Serrano Mahilum vs. Spouses Ilano

Where no new certificate of title has been issued in the buyer’s name and the registered owner remains the titleholder, a complaint to annul the underlying agreement and deed of absolute sale on the ground of forgery is not fatally defective for failure to allege that the buyers were purchasers in bad faith; the good-faith purchaser doctrine under the Torrens system applies only when a new title has been issued to the buyer. A forged deed conveys no title, and the registered owner does not lose title even if the owner’s duplicate certificate was presented.

Ruby Ruth S. Serrano Mahilum was the registered owner of a parcel of land in Las Piñas City covered by Transfer Certificate of Title No. 85533. Spouses Edilberto and Lourdes Ilano claimed to have acquired the same property under an Agreement with right of repurchase and a Deed of Absolute Sale. The controversy implicated the Torrens system, which protects an innocent purchaser for value who relies on a Torrens certificate, but not a transferee under a forged instrument, since a forged deed conveys no title.

Petitioner Ruby Ruth S. Serrano Mahilum was the registered owner of a parcel of land in Las Piñas City covered by Transfer Certificate of Title No. 85533 (TCT 85533). In September 2003, she entrusted the original owner’s duplicate copy of TCT 85533 to Teresa Perez, a purported real estate broker who claimed that she could assist petitioner in obtaining a loan with the title as collateral. After several months, petitioner demanded the return of the title, but Perez failed to produce it; after much prodding, Perez admitted that the title was lost. In June 2004, petitioner executed an Affidavit of Loss and caused it to be annotated on the original registry copy of TCT 85533 as Entry No. 1668-24 on October 7, 2004.

In June 2006, petitioner received a letter from the Registry of Deeds of Las Piñas City informing her that the owner’s duplicate copy of TCT 85533 was not lost but had been presented by respondents, spouses Edilberto and Lourdes Ilano, who claimed that the property was sold to them. Instead of registering the supposed sale in their favor, respondents executed an Affidavit of Non-Loss, which was entered on TCT 85533 on June 28, 2006 as Entry No. 1875-27. Petitioner confronted respondents, who showed her a notarized Agreement with right of repurchase dated December 4, 2003 and a notarized and undated Deed of Absolute Sale bearing purported signatures of petitioner. These documents indicated that petitioner sold the property to respondents for 250,000.00 with a right to repurchase within 90 days. Petitioner told respondents that she did not execute the documents and that her purported signatures were falsified and forged. She demanded the return of TCT 85533, but respondents refused and claimed that the property was sold to them by Perez and “a companion.” Title to the property remained in petitioner’s name, as respondents did not register the unnotarized and undated Deed of Absolute Sale.

On June 20, 2007, petitioner and her husband Richard instituted Civil Case No. LP-07-0109 in the Regional Trial Court of Las Piñas City against respondents and Perez. The complaint sought annulment of the Agreement and Deed of Absolute Sale, specific performance, and damages. It alleged that respondents facilitated the execution of falsified documents and adamantly refused to return the duplicate original owner’s copy of the title, all done with evident bad faith, causing petitioner moral damages. The prayer sought annulment of the documents, surrender of the owner’s duplicate copy of TCT 85533, ₱50,000.00 as moral damages, ₱20,000.00 as attorney’s fees plus ₱2,000.00 for every court hearing, and costs.

Respondents’ Amended Answer with Compulsory Counterclaim admitted that petitioner owned the lot, that the title was entrusted to Perez, that petitioner executed an affidavit of loss which was annotated on TCT 85533, that respondents caused the annotation of an affidavit of non-loss, that petitioner confronted them, that they showed petitioner the Agreement and unnotarized Deed of Absolute Sale, and that they were in possession of the owner’s copy of TCT 85533. Respondents alleged that sometime in October 2003, Perez, accompanied by Corazon Tingson and a female person who introduced herself as Ruby Ruth Serrano, offered to sell them the property. They claimed that the woman presented the original owner’s copies of the title, Declaration of Real Property, Tax Clearance, Barangay Clearance, and Community Tax Certificate with a picture of Ruby Ruth Serrano; that Edilberto Ilano instructed his secretary to verify the title with the Register of Deeds and conduct an ocular inspection; that the woman obtained a cash advance of 50,000.00; and that, after verification, Edilberto, believing in good faith that she was the real Ruby Ruth Serrano, entered into the sale. Respondents further alleged that on the same day, or October 30, 2004, petitioner received the full consideration of 250,000.00 and signed the Agreement and Deed of Absolute Sale. They claimed that petitioner’s affidavit of loss was false because TCT 85533 was never lost but was entrusted to Perez, who, with Tingson and another person named as “Jane Doe” who introduced herself as Ruby Ruth Serrano, came to obtain a loan because petitioner needed money. They also claimed that the property was negotiated or sold by petitioner or her authorized person, and that because petitioner failed to exercise her right of repurchase, ownership now belonged to them. Respondents also alleged that the complaint failed to allege that they were purchasers in bad faith or with notice of a defect in the title, and filed a perjury case against petitioner. By counterclaim, they sought moral, nominal, and exemplary damages, attorney’s fees, and costs.

