Spouses Peralta v. Heirs of Abalon

Forged Document may be a root of a valid title

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Case DigestWeek 3–4 — The Registries of Deeds and Original Registration

Spouses Peralta v. Heirs of Abalon

G.R. Nos. 183448 & 183464 · June 30, 2014 · Supreme Court — First Division

Forged Document may be a root of a valid title

Gist

The relationship of the case of Spouses Dominador Peralta and Ofelia Peralta v. Heirs of Bernardina Abalon to the assigned syllabus subtopic of Section 32 of Presidential Decree No. 1529 (former Section 38 of Act No. 496) regarding the doctrine that a forged document may be the root of a valid title is DIRECT. The triggering controversy arose when the Heirs of Bernardina Abalon discovered that Restituto M. Rellama had fraudulently cancelled the original title of the deceased Bernardina Abalon by presenting a forged deed of absolute sale, subdivided the land into three lots, and sold the lots to Spouses Dominador and Ofelia Peralta, and Marissa, Leonil, and Arnel Andal, prompting the Heirs of Bernardina Abalon to file a complaint for the annulment of the titles, declaration of nullity of sale, and recovery of possession. The Supreme Court of the Philippines denied the Petitions for Review on Certiorari, affirming the Decision of the Court of Appeals which declared the transfer certificates of title in the name of the Andals legal and valid, but cancelled the transfer certificate of title in the name of Spouses Dominador and Ofelia Peralta on the ground of bad faith. The single central doctrine is that under Section 32 and Section 53 of Presidential Decree No.

Core Doctrine

The Rule on Forged Deeds as a Root of Title: A forged or fraudulent deed is a nullity and conveys no title; however, a fraudulent document may become the root of a valid title if the certificate of title was already transferred from the name of the true owner to the forger, and while the title remained in that state, the land was subsequently sold to an innocent purchaser for value who had the right to rely on the face of the Torrens certificate.

Facts

Bernardina Abalon was registered owner of Lot No. 1679 of the Cadastral Survey of Legaspi, 8,571 square metres, under OCT No. (O) 16, possessing it continuously through her tenant Pedro Bellen.
On June 10, 1975 a Deed of Absolute Sale was purportedly executed by Abalon to Restituto M. Rellama. Yet on June 11, 1976 Abalon executed a notarised leasehold contract over the same land to Ruperta Bellen, Pedro's wife — uncontroverted proof she never meant to part with ownership.
In 1976 Rellama petitioned in Miscellaneous Cadastral Case No. 10648, falsely claiming the owner's duplicate had been delivered to him and lost, when Abalon had never parted with it. The cadastral court ordered a second owner's duplicate, later found by the RTC to be fabricated.
With that fabricated duplicate and a photocopy of the forged deed, Rellama caused OCT No. (O) 16 cancelled and obtained TCT No. 42108 in his name, then subdivided Lot No. 1679 into Lots 1679-A, 1679-B and 1679-C.
On March 2, 1995 Rellama sold Lot No. 1679-A to Spouses Dominador P. Peralta, Jr. and Ofelia M. Peralta, who never examined the original title but relied on a photocopy of TCT No. 42108 he supplied; TCT No. 42254 issued to them August 2, 1995.
On October 9, 1995 Marissa, Arnel and Leonil Andal bought Lot No. 1679-B from Eduardo Lotivio (TCT No. 42482), and on December 27, 1995 acquired Lot No. 1679-C (TCT No. 42821).
Bernardina Abalon died intestate and without issue on August 22, 2005; her nephew Mansueta and niece Amelia Abalon succeeded and held the land through Godofredo Bellen, who followed Ruperta as tenant — until the Peraltas and the Andals forcibly wrested possession.
The Abalon heirs sued for annulment of titles, nullity of sale, recovery of possession and damages (Civil Case No. 9243, RTC Legaspi City, Branch 5). On April 14, 2005 the RTC ruled for them, cancelling both sets of titles and restoring OCT No. (O) 16. On May 30, 2007 the CA reversed in part — upholding the Andals' titles but cancelling the Peraltas' as buyers in bad faith; reconsideration was denied June 10, 2008. Both sides petitioned (G.R. Nos. 183448 and 183464), and the First Division decided on June 30, 2014.

Arguments of the Parties

Petitioners in G.R. No. 183448. The Peraltas argued the case should have been dismissed because the original 1975 deed was never put in evidence, so forgery went unproven by clear and convincing evidence; that Mansueta and Amelia are not forced heirs and never showed they inherited; and that they are innocent purchasers for value who relied on the certificate, their title deserving protection under Section 32.

Petitioners in G.R. No. 183464. The Abalon heirs argued the CA erred in finding the Andals in good faith merely on the ordinary presumption; that the forged-deed exception cannot apply because Abalon never lost the valid, uncancelled original duplicate, so the chain of registered titles was broken; and that Rellama acquired no transmissible right, making every sale he made void.

Common Ground / Stipulations (if any). Both sets of buyers derive their titles from TCT No. 42108, issued to Rellama on the cancellation of OCT No. (O) 16; and Bernardina Abalon died intestate and without issue on August 22, 2005.

Issue

MAIN ISSUE (Root-of-title-centered). Whether a later buyer may invoke Section 32 on the ground that a forged deed became the root of a valid title, even though the true owner kept the genuine, uncancelled owner's duplicate during her lifetime.

