FIRST DIVISION

[G.R. No. 164801. August 18, 2005.]

PHILIPPINE NATIONAL BANK, petitioner, vs. HEIRS OF

ESTANISLAO MILITAR AND DEOGRACIAS MILITAR,
represented by TRANQUILINA MILITAR, respondents.

[G.R. No. 165165. August 18, 2005.]

SPOUSES JOHNNY LUCERO AND NONA ARIETE, petitioners, vs.

HEIRS OF ESTANISLAO MILITAR, DEOGRACIAS MILITAR, and
TRANQUILINA MILITAR (deceased), now represented by
AZUCENA MILITAR, FREDDIE MILITAR, EDUARDO MILITAR,
ROMEO L. MILITAR, NELLY LY BOLANIO, LETICIA LY and
DELIA LY SI ASOYCO, respondents.

The Chief Legal Counsel (PNB) for PNB.

Norberto J. Posecion and Banzon Gloria & Gumbanfor Sps. Lucero.
Alfredo M. Bañares for Heirs of Militar, etc.

SYLLABUS

1.REMEDIAL LAW; CIVIL PROCEDURE; INDISPENSABLE PARTY;

ELUCIDATED. — An indispensable party is one whose interest will be affected by
the court's action in the litigation, and without whom no final determination of
the case can be had. The party's interest in the subject matter of the suit and in
the relief sought are so inextricably intertwined with the other parties' that his
legal presence as a party to the proceeding is an absolute necessity. In his
absence there cannot be a resolution of the dispute of the parties before the
court which is effective, complete, or equitable. Conversely, a party is not
indispensable to the suit if his interest in the controversy or subject matter is
distinct and divisible from the interest of the other parties and will not
necessarily be prejudiced by a judgment which does complete justice to the
parties in court. He is not indispensable if his presence would merely permit
complete relief between him and those already parties to the action or will
simply avoid multiple litigation. There are two essential tests of an
indispensable party: (1) can relief be afforded the plaintiff without the presence
of the other party?; and, (2) can the case be decided on the merits without
prejudicing the rights of the other party? There is, however, no fixed formula for
determining who is an indispensable party; this can only be determined in the
context and by the facts of the particular suit or litigation.

