (Escueta vs. Director of Lands (supra); Grey Alba vs. De la Cruz, 17 Phil. rep., 49
Roxas vs. Enriquez, 29 Phil. Rep., 31; Tyler vs. Judges, 175 Mass., 51 American Land Co. vs. Zeiss, 219 U.S.,
47.)
While the proceeding is judicial, it involves more in its consequences than does an ordinary action. All the world
are parties, including the government. After the registration is complete and final and there exists no fraud, there
are no innocent third parties who may claim an interest. The rights of all the world are foreclosed by the decree
of registration. The government itself assumes the burden of giving notice to all parties. To permit persons who
are parties in the registration proceeding (and they are all the world) to again litigate the same questions, and to
again cast doubt upon the validity of the registered title, would destroy the very purpose and intent of the law.
The registration, under the torrens system, does not give the owner any better title than he had. If he does not
already have a perfect title, he can not have it registered. Fee simple titles only may be registered. The
certificate of registration accumulates in open document a precise and correct statement of the exact status of
the fee held by its owner. The certificate, in the absence of fraud, is the evidence of title and shows exactly the
real interest of its owner. The title once registered, with very few exceptions, should not thereafter be impugned,
altered, changed, modified, enlarged, or diminished, except in some direct proceeding permitted by law.
Otherwise all security in registered titles would be lost. A registered title can not be altered, modified, enlarged,
or diminished in acollateral proceeding and not even by a direct proceeding, after the lapse of the period
prescribed by law.
For the difficulty involved in the present case the Act (No. 496) providing for the registration of titles under the
torrens system affords us no remedy. There is no provision in said Act giving the parties relief under conditions
like the present. There is nothing in the Act which indicates who should be the owner of land which has been
registered in the name of two different persons.
The rule, we think, is well settled that the decree ordering the registration of a particular parcel of land is a bar to
future litigation over the same between the same parties .In view of the fact that all the world are parties, it must
follow that future litigation over the title is forever barred; there can be no persons who are not parties to the
action. This, we think, is the rule, except as to rights which are noted in the certificate or which arise
subsequently, and with certain other exceptions which need not be dismissed at present. A title once registered
can not be defeated, even by an adverse, open, and notorious possession. Registered title under the torrens
system can not be defeated by prescription (section 46, Act No. 496). The title, once registered, is notice to the
world. All persons must take notice. No one can plead ignorance of the registration.
The question, who is the owner of land registered in the name of two different persons, has been presented to
the courts in other jurisdictions. In some jurisdictions, where the "torrens" system has been adopted, the difficulty
has been settled by express statutory provision. In others it has been settled by the courts. Hogg, in his excellent
discussion of the "Australian Torrens System," at page 823, says: "The general rule is that in the case of two
certificates of title, purporting to include the same land, the earlier in date prevails, whether the land comprised in
the latter certificate be wholly, or only in part, comprised in the earlier certificate. (Oelkers vs. Merry, 2 Q.S.C.R.,
193; Miller vs. Davy, 7 N.Z.R., 155; Lloyd vs. Myfield, 7 A.L.T. (V.) 48; Stevens vs. Williams, 12 V.L. R., 152;
Register of Titles, vs. Esperance Land Co., 1 W.A.R., 118.)" Hogg adds however that, "if it can be very clearly
ascertained by the ordinary rules of construction relating to written documents, that the inclusion of the land in
the certificate of title of prior date is a mistake, the mistake may be rectified by holding the latter of the two
certificates of title to be conclusive." (See Hogg on the "Australian torrens System," supra, and cases cited. See
also the excellent work of Niblack in his "Analysis of the Torrens System," page 99.) Niblack, in discussing the
general question, said: "Where two certificates purport to include the same land the earlier in date prevails. ... In

successive registrations, where more than one certificate is issued in respect of a particular estate or interest in
land, the person claiming under the prior certificates is entitled to the estate or interest; and that person is
deemed to hold under the prior certificate who is the holder of, or whose claim is derived directly or indirectly
from the person who was the holder of the earliest certificate issued in respect thereof. While the acts in this
country do not expressly cover the case of the issue of two certificates for the same land, they provide that a
registered owner shall hold the title, and the effect of this undoubtedly is that where two certificates purport to
include the same registered land, the holder of the earlier one continues to hold the title" (p. 237).
Section 38 of Act No. 496, provides that; "It (the decree of registration) shall be conclusive upon and against all
persons, including the Insular Government and all the branches thereof, whether mentioned by name in the
application, notice, or citation, or included in the general description "To all whom it may concern." Such decree
shall not be opened by reason of the absence, infancy, or other disability of any person affected thereby, nor by
any proceeding in any court for reversing judgments or decrees; subject, however, to the right of any person
deprived of land or of any estate or interest therein by decree of registration obtained by fraud to file in the Court
of Land Registration a petition for review within one year after entry of the decree (of registration), provided no
innocent purchaser for value has acquired an interest.
It will be noted, from said section, that the "decree of registration" shall not be opened, for any reason, in any
court, except for fraud, and not even for fraud, after the lapse of one year. If then the decree of registration can
not be opened for any reason, except for fraud, in a direct proceeding for that purpose, may such decree be
opened or set aside in a collateral proceeding by including a portion of the land in a subsequent certificate or
decree of registration? We do not believe the law contemplated that a person could be deprived of his registered
title in that way.
We have in this jurisdiction a general statutory provision which governs the right of the ownership of land when
the same is registered in the ordinary registry in the name of two persons. Article 1473 of the Civil Code
provides, among other things, that when one piece of real property had been sold to two different persons it shall
belong to the person acquiring it, who first inscribes it in the registry. This rule, of course, presupposes that each
of the vendees or purchasers has acquired title to the land. The real ownership in such a case depends upon
priority of registration. While we do not now decide that the general provisions of the Civil Code are applicable to
the Land Registration Act, even though we see no objection thereto, yet we think, in the absence of other
express provisions, they should have a persuasive influence in adopting a rule for governing the effect of a
double registration under said Act. Adopting the rule which we believe to be more in consonance with the
purposes and the real intent of the torrens system, we are of the opinion and so decree that in case land has
been registered under the Land Registration Act in the name of two different persons, the earlier in date shall
prevail.
In reaching the above conclusion, we have not overlooked the forceful argument of the appellee. He says,
among other things; "When Prieto et al. were served with notice of the application of Teus (the predecessor of
the defendant) they became defendants in a proceeding wherein he, Teus, was seeking to foreclose their right,
and that of orders, to the parcel of land described in his application. Through their failure to appear and contest
his right thereto, and the subsequent entry of a default judgment against them, they became irrevocably bound
by the decree adjudicating such land to Teus. They had their day in court and can not set up their own omission
as ground for impugning the validity of a judgment duly entered by a court of competent jurisdiction. To decide
otherwise would be to hold that lands with torrens titles are above the law and beyond the jurisdiction of the
courts".
As was said above, the primary and fundamental purpose of the torrens system is to quiet title. If the holder of a
certificate cannot rest secure in this registered title then the purpose of the law is defeated. If those dealing with
registered land cannot rely upon the certificate, then nothing has been gained by the registration and the
expense incurred thereby has been in vain. If the holder may lose a strip of his registered land by the method
adopted in the present case, he may lose it all. Suppose within the six years which elapsed after the plaintiff had
secured their title, they had mortgaged or sold their right, what would be the position or right of the mortgagee or
vendee? That mistakes are bound to occur cannot be denied, and sometimes the damage done thereby is
irreparable. It is the duty of the courts to adjust the rights of the parties under such circumstances so as to

minimize such damages, taking into consideration al of the conditions and the diligence of the respective parties
to avoid them. In the present case, the appellee was the first negligent (granting that he was the real owner, and
if he was not the real owner he can not complain) in not opposing the registration in the name of the appellants.
He was a party-defendant in an action for the registration of the lot in question, in the name of the appellants, in
1906. "Through his failure to appear and to oppose such registration, and the subsequent entry of a default
judgment against him, he became irrevocably bound by the decree adjudicating such land to the appellants. He
had his day in court and should not be permitted to set up his own omissions as the ground for impugning the
validity of a judgment duly entered by a court of competent jurisdiction." Granting that he was the owner of the
land upon which the wall is located, his failure to oppose the registration of the same in the name of the
appellants, in the absence of fraud, forever closes his mouth against impugning the validity of that judgment.
There is no more reason why the doctrine invoked by the appellee should be applied to the appellants than to
him.
We have decided, in case of double registration under the Land Registration Act, that the owner of the earliest
certificate is the owner of the land. That is the rule between original parties. May this rule be applied to
successive vendees of the owners of such certificates? Suppose that one or the other of the parties, before the
error is discovered, transfers his original certificate to an "innocent purchaser." The general rule is that the
vendee of land has no greater right, title, or interest than his vendor; that he acquires the right which his vendor
had, only. Under that rule the vendee of the earlier certificate would be the owner as against the vendee of the
owner of the later certificate.
We find statutory provisions which, upon first reading, seem to cast some doubt upon the rule that the vendee
acquires the interest of the vendor only. Sections 38, 55, and 112 of Act No. 496 indicate that the vendee may
acquire rights and be protected against defenses which the vendor would not. Said sections speak of available
rights in favor of third parties which are cut off by virtue of the sale of the land to an "innocent purchaser." That is
to say, persons who had had a right or interest in land wrongfully included in an original certificate would be
unable to enforce such rights against an "innocent purchaser," by virtue of the provisions of said sections. In the
present case Teus had his land, including the wall, registered in his name. He subsequently sold the same to the
appellee. Is the appellee an "innocent purchaser," as that phrase is used in said sections? May those who have
been deprived of their land by reason of a mistake in the original certificate in favor of Teus be deprived of their
right to the same, by virtue of the sale by him to the appellee? Suppose the appellants had sold their lot,
including the wall, to an "innocent purchaser," would such purchaser be included in the phrase "innocent
purchaser," as the same is used in said sections? Under these examples there would be two innocent
purchasers of the same land, is said sections are to be applied .Which of the two innocent purchasers, if they
are both to be regarded as innocent purchasers, should be protected under the provisions of said sections?
These questions indicate the difficulty with which we are met in giving meaning and effect to the phrase
"innocent purchaser," in said sections.
May the purchaser of land which has been included in a "second original certificate" ever be regarded as an
"innocent purchaser," as against the rights or interest of the owner of the first original certificate, his heirs,
assigns, or vendee? The first original certificate is recorded in the public registry. It is never issued until it is
recorded. The record notice to all the world. All persons are charged with the knowledge of what it contains. All
persons dealing with the land so recorded, or any portion of it, must be charged with notice of whatever it
contains. The purchaser is charged with notice of every fact shown by the record and is presumed to know every
fact which the record discloses .This rule is so well established that it is scarcely necessary to cite authorities in
its support (Northwestern National Bank vs. Freeman, 171 U.S., 620, 629; Delvin on Real Estate, sections 710,
710 [a]).
When a conveyance has been properly recorded such record is constructive notice of its contents and all
interests, legal and equitable, included therein. (Grandin vs. Anderson, 15 Ohio State, 286, 289;
Orvis vs. Newell, 17 Conn., 97; Buchanan vs. Intentional Bank, 78 Ill., 500; Youngs vs. Wilson, 27 N.Y., 351;
McCabe vs. Grey, 20 Cal., 509; Montefiore vs. Browne, 7 House of Lords Cases, 341.)
Under the rule of notice, it is presumed that the purchaser has examined every instrument of record affecting the
title. Such presumption is irrebutable. He is charged with notice of every fact shown by the record and is