SECONDARY ISSUES. Whether the nephew and niece of an owner who died intestate and without issue have standing to sue; and whether a buyer who relies on a mere photocopy of the certificate is an innocent purchaser in good faith.

ANCILLARY / INCIDENTAL ISSUES (if any). None separately resolved.

Ruling

On the MAIN ISSUE: YES — a forged deed can become the root of a valid title in an innocent purchaser's hands. Though Section 53 makes a forged deed null and void, the exception operates where the certificate has already been transferred from the true owner into the forger's name and, while it so stands, the land is sold to an innocent purchaser for value. The Andals bought when the title already stood registered to Rellama under TCT No. 42108, bearing no annotation or lien to arouse suspicion; that Abalon kept the original duplicate does not invalidate their purchase, because a complete chain of registered titles was established when the Register of Deeds issued Rellama's title, on whose clean face they were entitled to rely. On standing: YES — under Article 975 nephews and nieces surviving alone inherit by representation or in equal portions, and the heirs had held the land more than ten years since Abalon's death, possession ripening into ownership by ordinary acquisitive prescription and giving them a real and vested interest to defend. On the photocopy: NO — the system protects only those who take the ordinary precautions of honest persons in business, which include examining the original or a certified true copy; relying on a photocopy Rellama himself supplied put the Peraltas on notice, and their failure to inquire was gross negligence amounting to bad faith, so TCT No. 42254 is cancelled. The dispositive portion reads verbatim: "WHEREFORE, the petitions in G.R. Nos. 183448 and 183464 are DENIED for lack of merit. The Decision in CA-G.R. CV No. 85542 is hereby AFFIRMED. SO ORDERED."

Ratio

The exception has three requisites: the title must have passed from the true owner into the forger's name, the forged deed must be registered and a new title issued to him, and the land must then be sold or mortgaged to an innocent purchaser for value relying on the clean face of that title.
What matters is the register, not the drawer. An unbroken chain of registered titles is what lets a later buyer rely; once the forger holds a registered Torrens title, the buyer need not look behind it.
The mirror doctrine still turns on good faith. Knowledge of suspicious facts, or failure to take ordinary precautions, forfeits it — and a photocopy carries none of the guarantees of authenticity an original duplicate does.
Indefeasibility after a year serves the system's purpose of quieting title and ending questions of legality — but leaves reconveyance available against the fraudulent party or a bad-faith purchaser under the trust the fraud creates.

Doctrine

Doctrines / Rules / Principles Laid Down.

A forged deed conveys nothing, but may become the root of a valid title where the certificate had already been transferred into the forger's name and the land was then sold to an innocent purchaser for value entitled to rely on the certificate.
To invoke that exception the buyer must show a complete chain of registered titles — the title must have been officially transferred and registered to the forger before the later sale.
And a buyer who relies on a photocopy instead of the owner's duplicate or a certified true copy from the Register of Deeds is grossly negligent and in bad faith, and no innocent purchaser for value.

Distinctions / Limitations / Qualifications.

The exception cannot apply where the true owner still holds a valid, subsisting certificate that was never cancelled in the registry — here Rellama did procure the cancellation of OCT No. (O) 16 and a new registered title, which is why the Andals are protected.
And the protection is unavailable to a buyer with actual knowledge of facts that would impel a cautious person to inquire, such as actual possession by someone other than the registered owner.

Topic/Subtopic Integration (Mandatory).

DIRECT: the Court applied the forged-deed-as-root-of-title exception under Section 32, holding that a void title may found a valid one in an innocent purchaser's hands — but strictly conditioned on an unbroken chain of registered titles and on good faith, which negligence such as relying on a photocopy destroys. That preserves security of transactions without leaving true owners exposed to bad-faith land grabbers.

Separate Opinions

None. The First Division decided unanimously through Chief Justice Maria Lourdes P. A. Sereno, with Justices Leonardo-De Castro, Bersamin, Villarama, Jr. and Reyes concurring.