After pre-trial and the presentation of petitioner’s evidence, petitioner rested her case. Respondents filed a Demurrer to Evidence, arguing that the complaint failed to state a cause of action because it did not allege that they were purchasers in bad faith or with notice of a defect in the title; without such an allegation, they argued, the presumption of good faith prevailed. Petitioner opposed the demurrer, contending that the complaint contained an allegation of bad faith in paragraphs 13 to 15 and that the issues could only be resolved after trial on the merits. The trial court denied the demurrer, and respondents sought relief from the Court of Appeals.

• Failure to Allege Bad Faith Cured by Pre-trial and Evidence: Petitioner argued that during pre-trial the parties agreed that one issue was whether respondents were buyers in good faith, as reflected in the RTC’s January 5, 2010 Order; since the issue was agreed upon, the failure to allege bad faith was cured and the defense was waived by respondents’ assent.
• Forgery Renders Documents Void: Petitioner maintained that the Agreement and Deed of Absolute Sale were simulated, fictitious, and forged, hence null and void from the beginning; an action grounded on forgery need not separately allege bad faith because forgery necessarily presupposes it.
• Cure of Defective Complaint: Petitioner argued that although a complaint lacking facts constituting a cause of action is dismissible, the defect is cured if the defendant permits the introduction of evidence supplying or remedying the defect; respondents’ assent to the pre-trial issue and failure to object to evidence on good or bad faith cured the complaint.
• Due Process and Deprivation: Petitioner contended that the grant of the demurrer deprived her of property without due process of law, as she was prevented from confronting respondents and their witnesses, identifying the impostor, and proving that the Agreement and Deed of Absolute Sale were forgeries.

• No Cause of Action for Failure to Allege Bad Faith: Respondents argued that the Court of Appeals correctly held that the complaint failed to state a cause of action because it did not allege that the property was purchased in bad faith or with notice of a defect in the title.
• No Evidence of Bad Faith: Respondents maintained that petitioner presented no evidence that they bought the property in bad faith; the evidence showed only that she did not execute the documents and that the documents were fictitious and forged, while proofs of bad faith were directed against Teresa Perez and her companion.
• Dismissal Proper: Respondents argued that for failure to allege and prove bad faith on their part, the Court of Appeals correctly ordered the dismissal of Civil Case No. LP-07-0109.

• Effect of Failure to Allege Bad Faith: Whether failure to allege bad faith in the complaint is a fatal defect considering that the Agreement and Deed of Absolute Sale with right of repurchase and the unnotarized Deed of Sale were allegedly simulated, fictitious, and forged, and hence null and void from the beginning.
• Demurrer and Pre-trial Issue: Whether petitioner was deprived of her property when the Court of Appeals granted the demurrer to evidence on the ground that there was no cause of action, when one of the issues agreed upon during pre-trial before the RTC was whether respondents were purchasers in good faith.
• Confrontation and Proof of Forgery and Good Faith: Whether petitioner was prevented from confronting respondents and their witnesses to determine whether they dealt with petitioner and to identify the impostor who signed the Agreement and Deed of Absolute Sale, and to allow the RTC to determine whether the documents were simulated, fictitious, and null and void and whether respondents were purchasers for value in good faith.

• Effect of Failure to Allege Bad Faith: No. Failure to allege bad faith was not fatal. Because no new certificate of title was issued in respondents’ name and title remained in petitioner’s name, the good-faith purchaser rule did not apply; the complaint also alleged forgery and bad faith.
• Demurrer and Pre-trial Issue: Improper. The Court of Appeals’ grant of the demurrer rested on the erroneous premise that the complaint failed to state a cause of action; the RTC correctly denied the demurrer because the complaint alleged forgery and bad faith, and the pre-trial issue of good faith required evidence.
• Confrontation and Proof of Forgery and Good Faith: Moot. The Court found no need to resolve the remaining issues after holding that the CA’s dismissal was improper and remanding the case for proper disposition.

