Casimiro Development Corporation vs. Mateo

A purchaser of registered land who relies on a clean Torrens certificate of title and pays full and fair price is an innocent purchaser for value, notwithstanding the physical possession of the property by occupants whose possession is merely that of tenants and not adverse claimants of ownership. The as-is, where-is clause in a deed of sale pertains only to the physical condition of the property and does not indicate bad faith on the part of the buyer.

The subject property, a 6,693-square-meter parcel in Barrio Pulang Lupa, Las Piñas City, was originally owned by Isaias Lara, the maternal grandfather of respondent Renato L. Mateo. Upon Isaias Lara's death in 1930, the property passed to his children Miguela, Perfecta, and Felicidad, and grandson Rosauro. In 1962, the co-heirs transferred full and exclusive ownership to Felicidad Lara-Mateo. Felicidad had five children: Laura, Renato (respondent), Cesar, Candido Jr., and Leonardo. With the agreement of the entire Lara-Mateo family, a deed of sale covering the property was executed in favor of Laura, who applied for and obtained land registration in 1967, resulting in OCT No. 6386 issued in her sole name. The property subsequently passed through several mortgage and transfer transactions before ultimately being foreclosed by China Banking Corporation and then sold to petitioner Casimiro Development Corporation (CDC).

The subject property, a registered parcel of land with an area of approximately 6,693 square meters located in Barrio Pulang Lupa, Las Piñas City, was originally owned by Isaias Lara, the maternal grandfather of respondent Renato L. Mateo. Upon Isaias Lara's death in 1930, the property passed to his children — Miguela, Perfecta, and Felicidad — and a grandson, Rosauro (son of Perfecta, who had predeceased Isaias in 1920). In 1962, the co-heirs transferred full and exclusive ownership to Felicidad Lara-Mateo under an agreement denominated as Pagaayos Na Gawa Sa Labas Ng Hukuman. Felicidad had five children: Laura, Renato, Cesar, Candido Jr., and Leonardo. With the agreement of the entire Lara-Mateo family, a deed of sale covering the property was executed in favor of Laura, who in 1967 applied for land registration. After the application was granted, Original Certificate of Title No. 6386 was issued in Laura's sole name.

The property covered by OCT No. 6386 was subsequently used as collateral for a succession of loans. Laura first obtained a loan from Bacoor Rural Bank. To repay that loan and secure release of the mortgage, she borrowed funds from Parmenas Perez, who required that the title be transferred to his name; accordingly, OCT No. 6386 was cancelled and TCT No. 438959 was issued in Perez's name. Laura later recovered the property by repaying the obligation with proceeds of another loan from Rodolfo Pe, resulting in the cancellation of TCT No. 438959 and the issuance of TCT No. S-91595 in her name. She thereafter executed a deed of sale in favor of Pe, leading to the issuance of TCT No. S-91738 in Pe's name. Pe constituted a mortgage on the property in favor of China Banking Corporation as security for a loan. China Bank foreclosed the mortgage and consolidated its ownership in 1985 after Pe failed to redeem, resulting in the issuance of TCT No. (99527) T-11749-A in the name of China Bank. In 1988, CDC and China Bank negotiated and came to terms on the purchase of the property, executing a deed of conditional sale. On March 4, 1993, they executed a deed of absolute sale, and on March 29, 1993, TCT No. T-34640 was issued in CDC's name.

On February 28, 1991, Felicidad died intestate. On June 6, 1991, CDC brought an action for unlawful detainer in the Metropolitan Trial Court of Las Piñas City against respondent's siblings Cesar, Candido Jr., and Leonardo, and other occupants. The defendants argued lack of jurisdiction, claiming the land was agricultural and within the DARAB's jurisdiction, and asserted continuous possession since before World War II. The MeTC ruled in favor of CDC on October 19, 1992, holding that the tax declaration classification as "fishpond" was insufficient to bring the land under the Comprehensive Agrarian Reform Law, and that the Torrens title prevailed over possessory claims. That ruling was ultimately affirmed by the Supreme Court in G.R. No. 128392, which became final. Notably, in the ejectment case, the siblings' defense was predicated on their status as agricultural tenants, not on a claim of ownership.

On June 29, 1994, respondent Renato Mateo brought an action for quieting of title, reconveyance of four-fifths of the land, and damages against CDC and Laura in the RTC of Las Piñas City, asserting co-ownership on behalf of himself and his three brothers. The respondent admitted in his complaint that the registration of the land in Laura's sole name had been with the knowledge and agreement of the entire Lara-Mateo family. The RTC dismissed the complaint on May 9, 2001, upholding the validity of CDC's title. The CA reversed on August 31, 2006, declaring CDC not a buyer in good faith and ordering reconveyance to respondent and his siblings. CDC's motion for reconsideration was denied, prompting the present petition.