presumed to know every fact which an examination of the record would have disclosed. This presumption
cannot be overcome by proof of innocence or good faith. Otherwise the very purpose and object of the law
requiring a record would be destroyed. Such presumption cannot be defeated by proof of want of knowledge of
what the record contains any more than one may be permitted to show that he was ignorant of the provisions of
the law. The rule that all persons must take notice of the facts which the public record contains is a rule of law.
The rule must be absolute. Any variation would lead to endless confusion and useless litigation.
While there is no statutory provision in force here requiring that original deeds of conveyance of real property be
recorded, yet there is a rule requiring mortgages to be recorded. (Arts. 1875 and 606 of the Civil Code.) The
record of a mortgage is indispensable to its validity. (Art .1875.) In the face of that statute would the courts allow
a mortgage to be valid which had not been recorded, upon the plea of ignorance of the statutory provision, when
third parties were interested? May a purchaser of land, subsequent to the recorded mortgage, plead ignorance
of its existence, and by reason of such ignorance have the land released from such lien? Could a purchaser of
land, after the recorded mortgage, be relieved from the mortgage lien by the plea that he was a bona
fide purchaser? May there be a bona fide purchaser of said land, bona fide in the sense that he had no
knowledge of the existence of the mortgage? We believe the rule that all persons must take notice of what the
public record contains in just as obligatory upon all persons as the rule that all men must know the law; that no
one can plead ignorance of the law. The fact that all men know the law is contrary to the presumption. The
conduct of men, at times, shows clearly that they do not know the law. The rule, however, is mandatory and
obligatory, notwithstanding. It would be just as logical to allow the defense of ignorance of the existence and
contents of a public record.
In view, therefore, of the foregoing rules of law, may the purchaser of land from the owner of the second original
certificate be an "innocent purchaser," when a part or all of such land had theretofore been registered in the
name of another, not the vendor? We are of the opinion that said sections 38, 55, and 112 should not be applied
to such purchasers. We do not believe that the phrase "innocent purchaser should be applied to such a
purchaser. He cannot be regarded as an "innocent purchaser" because of the facts contained in the record of
the first original certificate. The rule should not be applied to the purchaser of a parcel of land the vendor of
which is not the owner of the original certificate, or his successors. He, in nonsense, can be an "innocent
purchaser" of the portion of the land included in another earlier original certificate. The rule of notice of what the
record contains precludes the idea of innocence. By reason of the prior registry there cannot be an innocent
purchaser of land included in a prior original certificate and in a name other than that of the vendor, or his
successors. In order to minimize the difficulties we think this is the safe rule to establish. We believe the phrase
"innocent purchaser," used in said sections, should be limited only to cases where unregistered land has been
wrongfully included in a certificate under the torrens system. When land is once brought under the torrens
system, the record of the original certificate and all subsequent transfers thereof is notice to all the world. That
being the rule, could Teus even regarded as the holder in good fifth of that part of the land included in his
certificate of the appellants? We think not. Suppose, for example, that Teus had never had his lot registered
under the torrens system. Suppose he had sold his lot to the appellee and had included in his deed of transfer
the very strip of land now in question. Could his vendee be regarded as an "innocent purchaser" of said strip?
Would his vendee be an "innocent purchaser" of said strip? Certainly not. The record of the original certificate of
the appellants precludes the possibility. Has the appellee gained any right by reason of the registration of the
strip of land in the name of his vendor? Applying the rule of notice resulting from the record of the title of the
appellants, the question must be answered in the negative. We are of the opinion that these rules are more in
harmony with the purpose of Act No. 496 than the rule contended for by the appellee. We believe that the
purchaser from the owner of the later certificate, and his successors, should be required to resort to his vendor
for damages, in case of a mistake like the present, rather than to molest the holder of the first certificate who has
been guilty of no negligence. The holder of the first original certificate and his successors should be permitted to
rest secure in their title, against one who had acquired rights in conflict therewith and who had full and complete
knowledge of their rights. The purchaser of land included in the second original certificate, by reason of the facts
contained in the public record and the knowledge with which he is charged and by reason of his negligence,
should suffer the loss, if any, resulting from such purchase, rather than he who has obtained the first certificate
and who was innocent of any act of negligence.

The foregoing decision does not solve, nor pretend to solve, all the difficulties resulting from double registration
under the torrens system and the subsequent transfer of the land. Neither do we now attempt to decide the
effect of the former registration in the ordinary registry upon the registration under the torrens system. We are
inclined to the view, without deciding it, that the record under the torrens system, supersede all other registries. If
that view is correct then it will be sufficient, in dealing with land registered and recorded alone. Once land is
registered and recorded under the torrens system, that record alone can be examined for the purpose of
ascertaining the real status of the title to the land.
It would be seen to a just and equitable rule, when two persons have acquired equal rights in the same thing, to
hold that the one who acquired it first and who has complied with all the requirements of the law should be
protected.
In view of our conclusions, above stated, the judgment of the lower court should be and is hereby revoked. The
record is hereby returned to the court now having and exercising the jurisdiction heretofore exercised by the land
court, with direction to make such orders and decrees in the premises as may correct the error heretofore made
in including the land in the second original certificate issued in favor of the predecessor of the appellee, as well
as in all other duplicate certificates issued.
Without any findings as to costs, it is so ordered.

G.R. No. 5246

September 16, 1910

MANUELA GREY ALBA, ET AL., petitioners-appellants,

vs.
ANACLETO R. DE LA CRUZ, objector-appellee.
Ramon Salinas, for appellants.
Aniceto G. Reyes, for appellee.
TRENT, J.:
These petitioners, Manuela, Jose, Juan, and Francisco, surnamed Grey y Alba, are the only heirs of
Doa Segunda Alba Clemente and Honorato Grey, deceased. Remedios Grey y Alba, a sister of the
petitioners, was married on the 21st day of March, 1903, to Vicente Reyes and died on the 13th of
July, 1905, without leaving any heirs except her husband. The four petitioners, as coowners, sought to
have registered the following-described property:
A parcel of land situated in the barrio of Talampas, municipality of Baliuag, Province of Bulacan,
upon which are situated three houses and one camarin of light material, having a superficial

area of 52 hectares, 51 ares, and 22 centares; bounded on the north by the highway (calzada)
of Talampas and the lands of Rita Ruiz Mateo; on the east by the lands of the said Rita Ruiz
Mateo, Hermenegildo Prado, Policarpo de Jesus, and a stream called Sapang Buslut; on the
south by the same stream and the lands of the capellania; and on the west by the stream called
Sapang Buslut, and the lands of Vicente de la Cruz, Jose Camacho and Domingo Ruiz Mateo.
This parcel of agricultural land is used for the raising of rice and sugar cane and is assessed at $1,000
United States currency. The petition, which was filed on the 18th of December, 1906, was
accompanied by a plan and technical description of the above-described parcel of land.
After hearing the proofs presented, the court entered, on the 12th of February, 1908, a decree in
accordance with the provisions of paragraph 6 of section 54 of Act No. 926, directing that the land
described in the petitioner be registered in the names of the four petitioners, as coowners, subject to
the usufructuary right of Vicente Reyes, widower of Remedios Grey.
On the 16th of June, 1908, Anacleto Ratilla de la Cruz filed a motion in the Court of Land Registration
asking for a revision of the case, including the decision, upon the ground that he is the absolute owner
of the two parcels of land which are described in said motion, and which, according to his allegations,
are included in the lands decreed to the petitioners. He alleged that the decree of February 12, 1908,
was obtained maliciously and fraudulently by the petitioners, thereby depriving him of said two parcels
of land. He further alleged that he was the absolute owner of the two parcels of land, having inherited
them from his father, Baldomero R. de la Cruz, who had a state grant for the same. He therefore
asked, under the provisions of section 38 of the Land Registration Act (No. 496), a revision of the case,
and that the said decree be modified so as to exclude the two parcels of land described in said motion.
The Land Court upon this motion reopened the case, and after hearing the additional evidence
presented by both parties, rendered, on the 23rd of November, 1908, its decision modifying the former
decree by excluding from the same the two parcels of land claimed by Anacleto Ratilla de la Cruz.
From this decision and judgment the petitioners appealed and now insist, first, that the trial court erred
in reopening the case and modifying its decree dated the 12th of February, 1908, for the reason that
said decree was not obtained by means of fraud; and, second, that the court erred in holding that the
two parcels of land described in the appellee's motion are not their property.
It was agreed by counsel that the two small parcels now in dispute forma part of the land described in
the petition and were included in the decree of February 12, 1908, and that the petitioners are the
owners of the remainder of the land described in the said decree.
The petitioners inherited this land from their parents, who acquired the same, including the two small
parcels in question, by purchase, as is evidenced by a public document dated the 26th of November,
1864, duly executed before Francisco Iriarte, alcalde mayor and judge of the Court of First Instance of
the Province of Bulacan.
Baldomero R. de la Cruz, father of the appellee, obtained in march, 1895, a state grant for several
parcels of land, including the two parcels in question. This grant was duly inscribed in the old register
of property in Bulacan on the 6th of April of the same year.
It is admitted that at the time the appellants presented their petition in this case the appellee was
occupying the two parcels of land now in question. It is also admitted that the name of the appellee
does not appear in the said petition as an occupant of the said two parcels. The petitioners insist that
the appellee was occupying these parcels as their tenant and for this reason they did not include his
name in their petition, as an occupant, while the appellee contends that he was occupying the said
parcels as the absolute owner under the estate grant by inheritance.