Full Digest — Recitation Format

Facts

Prior to June 10, 1975: Bernardina Abalon was the registered owner of a parcel of land designated as Lot No. 1679 of the Cadastral Survey of Legaspi, consisting of 8,571 square meters, covered by Original Certificate of Title No. (O) 16. Bernardina Abalon maintained continuous possession of the land through a tenant, Pedro Bellen.
On June 10, 1975: A Deed of Absolute Sale was purportedly executed by Bernardina Abalon in favor of Restituto M. Rellama over the subject property.
On June 11, 1976: Bernardina Abalon executed a notarized contract of leasehold over the subject property in favor of Ruperta Bellen, the wife of Pedro Bellen, which contract was uncontroverted and demonstrated that Bernardina Abalon did not intend to part with the ownership of the land.
Sometime in the year 1976: Restituto M. Rellama filed a petition in Miscellaneous Cadastral Case No. 10648, falsely claiming that the owner's duplicate copy of Original Certificate of Title No. (O) 16 was delivered to Restituto M. Rellama by Bernardina Abalon and subsequently became lost. In truth, the original owner's duplicate copy had never been lost and remained in the continuous possession of Bernardina Abalon.
Sometime after the year 1976: The cadastral court granted the petition of Restituto M. Rellama and ordered the issuance of a second owner's duplicate copy of Original Certificate of Title No. (O) 16, which the Regional Trial Court subsequently declared to be a fabricated duplicate copy.
Sometime thereafter: By presenting the fabricated second duplicate copy of the title and a photocopy of the forged Deed of Absolute Sale, Restituto M. Rellama succeeded in causing the cancellation of Original Certificate of Title No. (O) 16 and obtaining Transfer Certificate of Title No. 42108 in the name of Restituto M. Rellama.
Sometime thereafter: Restituto M. Rellama subdivided Lot No. 1679 into three portions, namely: Lot No. 1679-A, Lot No. 1679-B, and Lot No. 1679-C.
On March 2, 1995: Restituto M. Rellama sold Lot No. 1679-A to Spouses Dominador P. Peralta, Jr. and Ofelia M. Peralta. In entering the sale, Spouses Peralta did not examine the original title but merely relied on a photocopy of Transfer Certificate of Title No. 42108 provided by Restituto M. Rellama.
On August 2, 1995: Transfer Certificate of Title No. 42254 was officially issued in the name of Spouses Peralta covering Lot No. 1679-A.
On August 22, 2005: Bernardina Abalon died intestate and without issue.
Sometime after the death of Bernardina Abalon: Mansueta Abalon and Amelia Abalon, being the nephew and niece of Bernardina Abalon, inherited the property by succession and took physical possession of the land through Godofredo Bellen, who succeeded Ruperta Bellen as tenant.
Sometime in the year 1995: Spouses Peralta and the Andals forcibly wrested possession of the land from Godofredo Bellen.
On October 9, 1995: Marissa Andal, Arnel Andal, and Leonil Andal acquired Lot No. 1679-B from Eduardo Lotivio by virtue of a Deed of Absolute Sale, which transaction resulted in the issuance of Transfer Certificate of Title No. 42482 in the name of the Andals.
On December 27, 1995: The Andals acquired Lot No. 1679-C, leading to the issuance of Transfer Certificate of Title No. 42821 in favor of the Andals.
On November 3, 2011: Mansueta Abalon and Amelia Abalon, represented by Mansueto Abalon, filed a Complaint for Annulment of Titles, Declaration of Nullity of Sale, Recovery of Possession, and Damages (docketed as Civil Case No. 9243) before the Regional Trial Court of Legaspi City, Branch 5, against Restituto M. Rellama, Spouses Peralta, and the Andals.
On April 14, 2005: The Regional Trial Court rendered a Decision in favor of the Heirs of Bernardina Abalon, ordering the cancellation of the titles of Spouses Peralta and the Andals, and directing the restoration of Original Certificate of Title No. (O) 16 in the name of Bernardina Abalon.
On May 30, 2007: Upon appeal, the Court of Appeals Seventeenth Division rendered a Decision reversing the Regional Trial Court. The Court of Appeals declared the titles of the Andals valid, but affirmed the cancellation of the title of Spouses Peralta on the ground that Spouses Peralta were buyers in bad faith.
On June 10, 2008: The Court of Appeals denied the Motions for Reconsideration filed by the Heirs of Bernardina Abalon and Spouses Peralta.
On August 11, 2008: Both Spouses Peralta (G.R. No. 183448) and the Heirs of Bernardina Abalon (G.R. No. 183464) filed separate Petitions for Review on Certiorari before the Supreme Court of the Philippines.
On June 30, 2014: The Supreme Court of the Philippines First Division promulgated the Decision denying both petitions and affirming the Decision of the Court of Appeals.

Arguments of the Parties

Petitioner Spouses Peralta (G.R. No. 183448).

Failure of Evidence on Forgery: Spouses Peralta argue that the case for annulment should have been dismissed because the original Deed of Absolute Sale dated June 10, 1975, was not introduced in evidence, and therefore, the allegation of forgery was not proven by clear and convincing evidence.
Lack of Personality of the Heirs: Spouses Peralta contend that Mansueta Abalon and Amelia Abalon are not forced heirs of Bernardina Abalon and have not established that the claimants inherited the subject property.
Innocent Purchasers in Good Faith: Spouses Peralta assert that the buyers are innocent purchasers for value, having purchased the property in reliance on the Torrens certificate of title, and that the title of the buyers over the Peralta portion of the land must be upheld under Section 32 of Presidential Decree No. 1529.

Petitioners Heirs of Abalon (G.R. No. 183464).

No Presumption of Good Faith: The Heirs of Abalon argue that the Court of Appeals erred in declaring the Andals as buyers in good faith by simply applying the ordinary presumption of good faith in the absence of evidence showing the contrary.
No Root of Title for Forged Duplicate: The Heirs of Abalon contend that the Court of Appeals erred in applying the doctrine that a forged instrument may become the root of a valid title because Bernardina Abalon never lost possession of the valid and uncancelled original duplicate title, and therefore, the chain of registered titles was broken.
No Transmissible Right: The Heirs of Abalon assert that Restituto M. Rellama did not acquire any transmissible right of ownership over the property, and thus, the sales made by Restituto M. Rellama to subsequent purchasers are completely null and void.

Common Ground.

Both Spouses Peralta and the Andals derive the respective transfer certificates of title from Transfer Certificate of Title No. 42108, which was issued in the name of Restituto M. Rellama following the cancellation of Original Certificate of Title No. (O) 16.
The original registered owner, Bernardina Abalon, died intestate and without issue on August 22, 2005.

