February 2013 Philippine Supreme Court Decisions on Civil Law

Here are select February 2013 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Common Carrier; requisite before presumption of negligence arises; bill of lading; interpretation thereof; inherent nature of the subject shipment or its packaging as ground for exempting common carrier from liability; failure to prove negligence does not entitle claimant for damages. Though it is true that common carriers are presumed to have been at fault or to have acted negligently if the goods transported by them are lost, destroyed, or deteriorated, and that the common carrier must prove that it exercised extraordinary diligence in order to overcome the presumption, the plaintiff must still, before the burden is shifted to the defendant, prove that the subject shipment suffered actual shortage. This can only be done if the weight of the shipment at the port of origin and its subsequent weight at the port of arrival have been proven by a preponderance of evidence, and it can be seen that the former weight is considerably greater than the latter weight, taking into consideration the exceptions provided in Article 1734 of the Civil Code.

The Berth Term Grain Bill of Lading states that the subject shipment was carried with the qualification “Shipper’s weight, quantity and quality unknown,” meaning that it was transported with the carrier having been oblivious of the weight, quantity, and quality of the cargo. This interpretation of the quoted qualification is supported by Wallem Philippines Shipping, Inc. v. Prudential Guarantee & Assurance, Inc., a case involving an analogous stipulation in a bill of lading, wherein the Supreme Court held that:

Indeed, as the bill of lading indicated that the contract of carriage was under a “said to weigh” clause, the shipper is solely responsible for the loading while the carrier is oblivious of the contents of the shipment. (Emphasis supplied)

Hence, the weight of the shipment as indicated in the bill of lading is not conclusive as to the actual weight of the goods. Consequently, the respondent must still prove the actual weight of the subject shipment at the time it was loaded at the port of origin so that a conclusion may be made as to whether there was indeed a shortage for which petitioner must be liable.

The shortage, if any, may have been due to the inherent nature of the subject shipment or its packaging since the subject cargo was shipped in bulk and had a moisture content of 12.5%.

Considering that respondent was not able to establish conclusively that the subject shipment weighed 3,300 metric tons at the port of loading, and that it cannot therefore be concluded that there was a shortage for which petitioner should be responsible; bearing in mind that the subject shipment most likely lost weight in transit due to the inherent nature of Soya Bean Meal; assuming that the shipment lost weight in transit due to desorption, the shortage of 199.863 metric tons that respondent alleges is a minimal 6.05% of the weight of the entire shipment, which is within the allowable 10% allowance for loss; and noting that the respondent was not able to show negligence on the part of the petitioner and that the weighing methods which respondent relied upon to establish the shortage it alleges is inaccurate, respondent cannot fairly claim damages against petitioner for the subject shipment’s alleged shortage. Asian Terminals, Inc. vs. Simon Enterprises, Inc.; G.R. No. 177116. February 27, 2013

Contract; contract to sell; seller’s obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer’s full payment of the purchase price; rescission; effects; requires mutual restitution; Subdivision and Condominium Buyers’ Protective Decree (PD 957);  intent of PD 957 to protect the buyer against unscrupulous developers, operators and/or sellers; damages; when moral damages may be awarded; when exemplary damages may be awarded; propriety of award of attorney’s fees. It is settled that in a contract to sell, the seller’s obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer’s full payment of the purchase price. In this relation, Section 25 of PD 957 (Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof), which regulates the subject transaction, imposes on the subdivision owner or developer the obligation to cause the transfer of the corresponding certificate of title to the buyer upon full payment, to wit:

Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith. (Emphasis supplied.)

The long delay in the performance of GPI’s obligation from date of demand on September 16, 2002 was unreasonable and unjustified. It cannot therefore be denied that GPI substantially breached its contract to sell with Sps. Fajardo which thereby accords the latter the right to rescind the same pursuant to Article 1191 of the Code, viz:

 ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

Rescission does not merely terminate the contract and release the parties from further obligations to each other, but abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made. Consequently, mutual restitution, which entails the return of the benefits that each party may have received as a result of the contract, is thus required.

