Rivera vs. Moran

A petition for review under Section 38 of the Land Registration Act may be filed at any time after rendition of the court's decision and before the expiration of one year from entry of the final decree of registration; a mortgagee acquiring an interest before that final decree, while the litigation is still pending, is not an innocent purchaser for value.

The petitioners were mortgagees of lots involved in a Tarlac cadastral case, while the respondents included the adjudicatees, the Director of Lands, and the auxiliary judge of the CFI Tarlac. Section 38 of the Land Registration Act supplied the remedy for review of a registration decree on the ground of fraud, and the case required the SC to determine when that remedy may be invoked relative to the entry of the final decree.

In Cadastral Case No. 9 of the Province of Tarlac, the CFI, by decision dated September 16, 1922, ordered lots Nos. 1199, 1208, 1209, 1210, 1222, 1223, 1224, 1225 and 1230 registered in the names of Estanislao Garcia and Rafael Llorente. The provincial fiscal of Tarlac and the Attorney-General, representing the Director of Lands, filed motions for a new trial, which were denied. A bill of exceptions was presented but was disapproved by the CFI on the ground that it had not been filed in time.

On February 15, 1923, the Attorney-General presented a petition for review under Section 38 of the Land Registration Act, alleging that the adjudication was made by fraud consisting in fraudulent alterations of the stenographic notes taken in the cadastral case. In the meantime, Rafael Llorente transferred his interest in the lots to Estanislao Garcia, who on March 7, 1923 mortgaged the land to the petitioners for P10,691. The mortgage was inscribed in the unregistered land register on April 10, 1923.

On April 25, 1923, the CFI granted the petition for review, set aside the September 16, 1922 decision, and ordered that the case be reopened and reset for a new trial. The case was assigned for trial on June 15, 1923, but on motion of Garcia and Llorente, without objection to the jurisdiction of the CFI, the trial was postponed until further notice.

On the notice issue, the record showed that the motion and notice of hearing for the petition for review were served upon Vicente Francisco, the attorney for Garcia and Llorente in the cadastral case, but he refused to accept service on the ground that he had nothing further to do with the case. Copies of the motion and notice were then forwarded by registered mail to Garcia and Llorente personally five days before the hearing. Garcia and Llorente, the only respondents in the petition for review, appeared generally before the CFI through their counsel on several occasions without questioning its jurisdiction. The petitioners were not parties in the cadastral case and had not acquired any interest in the land at the time the petition for review was filed.

On July 21, 1925, the petitioners filed a motion in the cadastral case alleging that they had accepted the mortgage on the strength of the September 16, 1922 decision, that they were holders of the mortgage as innocent third parties and in good faith, and that by reason thereof the CFI had no jurisdiction to grant the petition for review under Section 38; they asked the CFI to declare itself without jurisdiction and to desist from proceeding with the retrial. The motion was denied. On August 1, 1925, the mortgagees filed the present petition in the SC alleging that the CFI was without jurisdiction to reopen the cadastral case on the grounds of insufficient notice, res judicata from the denial of the Director of Lands' motion for reconsideration, prematurity because no final decree had been issued, and their status as innocent parties. It was conceded that no decree of registration had been entered, and the mortgagees had acquired their interest before any final decree while the litigation was in effect still pending.

• Notice: Petitioners argued that no sufficient notice was given of the hearing of the petition for review filed on February 15, 1923 and heard on February 21, 1923.
• Res Judicata: Petitioners argued that the Director of Lands, having alleged fraud in his motion for reconsideration of the cadastral decision and having failed to appeal from the denial of that motion, was precluded by res judicata from availing himself of a petition for review under Section 38 of the Land Registration Act.
• Prematurity: Petitioners argued that no final decree had been issued, so the petition for review was presented prematurely.
• Innocent Mortgagees: Petitioners argued that if the September 16, 1922 decision were regarded as a decree, they had acquired their interest subsequent to it as innocent parties in good faith, making the Section 38 remedy unavailable.

• Notice and Jurisdiction: Whether the CFI had jurisdiction to reopen the cadastral case despite the alleged insufficiency of notice of the Section 38 petition for review.
• Res Judicata: Whether the denial of the Director of Lands' motion for reconsideration in the cadastral case barred a subsequent petition for review under Section 38.
• Timeliness of Section 38 Petition: Whether a petition for review under Section 38 may be filed before entry of the final decree of registration.
• Innocent Mortgagees: Whether the petitioners were innocent purchasers for value whose interest defeated the Section 38 review.

• Notice and Jurisdiction: Yes. The CFI had jurisdiction; notice was sufficiently served on the attorney of record and personally on Garcia and Llorente, who appeared without questioning jurisdiction, and the petitioners were not parties when the petition was filed.
• Res Judicata: No. A Section 38 petition for review is separate and distinct from a motion for a new trial under Section 145 of the Code of Civil Procedure, and its denial does not bar the review remedy.
• Timeliness of Section 38 Petition: Yes. A Section 38 petition may be filed at any time after rendition of the decision and before the expiration of one year from entry of the final decree of registration.
• Innocent Mortgagees: No. The petitioners acquired their interest before any final decree, while the litigation was still pending, and the inscription in the unregistered land register did not make them innocent purchasers for value as against third parties with a better right.