The court below held that the failure on the part of the petitioners to include the name of the appellee
in their petition, as an occupant of these two parcels of land, was a violation of section 21 of Act No.
496, and that this constituted fraud within the meaning of section 38 of said Land Registration Act. The
trial court further held that the grant from the estate should prevail over the public document of
purchase of 1864.
The mother of the petitioners died on November 15, 1881; their father died prior to that time. Manuela,
the oldest of the petitioners, was about six years of age when their mother died. So these children
were minors when the father of the appellee obtained the estate grant.
On the 13th of June, 1882, Jose Grey, uncle and representative of the petitioners, who were then
minors, rented the land owned by the petitioners' deceased parents to one Irineo Jose for a period of
three years. On the 23d of March, 1895, the said Jose Grey, as the representative of the petitioners,
rented the same land for a period of six years to Baldomero R. de la Cruz, father of the appellee. This
rental contract was duly executed in writing. This land was cultivated during these six years by
Baldomero R. de la Cruz and his children, one of whom is the appellee. On the 14th of December,
1905, Jose Grey, for himself and the other petitioners, rented the same land to Estanislao R. de la
Cruz for a period of two years. Estanislao de la Cruz on entering into this rental contract with Jose
Grey did so for himself and his brothers, one of whom is the appellee. While the appellee admits that
his father and brother entered into these rental contracts and did, in fact, cultivate the petitioners' land,
nevertheless he insists that the two small parcels in question were not included in these contracts. In
the rental contract between the uncle of the petitioners and he father of the appellee the land is not
described. In the rental contract between Jose Grey, one of the petitioners, and Estanislao R. de la
Cruz, brother of the appellee, the two small parcels of land in question are included, according to the
description given therein. This was found to be true by the court below, but the said court held that as
this contract was made by Estanislao R. de la Cruz it was not binding upon Anacleto R. de la Cruz, the
appellee.
The two small parcels of land in question were purchased by the parents of the petitioners in 1864, as
is evidenced by the public document of purchase and sale of that year. The same two parcels of land
are included in the state grant issued in favor of Baldomero Ratilla de la Cruz in 1895. This grant was
obtained after the death of the petitioners' parents and while they were minors. So it is clear that the
petitioners honestly believed that the appellee was occupying the said parcels as their lessee at the
time they presented their application for registration. They did not act in bad faith, nor with any
fraudulent intent, when they omitted to include in their application the name of the appellee as one of
the occupants of the land. They believed that it was not necessary nor required that they include in
their application the names of their tenants. Under these circumstances, did the court below commit an
error in reopening this case in June, 1908, after its decree had been entered in February of the same
year?
The application for the registration is to be in writing, signed and sworn to by the applicant, or by some
person duly authorized in his behalf. It is to contain an accurate description of the land. It shall contain
the name in full and the address of the applicant, and also the names and addresses of all
occupants of land and of all adjoining owners, if known; and, if not known, it shall state what search
has been made to find them. In the form of notice given by statute, which shall be sworn to, the
applicant is required to state and set forth clearly all mortgages or encumbrances affecting said land, if
any, the rights and interests, legal or equitable, in the possession, remainder, reversion, or expectancy
of all persons, with their names in full, together with their place of residence and post office addresses.
Upon receipt of the application the clerk shall cause notice of the filling to be published twice in the
Official Gazette. This published notice shall be directed to all persons appearing to have an interest in
the land sought to be registered and to the adjoining owners, and also "to all whom it may concern." In

addition to the notice in the Official Gazette the Land Court shall, within seven days after said
publication, cause a copy of the notice, in Spanish, to be mailed by the clerk to every person named in
the application whose address is known; to cause a duly attested copy of the notice, in Spanish, to be
posted in a conspicuous place on every parcel of land included in the application, and in a
conspicuous place on the chief municipal building of the town in which the land is situated. The court
may also cause other or further notice of the application to be given in such manner and to such
persons as it may deem proper. The certificate of the clerk that he has served the notice as directed by
the court by publication or mailing shall be conclusive proof of such service. Within the time allowed in
the notices, if no person appears and answers, the court may at once, upon motion of the applicant, no
reason to the contrary appearing, order a general default. By the description in the published notice "to
all whom it may concern," and by express provisions of law "all the word are made parties defendant
and shall be concluded by the default an order." If the court, after hearing, finds that the applicant has
title, as stated in his application, a decree or registration shall be entered.
Every decree of registration shall bind the land and quiet title thereto, subject only to the
exceptions stated in the following section. It shall be conclusive upon and against all persons,
including the Insular Government, and all the branches thereof, whether mentioned by name in
the application, notice, or citation, or included in the general description "to all whom it may
concern." Such decree shall not be opened by reason of the absence, infancy, or other disability
of any person affected thereby, nor by any proceedings in any court for reversing judgments or
decrees; subject, however, to the right of any person deprived of land or of any estate or
interest therein by decree of registration obtained by fraud to file in the Court of Land
Registration a petition for review within one year. . . . (Sec. 38 of Act No. 496.)
The appellee is not included in any of the exceptions named in section 38 referred to above.
It will be seen that the applicant is required to mention not only the outstanding interest which he
admits but also all claims of interest, though denied by him. By express provision of law the world are
made parties defendant by the description in the notice "to all whom it may concern."
Although the appellee, occupying the two small parcels of land in question under the circumstances as
we have set forth, was not served with notice, he was made a party defendant by publication; and the
entering of a decree on the 12th of February, 1908, must be held to be conclusive against all persons,
including the appellee, whether his (appellee's) name is mentioned in the application, notice, or
citation.
The said decree of February 12, 1908, should not have been opened on account of the absence,
infancy, or other disability of any person affected thereby, and could have been opened only on the
ground that the said decree had been obtained by fraud. That decree was not obtained by fraud on the
part of the applicants, inasmuch as they honestly believed that the appellee was occupying these two
small parcels of land as their tenant. One of the petitioner went upon the premises with the surveyor
when the original plan was made.
Proof of constructive fraud is not sufficient to authorize the Court of Land Registration to reopen a case
and modify its decree. Specific, intentional acts to deceive and deprive anther of his right, or in some
manner injure him, must be alleged and proved; that is, there must be actual or positive fraud as
distinguished from constructive fraud.
The question as to the meaning of the word "fraud" in the Australian statutes has been frequently
raised. Two distinctions have been noted by the Australian courts; the first is the distinction between
the meaning of the word "fraud" in the sections relating to the conclusive effect of certificates of title,

and its meaning in the sections relating to the protection of bona fide purchasers from registered
proprietors. The second is the distinction between "legal," "equitable," or "constructive" fraud, and
"actual" or "moral" fraud. In none of the groups of the sections of the Australian statutes relating to the
conclusive effect of certificates of title, and in which fraud is referred to, is there any express indication
of the meaning of "fraud," with the sole exception of that of the South Australian group. (Hogg on
Australian Torrens System, p. 834.)
With regard to decisions on the sections relating to the conclusive effect of certificates of title, it
has been held in some cases that the "fraud" there mentioned means actual or moral fraud, not
merely constructive or legal fraud. In other cases "fraud" has been said to include constructive,
legal, and every kind of fraud. In other cases, against, knowledge of other persons' right, and
the deliberate acquisition of registered title in the face of such knowledge, has been held to be
"fraud" which rendered voidable the certificates of title so obtained; and voluntary ignorance is,
for this purpose, the same as knowledge. But in none of these three classes of cases was there
absent the element of intention to deprive another of just rights, which constitutes the essential
characteristics of actual as distinguished from legal-fraud. (Id., p. 835, and cases cited in
notes Nos. 85, 86, 87, 88, and 89 at bottom of pages 835 and 836.)
By "fraud" is meant actual fraud-dishonesty of some sort. (Judgment of Privy Council in Assets Co. vs.
Mere Roihi, and Assets Co. vs. Panapa Waihopi, decided in March, 1905, cited by Hogg in his
Supplementary Addendum to his work on Australian Torrens System, supra.) The same meaning
should be given to the word "fraud" used in section 38 of our statutes (Act No. 496).
The question as to whether any particular transaction shows fraud, within the meaning of the word as
used in our statutes, will in each case be a question of fact. We will not attempt to say what acts would
constitutes this kind of fraud in other cases. This must be determined from the fact an circumstances in
each particular case. The only question we are called upon to determine, and have determined, is
whether or not, under the facts and circumstances in this case, the petitioners did obtain the decree of
February 12, 1908, by means of fraud.
It might be urged that the appellee has been deprived of his property without due process of law, in
violation of section 5 of the Act of Congress of July 1, 1902, known as the Philippine Bill," which
provides "that no law shall be enacted in the said Islands which shall deprive any person of life, liberty,
or property without due process of law."
The Land Registration Act requires that all occupants be named in the petition and given notice by
registered mail. This did not do the appellee any good, as he was not notified; but he was made a party
defendant, as we have said, by means of the publication "to all whom it may concern." If this section of
the Act is to be upheld this must be declared to be due process of law.
Before examining the validity of this part of the Act it might be well to note the history and purpose of
what is known as the "Torrens Land Registration System." This system was introduced in South
Australia by Sir Robert Torrens in 1857 and was there worked out in its practicable form.
The main principle of registration is to make registered titles indefeasible. As we have said, upon the
presentation in the Court of Land Registration of an application for the registration of the title to lands,
under this system, the theory of the law is that all occupants, adjoining owners, adverse claimants, and
other interested persons are notified of the proceedings, and have have a right to appear in opposition
to such application. In other words, the proceeding is against the whole word. This system was
evidently considered by the Legislature to be a public project when it passed Act No. 496. The interest
of the community at large was considered to be preferred to that of private individuals.

At the close of this nineteenth century, all civilized nations are coming to registration of title to
land, because immovable property is becoming more and more a matter of commercial dealing,
and there can be no trade without security. (Dumas's Lectures, p. 23.)
The registered proprietor will no longer have reasons to fear that he may evicted because his
vendor had, unknown to him, already sold the and to a third person. . . The registered proprietor
may feel himself protected against any defect in his vendor's title. (Id., p. 21.)
The following summary of benefits of the system of registration of titles, made by Sir Robert
Torrens, has been fully justified in its use:
First. It has substituted security for insecurity.
Second. It has reduced the costs of conveyances from pounds to shillings, and the time
occupied from months to days.
Third. It has exchanged brevity and clearness for obscurity and verbiage.
Fourth. It has so simplified ordinary dealings that he who has mastered the "three R's" can
transact his own conveyancing.
Fifth. It affords protection against fraud.
Sixth. It has restored to their just value many estates held under good holding titles, but
depreciated in consequence of some blur or technical defect, and has barred the reoccurrence
of any similar faults. (Sheldon on Land Registration, pp. 75, 76.)
The boldest effort to grapple with the problem of simplification of title to land was made by Mr.
(afterwards Sir Robert) Torrens, a layman, in South Australia in 1857. . . . In the Torrens
system title by registrationtakes the place of "title by deeds" of the system under the "general"
law. A sale of land, for example, is effected by a registered transfer, upon which a certificate of
title is issued. The certificate is guaranteed by statute, and, with certain exceptions, constitutes
indefeasible title to the land mentioned therein. Under the old system the same sale would be
effected by a conveyance, depending for its validity, apart from intrinsic flaws, on the
correctness of a long series of prior deeds, wills, etc. . . . The object of the Torrens system,
them, is to do away with the delay, uncertainty, and expense of the old conveyancing system.
(Duffy & Eagleson on The Transfer of Land Act, 1890, pp. 2, 3, 5, 7.)
By "Torrens" system generally are meant those systems of registration of transactions with
interest in land whose declared object . . . is, under governmental authority, to establish and
certify to the ownership of an absolute and indefeasible title to realty, and to simplify its transfer.
(Hogg on Australian Torrens system,supra, pp. 1, 2.)
Compensation for errors from assurance funds is provided in all countries in which the Torrens system
has been enacted. Cases of error no doubt will always occur. The percentage of errors, as compared
with the number of registered dealings in Australia, is very small. In New South Wales there were, in
1889, 209, 894 registered dealings, the average risk of error being only 2 cents for each dealing. In
Queensland the risk of error was only 1 cents, the number of registered dealings being 233,309. In
Tasmania and in Western Australia not a cent was paid for compensation for errors during the whole
time of operation, (Dumas's Lectures, supra, p. 96.) This system has been adopted in various