To be sure, it has been settled that the effects of rescission as provided for in Article 1385 of the Code are equally applicable to cases under Article 1191, to wit:

x x x Mutual restitution is required in cases involving rescission under Article 1191. This means bringing the parties back to their original status prior to the inception of the contract. Article 1385 of the Civil Code provides, thus:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obligated to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

The Court has consistently ruled that this provision applies to rescission under Article 1191:

[S]ince Article 1385 of the Civil Code expressly and clearly states that “rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest,”  the Court finds no justification to sustain petitioners’ position that said Article 1385 does not apply to rescission under Article 1191. x x x (Emphasis supplied; citations omitted.)

As a necessary consequence, considering the propriety of the rescission as earlier discussed, Sps. Fajardo must be able to recover the price of the property pegged at its prevailing market value consistent with the Court’s pronouncement in Solid Homes, viz:

Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only the purchase price plus interest. It is definite that the value of the subject property already escalated after almost two decades from the time the petitioner paid for it. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value. Surely, such a situation should not be countenanced for to do so would be contrary to reason and therefore, unconscionable. Over time, courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law. (Emphasis supplied.)

On this score, it is apt to mention that it is the intent of PD 957 (Regulating the Sale of Subdivision Lots and Condominiums, Providing Penalties for Violations Thereof) to protect the buyer against unscrupulous developers, operators and/or sellers who reneged on their obligations. Thus, in order to achieve this purpose, equity and justice dictate that the injured party should be afforded full recompense and as such, be allowed to recover the prevailing market value of the undelivered lot which had been fully paid for.

Furthermore, the Court finds that there is proper legal basis to accord moral and exemplary damages and attorney’s fees, including costs of suit. Verily, GPI’s unjustified failure to comply with its obligations as above discussed caused Sps. Fajardo serious anxiety, mental anguish and sleepless nights, thereby justifying the award of moral damages. In the same vein, the payment of exemplary damages remains in order so as to prevent similarly minded subdivision developers to commit the same transgression. And finally, considering that Sps. Fajardo were constrained to engage the services of counsel to file this suit, the award of attorney’s fees must be likewise sustained. Gotesco Properties, Inc., et al. vs. Sps. Eugenio and Angelina Fajardo; G.R. No. 201167. February 27, 2013

Contracts; interpretation thereof; intention of the parties; relativity of contracts; credit line; definition; trust receipt; characteristics; coverage; contract of adhesion; generally not a one-sided document; interest rate; parties have the right to agree on rate of interest; interest rate must not be excessive, iniquitous, unconscionable and exorbitant; attorney’s fees; award must rest on a factual basis and legal justification stated in the body of the decision under review. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.  In determining their intention, their contemporaneous and subsequent acts shall be principally considered.

Under the notion of relativity of contracts embodied in Article 1311 of the Civil Code, contracts take effect only between the parties, their assigns and heirs. Hence, the farmer-participants, not being themselves parties to the contractual documents signed by Gloria, were not to be thereby liable.

A credit line is really a loan agreement between the parties. According to Rosario Textile Mills Corporation v. Home Bankers Savings and Trust Co.:

x x x [A] credit line is “that amount of money or merchandise which a banker, a merchant, or supplier agrees to supply to a person on credit and generally agreed to in advance.” It is a fixed limit of credit granted by a bank, retailer, or credit card issuer to a customer, to the full extent of which the latter may avail himself of his dealings with the former but which he must not exceed and is usually intended to cover a series of transactions in which case, when the customer’s line of credit is nearly exhausted, he is expected to reduce his indebtedness by payments before making any further drawings.

A trust receipt is “a security transaction intended to aid in financing importers and retail dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased.” It is a security agreement that “secures an indebtedness and there can be no such thing as security interest that secures no obligation.”

The contract, its label notwithstanding, was not a trust receipt transaction in legal contemplation or within the purview of the Trust Receipts Law (Presidential Decree No. 115) such that its breach would render Gloria criminally liable for estafa. Under Section 4 of the Trust Receipts Law, the sale of goods by a person in the business of selling goods for profit who, at the outset of the transaction, has, as against the buyer, general property rights in such goods, or who sells the goods to the buyer on credit, retaining title or other interest as security for the payment of the purchase price, does not constitute a trust receipt transaction and is outside the purview and coverage of the law.