2.ID.; ID.; APPEAL BY CERTIORARI; SUPREME COURT IS NOT A TRIER OF

FACTS; EXCEPTIONS. — Whether petitioners are innocent mortgagee or
purchasers in good faith and for value, is a factual matter, which cannot be
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 raised in a petition for review on certiorari under Rule 45. Settled is the rule
that this Court is not a trier of facts and does not normally embark on a re-
examination of the evidence adduced by the parties during trial. In Heirs of the
Late Spouses Aurelio and Esperanza Balite v. Lim, we held that factual findings
of the Court of Appeals are binding and conclusive upon us. These findings may
be reviewed only under exceptional circumstances such as when the inference
is manifestly mistaken: the judgment is based on a misapprehension of facts;
findings of the trial court contradict those of the appellate court; or the latter
manifestly overlooked relevant and undisputed facts that, if properly
considered, would justify a different conclusion.
3.CIVIL LAW; BUYER OF REAL PROPERTY IN POSSESSION OF PERSONS
OTHER THAN THE SELLER MUST BE WARY AND SHOULD INVESTIGATE THE
RIGHTS OF THOSE IN POSSESSION. — Moreover, the burden of proving the
status of a purchaser in good faith and for value lies upon him who asserts that
status. In discharging the burden, it is not enough to invoke the ordinary
presumption of good faith. The rule is settled that a buyer of real property in
possession of persons other than the seller must be wary and should
investigate the rights of those in possession. Without such inquiry, the buyer
can hardly be regarded as buyer in good faith and cannot have any right over
the property.
4.ID.; ID.; BANKS ARE EXPECTED TO EXERCISE MORE CARE AND
PRUDENCE THAN PRIVATE INDIVIDUALS IN THEIR DEALINGS. — However,
considering that the land was in the possession of persons other than the
mortgagors. PNB should have inquired whether the possessors knew that the
lot is being mortgaged, and the circumstances surrounding the acquisition of
the lot by the mortgagors. Indeed, while PNB is not expected to conduct an
exhaustive investigation on the history of the mortgagor's title, it cannot be
excused from the duty of exercising the due diligence required of a banking
institution. In Tomas v. Tomas, we noted that it is standard practice for banks,
before approving a loan, to send representatives to the property offered as
collateral to assess its actual condition and to investigate who are the real
owners thereof. We held that banks are expected to exercise more care and
prudence than private individuals in their dealings, even those involving
registered lands, for their business is affected with public interest. Verily, PNB
was remiss in the exercise of due diligence required of a banking institution,
hence it cannot be considered as mortgagee in good faith.
5.ID.; PROPERTY; PRESCRIPTION; RIGHT TO FILE AN ACTION FOR
RECONVEYANCE ON THE GROUND THAT THE CERTIFICATE OF TITLE WAS
OBTAINED BY MEANS OF A FICTITIOUS DEED OF SALE IS IMPRESCRIPTIBLE. —
As to whether the action for reconveyance has prescribed, we held in Santos v.
Santos, citing Lacsamana v. CA, that the right to file an action for reconveyance
on the ground that the certificate of title was obtained by means of a fictitious
deed of sale is virtually an action for the declaration of its nullity, which does
not prescribe.
6.REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; LACHES CAN BE APPLIED
ONLY IN THE ABSENCE OF STATUTORY LAW. — Neither could laches be
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 successfully invoked. Laches is a doctrine in equity which has been aptly
described as "justice outside legality," and applied only in the absence of, and
never against, statutory law. Aequetas nunguam contravenit legis. The positive
mandate of Art. 1410 of the Civil Code conferring imprescriptibility to actions or
defense for the declaration of the inexistence of a contract should pre-empt
and prevail over all abstract arguments based only on equity. Certainly, laches
cannot be set up to resist the enforcement of an imprescriptible legal right;
thus, respondents can validly vindicate their inheritance despite the lapse of
time.
7.CIVIL LAW; LAND TITLES AND DEEDS; CERTIFICATES OF TITLE CANNOT
BE USED TO PROTECT A USURPER FROM THE TRUE OWNER. — Finally, while
certificates of title are indefeasible, unassailable and binding against the whole
world, they merely confirm or record title already existing and vested. They
cannot be used to protect a usurper from the true owner, nor can they be used
for the perpetration of fraud; neither do they permit one to enrich himself at the
expense of others.

DECISION

YNARES-SANTIAGO, J : p

These consolidated petitions for review under Rule 45 of the Revised

Rules of Civil Procedure assail the June 4, 2004 decision 1 of the Court of
Appeals in CA-G.R. CV No. 54831, which reversed the decision of the Regional
Trial Court of Iloilo City, Branch 38, in Civil Case No. 18836, and its August 4,
2004 resolution denying reconsideration thereof.

The facts are as follows:

Deogracias, Glicerio, Tomas and Caridad, all surnamed Militar, were heirs
of Estanislao Militar and the registered co-owners of Lot Nos. 3011 and 3017
covered by OCT No. T-8238-A (0-16879) and OCT No. 94-(0-16878).

On August 16, 1941, Deogracias sold his undivided share in Lot No. 3011
to Pedro Golez, and in Lot No. 3017 to spouses Sofronio and Lourdes Lumagbas.
Golez annotated the sale at the back of the title thereof while spouses
Lumagbas caused the subdivision of Lot No. 3017 into Lot No. 3017-A and Lot
No. 3017-B, with Lot No. 3017-A registered in their names under TCT No. 8239.