Issue

MAIN ISSUE.

Whether a subsequent purchaser of registered land can invoke the protection of Section 32 of Presidential Decree No. 1529 on the ground that a forged or fraudulent deed of sale has become the root of a valid title, even if the original registered owner remained in possession of the genuine and uncancelled original duplicate certificate of title during the original owner's lifetime.

SECONDARY ISSUES.

Whether the nephew and niece of a deceased registered owner who died intestate and without issue have the legal personality and standing to file an action for the annulment of a forged deed of sale and the cancellation of subsequent titles derived therefrom.
Whether a buyer of registered land can be considered an innocent purchaser for value in good faith under Section 32 of Presidential Decree No. 1529 if the buyer relies merely on a photocopy of the certificate of title provided by the seller.

Ruling

MAIN ISSUE: YES. The Supreme Court of the Philippines ruled that a forged deed can become the root of a valid title in the hands of an innocent purchaser for value under Section 32 of Presidential Decree No. 1529. The Supreme Court held that while the general rule under Section 53 of Presidential Decree No. 1529 is that a forged deed is null and void and conveys no title, an exception exists where the certificate of title has already been transferred from the name of the true owner to the name of the forger, and while the title remains in the name of the forger, the land is subsequently sold to an innocent purchaser for value. The Court of Appeals correctly found that the Andals were buyers in good faith because the Andals purchased the property from Restituto M. Rellama at a time when the title was already registered in the name of Restituto M. Rellama under Transfer Certificate of Title No. 42108, with no annotations or liens of any kind to arouse suspicion. The fact that Bernardina Abalon kept the original duplicate certificate of title does not invalidate the subsequent sale to the Andals, because a complete chain of registered titles was established when the Register of Deeds issued the title in the name of Restituto M. Rellama, which clean title the subsequent purchasers had the right to rely upon.

SECONDARY ISSUE NO. 1: YES. The Supreme Court of the Philippines ruled that the Heirs of Bernardina Abalon have the legal standing and personality to file the action. The Supreme Court held that under Article 975 of the Civil Code, when nephews and nieces of a deceased person survive alone, the nephews and nieces inherit from the deceased by representation or in equal portions. Furthermore, the Court of Appeals correctly found that Mansueta Abalon and Amelia Abalon had been in continuous possession of the property for more than ten (10) years since the death of Bernardina Abalon, which possession ripened into full ownership by ordinary acquisitive prescription, thereby giving the heirs a real and vested interest to protect and defend the property from fraudulent registrations.

SECONDARY ISSUE NO. 2: NO. The Supreme Court of the Philippines ruled that a purchaser who relies on a mere photocopy of the certificate of title cannot be considered a buyer in good faith. The Supreme Court held that the Torrens system only protects those who take the ordinary precautions of honest persons in doing business, which includes examining the original or a certified true copy of the title. Because Spouses Peralta merely relied on a photocopy of Transfer Certificate of Title No. 42108 shown to Spouses Peralta by Restituto M. Rellama, Spouses Peralta were placed on notice of a potential flaw, and the failure of Spouses Peralta to investigate further constitutes gross negligence amounting to bad faith. Consequently, the title of Spouses Peralta (Transfer Certificate of Title No. 42254) was nullified and cancelled.

Dispositive portion (verbatim). The final dispositive portion of the Supreme Court of the Philippines in G.R. Nos. 183448 & 183464, dated June 30, 2014, is quoted verbatim as follows:

"WHEREFORE, the petitions in G.R. Nos. 183448 and 183464 are DENIED for lack of merit. The Decision in CA-G.R. CV No. 85542 is hereby AFFIRMED.

SO ORDERED."

Ratio

The Requisites of the Forged Deed Exception under Section 32: Under Section 32 of Presidential Decree No. 1529, the phrase "innocent purchaser for value" is deemed to include an innocent lessee, mortgagee, or other encumbrancer for value. The Supreme Court of the Philippines reaffirmed the exception that a forged deed can be the root of a valid title, which exception applies only when the following requisites are met: (a) the title has been transferred from the name of the true owner to the name of the forger, (b) the forged deed is registered, and a new title is issued in the name of the forger, and (c) the property is subsequently sold or mortgaged to an innocent purchaser for value who relies in good faith on the clean face of the Torrens title.
The Principle of a Complete Chain of Registered Titles: The Supreme Court clarified that for a forged deed to become the root of a valid title, there must be an unbroken chain of registered titles. This means that the transfer from the original owner to the forger, and the subsequent transfer from the forger to the innocent purchaser, must be duly registered in the Registry of Deeds, and new titles must be issued. If the subsequent purchaser deals with a person who has already obtained a registered Torrens title, the purchaser has the right to rely on the face of that title and is not required to look beyond the title.
The Limit of the Mirror Doctrine under Section 32: The mirror doctrine, which allows a person to rely solely on the face of a clean Torrens certificate of title, is available only to purchasers who act in good faith and without notice of any defect or adverse interest. If a purchaser has actual knowledge of facts and circumstances that would excite suspicion in a reasonable person, or if the purchaser fails to perform ordinary precautions such as examining the original copy of the title rather than a photocopy, the purchaser cannot claim good faith. Spouses Peralta's reliance on a photocopy of Transfer Certificate of Title No. 42108 constitutes bad faith because a photocopy does not afford the same legal guarantees of authenticity as an original duplicate, and such reliance should have alerted Spouses Peralta to conduct a thorough investigation.
The Incontrovertibility of Torrens Titles: The primary purpose of the Torrens system under Section 32 of Presidential Decree No. 1529 is to quiet title to land and put an end to questions of legality of title. While the law provides remedies for fraudulent registrations within one year from the issuance of the decree, the decree becomes incontrovertible and indefeasible after the lapse of one year, except that an action for reconveyance remains available against the fraudulent party or bad faith purchasers.

