Federated Realty Corporation vs. Court of Appeals

A Torrens certificate of title confers a clear and unmistakable right to injunctive relief against a claimant relying on an unregistered expropriation; a certificate of title cannot be collaterally attacked, and expropriation transfers ownership only upon full payment of just compensation and compliance with the registration requirements.

Federated Realty Corporation is the registered owner of a 543-square-meter lot in Apas, Lahug, Cebu City covered by TCT No. 119929, adjoining Camp Lapu-Lapu, where the AFP-VISCOM Command Headquarters is situated. The lot originated from Lot No. 933 of the Banilad Friar Lands Estate, registered in 1932 to Francisco Racaza, Pantaleon Cabrera, and Josefina Martinez under TCT No. RT 2533 (T-13). Lot No. 933 was among 18 lots subjected in 1938 to expropriation proceedings in Commonwealth of the Philippines vs. Borromeo, Civil Case No. 781, for a military reservation, and was condemned by the CFI in 1940. Ownership of the expropriated estate nonetheless remained controversial, and in Valdehueza vs. Republic and Republic vs. Lim—decisions involving adjacent lots but not Lot No. 933—the Court found no proof of payment of compensation and therefore no transfer of those lots to the Government.

The subject lot is a 543-square-meter property in Apas, Lahug, Cebu City, covered by Transfer Certificate of Title No. 119929 in the name of Federated Realty Corporation. It adjoins Camp Lapu-Lapu, where the Command Headquarters of the Armed Forces of the Philippines-Visayas Command is situated. The lot used to be a portion of Lot No. 933 of the Banilad Friar Lands Estate, which was registered in 1932 to Francisco Racaza, Pantaleon Cabrera, and Josefina Martinez under TCT No. RT 2533 (T-13). In 1938, Lot No. 933 was one of 18 lots subjected to expropriation by the Government in the Court of First Instance of Cebu in Commonwealth of the Philippines vs. Borromeo, Civil Case No. 781, for the establishment of a military reservation. Pursuant to the CFI Order dated 19 October 1938, the Republic deposited ₱9,500.00 with the Philippine National Bank as a precondition for entry to the lots sought to be expropriated. On 14 May 1940, the CFI rendered a Decision condemning Lot No. 933, together with the 17 other lots, in favor of the Republic. In 1947, the whole military reservation was converted into a national airport by presidential proclamation and turned over to the National Airports Corporation.

Beginning in 1940, Lot No. 933 had been subdivided. Part of it was segregated as Lot 933-B under TCT No. 49999 in the name of Francisco Racaza, who sold it to Cebu Agro Development Corporation on 11 March 1974. Cebu Agro had Lot 933-B further subdivided into three farm lots to expand its rabbit farm. TCT No. 108002 was issued for Lot 933-B-1 on 5 April 1989, while TCT No. 108001 was issued for Lot 933-B-2. On 8 April 1992, TCT No. 119740 was issued for Lot 3, with an area of 543 square meters, a portion of the consolidation of Lots 933-B-1 and 933-B-2. The three titles were registered in the names of Arturo Mercader, Cebu Agro’s President-General Manager, and Evangeline Mercader, who religiously paid the real property taxes for the lots. On 27 April 1992, FRC bought Lot 3 from the Mercader spouses and was issued TCT No. 119929.

FRC hired workers to fence the lot in preparation for construction of a commercial building. On 3 June 1992, Captain Rogelio Molina arrived with a jeep-load of fully armed men from AFP-VISCOM and, on instructions of AFP-VISCOM Commanding General Romeo Zulueta, ordered FRC’s workers to stop building. The workers stopped, but when they resumed the following day, Captain Molina returned with his armed men and again ordered them to stop. A similar incident occurred on 8 July 1992, with Captain Molina asserting that the lot formed part of the military reservation. All three incidents were recorded in the blotter of Police Station 2, Mabolo, Cebu City.

On 22 July 1992, FRC filed a complaint for injunction and damages with the Regional Trial Court of Cebu City against Captain Molina and six John Does, later amended to implead the Republic through AFP-VISCOM and General Zulueta. FRC sought a temporary restraining order and preliminary injunction to stop the threats, intimidation, harassment, and interference with its possession. It prayed that after trial the injunction be made permanent, that respondents be declared without any legal right or interest in the lot, and that respondents be ordered to pay compensatory and exemplary damages, attorney’s fees, and litigation expenses. In their answer, respondents admitted that Captain Molina ordered FRC’s workers to desist from fencing the disputed land on the ground that it was government property, but denied threatening or harassing the workers.

The trial court granted FRC’s application for a preliminary injunction on 26 August 1992 and made the writ permanent in an Order dated 12 October 1995, effective until the issue of ownership was resolved by a competent court. The trial court found that the subject property was in FRC’s possession and that FRC’s assertion of ownership was supported by a certificate of title that must be upheld until nullified in a proper proceeding. It also found that the Republic would likely prevent the construction of FRC’s fence unless provisionally restrained, making injunction a proper relief.