Notwithstanding the sale, Deogracias continued to occupy a portion of Lot

No. 3011 and Lot No. 3017-B until his death on March 17, 1964. Glicerio died on
March 22, 1939, Tomas on August 20, 1959 and Caridad on April 29, 1957.
Glicerio and Caridad died without issue. Deogracias was survived by Teodorico
and Remedios, while Tomas was survived by Wenceslao and Ladislao.

However, in a Deed of Absolute Sale dated April 24, 1975, Deogracias,

Glicerio, Tomas and Caridad purportedly sold Lot No. 3011 to spouses Rodolfo
and Nilda Jalbuna. In another Deed of Sale dated April 25, 1975, Glicerio, Tomas
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 and Caridad purportedly sold Lot No. 3017-B to the same spouses.
Consequently, titles to Lot Nos. 3011 and 3017-B were cancelled and new titles,
TCT Nos. 39083 and 39082, respectively, were issued to spouses Jalbuna.

Subsequently, Lot No. 3011 was subdivided into Lot No. 3011-A and Lot
No. 3011-B, with Lot No. 3011-A registered in the name of spouses Jalbuna and
Lot No. 3011-B in the name of Golez.

On June 5, 1975, spouses Jalbuna mortgaged Lot No. 3017-B to Philippine

National Bank (PNB) as security for a loan. When they defaulted, PNB
extrajudicially foreclosed the mortgage and sold Lot No. 3017-B at public
auction, with PNB as the highest bidder. Title thereto was consolidated in the
name of PNB and was issued TCT No. T-61465.

Thereafter, PNB sold the lot to spouses Johnny and Nona Lucero, who were
issued TCT No. 76938. As the new owners of Lot No. 3017-B, they filed an
ejectment case against Tranquilina, Azucena, Freddie and Eduardo, all
surnamed Militar, the actual occupants therein.

On October 2, 1989, Tranquilina, Azucena, Freddie and Eduardo as

surviving heirs of Teodorico and Deogracias Militar, filed a complaint against
spouses Jalbuna, PNB, and spouses Lucero for Reconveyance of Title,
Annulment of Sale, Cancellation of Titles and Damages. Other heirs of
Deogracias on the side of Remedios filed a complaint-in-intervention to join the
plaintiffs. They prayed for: 1) the declaration of nullity of the two (2) deeds of
sale dated April 24, 1975 and April 25, 1975 covering Lot No. 3011 and Lot No.
3017-B, respectively; 2) the cancellation of title covering Lot No. 3017-B in the
name of spouses Lucero; 3) the cancellation of title covering Lot No. 3011-A in
the name of spouses Jalbuna; 4) the reconveyance of Lot 3011-A and Lot No.
3017-B to the heirs of Deogracias Militar; and 5) actual, exemplary and moral
damages. 2

Spouses Jalbuna invoked prescription, non-inclusion of indispensable

parties and lack of cause of action since their predecessor, Deogracias, no
longer had interest over the properties having sold them to third parties.

PNB claimed that it was a mortgagee in good faith and for value; that the
title of spouses Jalbuna was free from all liens and encumbrances when they
secured the loan; and that it conducted verification and inspection of the
property before granting the loan. EAHDac

Spouses Lucero alleged that the complaint was commenced without the
real party in interest; that the cause of action has prescribed; and that they
were innocent purchasers in good faith and for value.

The trial court rendered a decision 3 dated October 18, 1995, dismissing
the complaint, complaint-in-intervention, as well as the cross claim of PNB. It
held that the case was not brought in the name of all indispensable parties and
although the two (2) deeds of sale were void for being simulated or fictitious,
their nullity cannot be invoked against PNB and spouses Lucero because they
were buyers in good faith. It found that the action for reconveyance had
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 prescribed as it was filed more than fourteen (14) years from the execution of
the Deeds of Sale covering the disputed properties. An action for reconveyance
prescribes after ten (10) years from the issuance of title, which operates as a
constructive notice.