countries of the civilized world, including some of the States of the American Union, and practical
experience has demonstrated that it has been successful as a public project.
The validity of some of the provisions of the statutes adopting the Torrens system has been the subject
of judicial decision in the courts of the United States. (People vs. Chase, 165 Ill., 527; State vs.
Guilbert, 56 Ohio St., 575; People vs. Simon, 176 Ill., 165; Tyler vs. Judges, 175 Mass., 71.)
Act No. 496 of the Philippine Commission, known as the "Land Registration Act," was copied
substantially from the Massachussetts law of 1898.
The Illinois and Massachusetts statutes were upheld by the supreme courts of those States.
It is not enough to show a procedure to be unconstitutional to say that we never heard of it
before. (Tylervs. Judges, supra; Hurtado vs. California, 110 U. S., 516.)
Looked at either from the point of view of history or of the necessary requirements of justice, a
proceedingin rem dealing with a tangible res may be instituted and carried to judgment without
personal service upon claimants within the State or notice by name to those outside of it, and
not encounter any provision of either constitution. Jurisdiction is secured by the power of the
court over the res. As we have said, such a proceeding would be impossible, were this not so,
for it hardly would do to make a distinction between the constitutional rights of claimants who
were known and those who were not known to the plaintiff, when the proceeding is to bar all.
(Tyler vs. Judges, supra.)
This same doctrine is annunciated in Pennoyer vs. Neff (95 U. S., 714); The Mary (9 Cranch, 126);
Mankin vs. Chandler (2 Brock., 125); Brown vs. Levee Commission (50 Miss., 468); 2 Freeman,
Judgments, 4th ed., secs. 606, 611.
If the technical object of the suit is to establish a claim against some particular person, with a
judgment which generally, in theory at least, binds his body, or to bar some individual claim or
objection, so that only certain persons are entitled to be heard in defense, the action is in
personam, although it may concern the right to or possession of a tangible thing. If, on the other
hand, the object is to bar indifferently all who might be minded to make an objection of any sort
against the right sought to be established, and if anyone in the world has a right to be heard on
the strenght of alleging facts which, if true, show an inconsistent interest, the proceeding is in
rem. (Tyler vs. Judges, supra.)
In the case of Hamilton vs. Brown (161 U. S., 256) a judgment of escheat was held conclusive upon
persons notified by advertisement to all persons interested. In this jurisdiction, by the provisions of the
Code of Civil Procedure, Act No. 190, a decree allowing or disallowing a will binds everybody, although
the only notice of the proceedings given is by general notice to all persons interested.
The supreme court Massachusetts, in the case of Tyler vs. Judges (supra), did not rest its judgment as
to the conclusive effect of the decree upon the ground that the State has absolute power to determine
the persons to whom a man's property shall go at his death, but upon the characteristics of a
proceeding in rem. So we conclude that the proceedings had in the case at bar, under all the facts and
circumstances, especially the absolute lack on the part of the petitioners of any dishonest intent to
deprive the appellee of any right, or in any way injure him, constitute due process of law.
As to whether or not the appellee can succesfully maintain an action under the provisions of sections
101 and 102 of the Land Registration Act (secs. 2365, 2366, Compilation) we do not decide.

For these reasons we are of the opinion, and so hold, that the judgment appealed from should be, and
the same is hereby reversed and judgment entered in favor of the petitioners in conformity with the
decree of the lower court of February 12, 1908, without special ruling as to costs. It is so ordered.
Arellano, C.J., Torres, Johnson and Moreland, JJ., concur.

G.R. No. 93397 March 3, 1997

TRADERS ROYAL BANK, petitioner,
vs.
COURT OF APPEALS, FILRITERS GUARANTY ASSURANCE CORPORATION and CENTRAL BANK of the
PHILIPPINES, respondents.

TORRES, JR., J.:

Assailed in this Petition for Review on Certiorari is the Decision of the respondent Court of Appeals dated
January 29, 1990, 1 affirming the nullity of the transfer of Central Bank Certificate of Indebtedness (CBCI) No.
D891, 2 with a face value of P500,000.00, from the Philippine Underwriters Finance Corporation (Philfinance) to the
petitioner Trader's Royal Bank (TRB), under a Repurchase Agreement 3 dated February 4, 1981, and a Detached
Assignment 4 dated April 27, 1981.
Docketed as Civil Case No. 83-17966 in the Regional Trial Court of Manila, Branch 32, the action was originally
filed as a Petition for Mandamus 5 under Rule 65 of the Rules of Court, to compel the Central Bank of the Philippines
to register the transfer of the subject CBCI to petitioner Traders Royal Bank (TRB).
In the said petition, TRB stated that:
3. On November 27, 1979, Filriters Guaranty Assurance Corporation (Filriters) executed a
"Detached Assignment" . . ., whereby Filriters, as registered owner, sold, transferred, assigned
and delivered unto Philippine Underwriters Finance Corporation (Philfinance) all its rights and
title to Central Bank Certificates of Indebtedness of PESOS: FIVE HUNDRED THOUSAND
(P500,000) and having an aggregate value of PESOS: THREE MILLION FIVE HUNDRED
THOUSAND (P3,500,000.00);
4. The aforesaid Detached Assignment (Annex "A") contains an express authorization executed
by the transferor intended to complete the assignment through the registration of the transfer in
the name of PhilFinance, which authorization is specifically phrased as follows: '(Filriters) hereby
irrevocably authorized the said issuer (Central Bank) to transfer the said bond/certificates on the
books of its fiscal agent;
5. On February 4, 1981, petitioner entered into a Repurchase Agreement with PhilFinance . . .,
whereby, for and in consideration of the sum of PESOS: FIVE HUNDRED THOUSAND
(P500,000.00), PhilFinance sold, transferred and delivered to petitioner CBCI 4-year, 8th series,
Serial No. D891 with a face value of P500,000.00 . . ., which CBCI was among those previously
acquired by PhilFinance from Filriters as averred in paragraph 3 of the Petition;

6. Pursuant to the aforesaid Repurchase Agreement (Annex "B"), Philfinance agreed to

repurchase CBCI Serial No. D891 (Annex "C"), at the stipulated price of PESOS: FIVE
HUNDRED NINETEEN THOUSAND THREE HUNDRED SIXTY-ONE & 11/100 (P519,361.11) on
April 27, 1981;
7. PhilFinance failed to repurchase the CBCI on the agreed date of maturity, April 27, 1981, when
the checks it issued in favor of petitioner were dishonored for insufficient funds;
8. Owing to the default of PhilFinance, it executed a Detached Assignment in favor of the
Petitioner to enable the latter to have its title completed and registered in the books of the
respondent. And by means of said Detachment, Philfinance transferred and assigned all, its
rights and title in the said CBCI (Annex "C") to petitioner and, furthermore, it did thereby
"irrevocably authorize the said issuer (respondent herein) to transfer the said bond/certificate on
the books of its fiscal agent." . . .
9. Petitioner presented the CBCI (Annex "C"), together with the two (2) aforementioned Detached
Assignments (Annexes "B" and "D"), to the Securities Servicing Department of the respondent,
and requested the latter to effect the transfer of the CBCI on its books and to issue a new
certificate in the name of petitioner as absolute owner thereof;
10. Respondent failed and refused to register the transfer as requested, and continues to do so
notwithstanding petitioner's valid and just title over the same and despite repeated demands in
writing, the latest of which is hereto attached as Annex "E" and made an integral part hereof;
11. The express provisions governing the transfer of the CBCI were substantially complied with
the petitioner's request for registration, to wit:
"No transfer thereof shall be valid unless made at said office (where the
Certificate has been registered) by the registered owner hereof, in person or by
his attorney duly authorized in writing, and similarly noted hereon, and upon
payment of a nominal transfer fee which may be required, a new Certificate shall
be issued to the transferee of the registered holder thereof."
and, without a doubt, the Detached Assignments presented to respondent were sufficient
authorizations in writing executed by the registered owner, Filriters, and its transferee,
PhilFinance, as required by the above-quoted provision;
12. Upon such compliance with the aforesaid requirements, the ministerial duties of registering a
transfer of ownership over the CBCI and issuing a new certificate to the transferee devolves
upon the respondent;
Upon these assertions, TRB prayed for the registration by the Central Bank of the subject CBCI in its name.
On December 4, 1984, the Regional Trial Court the case took cognizance of the defendant Central Bank of the
Philippines' Motion for Admission of Amended Answer with Counter Claim for Interpleader 6 thereby calling to fore
the respondent Filriters Guaranty Assurance Corporation (Filriters), the registered owner of the subject CBCI as
respondent.
For its part, Filriters interjected as Special Defenses the following:
11. Respondent is the registered owner of CBCI No. 891;
12. The CBCI constitutes part of the reserve investment against liabilities required of respondent
as an insurance company under the Insurance Code;

13. Without any consideration or benefit whatsoever to Filriters, in violation of law and the trust
fund doctrine and to the prejudice of policyholders and to all who have present or future claim
against policies issued by Filriters, Alfredo Banaria, then Senior Vice-President-Treasury of
Filriters, without any board resolution, knowledge or consent of the board of directors of Filriters,
and without any clearance or authorization from the Insurance Commissioner, executed a
detached assignment purportedly assigning CBCI No. 891 to Philfinance;
xxx xxx xxx
14. Subsequently, Alberto Fabella, Senior Vice-President-Comptroller are Pilar Jacobe, VicePresident-Treasury of Filriters (both of whom were holding the same positions in Philfinance),
without any consideration or benefit redounding to Filriters and to the grave prejudice of Filriters,
its policy holders and all who have present or future claims against its policies, executed similar
detached assignment forms transferring the CBCI to plaintiff;
xxx xxx xxx
15. The detached assignment is patently void and inoperative because the assignment is without
the knowledge and consent of directors of Filriters, and not duly authorized in writing by the
Board, as requiring by Article V, Section 3 of CB Circular No. 769;
16. The assignment of the CBCI to Philfinance is a personal act of Alfredo Banaria and not the
corporate act of Filriters and such null and void;
a) The assignment was executed without consideration and for that reason, the assignment is
void from the beginning (Article 1409, Civil Code);
b) The assignment was executed without any knowledge and consent of the board of directors of
Filriters;
c) The CBCI constitutes reserve investment of Filriters against liabilities, which is a requirement
under the Insurance Code for its existence as an insurance company and the pursuit of its
business operations. The assignment of the CBCI is illegal act in the sense of malum in
se or malum prohibitum, for anyone to make, either as corporate or personal act;
d) The transfer of dimunition of reserve investments of Filriters is expressly prohibited by law, is
immoral and against public policy;
e) The assignment of the CBCI has resulted in the capital impairment and in the solvency
deficiency of Filriters (and has in fact helped in placing Filriters under conservatorship), an
inevitable result known to the officer who executed assignment.
17. Plaintiff had acted in bad faith and with knowledge of the illegality and invalidity of the
assignment.
a) The CBCI No. 891 is not a negotiable instrument and as a certificate of indebtedness is not
payable to bearer but is a registered in the name of Filriters;
b) The provision on transfer of the CBCIs provides that the Central Bank shall treat the
registered owner as the absolute owner and that the value of the registered certificates shall be
payable only to the registered owner; a sufficient notice to plaintiff that the assignments do not
give them the registered owner's right as absolute owner of the CBCI's;
c) CB Circular 769, Series of 1980 (Rules and Regulations Governing CBCIs) provides that the
registered certificates are payable only to the registered owner (Article II, Section 1).