• Incontrovertibility of Laura's Title: CDC argued that the decree of registration over the subject property was incontrovertible and no longer open to review or attack after the lapse of one year from entry of the decree of registration in favor of Laura Mateo de Castro.
• Res Judicata: CDC maintained that the present action was barred by res judicata, given the prior final ruling in G.R. No. 128392 upholding CDC's right to eject the occupants.
• Reconveyance Barred by Transfer to Third Parties: CDC argued that the action for quieting of title and reconveyance under PD No. 1529 could not prosper because the property had already been conveyed and transferred to third parties who claimed adverse title for themselves.
• Laches: CDC contended that the respondent's action was barred by laches, given that more than twenty years had passed since the exclusive registration in Laura's name, with the respondent's own family's agreement, before the respondent first asserted his claim.
• Good Faith of Purchaser: CDC argued that it was a buyer in good faith, having purchased the property from China Bank on the basis of a clean certificate of title free from any lien or encumbrance.

• Bad Faith of CDC: Respondent countered that CDC acquired the property from China Bank in bad faith because CDC had actual knowledge of the possession of the property by the respondent and his siblings.
• Failure to Accept Delivery: Respondent argued that CDC did not actually accept delivery of possession of the property from China Bank.
• As-Is, Where-Is Clause: Respondent maintained that CDC ignored the failure of China Bank to warrant its title, as evidenced by the as-is, where-is clause inserted in the contract of sale between CDC and China Bank.

• Indefeasibility of Title: Whether the title issued in the name of Laura Mateo de Castro had become indefeasible and incontrovertible, precluding the respondent's attack on that title.
• Collateral Attack: Whether the respondent's action for quieting of title and reconveyance constituted an impermissible collateral attack on Laura's Torrens title.
• Innocent Purchaser for Value: Whether CDC was an innocent purchaser for value when it acquired the property from China Bank, notwithstanding the adverse possession of the respondent's siblings and the as-is, where-is clause in the deed of sale.

• Indefeasibility of Title: Yes. Laura's title had long become indefeasible, the respondent having allowed more than twenty years to pass before asserting his claim, with full knowledge of the exclusive registration in Laura's name and with his family's agreement.
• Collateral Attack: Yes. The respondent's suit was in reality a collateral attack on the title in the name of Laura, which is impermissible because a Torrens title is immune from collateral attack.
• Innocent Purchaser for Value: Yes. CDC was an innocent purchaser for value, having relied on China Bank's clean certificate of title free from any lien or encumbrance, and the siblings' possession as mere tenants did not constitute notice of any defect in the title.

• Indefeasibility of Title: The Torrens system requires the Government to issue an official certificate of title attesting to ownership, giving the public the right to rely upon the face of the certificate and dispensing with the need for further inquiry. Registration under the Torrens system, however, is not a mode of acquiring ownership and does not create or vest title; the certificate is merely evidence of ownership. Nonetheless, title registered under the Torrens system becomes indefeasible and incontrovertible. Here, the land was covered by OCT No. 6386 in Laura's name and its derivative certificates for decades. Neither the respondent nor his siblings opposed the various transfers. The respondent admitted that the registration in Laura's sole name was with the knowledge and agreement of the entire Lara-Mateo family. It was unthinkable that the respondent, fully aware of the exclusive registration, allowed more than twenty years to pass before asserting his claim — and only after CDC had commenced the ejectment case against his siblings. The respondent's assertion that Laura held the title in trust for their mother could not stand because Laura's title had long ago become indefeasible. Furthermore, the siblings' defense in the ejectment case was predicated on tenancy, not ownership, and was rejected by the Court in G.R. No. 128392.

• Collateral Attack: Registration of land under the Torrens system, aside from perfecting the title and rendering it indefeasible, also renders the title immune from collateral attack. A collateral attack occurs when, in another action to obtain a different relief, an attack is made against the judgment granting the title as an incident of the present action. The respondent's action for quieting of title and reconveyance, while seeking a different relief, was in reality an attack on the validity of Laura's title — the foundation of all derivative titles including CDC's. Because the main objective of the respondent's suit was not to annul the decree of registration directly but to obtain reconveyance as an incident, the action constituted a collateral attack and could not prosper.

• Innocent Purchaser for Value: One who deals with property registered under the Torrens system need not go beyond the certificate of title and is charged with notice only of such burdens and claims as are annotated on the title. Under Section 44 of the Property Registration Decree, a subsequent purchaser taking a certificate of title for value and in good faith holds the same free from all encumbrances except those noted on the certificate and certain statutory liens. China Bank's TCT No. 99527 was a clean title, free from any lien or encumbrance, so CDC had the right to rely solely upon the face of that certificate. The CA's ascribing of bad faith to CDC based on knowledge of the siblings' adverse possession was unfounded: the siblings themselves characterized their possession only as that of mere agricultural tenants, and possession grounded on tenancy does not create a defect in the owner's title. The respondent likewise admitted that his own possession was no different from that of his siblings. For bad faith to attach, the vendee's notice of a defect must encompass facts and circumstances that would impel a reasonably cautious person to make further inquiry; nothing here ought to have alerted CDC. The as-is, where-is clause in the deed of sale between CDC and China Bank pertained solely to the physical condition of the property, not its legal situation, and merely placed on CDC the burden of having occupants removed; it did not affect China Bank's title or indicate bad faith on CDC's part. Having paid the full and fair price, CDC was an innocent purchaser for value.