On appeal, the Court of Appeals reversed the decision of the trial court. It
held that ultimate issue is the propriety of reconveyance and not the shares of
the respective heirs which is proper in a case for partition. Thus, a final
determination of the case can be had despite non-inclusion of other heirs
because their interests may be severed and proceeded with separately.
Further, it held that PNB and spouses Lucero were not buyers in good faith; and
that the action for reconveyance based on implied trust does not prescribe. The
dispositive portion reads as follows:
WHEREFORE, premises considered, the Decision dated October
18, 1995, of the Regional Trial Court of Iloilo City, Sixth Judicial Region,
Branch 38, in Civil Case No. 18836, is hereby REVERSED and SET
ASIDE. The Certificate of Title covering Lot 3011-A in the names of
Spouses Jalbuna and the Certificate of Title covering Lot 3017-B in the
names of Spouses Lucero-Ariete are hereby declared null and void.
Spouses Jalbuna and Spouses Lucero-Ariete are directed to reconvey
the subject properties to its original owners, namely Glicerio, Tomas
and Caridad, as the undivided property, of the aforestated co-owners.

SO ORDERED. 4

Hence, the instant consolidated petitions, the resolution of which hinges

on three pivotal questions: 1) whether or not the case was brought by all
indispensable parties; 2) whether or not petitioners PNB and spouses Lucero
were mortgagee and purchasers in good faith, respectively; and 3) whether or
not action for reconveyance has prescribed or is barred by laches.

We are not persuaded by PNB's claim that the case was not brought by all
indispensable parties as other heirs of Glicerio, Tomas and Caridad have not
been named as parties therein.

An indispensable party is one whose interest will be affected by the

court's action in the litigation, and without whom no final determination of the
case can be had. The party's interest in the subject matter of the suit and in the
relief sought are so inextricably intertwined with the other parties' that his legal
presence as a party to the proceeding is an absolute necessity. In his absence
there cannot be a resolution of the dispute of the parties before the court which
is effective, complete, or equitable. 5

Conversely, a party is not indispensable to the suit if his interest in the

controversy or subject matter is distinct and divisible from the interest of the
other parties and will not necessarily be prejudiced by a judgment which does
complete justice to the parties in court. He is not indispensable if his presence
would merely permit complete relief between him and those already parties to
the action or will simply avoid multiple litigation. 6

There are two essential tests of an indispensable party: (1) can relief be
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 afforded the plaintiff without the presence of the other party?; and, (2) can the
case be decided on the merits without prejudicing the rights of the other party?
There is, however, no fixed formula for determining who is an indispensable
party; this can only be determined in the context and by the facts of the
particular suit or litigation. 7
In the case at bar, the ultimate relief sought by the action is the
reconveyance of titles to their rightful owners. The records reveal that prior to
the forgery, the disputed properties were registered in the names of the co-
owners, Glicerio, Tomas and Caridad, whose interests remained undivided.
Thus, if reconveyance of the titles is granted, the titles will revert back to the
estates of the deceased co-owners and not to their individual heirs, whose
interests are divisible and may properly be ventilated in another proceeding.
Therefore, a co-heir may bring such action without necessarily joining all the
other co-heirs as co-plaintiffs because the suit is deemed to be instituted for the
benefit of all. As correctly held by the Court of Appeals:
It should be remembered, nevertheless, that the ultimate issue
herein is the propriety of reconveyance and not the shares of the
respective heirs of the co-owners, the latter being determined in a case
for partition. An action for partition is the action where co-ownership is
declared and the segregation and conveyance of a determinate portion
of the property is made. The heirs of the co-owners, (Glicerio, Tomas
and Caridad), if there are any, including the appellants herein may
claim their respective shares in an action for partition. Any claim of
interest, by way of succession, from the co-owners may be severed and
proceeded with separately and a final determination in the action for
reconveyance can be had despite the non-inclusion of other heirs
because the interest of the respective heirs of the co-owners, may be
severed. Corollary, the instant case, may proceed without the other
heirs, if there are any, because they are mere necessary parties.
Moreover, in a co-ownership, the act of one benefits all the co-owners,
unless the former repudiates the co-ownership. Thus, if the appellants
herein prevail in the case for reconveyance, it will also redound to the
benefit of the other co-owners or co-heirs. 8