18. Plaintiff knew full well that the assignment by Philfinance of CBCI No. 891 by Filriters is not a
regular transaction made in the usual of ordinary course of business;
a) The CBCI constitutes part of the reserve investments of Filriters against liabilities requires by
the Insurance Code and its assignment or transfer is expressly prohibited by law. There was no
attempt to get any clearance or authorization from the Insurance Commissioner;
b) The assignment by Filriters of the CBCI is clearly not a transaction in the usual or regular
course of its business;
c) The CBCI involved substantial amount and its assignment clearly constitutes disposition of "all
or substantially all" of the assets of Filriters, which requires the affirmative action of the
stockholders (Section 40, Corporation [sic] Code. 7
In its Decision 8 dated April 29, 1988, the Regional Trial Court of Manila, Branch XXXIII found the assignment of CBCI
No. D891 in favor of Philfinance, and the subsequent assignment of the same CBCI by Philfinance in favor of Traders
Royal Bank null and void and of no force and effect. The dispositive portion of the decision reads:
ACCORDINGLY, judgment is hereby rendered in favor of the respondent Filriters Guaranty
Assurance Corporation and against the plaintiff Traders Royal Bank:
(a) Declaring the assignment of CBCI No. 891 in favor of PhilFinance, and the subsequent
assignment of CBCI by PhilFinance in favor of the plaintiff Traders Royal Bank as null and void
and of no force and effect;
(b) Ordering the respondent Central Bank of the Philippines to disregard the said assignment and
to pay the value of the proceeds of the CBCI No. D891 to the Filriters Guaranty Assurance
Corporation;
(c) Ordering the plaintiff Traders Royal Bank to pay respondent Filriters Guaranty Assurance
Corp. The sum of P10,000 as attorney's fees; and
(d) to pay the costs.
SO ORDERED. 9
The petitioner assailed the decision of the trial court in the Court of Appeals 10, but their appeals likewise failed.
The findings of the fact of the said court are hereby reproduced:
The records reveal that defendant Filriters is the registered owner of CBCI No. D891. Under a
deed of assignment dated November 27, 1971, Filriters transferred CBCI No. D891 to Philippine
Underwriters Finance Corporation (Philfinance). Subsequently, Philfinance transferred CBCI No.
D891, which was still registered in the name of Filriters, to appellant Traders Royal Bank (TRB).
The transfer was made under a repurchase agreement dated February 4, 1981, granting
Philfinance the right to repurchase the instrument on or before April 27, 1981. When Philfinance
failed to buy back the note on maturity date, it executed a deed of assignment, dated April 27,
1981, conveying to appellant TRB all its right and the title to CBCI No. D891.
Armed with the deed of assignment, TRB then sought the transfer and registration of CBCI No.
D891 in its name before the Security and Servicing Department of the Central Bank (CB). Central
Bank, however, refused to effect the transfer and registration in view of an adverse claim filed by
defendant Filriters.
Left with no other recourse, TRB filed a special civil action for mandamus against the Central
Bank in the Regional Trial Court of Manila. The suit, however, was subsequently treated by the

lower court as a case of interpleader when CB prayed in its amended answer that Filriters be
impleaded as a respondent and the court adjudge which of them is entitled to the ownership of
CBCI No. D891. Failing to get a favorable judgment. TRB now comes to this Court on appeal. 11
In the appellate court, petitioner argued that the subject CBCI was a negotiable instrument, and having acquired
the said certificate from Philfinance as a holder in due course, its possession of the same is thus free fro any
defect of title of prior parties and from any defense available to prior parties among themselves, and it may thus,
enforce payment of the instrument for the full amount thereof against all parties liable thereon. 12
In ignoring said argument, the appellate court that the CBCI is not a negotiable instrument, since the instrument
clearly stated that it was payable to Filriters, the registered owner, whose name was inscribed thereon, and that
the certificate lacked the words of negotiability which serve as an expression of consent that the instrument may
be transferred by negotiation.
Obviously, the assignment of the certificate from Filriters to Philfinance was fictitious, having made without
consideration, and did not conform to Central Bank Circular No. 769, series of 1980, better known as the "Rules
and Regulations Governing Central Bank Certificates of Indebtedness", which provided that any "assignment of
registered certificates shall not be valid unless made . . . by the registered owner thereof in person or by his
representative duly authorized in writing."
Petitioner's claimed interest has no basis, since it was derived from Philfinance whose interest was inexistent,
having acquired the certificate through simulation. What happened was Philfinance merely borrowed CBCI No.
D891 from Filriters, a sister corporation, to guarantee its financing operations.
Said the Court:
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary written authorization from the Board of Directors of
Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind
Filriters and violated as the same time Central Bank Circular No. 769 which has the force and
effect of a law, resulting in the nullity of the transfer (People v. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank.
WHEREFORE, the judgment appealed from is AFFIRMED, with costs against plaintiff-appellant.
SO ORDERED. 13
Petitioner's present position rests solely on the argument that Philfinance owns 90% of Filriters equity and the
two corporations have identical corporate officers, thus demanding the application of the doctrine or piercing the
veil of corporate fiction, as to give validity to the transfer of the CBCI from registered owner to petitioner
TRB. 14 This renders the payment by TRB to Philfinance of CBCI, as actual payment to Filriters. Thus, there is no
merit to the lower court's ruling that the transfer of the CBCI from Filriters to Philfinance was null and void for lack of
consideration.
Admittedly, the subject CBCI is not a negotiable instrument in the absence of words of negotiability within the
meaning of the negotiable instruments law (Act 2031).
The pertinent portions of the subject CBCI read:
xxx xxx xxx

The Central Bank of the Philippines (the Bank) for value received, hereby promises to pay
bearer, of if this Certificate of indebtedness be registered, to FILRITERS GUARANTY
ASSURANCE CORPORATION, the registered owner hereof, the principal sum of FIVE
HUNDRED THOUSAND PESOS.
xxx xxx xxx
Properly understood, a certificate of indebtedness pertains to certificates for the creation and maintenance of a
permanent improvement revolving fund, is similar to a "bond," (82 Minn. 202). Being equivalent to a bond, it is
properly understood as acknowledgment of an obligation to pay a fixed sum of money. It is usually used for the
purpose of long term loans.
The appellate court ruled that the subject CBCI is not a negotiable instrument, stating that:
As worded, the instrument provides a promise "to pay Filriters Guaranty Assurance Corporation,
the registered owner hereof." Very clearly, the instrument is payable only to Filriters, the
registered owner, whose name is inscribed thereon. It lacks the words of negotiability which
should have served as an expression of consent that the instrument may be transferred by
negotiation. 15
A reading of the subject CBCI indicates that the same is payable to FILRITERS GUARANTY ASSURANCE
CORPORATION, and to no one else, thus, discounting the petitioner's submission that the same is a negotiable
instrument, and that it is a holder in due course of the certificate.
The language of negotiability which characterize a negotiable paper as a credit instrument is its freedom to
circulate as a substitute for money. Hence, freedom of negotiability is the touchtone relating to the protection of
holders in due course, and the freedom of negotiability is the foundation for the protection which the law throws
around a holder in due course (11 Am. Jur. 2d, 32). This freedom in negotiability is totally absent in a certificate
indebtedness as it merely to pay a sum of money to a specified person or entity for a period of time.
As held in Caltex (Philippines), Inc. v. Court of Appeals, 16:
The accepted rule is that the negotiability or non-negotiability of an instrument is determined from
the writing, that is, from the face of the instrument itself. In the construction of a bill or note, the
intention of the parties is to control, if it can be legally ascertained. While the writing may be read
in the light of surrounding circumstance in order to more perfectly understand the intent and
meaning of the parties, yet as they have constituted the writing to be the only outward and visible
expression of their meaning, no other words are to be added to it or substituted in its stead. The
duty of the court in such case is to ascertain, not what the parties may have secretly intended as
contradistinguished from what their words express, but what is the meaning of the words they
have used. What the parties meant must be determined by what they said.
Thus, the transfer of the instrument from Philfinance to TRB was merely an assignment, and is not governed by
the negotiable instruments law. The pertinent question then is, was the transfer of the CBCI from Filriters to
Philfinance and subsequently from Philfinance to TRB, in accord with existing law, so as to entitle TRB to have
the CBCI registered in its name with the Central Bank?
The following are the appellate court's pronouncements on the matter:
Clearly shown in the record is the fact that Philfinance's title over CBCI No. D891 is defective
since it acquired the instrument from Filriters fictitiously. Although the deed of assignment stated
that the transfer was for "value received", there was really no consideration involved. What
happened was Philfinance merely borrowed CBCI No. D891 from Filriters, a sister corporation.
Thus, for lack of any consideration, the assignment made is a complete nullity.

What is more, We find that the transfer made by Filriters to Philfinance did not conform to Central
Bank Circular No. 769, series of 1980, otherwise known as the "Rules and Regulations
Governing Central Bank Certificates of Indebtedness", under which the note was issued.
Published in the Official Gazette on November 19, 1980, Section 3 thereof provides that any
assignment of registered certificates shall not be valid unless made . . . by the registered owner
thereof in person or by his representative duly authorized in writing.
In the case at bar, Alfredo O. Banaria, who signed the deed of assignment purportedly for and on
behalf of Filriters, did not have the necessary written authorization from the Board of Directors of
Filriters to act for the latter. For lack of such authority, the assignment did not therefore bind
Filriters and violated at the same time Central Bank Circular No. 769 which has the force and
effect of a law, resulting in the nullity of the transfer (People vs. Que Po Lay, 94 Phil. 640; 3M
Philippines, Inc. vs. Commissioner of Internal Revenue, 165 SCRA 778).
In sum, Philfinance acquired no title or rights under CBCI No. D891 which it could assign or
transfer to Traders Royal Bank and which the latter can register with the Central Bank
Petitioner now argues that the transfer of the subject CBCI to TRB must upheld, as the respondent Filriters and
Philfinance, though separate corporate entities on paper, have used their corporate fiction to defraud TRB into
purchasing the subject CBCI, which purchase now is refused registration by the Central Bank.
Says the petitioner;
Since Philfinance own about 90% of Filriters and the two companies have the same corporate
officers, if the principle of piercing the veil of corporate entity were to be applied in this case, then
TRB's payment to Philfinance for the CBCI purchased by it could just as well be considered a
payment to Filriters, the registered owner of the CBCI as to bar the latter from claiming, as it has,
that it never received any payment for that CBCI sold and that said CBCI was sold without its
authority.
xxx xxx xxx
We respectfully submit that, considering that the Court of Appeals has held that the CBCI was
merely borrowed by Philfinance from Filriters, a sister corporation, to guarantee its (Philfinance's)
financing operations, if it were to be consistent therewith, on the issued raised by TRB that there
was a piercing a veil of corporate entity, the Court of Appeals should have ruled that such veil of
corporate entity was, in fact, pierced, and the payment by TRB to Philfinance should be
construed as payment to Filriters. 17
We disagree with Petitioner.
Petitioner cannot put up the excuse of piercing the veil of corporate entity, as this merely an equitable remedy,
and may be awarded only in cases when the corporate fiction is used to defeat public convenience, justify
wrong, protect fraud or defend crime or where a corporation is a mere alter ego or business conduit of a
person. 18
Peiercing the veil of corporate entity requires the court to see through the protective shroud which exempts its
stockholders from liabilities that ordinarily, they could be subject to, or distinguished one corporation from a
seemingly separate one, were it not for the existing corporate fiction. But to do this, the court must be sure that
the corporate fiction was misused, to such an extent that injustice, fraud, or crime was committed upon another,
disregarding, thus, his, her, or its rights. It is the protection of the interests of innocent third persons dealing with
the corporate entity which the law aims to protect by this doctrine.
The corporate separateness between Filriters and Philfinance remains, despite the petitioners insistence on the
contrary. For one, other than the allegation that Filriters is 90% owned by Philfinance, and the identity of one