In Land Bank v. Perez, the Court has elucidated on the coverage of Section 4 (of the Trust Receipts Law), to wit:

There are two obligations in a trust receipt transaction. The first is covered by the provision that refers to money under the obligation to deliver it (entregarla) to the owner of the merchandise sold. The second is covered by the provision referring to merchandise received under the obligation to return it (devolverla) to the owner. Thus, under the Trust Receipts Law, intent to defraud is presumed when (1) the entrustee fails to turn over the proceeds of the sale of goods covered by the trust receipt to the entruster; or (2) when the entrustee fails to return the goods under trust, if they are not disposed of in accordance with the terms of the trust receipts.

In all trust receipt transactions, both obligations on the part of the trustee exist in the alternative – the return of the proceeds of the sale or the return or recovery of the goods, whether raw or processed. When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section 13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods. (Bold emphasis supplied)

A contract of adhesion prepared by one party, usually a corporation, is generally not a one-sided document as long as the signatory is not prevented from studying it before signing. … At any rate, the social stature of the parties, the nature of the transaction, and the amount involved were also factors to be considered in determining whether the aggrieved party “exercised adequate care and diligence in studying the contract prior to its execution.” Thus, “[u]nless a contracting party cannot read or does not understand the language in which the agreement is written, he is presumed to know the import of his contract and is bound thereby.”

The Usury Law allowed the parties in a loan agreement to exercise discretion on the interest rate to be charged. Once a judicial demand for payment has been made, however, Article 2212 of the Civil Code should apply, that is: “Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.”

The Central Bank circulars on interest rates granted to the parties leeway on the rate of interest agreed upon. In this regard, the Court has said:

The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary Board of the Central Bank, and later by Central Bank Circular No. 905 (Amendment of Books I to IV of the Manual of Regulations for Banks and Other Financial Intermediaries) which took effect on 1 January 1983. These circulars removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the Usury Law is within the range of judicial notice which courts are bound to take into account. Although interest rates are no longer subject to a ceiling, the lender does not have an unbridled license to impose increased interest rates. The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing.

Accordingly, the interest rate agreed upon should not be “excessive, iniquitous, unconscionable and exorbitant;” otherwise, the Court may declare the rate illegal.

The award of attorney’s fees must rest on a factual basis and legal justification stated in the body of the decision under review. Absent the statement of factual basis and legal justification, attorney’s fees are to be disallowed. In Abobon v. Abobon, the Court has expounded on the requirement for factual basis and legal justification in order to warrant the grant of attorney’s fees to the winning party, viz:

As to attorney’s fees, the general rule is that such fees cannot be recovered by a successful litigant as part of the damages to be assessed against the losing party because of the policy that no premium should be placed on the right to litigate. Indeed, prior to the effectivity of the present Civil Code, such fees could be recovered only when there was a stipulation to that effect. It was only under the present Civil Code that the right to collect attorney’s fees in the cases mentioned in Article 2208 of the Civil Code came to be recognized. Such fees are now included in the concept of actual damages.

Even so, whenever attorney’s fees are proper in a case, the decision rendered therein should still expressly state the factual basis and legal justification for granting them. Granting them in the dispositive portion of the judgment is not enough; a discussion of the factual basis and legal justification for them must be laid out in the body of the decision.

Sps. Dela Cruz vs. Planters Products, Inc.; G.R. No. 158649. February 18, 2013

Contract; rescission under Article 1191; recognizes an implied resolutory condition in reciprocal obligations; effects thereof. The action for the rescission of the deed of sale on the ground that Advanced Foundation did not comply with its obligation actually seeks one of the alternative remedies available to a contracting party under Article 1191 of the Civil Code, to wit:

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Article 1191 of the Civil Code recognizes an implied or tacit resolutory condition in reciprocal obligations. The condition is imposed by law, and applies even if there is no corresponding agreement thereon between the parties. The explanation for this is that in reciprocal obligations a party incurs in delay once the other party has performed his part of the contract; hence, the party who has performed or is ready and willing to perform may rescind the obligation if the other does not perform, or is not ready and willing to perform.