PNB next argues that since Deogracias sold his shares in the disputed
lots, his heirs, herein respondents, do not have a cause of action against it,
spouses Jalbuna and spouses Lucero.
This argument is proper had Deogracias died ahead of the other co-
owners. However, records show that Glicerio, Tomas and Caridad predeceased
Deogracias. Glicerio died on March 22, 1939, Tomas on August 20, 1959,
Caridad on April 29, 1957, while Deogracias died on March 17, 1964.
Article 1003 of the Civil Code provides:
Art. 1003.If there are no descendants, ascendants, illegitimate
children, or a surviving spouse, the collateral relatives shall succeed to
the entire estate of the deceased in accordance with the following
articles.
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 Clearly, when Glicerio and Caridad died intestate and without issue, their
shares in the disputed properties were inherited by Deogracias and Tomas. It is
this portion that respondents, as heirs of Deogracias, have an interest on and
which vested them with personality to institute the present case.
PNB and spouses Lucero claim to be mortgagee and buyers in good faith,
respectively, since title to Lot No. 3017-B appeared to be free from any
encumbrance. They argue that a person dealing with a registered land may rely
on the correctness of the certificate of title and is not required to go beyond it
to determine the condition of the property.

Whether petitioners are innocent mortgagee or purchasers in good faith

and for value, is a factual matter, which cannot be raised in a petition for
review on certiorari under Rule 45. 9 Settled is the rule that this Court is not a
trier of facts and does not normally embark on a re-examination of the
evidence adduced by the parties during trial. 10 I n Heirs of the Late Spouses
Aurelio and Esperanza Balite v. Lim, 11 we held that factual findings of the Court
of Appeals are binding and conclusive upon us. These findings may be reviewed
only under exceptional circumstances such as when the inference is manifestly
mistaken; the judgment is based on a misapprehension of facts; findings of the
trial court contradict those of the appellate court; or the latter manifestly
overlooked relevant and undisputed facts that, if properly considered, would
justify a different conclusion.

The Court of Appeals reversed the decision of the trial court based on its
findings of facts which are in accord with the documents on record. Thus, we
affirm the Court of Appeals' finding that petitioners were not mortgagee or
buyers in good faith.
Moreover, the burden of proving the status of a purchaser in good faith
and for value lies upon him who asserts that status. 12 In discharging the
burden, it is not enough to invoke the ordinary presumption of good faith. 13
The rule is settled that a buyer of real property in possession of persons other
than the seller must be wary and should investigate the rights of those in
possession. Without such inquiry, the buyer can hardly be regarded as buyer in
good faith and cannot have any right over the property. 14
PNB claims that it conducted the necessary inquiry and investigation on
the subject lot and was convinced that Nilda Jalbuna, as one of the heirs of
Estanislao Militar, had every right to mortgage the same, even if she was not in
actual possession thereof.
However, considering that the land was in the possession of persons other
than the mortgagors, PNB should have inquired whether the possessors knew
that the lot is being mortgaged, and the circumstances surrounding the
acquisition of the lot by the mortgagors. Indeed, while PNB is not expected to
conduct an exhaustive investigation on the history of the mortgagor's title, it
cannot be excused from the duty of exercising the due diligence required of a
banking institution. In Tomas v. Tomas , 15 we noted that it is standard practice
for banks, before approving a loan, to send representatives to the property
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 offered as collateral to assess its actual condition and to investigate who are
the real owners thereof. We held that banks are expected to exercise more
care and prudence than private individuals in their dealings, even those
involving registered lands, for their business is affected with public interest.
Verily, PNB was remiss in the exercise of due diligence required of a banking
institution, hence it cannot be considered as mortgagee in good faith. TSCIEa