• Indefeasibility of Title: Petitioner argued that it holds a Torrens certificate of title over the subject lot that is indefeasible and incontrovertible, and that the Republic’s challenge in the injunction suit is an impermissible collateral attack.
• Possession: Petitioner maintained that, together with its predecessors-in-interest, it had been in open, peaceful, and continuous possession of the property, tilling it and paying all taxes due.

• Expropriation: Respondent relied on the Commonwealth expropriation proceedings and Valdehueza vs. Republic, asserting that the subject lot was expropriated by the Government for military purposes in 1940.
• Possession and Government Structures: Respondent alleged that its possession of the subject lot was evidenced by military structures on the adjoining lots, the Camp Lapu-Lapu arch at the main entrance, and a portion of the runway of the defunct Lahug airport on Lot No. 933.
• National Security: Respondent invoked national security and the integrity of military operations, arguing that civilians should not be allowed within military premises and that a private commercial building within a camp would pose serious danger to military operations.

• Clear and Unmistakable Right: Whether FRC established a clear and unmistakable right over the subject lot sufficient for injunctive relief, notwithstanding the Republic’s claim based on the Commonwealth expropriation proceedings.
• Urgent and Paramount Necessity: Whether FRC established an urgent and paramount necessity for the writ to prevent serious damage, given the Republic’s invocation of national security and military operational integrity.

• Clear and Unmistakable Right: Yes. FRC’s indefeasible Torrens title established a clear and unmistakable right; the Republic’s unregistered expropriation claim raised only a doubtful claim and could not be asserted through a collateral attack.
• Urgent and Paramount Necessity: Yes. The Republic failed to prove an actually existing right or irreparable injury, while FRC’s exercise of ownership rights was being unduly restrained, warranting the permanent injunction.

• Clear and Unmistakable Right: The second requisite for injunctive relief was satisfied. A Torrens certificate of title serves as evidence of an indefeasible and incontrovertible title and is the best proof of ownership; one who deals with registered property may rely on the title, and the doctrine yields only upon fraud or bad faith. FRC held TCT No. 119929, each predecessor-in-interest likewise held a certificate, and no patent irregularity appeared on the title’s face. The Republic presented no title and instead relied on the Commonwealth and Valdehueza cases. Valdehueza was inapplicable because it involved Lot Nos. 932 and 939, not Lot No. 933, and neither FRC nor its predecessors were parties. Although Lot No. 933 was included in the Commonwealth expropriation, the CFI decision merely fixed the valuation of the lots for purposes of just compensation and did not award title to the Government. Under expropriation jurisprudence, including Republic vs. Lim, title passes only upon full payment of just compensation. The Republic’s asserted possessory bases—the alleged ₱9,500 deposit, military structures on adjoining lots, a portion of the Lahug airport runway, and the Camp Lapu-Lapu arch—were unsupported by evidence; no proof of the deposit or its receipt by the authorized depositary was presented, and the cited cases did not involve Lot No. 933. Even assuming payment, the Republic failed to comply with Section 88 of Act No. 496, Section 85 of P.D. No. 1529, or Section 251 of the Code of Civil Procedure, which required registration of any taking or judgment of expropriation. Absent registration, FRC could not be charged with bad faith, because the public is entitled to rely on the Torrens title. Any fraud claim must be raised in a direct proceeding, since a certificate of title is not subject to collateral attack; Leyson vs. Bontuyan distinguished direct attacks from collateral attacks. Injunction is not proper when its purpose is to take property from the possession of one party and transfer it to another whose legal title has not been clearly established, because justice and equity demand preservation of the status quo. FRC’s claim as titleholder was therefore preferred.

• Urgent and Paramount Necessity: The third requisite was likewise satisfied. Until FRC’s title is annulled in a proper proceeding, the Republic has no enforceable right over the subject property; neither military operational integrity nor national defense vests title in the Government. Injunction does not protect rights not in esse, and the possibility of irreparable damage without proof of violation of an actually existing right is not a ground for injunction. The only alleged military structure on Lot No. 933 was the Camp Lapu-Lapu arch, whose precise location and date of construction were unclear, and the subject lot was only a 543-square-meter portion of Lot No. 933. Fencing such a small area could not cause grave and irreparable damage to the Republic. Republic vs. Lim was instructive: reversion of adjacent Lot No. 932, which had military housing and training centers, was held not to cause irreparable injury; the Republic’s claim here, resting only on an unused runway and an arch, was more imagined than real. Meanwhile, FRC’s possession and ownership had to be respected, and its exercise of ownership rights was being unduly restrained. FRC could institute a separate proceeding to quiet its title for final resolution of ownership.

• Doctrine of indefeasibility of Torrens title — A certificate of title is evidence of an indefeasible and incontrovertible title in favor of the person named therein, is the best proof of ownership, and may be relied upon by those dealing with registered property. The principle applies unless the acquisition was attended by fraud or bad faith. In this case, FRC’s TCT No. 119929 and its predecessors’ certificates established a clear and unmistakable right absent any irregularity on the face of the title.

• Doctrine on collateral attack of a Torrens title — A certificate of title may not be altered, modified, or cancelled except in a direct proceeding. A direct attack seeks to annul or set aside the title proceeding, while a collateral attack occurs when, in an action for a different relief, the title proceeding is nevertheless challenged as an incident. The Republic’s challenge to FRC’s title in the injunction suit was an impermissible collateral attack.