• Effect of Failure to Allege Bad Faith: The CA’s dismissal rested on the rule that a complaint for annulment of title must allege that the purchaser was aware of the defect in the vendor’s title. That rule, however, applies to complaints for annulment of new titles issued to buyers. Here, TCT No. 85533 was never cancelled and no new title was issued in respondents’ name; respondents merely annotated an affidavit of non-loss. Since they never acquired a new certificate of title, they never came within the coverage and protection of the Torrens system where the issue of good or bad faith becomes relevant. Petitioner’s action was to annul the Agreement and Deed of Absolute Sale on the ground of forgery, not to annul a title, because the certificate remained in her name. A forged deed is a nullity and conveys no title; nemo dat quod non habet. Under Sps. Solivel vs. Judge Francisco and Instrade, Inc. vs. Court of Appeals, a holder of a certificate for value issued by registration of a voluntary instrument may be considered a holder in good faith only if the instrument is not forged; when the instrument is forged, even if accompanied by the owner’s duplicate certificate, the registered owner does not lose title and the assignee acquires no right. Thus, petitioner as registered owner must be protected. The complaint also alleged bad faith in paragraph 18, stating that respondents facilitated the execution of falsified documents and refused to return the title with evident bad faith; an action grounded on forgery necessarily presupposes bad faith. Moreover, respondents’ own pleadings indicated that the person who signed the documents was an impostor, not petitioner, and their ambiguous allegations amounted to a negative pregnant admission. Their failure to register the unnotarized and undated deed, and their annotation only of an affidavit of non-loss, further placed their claim of good faith in doubt. The CA’s pronouncement that the complaint nowhere alleged bad faith was therefore erroneous.
• Demurrer and Pre-trial Issue: The RTC correctly denied the demurrer. A demurrer to evidence under Section 1, Rule 33 lies only when, upon the facts and the law, the plaintiff has shown no right to relief. The complaint stated a cause of action because it sought annulment of the Agreement and Deed of Absolute Sale on the ground of forgery and alleged bad faith; the absence of a new title in respondents’ name removed the basis for applying the good-faith purchaser requirement. The pre-trial issue of whether respondents were buyers in good faith did not convert the complaint into one lacking a cause of action; it confirmed that good faith was a factual issue for trial. The record also showed circumstances casting doubt on respondents’ good faith, including their failure to register the sale and their dealings with a person who introduced herself as petitioner. The CA therefore erred in granting the demurrer and dismissing the complaint.
• Confrontation and Proof of Forgery and Good Faith: The Court found no need to tackle the other issues raised by petitioner because they were rendered moot and irrelevant by the resolution of the primary issue. The remand to the RTC for proper disposition allows the case to proceed, including petitioner’s opportunity to present and confront evidence on forgery and good faith.

• Forged Deed Conveys No Title (Nemo Dat Quod Non Habet) — A forged deed is a nullity and conveys no title; no one can give what one does not have. Even when the forged instrument is accompanied by the owner’s duplicate certificate of title, the registered owner does not lose title, and the assignee in the forged deed acquires no right or title. The Court applied this because petitioner alleged the Agreement and Deed of Absolute Sale were forged; since respondents never obtained a new title, the alleged forged deed could not transfer ownership to them.
• Good-Faith Purchaser for Value Under the Torrens System — An innocent purchaser for value is one who buys another’s property without notice of another’s right or interest and pays full price before notice. A person dealing with registered land may rely on the correctness of the certificate of title and need not go behind it. However, the protection presupposes that the instrument registered is not forged and that a new title has been issued to the buyer. The Court held that because no new title was issued in respondents’ name, the good-faith issue did not justify dismissal; their non-registration of the deed and dealings with an impostor cast doubt on good faith.
• Cause of Action in Annulment of Title Distinguished from Annulment of Sale — A complaint for annulment of title must allege that the purchaser was aware of the defect in the vendor’s title; failure to do so is fatal. This requirement applies where a new title has been issued to the buyer. In an action to annul the underlying agreement and deed of sale based on forgery, where the registered owner still holds the title, the absence of such an allegation is not fatal, especially when the complaint otherwise alleges bad faith. The Court distinguished Castillo vs. Heirs of Vicente Madrigal and Heirs of Julian Tiro vs. Philippine Estates Corporation on this ground.
• Negative Pregnant — A negative pregnant is a denial that carries an admission of the substantial facts not squarely denied. Where a fact is alleged with qualifying or modifying language and the denial is conjunctive, only the qualification is denied while the fact itself is admitted. A profession of ignorance about a fact patently within the pleader’s knowledge is no denial. The Court applied this to respondents’ allegations that an impostor introduced herself as Ruby Ruth Serrano and that they bought from co-defendants with a defective title, which effectively admitted they did not deal with petitioner.
• Torrens System Purpose and Limits — The Torrens system aims to quiet title, guarantee the integrity and conclusiveness of registered titles, and allow the public to rely on the face of a certificate of title. It cannot be used to perpetrate fraud against the real owner, to protect a usurper, or to shield fraud; it confirms ownership rather than creates it. The Court applied this to protect petitioner as the registered owner and to deny respondents the shelter of the Torrens system for an alleged forged deed.
• Demurrer to Evidence — Under Section 1, Rule 33, a demurrer to evidence is proper only when, upon the facts and the law, the plaintiff has shown no right to relief. It cannot be granted where the complaint states a cause of action and the evidence may support the relief sought. The Court held that the RTC correctly denied the demurrer and the CA erred in granting it.