Neither could spouses Lucero be considered buyers in good faith. As

respondents' neighbors, they could have verified the status of the property they
were buying by inquiring from the possessors thereof. This, they failed to do;
hence they cannot be considered buyers in good faith.
As to whether the action for reconveyance has prescribed, we held in
Santos v. Santos, 16 citing Lacsamana v. CA, 17 that the right to file an action for
reconveyance on the ground that the certificate of title was obtained by means
of a fictitious deed of sale is virtually an action for the declaration of its nullity,
which does not prescribe.

In the case at bar, the complaint filed was for the reconveyance of the
properties in question to the estates of Deogracias, Glicerio, Tomas and
Caridad, considering that the deeds of sale were simulated and fictitious. The
complaint thus amounts to an action for declaration of nullity of a void contract,
which does not prescribe.
Neither could laches be successfully invoked. Laches is a doctrine in equity
which has been aptly described as "justice outside legality", and applied only in
the absence of, and never against, statutory law. Aequetas nunguam
contravenit legis. The positive mandate of Art. 1410 of the Civil Code conferring
imprescriptibility to actions or defense for the declaration of the inexistence of
a contract should pre-empt and prevail over all abstract arguments based only
on equity. Certainly, laches cannot be set up to resist the enforcement of an
imprescriptible legal right; thus, respondents can validly vindicate their
inheritance despite the lapse of time. 18

Finally, while certificates of title are indefeasible, unassailable and binding

against the whole world, they merely confirm or record title already existing
and vested. They cannot be used to protect a usurper from the true owner, nor
can they be used for the perpetration of fraud; neither do they permit one to
enrich himself at the expense of others. 19
WHEREFORE, the petitions are DENIED. The decision of the Court of
Appeals dated June 4, 2004 in CA-G.R. CV No. 54831 and its resolution dated
August 4, 2004, are hereby AFFIRMED in toto .
SO ORDERED.
Davide, Jr., C.J., Quisumbing, Carpio and Azcuna, JJ., concur.

Footnotes
1.Rollo in G.R. No. 164801, pp. 35-47. Penned by Associate Justice Mercedes Gozo-
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 Dadole and concurred in by Associate Justices Monina Arevalo Zenarosa and
Vicente L. Yap.
2.Rollo in G.R. No. 165165, pp. 93-94.
3.Rollo in G.R. No. 164801, pp. 51-61. Penned by Presiding Judge David A. Alfeche,
Jr.
4.Id. at 47.
5.Bank of the Philippine Islands v. Court of Appeals, 450 Phil. 532, 541 (2003).
6.Id.

7.Republic v. Sandiganbayan , G.R. No. 152154, 15 July 2003, 406 SCRA 190, 269-
270.

8.Rollo in G.R. No. 164801, pp. 43-44; citations omitted.

9.Sps. Uy v. Court of Appeals, 411 Phil. 788, 798 (2001).
10.Sampayan v. Court of Appeals, G.R. No. 156360, 14 January 2005.
11.G.R. No. 152168, 10 December 2004, 446 SCRA 56, 72-73.
12.Spouses Rayos v. Reyes, 446 Phil. 32, 50-51 (2003).

13.Potenciano v. Reynoso, 449 Phil. 396, 410 (2003).

14.Occeña v. Esponilla , G.R. No. 156973, 4 June 2004, 431 SCRA 116, 124-125.
15.G.R. No. L-36897, 25 June 1980, 98 SCRA 280, cited in Cavite Development
Bank v. Spouses Lim , 381 Phil. 355, 368-369 (2000).
16.418 Phil. 681, 691 (2001).
17.351 Phil. 526, 533 (1998).
18.Heirs of Ingjug-Tiro v. Spouses Casals , 415 Phil. 665, 673-674 (2001).

19.Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals , G.R. No.
132161, 17 January 2005.

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