It is true that the rescission of a contract results in the extinguishment of the obligatory relation as if it was never created, the extinguishment having a retroactive effect. The rescission is equivalent to invalidating and unmaking the juridical tie, leaving things in their status before the celebration of the contract. However, until the contract is rescinded, the juridical tie and the concomitant obligations subsist. Teodoro A. Reyes vs. Ettore Rossi; G.R. No. 159823. February 18, 2013.

Ejectment; distinction between a summary action of ejectment and a plenary action for recovery of possession and/or ownership of the land; power of the inferior courts to rule on the question of ownership in ejectment suits; partition; validity of oral partition; actual possession and exercise of dominion over definite portions of the property are considered strong proof of an oral partition; ownership; tax declarations and tax receipts alone are not conclusive evidence. It is well to be reminded of the settled distinction between a summary action of ejectment and a plenary action for recovery of possession and/or ownership of the land. What really distinguishes an action for unlawful detainer from a possessory action (accion publiciana) and from a reinvindicatory action (accion reinvindicatoria) is that the first is limited to the question of possession de facto. Unlawful detainer suits (accion interdictal) together with forcible entry are the two forms of ejectment suit that may be filed to recover possession of real property. Aside from the summary action of ejectment, accion publiciana or the plenary action to recover the right of possession and accion reinvindicatoria or the action to recover ownership which also includes recovery of possession, make up the three kinds of actions to judicially recover possession.

Under Section 3 of Rule 70 of the Rules of Court, the Summary Procedure governs the two forms of ejectment suit, the purpose being to provide an expeditious means of protecting actual possession or right to possession of the property. They are not processes to determine the actual title to an estate. If at all, inferior courts are empowered to rule on the question of ownership raised by the defendant in such suits, only to resolve the issue of possession and its determination on the ownership issue is not conclusive.

The validity of an oral partition is well-settled in our jurisdiction. In Vda. de Espina v. Abaya, this Court declared that an oral partition is valid:

Anent the issue of oral partition, We sustain the validity of said partition. “An agreement of partition may be made orally or in writing. An oral agreement for the partition of the property owned in common is valid and enforceable upon the parties. The Statute of Frauds has no operation in this kind of agreements, for partition is not a conveyance of property but simply a segregation and designation of the part of the property which belong to the co-owners.”

In Maestrado v. CA, the Supreme Court upheld the partition after it found that it conformed to the alleged oral partition of the heirs, and that the oral partition was confirmed by the notarized quitclaims executed by the heirs subsequently. In Maglucot-Aw v. Maglucot, the Supreme Court elaborated on the validity of parol partition:

On general principle, independent and in spite of the statute of frauds, courts of equity have enforce [sic] oral partition when it has been completely or partly performed.

Regardless of whether a parol partition or agreement to partition is valid and enforceable at law, equity will [in] proper cases[,] where the parol partition has actually been consummated by the taking of possession in severalty and the exercise of ownership by the parties of the respective portions set off to each, recognize and enforce such parol partition and the rights of the parties thereunder. Thus, it has been held or stated in a number of cases involving an oral partition under which the parties went into possession, exercised acts of ownership, or otherwise partly performed the partition agreement, that equity will confirm such partition and in a proper case decree title in accordance with the possession in severalty.

In numerous cases it has been held or stated that parol partition may be sustained on the ground of estoppel of the parties to assert the rights of a tenant in common as to parts of land divided by parol partition as to which possession in severalty was taken and acts of individual ownership were exercised. And a court of equity will recognize the agreement and decree it to be valid and effectual for the purpose of concluding the right of the parties as between each other to hold their respective parts in severalty.

A parol partition may also be sustained on the ground that the parties thereto have acquiesced in and ratified the partition by taking possession in severalty, exercising acts of ownership with respect thereto, or otherwise recognizing the existence of the partition.

A number of cases have specifically applied the doctrine of part performance, or have stated that a part performance is necessary, to take a parol partition out of the operation of the statute of frauds. It has been held that where there was a partition in fact between tenants in common, and a part performance, a court of equity would have regard to and enforce such partition agreed to by the parties.