• Notice and Jurisdiction: The SC found that although the facts on notice were disputed, a clear preponderance of evidence showed that the motion and notice of hearing were served on Vicente Francisco, the attorney for Garcia and Llorente in the cadastral case, who refused to accept service on the ground that he had nothing further to do with the case. Copies were then forwarded by registered mail to Garcia and Llorente personally five days before the hearing. Since Francisco was still the attorney of record, an offer of service on him could itself be considered sufficient compliance with the CFI's rules. In addition, Garcia and Llorente, the only respondents in the petition for review, appeared generally before the CFI through counsel on several occasions without questioning jurisdiction and thereby impliedly waived objections to defects in the service of notice. The petitioners, not being parties in the cadastral case and not having acquired any interest in the land when the petition for review was filed, were not legally entitled to notice. The CFI therefore did not exceed its jurisdiction in taking cognizance of the petition for review and in reopening the case.
• Res Judicata: The SC held that a petition for review under Section 38 is a remedy separate and distinct from a motion for a new trial under Section 145 of the Code of Civil Procedure. The right to the Section 38 remedy is not affected by the denial of a motion for new trial, irrespective of the grounds upon which it may have been presented. The prior motion for reconsideration alleging fraud did not bar the subsequent petition for review.
• Timeliness of Section 38 Petition: Section 38 provides that a petition for review of a decree on the ground of fraud must be filed "within one year after entry of the decree." A literal interpretation might suggest that the petition cannot be presented until the final decree has been entered, but the SC held that this could not have been the legislative intention; the provision would have been better expressed as requiring presentation before the expiration of one year from entry of the decree. Statutes must be given a reasonable construction, and there is no reason to require the complaining party to wait until the final decree is entered before arguing a claim of fraud. The SC therefore held that a petition for review under Section 38 may be filed at any time after rendition of the CFI's decision and before the expiration of one year from entry of the final decree of registration. No final decree had been entered, but the petition was not premature.
• Innocent Mortgagees: The contention that the petitioners must be regarded as innocent purchasers for value within the meaning of Section 38 could not be sustained. They acquired their interest in the land before any final decree had been entered; the litigation was therefore in effect still pending, and it appeared that they were aware of the fact. In these circumstances they could hardly be considered innocent purchasers in good faith. Further, at that time the petitioners could have acquired no interest valid as against third parties until their title had been duly entered in the Torrens register in the office of the register of deeds; Section 59 of the Land Registration Act provides that "the act of registration shall be the operative act to convey and affect the land." The inscription in the unregistered land register did not materially improve their situation; such inscriptions are without prejudice to third parties with a better right under Section 194 of the Administrative Code as amended by Act No. 2837.

• Section 38 Review Before Final Decree — A petition for review under Section 38 of the Land Registration Act on the ground of fraud may be filed at any time after rendition of the court's decision and before the expiration of one year from entry of the final decree of registration. The SC applied this to hold that the Director of Lands' petition, filed after the cadastral decision but before final decree, was not premature.
• Separate and Distinct Remedies — A Section 38 petition for review is separate and distinct from a motion for new trial under Section 145 of the Code of Civil Procedure; denial of the latter does not bar the former regardless of the grounds presented. The SC applied this to reject the petitioners' res judicata argument.
• Innocent Purchaser for Value Before Final Decree — One who acquires an interest in registered land before entry of the final decree, while the registration litigation is still pending and known to be pending, cannot be considered an innocent purchaser in good faith. The SC applied this to the mortgagees.
• Operative Act of Registration — Under Section 59 of the Land Registration Act, registration is the operative act to convey and affect the land; an inscription in the unregistered land register does not prejudice third parties with a better right under Section 194 of the Administrative Code as amended by Act No. 2837. The SC applied this to reject the mortgagees' claim.
• Notice to Attorney of Record and Waiver — Service on the attorney of record may be sufficient compliance with notice rules, and parties who appear generally through counsel without questioning jurisdiction impliedly waive objections to defects in service. The SC applied this to Garcia and Llorente.

• "We therefore hold that a petition for review under section 38, supra, may be filed at any time after the rendition of the court's decision and before the expiration of one year from the entry of the final decree of registration." — This is the SC's controlling formulation of when a Section 38 petition for review may be filed.
• "The petition for a review under section 38 is a remedy separate and distinct from a motion for a new trial under section 145 of the Code of Civil Procedure and in our opinion the right to the remedy is not affected by the denial of such a motion irrespective of the grounds upon which it may have been presented." — This passage rejects the res judicata argument based on the denial of the prior motion for reconsideration.
• "They acquired their interest in the land before any final decree had been entered; the litigation was therefore in effect still pending and to appear that they were aware of the fact. In these circumstances they can hardly be considered innocent purchasers in good faith." — This is the SC's core reason for denying the mortgagees' claim of good faith.
• "The inscription in the unregistered land register did not materially improve the petitioner's situation; such inscriptions are without prejudice to third parties with a better right (section 194 of the Administrative Code as amended by Act No. 2837)." — This passage explains why the mortgage inscription did not protect the petitioners against the Section 38 review.

• Section 38, Land Registration Act — The SC construed the fraud-review remedy to allow filing after the decision and before one year from entry of the final decree; it also held that the remedy was not barred by denial of a motion for new trial and was not available to the mortgagees as innocent purchasers.
• Section 145, Code of Civil Procedure — Motion for new trial; the SC held it is separate and distinct from a Section 38 petition for review.
• Section 59, Land Registration Act — "the act of registration shall be the operative act to convey and affect the land"; applied to hold that the mortgagees acquired no interest valid against third parties until Torrens registration.
• Section 194, Administrative Code as amended by Act No. 2837 — Inscriptions in the unregistered land register are without prejudice to third parties with a better right; applied against the petitioners' inscription.