Doctrine

Doctrines / Rules / Principles Laid Down.

The Rule on Forged Deeds as a Root of Title: A forged or fraudulent deed is a nullity and conveys no title; however, a fraudulent document may become the root of a valid title if the certificate of title was already transferred from the name of the true owner to the forger, and while the title remained in that state, the land was subsequently sold to an innocent purchaser for value who had the right to rely on the face of the Torrens certificate.
The Rule on the Chain of Titles: To invoke the exception that a forged deed is the root of a valid title, the subsequent purchaser must prove a complete chain of registered titles, meaning that the title must have been officially transferred and registered under the name of the forger before the subsequent sale is executed.
The Rule on Bank and Buyer Diligence: A buyer of registered land cannot claim the status of an innocent purchaser for value in good faith if the buyer fails to examine the original owner's duplicate or a certified true copy of the title on file with the Register of Deeds, and instead relies merely on a photocopy of the title, as such reliance constitutes gross negligence and bad faith.

Distinctions / Limitations / Qualifications.

The Pre-Existing Owner Duplicate Exception: The exception that a forged deed may become the root of a valid title cannot be applied if the original registered owner still holds a valid and existing certificate of title, and the title of the original registered owner has not been cancelled in the Registry of Deeds. In G.R. Nos. 183448 & 183464, because Restituto M. Rellama succeeded in causing the physical cancellation of Original Certificate of Title No. (O) 16 in the records of the Register of Deeds and obtaining a new registered title in the name of Restituto M. Rellama, the exception applies to protect the Andals who relied on the registered title.
The Actual Knowledge Exception: The protection accorded to subsequent purchasers who rely on a clean Torrens title is unavailable if the purchaser has actual knowledge of facts and circumstances that would impel a reasonably cautious person to make further inquiry, such as the actual physical possession of the land by a person other than the registered owner.

Topic/Subtopic Integration (Mandatory).

Classification of Relationship: DIRECT.
Integration: The case of Spouses Peralta v. Heirs of Bernardina Abalon is a direct and controlling authority on the application of the forged deed as the root of a valid title exception under Section 32 of Presidential Decree No. 1529. The decision establishes that when a person fraudulently registers a forged deed of sale and obtains a new Torrens title, that void title can become the root of a completely valid and legal title in the hands of an innocent purchaser for value who relies in good faith on the clean face of the registered title. By clarifying that this exception is strictly conditioned upon the existence of a complete, unbroken chain of registered titles and the subsequent purchaser's good faith—which is defeated by negligence such as relying on a photocopy—the Supreme Court of the Philippines protected the security of transactions under the Property Registration Decree while safeguarding the rights of the true registered owners from bad faith land grabbers.

Separate Opinions

NOT APPLICABLE / NOT IN RECORD. (The Decision was rendered unanimously by the First Division of the Supreme Court of the Philippines, with Chief Justice Maria Lourdes P. A. Sereno as the ponente, and with Associate Justices Teresita J. Leonardo-De Castro, Lucas P. Bersamin, Martin S. Villarama, Jr., and Bienvenido L. Reyes concurring, and with no separate written opinions being filed in the record).

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Special Law

Section 32, P.D. No. 1529

Review of decree of registration; Innocent purchaser for value

Presidential Decree No. 1529 (Property Registration Decree, 1978)

The decree of registration shall not be reopened or revised by reason of absence, minority, or other disability of any person adversely affected thereby, nor by any proceeding in any court for reversing judgments, subject, however, to the right of any person, including the government and the branches thereof, deprived of land or of any estate or interest therein by such adjudication or confirmation of title obtained by actual fraud, to file in the proper Court of First Instance a petition for reopening and review of the decree of registration not later than one year from and after the date of the entry of such decree of registration, but in no case shall such petition be entertained by the court where an innocent purchaser for value has acquired the land or an interest therein, whose rights may be prejudiced. Whenever the phrase "innocent purchaser for value" or an equivalent phrase occurs in this Decree, it shall be deemed to include an innocent lessee, mortgagee, or other encumbrancer for value.

Upon the expiration of said period of one year, the decree of registration and the certificate of title issued shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or any other persons responsible for the fraud.

Why it is cited here

The forged-deed doctrine at its sharpest, because this case applies it to two buyers from the same forger and reaches opposite results.

A decree is protected against reopening once the land has passed to an innocent purchaser for value, and it is that protection which lets a forged instrument become the root of a valid title.

Rellama forged a deed of absolute sale, cancelled Bernardina Abalon's title, subdivided the land, and sold the lots — to the Andals and to the Peraltas. The Andals kept their titles; the Peraltas lost theirs on the ground of bad faith.

Nothing about the forgery distinguished them. Both bought from the same forger, on the same forged root, at about the same time.