shall be maintained as to the other, there is nothing else which could lead the court under circumstance to
disregard their corporate personalities.
Though it is true that when valid reasons exist, the legal fiction that a corporation is an entity with a juridical
personality separate from its stockholders and from other corporations may be disregarded, 19 in the absence of
such grounds, the general rule must upheld. The fact that Filfinance owns majority shares in Filriters is not by itself a
ground to disregard the independent corporate status of Filriters. In Liddel & Co., Inc. vs. Collector of Internal
Revenue, 20 the mere ownership by a single stockholder or by another corporation of all or nearly all of the capital
stock of a corporation is not of itself a sufficient reason for disregarding the fiction of separate corporate personalities.
In the case at bar, there is sufficient showing that the petitioner was not defrauded at all when it acquired the
subject certificate of indebtedness from Philfinance.
On its face the subject certificates states that it is registered in the name of Filriters. This should have put the
petitioner on notice, and prompted it to inquire from Filriters as to Philfinance's title over the same or its authority
to assign the certificate. As it is, there is no showing to the effect that petitioner had any dealings whatsoever
with Filriters, nor did it make inquiries as to the ownership of the certificate.
The terms of the CBCI No. D891 contain a provision on its TRANSFER. Thus:
TRANSFER. This Certificate shall pass by delivery unless it is registered in the owner's name at
any office of the Bank or any agency duly authorized by the Bank, and such registration is noted
hereon. After such registration no transfer thereof shall be valid unless made at said office
(where the Certificates has been registered) by the registered owner hereof, in person, or by his
attorney, duly authorized in writing and similarly noted hereon and upon payment of a nominal
transfer fee which may be required, a new Certificate shall be issued to the transferee of the
registered owner thereof. The bank or any agency duly authorized by the Bank may deem and
treat the bearer of this Certificate, or if this Certificate is registered as herein authorized, the
person in whose name the same is registered as the absolute owner of this Certificate, for the
purpose of receiving payment hereof, or on account hereof, and for all other purpose whether or
not this Certificate shall be overdue.
This is notice to petitioner to secure from Filriters a written authorization for the transfer or to require Philfinance
to submit such an authorization from Filriters.
Petitioner knew that Philfinance is not registered owner of the CBCI No. D891. The fact that a non-owner was
disposing of the registered CBCI owned by another entity was a good reason for petitioner to verify of inquire as
to the title Philfinance to dispose to the CBCI.
Moreover, CBCI No. D891 is governed by CB Circular No. 769, series of 1990 21, known as the Rules and
Regulations Governing Central Bank Certificates of Indebtedness, Section 3, Article V of which provides that:
Sec. 3. Assignment of Registered Certificates. Assignment of registered certificates shall not
be valid unless made at the office where the same have been issued and registered or at the
Securities Servicing Department, Central Bank of the Philippines, and by the registered owner
thereof, in person or by his representative, duly authorized in writing. For this purpose, the
transferee may be designated as the representative of the registered owner.
Petitioner, being a commercial bank, cannot feign ignorance of Central Bank Circular 769, and its requirements.
An entity which deals with corporate agents within circumstances showing that the agents are acting in excess of
corporate authority, may not hold the corporation liable. 22 This is only fair, as everyone must, in the exercise of his
rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good
faith. 23

The transfer made by Filriters to Philfinance did not conform to the said. Central Bank Circular, which for all
intents, is considered part of the law. As found by the courts a quo, Alfredo O. Banaria, who had signed the deed
of assignment from Filriters to Philfinance, purportedly for and in favor of Filriters, did not have the necessary
written authorization from the Board of Directors of Filriters to act for the latter. As it is, the sale from Filriters to
Philfinance was fictitious, and therefore void and inexistent, as there was no consideration for the same. This is
fatal to the petitioner's cause, for then, Philfinance had no title over the subject certificate to convey the Traders
Royal Bank. Nemo potest nisi quod de jure potest no man can do anything except what he can do lawfully.
Concededly, the subject CBCI was acquired by Filriters to form part of its legal and capital reserves, which are
required by law 24 to be maintained at a mandated level. This was pointed out by Elias Garcia, Manager-in-Charge of
respondent Filriters, in his testimony given before the court on May 30, 1986.
Q Do you know this Central Bank Certificate of Indebtedness, in short, CBCI No.
D891 in the face value of P5000,000.00 subject of this case?
A Yes, sir.
Q Why do you know this?
A Well, this was CBCI of the company sought to be examined by the Insurance
Commission sometime in early 1981 and this CBCI No. 891 was among the
CBCI's that were found to be missing.
Q Let me take you back further before 1981. Did you have the knowledge of this
CBCI No. 891 before 1981?
A Yes, sir. This CBCI is an investment of Filriters required by the Insurance
Commission as legal reserve of the company.
Q Legal reserve for the purpose of what?
A Well, you see, the Insurance companies are required to put up legal reserves
under Section 213 of the Insurance Code equivalent to 40 percent of the
premiums receipt and further, the Insurance Commission requires this reserve to
be invested preferably in government securities or government binds. This is how
this CBCI came to be purchased by the company.
It cannot, therefore, be taken out of the said funds, without violating the requirements of the law. Thus, the
anauthorized use or distribution of the same by a corporate officer of Filriters cannot bind the said corporation,
not without the approval of its Board of Directors, and the maintenance of the required reserve fund.
Consequently, the title of Filriters over the subject certificate of indebtedness must be upheld over the claimed
interest of Traders Royal Bank.
ACCORDINGLY, the petition is DISMISSED and the decision appealed from dated January 29, 1990 is hereby
AFFIRMED.

G.R. No. 144773

May 16, 2005

AZNAR BROTHERS REALTY COMPANY, petitioner,

vs.
LAURENCIO AYING, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF EMILIANO AYING,
PAULINO AYING, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF SIMEON AYING, AND
WENCESLAO SUMALINOG, IN HIS OWN BEHALF AND IN BEHALF OF THE OTHER HEIRS OF ROBERTA
AYING, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
This resolves the petition for review on certiorari seeking the modification of the Decision1 of the Court of
Appeals (CA) dated March 7, 2000 which affirmed with modification the Decision of the Regional Trial Court
(RTC) of Lapu-Lapu City, Branch 27 in Civil Case No. 2930-L; and the Resolution dated August 2, 2000 denying
petitioners motion for reconsideration of the aforementioned decision.
The antecedent facts are as follows:
The disputed property is Lot No. 4399 with an area of 34,325 square meters located at Dapdap, Lapu-Lapu City.
Crisanta Maloloy-on petitioned for the issuance of a cadastral decree in her favor over said parcel of land. After
her death in 1930, the Cadastral Court issued a Decision directing the issuance of a decree in the name of
Crisanta Maloloy-ons eight children, namely: Juan, Celedonio, Emiliano, Francisco, Simeon, Bernabe, Roberta
and Fausta, all surnamed Aying. The certificate of title was, however, lost during the war.
Subsequently, all the heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with Deed of
Absolute Sale dated March 3, 1964, conveying the subject parcel of land to herein petitioner Aznar Brothers
Realty Company. Said deed was registered with the Register of Deeds of Lapu-Lapu City on March 6, 1964
under Act No. 3344 (the law governing registration for unregistered land), and since then, petitioner had been
religiously paying real property taxes on said property.
In 1988, herein petitioner filed a Petition for Reconstitution of the Original Title as the original title over the
subject property had been lost during the war. On April 12, 1988, the court granted said petition, thereby
directing the Register of Deeds of Lapu-Lapu City to issue a reconstituted title in the name of the
abovementioned Aying siblings. Thus, Original Certificate of Title (OCT) No. RO-2856 was issued.
In 1991, petitioner, claiming to be the rightful owner of the subject property, sent out notices to vacate,
addressed to persons occupying the property. Unheeded, petitioner then filed a complaint for ejectment against
the occupants before the Metropolitan Trial Court (MTC), Lapu-Lapu City.
On February 1, 1994, the MTC ordered the occupants to vacate the property. The case eventually reached this
Court, docketed as G.R. No. 128102, entitled Aznar Brothers Realty Company vs. Court of Appeals, Luis Aying,
Demetrio Sida, Felomino Augusto, Federico Abing, and Romeo Augusto.2 On March 7, 2000, a Decision was
promulgated in favor of herein petitioner, declaring it as the rightful possessor of the parcel of land in question.
Meanwhile, herein respondents, along with other persons claiming to be descendants of the eight Aying siblings,
all in all numbering around 220 persons, had filed a complaint for cancellation of the Extra-Judicial Partition with
Absolute Sale, recovery of ownership, injunction and damages with the RTC of Lapu-Lapu City. The complaint

was dismissed twice without prejudice. Said complaint was re-filed on August 19, 1993, docketed as Civil Case
No. 2930-L.
In their amended complaint, herein respondents (plaintiffs before the RTC) alleged that: they are co-owners of
subject property, being descendants of the registered owners thereof under OCT No. RO-2856; they had been in
actual, peaceful, physical, open, adverse, continuous and uninterrupted possession in concept of owner of
subject parcel of land since time immemorial; their possession was disturbed only in the last quarter of 1991
when some of them received notices to vacate from petitioner and several weeks thereafter, earthmoving
equipment entered the disputed land, bulldozing the same and destroying plants, trees and concrete monuments
("mohon"); respondents discovered that such activities were being undertaken by petitioner together with Sta.
Lucia Realty and Development, Inc.; petitioner claimed to be the owner of subject property by virtue of an extrajudicial partition of real estate with deed of absolute sale executed in petitioners favor by the alleged heirs of
Crisanta Maloloy-on; the aforementioned extra-judicial partition of real estate with deed of absolute sale is a
fraud and is null and void ab initio because not all the co-owners of subject property affixed their signature on
said document and some of the co-owners who supposedly signed said document had been dead at the time of
the execution thereof; petitioner entered subject land in bad faith, knowing fully well that it did not have any right
to the land and used force, threat and intimidation against respondents; and they suffered moral damages. 3
Petitioner (defendant before the RTC) filed its Answer, denying that respondents are the lawful owners of subject
parcel of land by virtue of their being descendants or heirs of the registered owners of subject property. Instead,
petitioner alleged that it had been in actual possession of subject land as owner thereof by virtue of the extrajudicial partition of real property and deed of absolute sale executed in its favor; that in fact, it had been paying
taxes thereon religiously; that it tolerated about 6 persons to live on said land but said persons were eventually
ejected by court order. Petitioner then raised the affirmative defenses of failure to state cause of action and
prescription, as it took respondents 27 years, 10 months and 27 days to file the action to recover subject
property, when an action to recover property based on an implied trust should be instituted within 4 years from
discovery of the fraud.4
In the Pre-Trial Order dated January 30, 1995 of the RTC, the issues were narrowed down to the following:
1. Whether or not the plaintiffs [herein respondents] are the heirs of the registered owners of Lot No.
4399.
2. Whether or not plaintiffs are the owners of Lot No. 4399.
3. Whether or not the defendant Aznar [herein petitioner] is estopped to make any claim on Lot No. 4399.
4. Whether or not the defendant Aznar is a builder in bad faith.
5. Whether or not the defendants are liable for damages and attorneys fees in favor of the plaintiffs.
6. Whether or not the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is valid and had,
in effect, validly conveyed to defendant Aznar Lot No. 4399.
7. Whether or not the plaintiffs action has prescribed.5
After trial, the RTC rendered a Decision dated July 4, 1997, ruling that respondents evidence failed to prove that
the extra-judicial partition with deed of absolute sale was a totally simulated or fictitious contract and concluded
that said document is valid, thus, effectively conveying to petitioner the property in question. It further held that
respondents action had prescribed in that the action is considered as one for reconveyance based on implied or
constructive trust, it prescribed in 10 years from the registration of the deed on March 6, 1964; and if the action
is considered as one for annulment of contract on the ground of fraud, it should have been filed within 4 years
from discovery of the fraud. The trial court also ruled that respondents failed to present any admissible proof of
filiation, hence, they were not able to prove that they are indeed heirs of the eight Aying siblings who appear as
the registered owners under OCT No. RO-2856.