• "Since a new title was never issued in respondents’ favor and, instead, title remained in petitioner’s name, the former never came within the coverage and protection of the Torrens system, where the issue of good or bad faith becomes relevant." — This is the ratio for why the CA’s good-faith purchaser rationale did not apply: respondents never acquired a new Torrens title, so the issue of good or bad faith was not a basis for dismissing the complaint.
• "The underlying principle is that no one can give what one does not have. Nemo dat quod non habet." — This states the foundational rule that a forged deed conveys no title, which the Court used to reject the CA’s dismissal.
• "When the instrument presented is forged, even if accompanied by the owner’s duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the assignee in the forged deed acquire any right or title to the property." — Quoted from Sps. Solivel vs. Judge Francisco, this is the controlling rule on forged instruments and the Torrens system.
• "Besides, the action itself, which is grounded on forgery, necessarily presupposes the existence of bad faith." — This supports the holding that the complaint’s failure to use the phrase “bad faith” was not fatal, because an annulment action based on forgery inherently includes bad faith.

• Castillo vs. Heirs of Vicente Madrigal, G.R. No. 62650, June 27, 1991, 198 SCRA 556 — Cited by the CA for the rule that a complaint for annulment of title must allege the purchaser’s awareness of the defect. Distinguished by the Supreme Court because it involved annulment of a new title issued to the buyer, not a case where title remained in the registered owner’s name.
• Heirs of Julian Tiro vs. Philippine Estates Corporation, 585 Phil. 306 (2008) — Also cited by the CA; distinguished on the same ground as Castillo, as it involved annulment of new titles issued to buyers.
• Spouses Chu, Sr. vs. Benelda Estate Development Corporation, 405 Phil. 936 (2001) — Cited by the CA for the requirement that the complaint allege the purchaser’s awareness of the defect. The Supreme Court found the CA’s reliance misplaced because the complaint did allege bad faith and no new title had been issued to respondents.
• Sps. Solivel vs. Judge Francisco — Cited by the Supreme Court for the rule that a forged instrument does not make its holder a good-faith purchaser for value; the registered owner does not lose title, and the assignee in the forged deed acquires no right.
• Instrade, Inc. vs. Court of Appeals — Cited by the Supreme Court, reiterating Joaquin vs. Madrid, that the instrument registered must not be forged for the holder to be considered a holder in good faith and for value.
• Joaquin vs. Madrid — Cited in Instrade as early authority for the forged-instrument rule.
• Spouses Bernales vs. Heirs of Julian Sambaan, 624 Phil. 88, 104-105 (2010) — Cited by the Supreme Court for the rule that with a forged deed, even if accompanied by the owner’s duplicate certificate, the registered owner does not lose title and the assignee acquires no right.
• Tenio-Obsequio vs. Court of Appeals — Cited for the purpose and limits of the Torrens system: the public may rely on the certificate, but the system cannot be used to perpetrate fraud against the real owner or protect a usurper.
• Peralta vs. Heirs of Abalon, G.R. No. 183448, June 30, 2014 — Cited for the rule that a certificate of title is evidence of indefeasible and incontrovertible title and that the Torrens system aims to quiet title.
• Rufloe vs. Burgos, 597 Phil. 261 (2009) — Cited for denying good faith to buyers who failed to register the sale and did not inquire despite facts that should have prompted investigation; non-registration indicated a simulated sale.
• Fudot vs. Cattleya Land, Inc., 559 Phil. 756, 766-767 (2007) and Salomon vs. Intermediate Appellate Court, 263 Phil. 1068, 1078-1081 (1990) — Cited for the proposition that a forged agreement or deed is a nullity and conveys no title.
• Republic of the Philippines vs. Sandiganbayan, 453 Phil. 1059, 1107 (2003) — Cited for the definition and effect of a negative pregnant.
• Venzon vs. Rural Bank of Buenavista (Agusan del Norte), Inc., G.R. No. 178031, August 28, 2013, 704 SCRA 138, 147-148 — Cited for the rules on negative pregnant and the effect of a denial that does not squarely meet an allegation.

• Section 1, Rule 33, Rules of Court — Provides that a demurrer to evidence is anchored on the claim that “upon the facts and the law the plaintiff has shown no right to relief.” The RTC quoted this standard in denying respondents’ demurrer; the Supreme Court held the demurrer was properly denied because the complaint stated a cause of action and the good-faith issue required evidence.

• Antonio T. Carpio (Chairperson)
• Jose Portugal Perez
• Jose Catral Mendoza
• Francis H. Jardeleza