Which is the doctrine's real content, stated as plainly as any case states it: the exception protects a kind of buyer, not a kind of document. The forgery is a constant; good faith is the variable, and it is examined buyer by buyer.

Civil Code

Article 1544, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title VI (Sales), Chapter 4 (Obligations of the Vendor), Section 2 (Delivery of the Thing Sold)

If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473)

Why it is cited here

The good-faith standard the two buyers were measured against, and how it is proved.

Under the double-sale rule, immovable property goes "to the person acquiring it who in good faith first recorded it in the Registry of Property" — good faith being required at acquisition and at registration.

Good faith means more than an absence of actual knowledge. A buyer who deals with registered land may generally rely on the certificate, but circumstances that would put a prudent person on inquiry defeat the reliance: a stranger in possession, a suspiciously hurried sale, a price far below value, an unexplained subdivision.

That is where the Peraltas failed. The Court found facts putting them on notice which they chose not to pursue, and a buyer who closes his eyes to what he could plainly have discovered is not innocent in law.

The burden matters too, and it is often decisive. Good faith is presumed, so the party attacking the title must prove bad faith — as the Abalon heirs did against the Peraltas and could not against the Andals.

Civil Code

Article 1456, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title V (Trusts (N)), Chapter 3 (Implied Trusts)

If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

Why it is cited here

The heirs' remedy against the buyer who failed, and its limit against the ones who did not.

"If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes."

A buyer in bad faith holds on that trust and must reconvey — which is why the Peraltas' certificate was cancelled while the decree in whose chain it stood was left alone. Reconveyance is in personam; it never disturbs the register's validity, only the holder's right to keep what it names.

Against the Andals the trust does not run at all. An innocent purchaser for value acquires free of it, and no equity reaches him.

So the heirs' recovery is split: the land back from the Peraltas, and against Rellama only a personal claim for damages — the value of what the Andals now hold in good faith. That division is the Torrens bargain in miniature: the innocent buyer keeps the land; the victim gets a claim against the wrongdoer.

Source: Spouses Peralta v. Heirs of Abalon, G.R. Nos. 183448 & 183464, June 30, 2014

Cited laws & provisions

Section 32, P.D. No. 1529

Special Law

Review of decree of registration; Innocent purchaser for value

Presidential Decree No. 1529 (Property Registration Decree, 1978)

Why it is cited here

The forged-deed doctrine at its sharpest, because this case applies it to two buyers from the same forger and reaches opposite results.

A decree is protected against reopening once the land has passed to an innocent purchaser for value, and it is that protection which lets a forged instrument become the root of a valid title.

Nothing about the forgery distinguished them. Both bought from the same forger, on the same forged root, at about the same time.

Full entry below ↓

Article 1544, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title VI (Sales), Chapter 4 (Obligations of the Vendor), Section 2 (Delivery of the Thing Sold)

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Why it is cited here

The good-faith standard the two buyers were measured against, and how it is proved.

Full entry below ↓

Article 1456, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title V (Trusts (N)), Chapter 3 (Implied Trusts)

If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

Why it is cited here

The heirs' remedy against the buyer who failed, and its limit against the ones who did not.

Against the Andals the trust does not run at all. An innocent purchaser for value acquires free of it, and no equity reaches him.

Full entry below ↓

Facts

Bernardina Abalon was registered owner of Lot No. 1679 of the Cadastral Survey of Legaspi, 8,571 square metres, under OCT No. (O) 16, possessing it continuously through her tenant Pedro Bellen.
On June 10, 1975 a Deed of Absolute Sale was purportedly executed by Abalon to Restituto M. Rellama. Yet on June 11, 1976 Abalon executed a notarised leasehold contract over the same land to Ruperta Bellen, Pedro's wife — uncontroverted proof she never meant to part with ownership.
In 1976 Rellama petitioned in Miscellaneous Cadastral Case No. 10648, falsely claiming the owner's duplicate had been delivered to him and lost, when Abalon had never parted with it. The cadastral court ordered a second owner's duplicate, later found by the RTC to be fabricated.
With that fabricated duplicate and a photocopy of the forged deed, Rellama caused OCT No. (O) 16 cancelled and obtained TCT No. 42108 in his name, then subdivided Lot No. 1679 into Lots 1679-A, 1679-B and 1679-C.
On March 2, 1995 Rellama sold Lot No. 1679-A to Spouses Dominador P. Peralta, Jr. and Ofelia M. Peralta, who never examined the original title but relied on a photocopy of TCT No. 42108 he supplied; TCT No. 42254 issued to them August 2, 1995.
On October 9, 1995 Marissa, Arnel and Leonil Andal bought Lot No. 1679-B from Eduardo Lotivio (TCT No. 42482), and on December 27, 1995 acquired Lot No. 1679-C (TCT No. 42821).
Bernardina Abalon died intestate and without issue on August 22, 2005; her nephew Mansueta and niece Amelia Abalon succeeded and held the land through Godofredo Bellen, who followed Ruperta as tenant — until the Peraltas and the Andals forcibly wrested possession.
The Abalon heirs sued for annulment of titles, nullity of sale, recovery of possession and damages (Civil Case No. 9243, RTC Legaspi City, Branch 5). On April 14, 2005 the RTC ruled for them, cancelling both sets of titles and restoring OCT No. (O) 16. On May 30, 2007 the CA reversed in part — upholding the Andals' titles but cancelling the Peraltas' as buyers in bad faith; reconsideration was denied June 10, 2008. Both sides petitioned (G.R. Nos. 183448 and 183464), and the First Division decided on June 30, 2014.