The dispositive portion of the RTC Decision reads as follows:

WHEREFORE, judgment is hereby rendered dismissing the amended complaint on the ground of
prescription, and declaring the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale dated
March 3, 1964 as valid and binding, adjudging that Lot 4399 with an area of 34,325 square meters
located at Dapdap, Mactan, Lapu-Lapu City had been validly conveyed to and in favor of Aznar Brothers
Realty Company, and directing the Register of Deeds of Lapu-Lapu City to register the above-mentioned
deed in accordance with law and to cancel Original Certificate of Title No. RO-2856, and to issue a
transfer certificate of title in the name of Aznar Brothers Realty Company upon payment of the necessary
registration fees pursuant thereto.
The Writ of Preliminary Injunction issued in this case is hereby ordered dissolved.
The Motion for Contempt filed by the plaintiffs against defendants is dismissed for want of factual and
legal basis.
Costs against the plaintiffs.
SO ORDERED.6
Herein respondents appealed the foregoing decision to the CA and on March 7, 2000, said court promulgated its
Decision, the dispositive portion of which is reproduced hereunder:
THE FOREGOING CONSIDERED, the contested Decision while AFFIRMED is hereby MODIFIED. The
heirs of Emiliano Aying, Simeon Aying and Roberta Aying are hereby declared as the lawful owners of
the contested property but equivalent only to 3/8.
SO ORDERED.
In modifying the RTC judgment, the CA ratiocinated that "an action for recovery of possession of registered land
never prescribes in view of the provision of Section 44, Act No. 496 (now Sec. 47, PD 1520), to the effect that no
title to registered land in derogation to that of a registered owner shall be acquired by prescription." The CA
further ruled that even if the action is deemed to be based on implied trust, prescription did not begin to run since
there is no evidence that positive acts of repudiation were made known to the heirs who did not participate in the
execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale. Thus, striking down the
RTCs ruling that the respondents complaint is dismissible on the ground of prescription, the CA held instead
that herein respondents action had not prescribed but upheld the validity of the Extra-Judicial Partition of Real
Estate with Deed of Absolute Sale, except as to the shares of the heirs of Emiliano, Simeon and Roberta, who
did not participate in the execution of said document.
Herein petitioners motion for reconsideration of the CA decision was denied per Resolution dated August 2,
2000.
Hence, the present petition for review on certiorari assailing the CA decision on the following grounds:
I
THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE RULE THAT AN HEIR OF THE
ORIGINAL REGISTERED OWNER MAY LOSE HIS RIGHT TO RECOVER A TITLED PROPERTY BY
REASON OF LACHES;
II

THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE RULE THAT THE ACT OF
REGISTRATION OF THE DEED OF PARTITION WITH SALE MAY BE CONSIDERED AN
UNEQUIVOCAL REPUDIATION OF THE TRUST GIVING RISE TO PRESCRIPTION;
III
THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE PROVISIONS OF ARTICLE 1104 OF
THE CIVIL CODE TO THE EFFECT THAT IN THE ABSENCE OF BAD FAITH OR FRAUD, THE
PARTITION WITH PRETERITION OF ANY COMPULSORY HEIR SHALL NOT BE RESCINDED.7
In their Comment, respondents argue that this case is an action to declare as null and void the Extra-Judicial
Partition of Real Estate with Deed of Absolute Sale, hence, under Article 1410 of the Civil Code, an action for
declaration of an inexistent contract does not prescribe. Respondents further posit that the principle of laches
should be applied against petitioner and not against them, as they (respondents) had been in actual possession
of the subject property, while petitioner merely brought action to eject them more than 29 years after the alleged
execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale. They also refuted petitioners
arguments regarding the application of the principles of implied and constructive trusts in this case.
At the outset, it should be stressed that not all the plaintiffs who filed the amended complaint before the trial
court had been impleaded as respondents in the present petition. The only parties impleaded are the heirs of
Emiliano, Simeon and Roberta Aying, whom the CA adjudged as owners of a 3/8 portion of the land in dispute
for not having participated in the execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute
Sale.
It is significant to note that herein petitioner does not question the CA conclusion that respondents are heirs of
the aforementioned three Aying siblings. Hence, the trial court and appellate courts findings that the ExtraJudicial Partition of Real Estate with Deed of Absolute Sale was not forged nor simulated and that the heirs of
Emiliano, Simeon and Roberta Aying did not participate in the execution thereof, are now beyond cavil.
The issues raised by petitioner for the Courts resolution are (1) whether or not respondents cause of action is
imprescriptible; and (2) if their right to bring action is indeed imprescriptible, may the principle of laches apply.
Respondents alleged in their amended complaint that not all the co-owners of the land in question signed or
executed the document conveying ownership thereof to petitioner and made the conclusion that said document
is null and void. We agree with the ruling of the RTC and the CA that the Extra-Judicial Partition of Real Estate
with Deed of Absolute Sale is valid and binding only as to the heirs who participated in the execution thereof,
hence, the heirs of Emiliano, Simeon and Roberta Aying, who undisputedly did not participate therein, cannot be
bound by said document.
However, the facts on record show that petitioner acquired the entire parcel of land with the mistaken belief that
all the heirs have executed the subject document. Thus, the trial court is correct that the provision of law
applicable to this case is Article 1456 of the Civil Code which states:
ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes.
In Vda. De Esconde vs. Court of Appeals,8 the Court expounded thus:
Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court
stated:
A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical
trust, confidence is reposed in one person who is named a trustee for the benefit of another who
is called the cestui que trust, respecting property which is held by the trustee for the benefit of the
cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate

a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by
confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any
fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends
holding the property for the beneficiary.9
The concept of constructive trusts was further elucidated in the same case, as follows:
. . . implied trusts are those which, without being expressed, are deducible from the nature of the
transaction as matters of intent or which are superinduced on the transaction by operation of law as
matters of equity, independently of the particular intention of the parties. In turn, implied trusts are either
resulting or constructive trusts. These two are differentiated from each other as follows:
Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title
determines the equitable title or interest and are presumed always to have been contemplated by
the parties. They arise from the nature of circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title but is obligated in
equity to hold his legal title for the benefit of another. On the other hand, constructive trusts are
created by the construction of equity in order to satisfy the demands of justice and
prevent unjust enrichment. They arise contrary to intention against one who, by fraud,
duress or abuse of confidence, obtains or holds the legal right to property which he ought
not, in equity and good conscience, to hold.10 (Emphasis supplied)
Based on such concept of constructive trusts, the Court ruled in said case that:
The rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and
unless he repudiates the trust, applies to express trusts and resulting implied trusts. However,
inconstructive implied trusts, prescription may supervene even if the trustee does not repudiate the
relationship. Necessarily, repudiation of said trust is not a condition precedent to the running of the
prescriptive period.11
The next question is, what is the applicable prescriptive period?
In Amerol vs. Bagumbaran,12 the Court expounded on the prescriptive period within which to bring an action for
reconveyance of property based on implied or constructive trust, to wit:
. . . under the present Civil Code, we find that just as an implied or constructive trust is an offspring of the
law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the title
thereto in favor of the true owner. In this context, and vis--vis prescription, Article 1144 of the Civil Code
is applicable.
Article 1144. The following actions must be brought within ten years from the time the right of
action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment.
xxx

xxx

xxx

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten
years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that,
illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an

implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the
property.13
It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the deed
or the date of the issuance of the certificate of title over the property, but if the person claiming to be the owner
thereof is in actual possession of the property, the right to seek reconveyance, which in effect seeks to quiet title
to the property, does not prescribe.14
In the present case, respondents Wenceslao Sumalinog, an heir of Roberta Aying; Laurencio Aying, an heir of
Emiliano Aying; and Paulino Aying, an heir of Simeon Aying, all testified that they had never occupied or been in
possession of the land in dispute.15 Hence, the prescriptive period of ten years would apply to herein
respondents.
The question then arises as to the date from which the ten-year period should be reckoned, considering that the
Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act No. 3344 and not
under Act No. 496 (Land Registration Act), despite the fact the land in dispute was already titled under Act No.
496 in the names of the Aying siblings at the time the subject document was executed.
In Spouses Abrigo vs. De Vera,16 it was held that registration of instruments must be done in the proper registry,
in order to affect and bind the land and, thus, operate as constructive notice to the world. 17 Therein, the Court
ruled:
x x x If the land is registered under the Land Registration Act (and has therefore a Torrens Title), and it is
sold but the subsequent sale is registered not under the Land Registration Act but under Act 3344, as
amended, such sale is not considered REGISTERED x x x .18
In this case, since the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under
Act No. 3344 and not under Act No. 496, said document is deemed not registered. Accordingly, the ten-year
prescriptive period cannot be reckoned from March 6, 1964, the date of registration of the subject document
under Act No. 3344. The prescriptive period only began to run from the time respondents had actual notice of the
Extra-Judicial Partition of Real Estate with Deed of Absolute Sale.
The only evidence on record as to when such prescriptive period commenced as to each of the respondents are
Wenceslao Sumalinogs (heir of Roberta Aying) testimony that about three years after 1964, they already
learned of the existence of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale; 19 and
Laurencio Ayings (heir of Emiliano Aying) admission that he found out about the sale of the land in dispute a
long time ago and can only estimate that it must be after martial law.20 Paulino Aying (heir of Simeon Aying) gave
no testimony whatsoever as to when the children of Simeon Aying actually learned of the existence of the
document of sale. On the other hand, petitioner did not present any other evidence to prove the date when
respondents were notified of the execution of the subject document.
In view of the lack of unambiguous evidence of when the heirs of Emiliano Aying and Simeon Aying discovered
the existence of the document of sale, it must be determined which party had the burden of proof to establish
such fact.
The test for determining where the burden of proof lies is to ask which party to an action or suit will fail if he
offers no evidence competent to show the facts averred as the basis for the relief he seeks to obtain. 21 Moreover,
one alleging a fact that is denied has the burden of proving it and unless the party asserting the affirmative of an
issue sustains the burden of proof of that issue by a preponderance of the evidence, his cause will not
succeed.22Thus, the defendant bears the burden of proof as to all affirmative defenses which he sets up in
answer to the plaintiffs claim or cause of action; he being the party who asserts the truth of the matter he has
alleged, the burden is upon him to establish the facts on which that matter is predicated and if he fails to do so,
the plaintiff is entitled to a verdict or decision in his favor.23