• Indefeasibility of Torrens Title — A certificate of title issued under the Torrens system becomes indefeasible and incontrovertible after the lapse of the period allowed by law. Once indefeasible, the title is immune from collateral attack. In this case, Laura's title had become indefeasible long before the respondent filed his action, precluding any attack on the validity of that title through an action for quieting of title and reconveyance.

• Innocent Purchaser for Value — A purchaser in good faith is one who buys property without notice that some other person has a right to or interest in such property, pays a full and fair price, and believes the person from whom he receives the thing was the owner and could convey title. A purchaser cannot close his eyes to facts which should put a reasonable man on guard and still claim good faith. The Court applied this doctrine to hold that CDC was an innocent purchaser for value because it relied on China Bank's clean certificate of title, and the occupants' possession as mere tenants did not constitute notice of any defect.

• Collateral Attack on Torrens Title — A collateral attack occurs when, in another action to obtain a different relief, an attack is made against the judgment granting the title as an incident of the present action. This is distinguished from a direct attack, whose main objective is to annul, set aside, or enjoin the enforcement of the judgment granting title. The Court held that the respondent's action for quieting of title and reconveyance was in reality a collateral attack on Laura's title and therefore could not prosper.

• As-Is, Where-Is Clause — The phrase "as-is, where-is" pertains solely to the physical condition of the thing sold, not to its legal situation, and is merely descriptive of the state of the thing sold. It does not alter the seller's responsibility to deliver the property sold to the buyer. The Court held that the clause in the deed of sale between CDC and China Bank did not indicate bad faith on CDC's part, as it related only to the physical condition of the property and the burden of removing occupants.

• "One who deals with property registered under the Torrens system need not go beyond the certificate of title, but only has to rely on the certificate of title. He is charged with notice only of such burdens and claims as are annotated on the title." — This passage articulates the fundamental principle of the Torrens system that protects purchasers who rely on the face of a clean certificate, which is the ratio decidendi for holding CDC to be an innocent purchaser for value.

• "The vendee's notice of a defect or flaw in the title of the vendor, in order for it to amount to bad faith, should encompass facts and circumstances that would impel a reasonably cautious person to make further inquiry into the vendor's title." — This formulation defines the standard for determining when a purchaser's notice of a defect rises to the level of bad faith, distinguishing mere knowledge of occupancy from knowledge of an adverse claim of ownership.

• "Registration of land under the Torrens System, aside from perfecting the title and rendering it indefeasible after the lapse of the period allowed by law, also renders the title immune from collateral attack." — This statement establishes the doctrine that indefeasible Torrens titles cannot be collaterally attacked, which was the basis for rejecting the respondent's action as an impermissible collateral attack on Laura's title.

• "The as-is, where-is clause did not affect the title of China Bank because it related only to the physical condition of the property upon its purchase by CDC. The clause only placed on CDC the burden of having the occupants removed from the property." — This clarifies the legal effect of an as-is, where-is clause in property sales, distinguishing physical condition from legal status and negating its use as evidence of purchaser bad faith.

• Mateo vs. Court of Appeals, G.R. No. 128392, April 29, 2005 — The prior final ruling in the ejectment case involving the same property and parties, where the Court affirmed CDC's right to eject the respondent's siblings and rejected their tenancy defense. The Court relied on this to show that the siblings never claimed ownership, only tenancy, and that their defense was rejected.

• Sandoval vs. Court of Appeals, G.R. No. 106657, August 1, 1996 — Cited for the canonical definition of a purchaser in good faith: one who buys property without notice of another's right or interest, pays full and fair price, and believes the seller could convey title. The Court applied this definition to hold CDC was an innocent purchaser for value.

• Madrid vs. Mapoy, G.R. No. 150887, August 14, 2009 — Cited for the doctrine that a Torrens title is immune from collateral attack and for the definition of collateral versus direct attack. The Court applied this to characterize the respondent's action as an impermissible collateral attack on Laura's title.

• Asset Privatization Trust vs. T.J. Enterprises, G.R. No. 167195, May 8, 2009 — Cited for the interpretation of the as-is, where-is clause as pertaining solely to the physical condition of the thing sold, not its legal situation. The Court used this to reject the CA's finding that the clause evidenced CDC's bad faith.

• Section 44, Presidential Decree No. 1529 (Property Registration Decree) — Provides that every subsequent purchaser of registered land taking a certificate of title for value and in good faith holds the same free from all encumbrances except those noted on the certificate and certain statutory liens (unpaid real estate taxes within two years, public ways, agrarian reform dispositions). The Court applied this provision to hold that CDC, as a purchaser for value in good faith, took China Bank's clean title free from all encumbrances, there being none annotated on the certificate.

Chief Justice Renato C. Corona (Chairperson), Associate Justice Teresita J. Leonardo-De Castro, Associate Justice Mariano C. Del Castillo, and Associate Justice Martin S. Villarama Jr. concurred.