It is settled that tax declarations and tax receipts alone are not conclusive evidence of ownership. They are merely indicia of a claim of ownership,61 but when coupled with proof of actual possession of the property, they can be the basis of claim of ownership through prescription. In the absence of actual, public and adverse possession, the declaration of the land for tax purposes does not prove ownership. Casilang vs. Casilang-Dizon, et al.; G.R. No. 180269. February 20, 2013

Mortgage; accommodation mortgage; sanctioned under Article 2085 of the Civil Code; accommodation mortgagor is ordinarily not the recipient of the loan; reasonable promptness in attacking the validity of a mortgage; unreasonable delay may delay may amount to ratification. The validity of an accommodation mortgage is allowed under Article 2085 of the Civil Code which provides that “[t]hird persons who are not parties to the principal obligation may secure the latter by pledging or mortgaging their own property.” An accommodation mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his designation as such.

It bears stressing that an accommodation mortgagor, ordinarily, is not himself a recipient of the loan, otherwise that would be contrary to his designation as such. We have held that it is not always necessary that the accommodation mortgagor be apprised beforehand of the entire amount of the loan nor should it first be determined before the execution of the Special Power of Attorney in favor of the debtor. This is especially true when the words used by the parties indicate that the mortgage serves as a continuing security for credit obtained as well as future loan availments.

Mortgagors desiring to attack a mortgage as invalid should act with reasonable promptness, and unreasonable delay may amount to ratification. Spouses Ramos vs. Raul Obispo and Far East Bank and Trust Co.; G.R. No. 193804. February 27, 2013

Tort; Doctrine of Last Clear Chance; definition and characteristics; contributory negligence; definition; effect; apportionment of damages between parties who are both negligent involving banking transactions; highest degree of diligence is required for banks. The doctrine of last clear chance, stated broadly, is that the negligence of the plaintiff does not preclude a recovery for the negligence of the defendant where it appears that the defendant, by exercising reasonable care and prudence, might have avoided injurious consequences to the plaintiff notwithstanding the plaintiff’s negligence. The doctrine necessarily assumes negligence on the part of the defendant and contributory negligence on the part of the plaintiff, and does not apply except upon that assumption. Stated differently, the antecedent negligence of the plaintiff does not preclude him from recovering damages caused by the supervening negligence of the defendant, who had the last fair chance to prevent the impending harm by the exercise of due diligence. Moreover, in situations where the doctrine has been applied, it was defendant’s failure to exercise such ordinary care, having the last clear chance to avoid loss or injury, which was the proximate cause of the occurrence of such loss or injury.

A collecting bank is guilty of contributory negligence when it accepted for deposit a post-dated check notwithstanding that said check had been cleared by the drawee bank which failed to return the check within the 24-hour reglementary period.

In the cited case of Philippine Bank of Commerce v. Court of Appeals, while the Court found petitioner bank as the culpable party under the doctrine of last clear chance since it had, thru its teller, the last opportunity to avert the injury incurred

by its client simply by faithfully observing its own validation procedure, it nevertheless ruled that the plaintiff depositor (private respondent) must share in the loss on account of its contributory negligence. Thus:

The foregoing notwithstanding, it cannot be denied that, indeed, private respondent was likewise negligent in not checking its monthly statements of account. Had it done so, the company would have been alerted to the series of frauds being committed against RMC by its secretary. The damage would definitely not have ballooned to such an amount if only RMC, particularly Romeo Lipana, had exercised even a little vigilance in their financial affairs. This omission by RMC amounts to contributory negligence which shall mitigate the damages that may be awarded to the private respondent under Article 2179 of the New Civil Code, to wit:

“x x x. When the plaintiff’s own negligence was the immediate and proximate cause of his injury, he cannot recover damages. But if his negligence was only contributory, the immediate and proximate cause of the injury being the defendant’s lack of due care, the plaintiff may recover damages, but the courts shall mitigate the damages to be awarded.”