In the case at bar, it was petitioner, as the defendant before the RTC, which set up in its Answer the affirmative
defense of prescription. It was, therefore, incumbent upon petitioner to prove the date from which the
prescriptive period began to run. Evidence as to the date when the ten-year prescriptive period began exists only
as to the heirs of Roberta Aying, as Wenceslao Sumalinog admitted that they learned of the existence of the
document of sale in the year 1967. As to the heirs of Emiliano Aying and Simeon Aying, there is no clear
evidence of the date when they discovered the document conveying the subject land to petitioner. Petitioner
miserably failed to adduce proof of when the heirs of Emiliano Aying and Simeon Aying were notified of the
subject document. Hence, with regard to said heirs, the Court may consider the admission in the amended
complaint that they learned of the conveyance of the disputed land only in 1991 when petitioner sent notices to
vacate to the occupants of the subject land, as the date from which the ten-year prescriptive period should be
reckoned.
Respondents filed their Amended Complaint on December 6, 1993.24 Thus, with regard to respondent heirs of
Roberta Aying who had knowledge of the conveyance as far back as 1967, their cause of action is already
barred by prescription when said amended complaint was filed as they only had until 1977 within which to bring
action. As to the respondent heirs of Emiliano and Simeon Aying, they were able to initiate their action for
reconveyance of property based on implied or constructive trust well within the ten-year prescriptive period
reckoned from 1991 when they were sent by petitioner a notice to vacate the subject property.
Evidently, laches cannot be applied against respondent heirs of Emiliano and Simeon Aying, as they took action
to protect their interest well within the period accorded them by law.
With regard to petitioners argument that the provision of Article 1104 of the Civil Code, stating that a partition
made with preterition of any of the compulsory heirs shall not be rescinded, should be applied, suffice it to say
that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is not being rescinded. In fact, its
validity had been upheld but only as to the parties who participated in the execution of the same. As discussed
above, what was conveyed to petitioner was ownership over the shares of the heirs who executed the subject
document. Thus, the law, particularly, Article 1456 of the Civil Code, imposed the obligation upon petitioner to act
as a trustee for the benefit of respondent heirs of Emiliano and Simeon Aying who, having brought their action
within the prescriptive period, are now entitled to the reconveyance of their share in the land in dispute.
IN VIEW OF THE FOREGOING, the petition is PARTIALLY GRANTED and the Decision of the Court of Appeals
dated March 7, 2000 is MODIFIED, as follows: The amended complaint of the heirs of Roberta Aying is
DISMISSED on the ground of prescription. However, the heirs of Emiliano Aying and Simeon Aying, having
instituted the action for reconveyance within the prescriptive period, are hereby DECLARED as the LAWFUL
OWNERS of a 2/8 portion of the parcel of land covered by Original Certificate of Title No. RO-2856.
SO ORDERED.

G.R. No. 138248 September 7, 2005

BARANGAY PIAPI, herein represented by its chairman ANDRES L. LUGNASIN and LIBERATO LARGO, RITA
LARGO, SABAS MONTECALBO, SR., CARLOS ZAMORA, DONATA SESICAN, DIZAR CASTILLO, ALEJANDOR
GICALE, SALVACION SALE, PABLO MORASTIL, JOSE JAVELOSA, ISIDRA BERNAL, FELIX EGHOT,
CORAZON EGHOT, ROSALINA REMONDE, ROA EGHOT, CEFERINA LAGROSA, MARIO ARANEZ, ALBERTO
CAMARILLO, BOBBY DULAOTO, NOEL ZAMORA, MARTINO MORALLAS, DANILO FAILAGA, MARITA
BRAGAT, NATIVIDAD LAGRAMON, RAQUEL GEROZAGA, SHIRLY CESAR, PIO ZAMORA, ANDRES
LUGNASIN, ELPIDIO SESICAN, CRESENTA BORJA, CARLITO TANEZA, JR., MARCIAL RELLON, JEANILITO
SUMALINOG, ALBERTO ZAMORA, and LUISITO LAGROSA, Petitioners,
vs.
IGNACIO TALIP representing the HEIRS OF JUAN JAYAG, Respondent.

DECISION
SANDOVAL-GUTIERREZ, J.:
Before us is a petition for review on certiorari1 assailing the Orders dated January 12, 19992 and April 20, 19993of the
Regional Trial Court (RTC), Branch 18, Digos, Davao del Sur in Civil Case No. 3715 filed by the above-named
petitioners against respondent Ignacio Talip representing the heirs of Juan Jayag.
The factual antecedents as borne by the records are:
On August 28, 1998, petitioners filed with the said RTC a complaint for reconveyance and damages with prayer for
issuance of a temporary restraining order and/or writ of preliminary injunction against respondent, docketed as Civil
Case No. 3715.
The complaint alleges that petitioners and their predecessors-in-interest have been in actual, peaceful, continuous
and open possession for more than 30 years of a parcel of land consisting of 3.2 hectares situated in Piapi, Padada,
Davao del Sur. It is covered by Original Certificate of Title (OCT) No. P-(3331)-4244 of the Registry of Deeds, same
province, issued in the name of Juan Jayag and has a market value of P15,000.00. The same land was subdivided
into lots consisting of 100 square meters each, where the individual petitioners built their houses. On the remaining
portion were constructed their barangay center, multi-purpose gym and health center. Respondent fraudulently
obtained from the said Registry of Deeds a Transfer Certificate of Title (TCT) in his name. In 1998, he paid real estate
taxes and subsequently, he threatened to build a barb-wire fence around the land.
Instead of filing an answer, respondent moved to dismiss the complaint on the ground that the RTC has no jurisdiction
over the case considering that the assessed value of the land is only P6,030.00. Respondent, citing Section 33 (3)
of BP Blg. 129, as amended by R.A. No. 7691,4 maintains that the case falls within the exclusive jurisdiction of the
Municipal Circuit Trial Court of Padada-Kiblawan, Davao del Sur.
In their opposition to the motion to dismiss, petitioners alleged that jurisdiction is vested in the RTC considering that
the total assessed value of the property is P41,890.00, as shown by a Real Property Field Appraisal and
Assessment Sheet dated August 20, 1996 issued by Atty. Marcos D. Risonar, Jr., Provincial Assessor of Davao del
Sur.5
On January 12, 1999, the trial court issued an Order dismissing the complaint for lack of jurisdiction.
Petitioners then filed a motion for reconsideration but was denied in an Order dated April 20, 1999.
Hence, petitioners directly filed with this Court the instant petition for review on certiorari assailing the trial courts
Order dismissing the complaint for lack of jurisdiction.
Petitioners contend that under Section 19 (1) of BP Blg. 129, as amended, the RTC has jurisdiction over the complaint
for reconveyance since it is incapable of pecuniary estimation.
The contention is bereft of merit. This case is analogous to Huguete vs. Embudo.6 There, petitioners argued that a
complaint for annulment of a deed of sale and partition is incapable of pecuniary estimation, and thus falls within the
exclusive jurisdiction of the RTC. However, we ruled that "the nature of an action is not determined by what is stated in
the caption of the complaint but by the allegations of the complaint and the reliefs prayed for. Where the ultimate
objective of the plaintiffs, like petitioners herein, is to obtain title to real property, it should be filed in the
proper court having jurisdiction over the assessed value of the property subject thereof."
Indeed, basic as a hornbook principle is that the nature of an action, as well as which court or body has jurisdiction
over it, is determined based on the allegations contained in the complaint of the plaintiff, irrespective of whether or not
the plaintiff is entitled to recover upon all or some of the claims asserted therein. 7
Let us examine the pertinent allegations in petitioners complaint below:
"x x x x x x

2. Plaintiffs by themselves and/or thru their predecessors-in-interest have been in actual possession, in the concept of
an owner, in good faith and in a manner that is open, peaceful, uninterrupted, public, adverse and continuous, for
more than 30 years, the following described parcel of land, viz:
A parcel of land containing an area of 3.2 hectares, more of less, covered by OCT No. P-(3331)-4244, in the name of
Juan Jayag and situated in Piapi, Padada, Davao del Sur.
2a. The market value of the above-described land is Fifteen Thousand Pesos (P15,000.00).
3. The respective areas that private plaintiffs occupy consisted of an average of 100 square meters on which their
homes and houses are built while a large chunk of the above-described property has been used or set aside for the
barangay site of and other infrastructures for Piapi, Padada, Davao del Sur.
xxxxxx
5. Defendant or his predecessor-in-interest has never been in possession, of the land in suit and except for the year
1998, has not paid taxes thereon nor declared the same for taxation purposes a clear index that defendants title
over the same is not genuine.
6. Defendant, in procuring title to the land in suit did so by fraud, mistake and/or misrepresentation, hence, he holds
the title for the benefit and in trust of the landowner that is, herein plaintiffs.
7. Defendant is by law under obligation to reconvey the land in suit in favor of herein plaintiffs, x x x."
It can easily be discerned that petitioners complaint involves title to, or possession of, real property. However, they
failed to allege therein the assessed value of the subject property. Instead, what they stated is the market value of
the land at P15,000.00.
Section 19 (2) of Batas Pambansa Blg. 129, as amended provides:
"SEC. 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise exclusive original jurisdiction:
xxxxxx
(2) In all civil actions which involve the title to, or possession of, real property, or any interest thereon, where
the assessed value of the property involved exceeds Twenty thousand pesos (P20,000.00) or for civil actions in
Metro Manila, where such value exceeds Fifty thousand pesos (P50,000.00) except actions for forcible entry into and
unlawful detainer of lands or buildings, original jurisdiction over which is conferred upon the Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts."
The Rule requires that "the assessed value of the property, or if there is none, the estimated value thereof, shall
be alleged by the claimant."8 It bears reiterating that what determines jurisdiction is the allegations in the complaint
and the reliefs prayed for. Petitioners complaint is for reconveyance of a parcel of land. Considering that their action
involves the title to or interest in real property, they should have alleged therein its assessed value. However,
they only specified the market value or estimated value, which is P15,000.00. Pursuant to the provision of Section
33 (3) quoted earlier, it is the Municipal Circuit Trial Court of Padada-Kiblawan, Davao del Sur, not the RTC, which has
jurisdiction over the case.
WHEREFORE, the petition is DENIED. The assailed Orders dated January 12, 1999 and April 20, 1999 of the
Regional Trial Court, Branch 18, Digos, Davao del Sur in Civil Case No. 3715 are hereby AFFIRMED. Costs against
petitioners.
SO ORDERED.