Arguments of the Parties

Issue

ANCILLARY / INCIDENTAL ISSUES (if any). None separately resolved.

Ruling

Ratio

The exception has three requisites: the title must have passed from the true owner into the forger's name, the forged deed must be registered and a new title issued to him, and the land must then be sold or mortgaged to an innocent purchaser for value relying on the clean face of that title.
What matters is the register, not the drawer. An unbroken chain of registered titles is what lets a later buyer rely; once the forger holds a registered Torrens title, the buyer need not look behind it.
The mirror doctrine still turns on good faith. Knowledge of suspicious facts, or failure to take ordinary precautions, forfeits it — and a photocopy carries none of the guarantees of authenticity an original duplicate does.
Indefeasibility after a year serves the system's purpose of quieting title and ending questions of legality — but leaves reconveyance available against the fraudulent party or a bad-faith purchaser under the trust the fraud creates.

Doctrine

Doctrines / Rules / Principles Laid Down.

A forged deed conveys nothing, but may become the root of a valid title where the certificate had already been transferred into the forger's name and the land was then sold to an innocent purchaser for value entitled to rely on the certificate.
To invoke that exception the buyer must show a complete chain of registered titles — the title must have been officially transferred and registered to the forger before the later sale.
And a buyer who relies on a photocopy instead of the owner's duplicate or a certified true copy from the Register of Deeds is grossly negligent and in bad faith, and no innocent purchaser for value.

Distinctions / Limitations / Qualifications.

The exception cannot apply where the true owner still holds a valid, subsisting certificate that was never cancelled in the registry — here Rellama did procure the cancellation of OCT No. (O) 16 and a new registered title, which is why the Andals are protected.
And the protection is unavailable to a buyer with actual knowledge of facts that would impel a cautious person to inquire, such as actual possession by someone other than the registered owner.

Topic/Subtopic Integration (Mandatory).

DIRECT: the Court applied the forged-deed-as-root-of-title exception under Section 32, holding that a void title may found a valid one in an innocent purchaser's hands — but strictly conditioned on an unbroken chain of registered titles and on good faith, which negligence such as relying on a photocopy destroys. That preserves security of transactions without leaving true owners exposed to bad-faith land grabbers.

Separate Opinions

None. The First Division decided unanimously through Chief Justice Maria Lourdes P. A. Sereno, with Justices Leonardo-De Castro, Bersamin, Villarama, Jr. and Reyes concurring.

Full Digest — Recitation Format

Facts

Prior to June 10, 1975: Bernardina Abalon was the registered owner of a parcel of land designated as Lot No. 1679 of the Cadastral Survey of Legaspi, consisting of 8,571 square meters, covered by Original Certificate of Title No. (O) 16. Bernardina Abalon maintained continuous possession of the land through a tenant, Pedro Bellen.
On June 10, 1975: A Deed of Absolute Sale was purportedly executed by Bernardina Abalon in favor of Restituto M. Rellama over the subject property.
On June 11, 1976: Bernardina Abalon executed a notarized contract of leasehold over the subject property in favor of Ruperta Bellen, the wife of Pedro Bellen, which contract was uncontroverted and demonstrated that Bernardina Abalon did not intend to part with the ownership of the land.
Sometime in the year 1976: Restituto M. Rellama filed a petition in Miscellaneous Cadastral Case No. 10648, falsely claiming that the owner's duplicate copy of Original Certificate of Title No. (O) 16 was delivered to Restituto M. Rellama by Bernardina Abalon and subsequently became lost. In truth, the original owner's duplicate copy had never been lost and remained in the continuous possession of Bernardina Abalon.
Sometime after the year 1976: The cadastral court granted the petition of Restituto M. Rellama and ordered the issuance of a second owner's duplicate copy of Original Certificate of Title No. (O) 16, which the Regional Trial Court subsequently declared to be a fabricated duplicate copy.
Sometime thereafter: By presenting the fabricated second duplicate copy of the title and a photocopy of the forged Deed of Absolute Sale, Restituto M. Rellama succeeded in causing the cancellation of Original Certificate of Title No. (O) 16 and obtaining Transfer Certificate of Title No. 42108 in the name of Restituto M. Rellama.
Sometime thereafter: Restituto M. Rellama subdivided Lot No. 1679 into three portions, namely: Lot No. 1679-A, Lot No. 1679-B, and Lot No. 1679-C.
On March 2, 1995: Restituto M. Rellama sold Lot No. 1679-A to Spouses Dominador P. Peralta, Jr. and Ofelia M. Peralta. In entering the sale, Spouses Peralta did not examine the original title but merely relied on a photocopy of Transfer Certificate of Title No. 42108 provided by Restituto M. Rellama.
On August 2, 1995: Transfer Certificate of Title No. 42254 was officially issued in the name of Spouses Peralta covering Lot No. 1679-A.
On August 22, 2005: Bernardina Abalon died intestate and without issue.
Sometime after the death of Bernardina Abalon: Mansueta Abalon and Amelia Abalon, being the nephew and niece of Bernardina Abalon, inherited the property by succession and took physical possession of the land through Godofredo Bellen, who succeeded Ruperta Bellen as tenant.
Sometime in the year 1995: Spouses Peralta and the Andals forcibly wrested possession of the land from Godofredo Bellen.
On October 9, 1995: Marissa Andal, Arnel Andal, and Leonil Andal acquired Lot No. 1679-B from Eduardo Lotivio by virtue of a Deed of Absolute Sale, which transaction resulted in the issuance of Transfer Certificate of Title No. 42482 in the name of the Andals.
On December 27, 1995: The Andals acquired Lot No. 1679-C, leading to the issuance of Transfer Certificate of Title No. 42821 in favor of the Andals.
On November 3, 2011: Mansueta Abalon and Amelia Abalon, represented by Mansueto Abalon, filed a Complaint for Annulment of Titles, Declaration of Nullity of Sale, Recovery of Possession, and Damages (docketed as Civil Case No. 9243) before the Regional Trial Court of Legaspi City, Branch 5, against Restituto M. Rellama, Spouses Peralta, and the Andals.
On April 14, 2005: The Regional Trial Court rendered a Decision in favor of the Heirs of Bernardina Abalon, ordering the cancellation of the titles of Spouses Peralta and the Andals, and directing the restoration of Original Certificate of Title No. (O) 16 in the name of Bernardina Abalon.
On May 30, 2007: Upon appeal, the Court of Appeals Seventeenth Division rendered a Decision reversing the Regional Trial Court. The Court of Appeals declared the titles of the Andals valid, but affirmed the cancellation of the title of Spouses Peralta on the ground that Spouses Peralta were buyers in bad faith.
On June 10, 2008: The Court of Appeals denied the Motions for Reconsideration filed by the Heirs of Bernardina Abalon and Spouses Peralta.
On August 11, 2008: Both Spouses Peralta (G.R. No. 183448) and the Heirs of Bernardina Abalon (G.R. No. 183464) filed separate Petitions for Review on Certiorari before the Supreme Court of the Philippines.
On June 30, 2014: The Supreme Court of the Philippines First Division promulgated the Decision denying both petitions and affirming the Decision of the Court of Appeals.