In view of this, we believe that the demands of substantial justice are satisfied by allocating the damage on a 60-40 ratio. Thus, 40% of the damage awarded by the respondent appellate court, except the award of P25,000.00 attorney’s fees, shall be borne by private respondent RMC; only the balance of 60% needs to be paid by the petitioners. The award of attorney’s fees shall be borne exclusively by the petitioners. (Italics in the original; emphasis supplied)

“Contributory negligence is conduct on the part of the injured party, contributing as a legal cause to the harm he has suffered, which falls below the standard to which he is required to conform for his own protection.” Admittedly, petitioner’s acceptance of the subject check for deposit despite the one year postdate written on its face was a clear violation of established banking regulations and practices. In such instances, payment should be refused by the drawee bank and returned through the PCHC within the 24-hour reglementary period. As aptly observed by the CA, petitioner’s failure to comply with this basic policy regarding post-dated checks was “a telling sign of its lack of due diligence in handling checks coursed through it.”

It bears stressing that “the diligence required of banks is more than that of a Roman paterfamilias or a good father of a family. The highest degree of diligence is expected,” considering the nature of the banking business that is imbued with public interest. While it is true that respondent’s liability for its negligent clearing of the check is greater, petitioner cannot take lightly its own violation of the long-standing rule against encashment of post-dated checks and the injurious consequences of allowing such checks into the clearing system. Allied Banking Corporation vs. Bank of the Philippine Islands; G.R. No. 188363. February 27, 2013

Special Laws

Torrens system; curtain principle; right to rely on the Torrens certificate of title; exception, when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry; purchaser in good faith; definition. Under the Torrens system of land registration, the registered owner of realty cannot be deprived of her property through fraud, unless a transferee acquires the property as an innocent purchaser for value. A transferee who acquires the property covered by a reissued owner’s copy of the certificate of title without taking the ordinary precautions of honest persons in doing business and examining the records of the proper Registry of Deeds, or who fails to pay the full market value of the property is not considered an innocent purchaser for value.

Under the Torrens system of land registration, the State is required to maintain a register of landholdings that guarantees indefeasible title to those included in the register. The system has been instituted to combat the problems of uncertainty, complexity and cost associated with old title systems that depended upon proof of an unbroken chain of title back to a good root of title. The State issues an official certificate of title to attest to the fact that the person named is the owner of the property described therein, subject to such liens and encumbrances as thereon noted or what the law warrants or reserves.

One of the guiding tenets underlying the Torrens system is the curtain principle, in that one does not need to go behind the certificate of title because it contains all the information about the title of its holder. This principle dispenses with the need of proving ownership by long complicated documents kept by the registered owner, which may be necessary under a private conveyancing system, and assures that all the necessary information regarding ownership is on the certificate of title. Consequently, the avowed objective of the Torrens system is to obviate possible conflicts of title by giving the public the right to rely upon the face of the Torrens certificate and, as a rule, to dispense with the necessity of inquiring further; on the part of the registered owner, the system gives him complete peace of mind that he would be secured in his ownership as long as he has not voluntarily disposed of any right over the covered land.

The Philippines adopted the Torrens system through Act No. 496, also known as the Land Registration Act, which was approved on November 6, 1902 and took effect on February 1, 1903. In this jurisdiction, therefore, “a person dealing in registered land has the right to rely on the Torrens certificate of title and to dispense with the need of inquiring further, except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry”.

Good faith is the honest intention to abstain from taking unconscientious advantage of another. It means the “freedom from knowledge and circumstances which ought to put a person on inquiry.”  Given this notion of good faith, therefore, a purchaser in good faith is one who buys the property of another without notice that some other person has a right to, or interest in, such property and pays full and fair price for the same. Spouses Cusi vs. Lilia V. De Vera, et al.; G.R. Nos. 195825/195871. February 27, 2013

Torrens System; right to rely on Torrens title. [It is a] settled principle that one who deals with property registered under the Torrens System need not go beyond the same, but only has to rely on the title. … Moreover, since the subject property was already covered by a Torrens title at the time that respondents bought the same, the law does not require them to go beyond what appears on the face of the title. The lot has, thus, passed to respondents, who are presumed innocent purchasers for value, in the absence of any allegation to the contrary. Mercado, et al. vs. Sps. Espina; G.R. No. 173987. February 25, 2013

(Rose thanks Frances Domingo, Rory Lambino and Earla Lang for their assistance in the preparation of this post.) 

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