• Doctrine on transfer of title in expropriation — In eminent domain, title to expropriated property passes from the owner to the expropriator only upon full payment of just compensation. Mere condemnation or judicial valuation does not vest title. The expropriator must also register the taking or judgment under Section 88 of Act No. 496, Section 85 of P.D. No. 1529, and Section 251 of the Code of Civil Procedure. Failure to pay and register leaves the registered owner’s title intact and prevents the expropriator from claiming an enforceable right or charging third parties with bad faith.

• Requisites for issuance of a writ of injunction — Injunction is a preservative remedy aimed at protecting substantive rights and interests. To be entitled to the writ, the applicant must show: (1) the invasion of a right sought to be protected is material and substantial; (2) the complainant’s right is clear and unmistakable; and (3) there is an urgent and paramount necessity for the writ to prevent serious damage. Injunction is not proper when its purpose is to take property out of the possession or control of one party and transfer it to another whose legal title has not been clearly established.

• Doctrine that injunction protects only rights in esse — Injunction does not protect rights not yet existing. The possibility of irreparable damage, without proof of violation of an actually existing right, is not a ground for injunction. The Republic’s claim of potential harm to military operations failed because it had no enforceable right over the property.

• "Until the government has paid for the value of the lots, ownership shall remain with the respective landowners." — This states the controlling rule on transfer of title in expropriation and was the basis for rejecting the Republic’s claim that the Commonwealth condemnation, by itself, divested the landowners of ownership.

• "The real purpose of the system is to quiet title of 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. x x x 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, except in some direct proceeding permitted by law. Otherwise, all security in registered titles would be lost." — This canonical formulation of the Torrens system’s purpose was quoted to defeat the Republic’s collateral attack on FRC’s registered title.

• "It must be stressed that injunction is not proper when its purpose is to take the property out of the possession or control of one party and transfer the same to the hands of another who did not have such control at the inception of the case and whose legal title has not clearly been established, for the reason that before the question of ownership is determined, justice and equity demand that the parties be maintained in status quo so that no advantage may be given to one party to the detriment of the other." — This passage supplies the equitable rationale for maintaining the status quo pending a direct determination of ownership.

• "However, we cannot overemphasize that until FRC’s title is annulled in a proper proceeding, the Republic has no enforceable right over the subject property. Neither military operational integrity nor national defense vests title to property in favor of the government." — This directly rebuts the Republic’s national security argument and clarifies that government objectives cannot substitute for compliance with expropriation and registration requirements.

• Valdehueza vs. Republic, No. L-21032, May 19, 1966, 17 SCRA 107 — Distinguished; involved Lot Nos. 932 and 939, not Lot No. 933, and did not bind FRC or its predecessors-in-interest.

• Republic vs. Lim, G.R. No. 161656, June 29, 2005 — Followed; reaffirmed that title passes only upon full payment of just compensation and provided an instructive comparison that reversion of adjacent Lot No. 932 would not cause irreparable injury.

• Legarda vs. Saleeby, 31 Phil. 590 — Quoted; articulated the purpose of the Torrens system to quiet title and protect registered owners from attacks outside direct proceedings.

• Leyson vs. Bontuyan, G.R. No. 156357, February 18, 2005, 452 SCRA 94 — Followed; set the distinction between direct and collateral attacks on a certificate of title.

• Syndicated Media Access Corporation vs. Court of Appeals, 219 SCRA 794 — Followed; source of the three requisites for injunctive relief.

• Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, G.R. No. 78742, July 14, 1989, 175 SCRA 343; Jacinto vs. Director of Lands, 49 Phil. 853 (1926) — Cited for the rule that ownership remains with the landowner until the Government pays the value of the expropriated property.

• Section 9, Article III, Constitution — Provides that private property shall not be taken for public use without just compensation. The provision grounded the strict procedure for expropriation that the State must follow.

• Section 88, Act No. 496 (Land Registration Act), now Section 85, Presidential Decree No. 1529 (Property Registration Decree) — Requires registration of land taken by eminent domain, including a memorandum on the existing certificate or issuance of a new certificate. The Republic’s noncompliance meant FRC had no notice of the Government’s adverse claim.

• Section 251, Code of Civil Procedure — Required recording of a final expropriation judgment in the Registry of Deeds, with the effect of vesting the condemned land in the plaintiff for the stated public use. No compliance by the Republic was shown.

• Section 47, Act No. 496, now Section 48, Presidential Decree No. 1529 — Provides that a certificate of title shall not be subject to collateral attack and may be altered, modified, or cancelled only in a direct proceeding. This barred the Republic’s attack in the injunction suit.

• Section 2, Act No. 2826 — Governed immediate possession when condemnation proceedings were instituted by or in favor of the Insular Government, requiring a deposit with the provincial treasurer. The Republic’s reliance on an alleged deposit was unsupported by proof.

Reynato S. Puno, Ma. Alicia Austria-Martinez, Romeo J. Callejo, Sr., and Minita V. Chico-Nazario.