Arguments of the Parties

Petitioner Spouses Peralta (G.R. No. 183448).

Failure of Evidence on Forgery: Spouses Peralta argue that the case for annulment should have been dismissed because the original Deed of Absolute Sale dated June 10, 1975, was not introduced in evidence, and therefore, the allegation of forgery was not proven by clear and convincing evidence.
Lack of Personality of the Heirs: Spouses Peralta contend that Mansueta Abalon and Amelia Abalon are not forced heirs of Bernardina Abalon and have not established that the claimants inherited the subject property.
Innocent Purchasers in Good Faith: Spouses Peralta assert that the buyers are innocent purchasers for value, having purchased the property in reliance on the Torrens certificate of title, and that the title of the buyers over the Peralta portion of the land must be upheld under Section 32 of Presidential Decree No. 1529.

Petitioners Heirs of Abalon (G.R. No. 183464).

No Presumption of Good Faith: The Heirs of Abalon argue that the Court of Appeals erred in declaring the Andals as buyers in good faith by simply applying the ordinary presumption of good faith in the absence of evidence showing the contrary.
No Root of Title for Forged Duplicate: The Heirs of Abalon contend that the Court of Appeals erred in applying the doctrine that a forged instrument may become the root of a valid title because Bernardina Abalon never lost possession of the valid and uncancelled original duplicate title, and therefore, the chain of registered titles was broken.
No Transmissible Right: The Heirs of Abalon assert that Restituto M. Rellama did not acquire any transmissible right of ownership over the property, and thus, the sales made by Restituto M. Rellama to subsequent purchasers are completely null and void.

Common Ground.

Both Spouses Peralta and the Andals derive the respective transfer certificates of title from Transfer Certificate of Title No. 42108, which was issued in the name of Restituto M. Rellama following the cancellation of Original Certificate of Title No. (O) 16.
The original registered owner, Bernardina Abalon, died intestate and without issue on August 22, 2005.

Issue

MAIN ISSUE.

Whether a subsequent purchaser of registered land can invoke the protection of Section 32 of Presidential Decree No. 1529 on the ground that a forged or fraudulent deed of sale has become the root of a valid title, even if the original registered owner remained in possession of the genuine and uncancelled original duplicate certificate of title during the original owner's lifetime.

SECONDARY ISSUES.

Whether the nephew and niece of a deceased registered owner who died intestate and without issue have the legal personality and standing to file an action for the annulment of a forged deed of sale and the cancellation of subsequent titles derived therefrom.
Whether a buyer of registered land can be considered an innocent purchaser for value in good faith under Section 32 of Presidential Decree No. 1529 if the buyer relies merely on a photocopy of the certificate of title provided by the seller.

Ruling

Dispositive portion (verbatim). The final dispositive portion of the Supreme Court of the Philippines in G.R. Nos. 183448 & 183464, dated June 30, 2014, is quoted verbatim as follows:

"WHEREFORE, the petitions in G.R. Nos. 183448 and 183464 are DENIED for lack of merit. The Decision in CA-G.R. CV No. 85542 is hereby AFFIRMED.

SO ORDERED."

Ratio

The Requisites of the Forged Deed Exception under Section 32: Under Section 32 of Presidential Decree No. 1529, the phrase "innocent purchaser for value" is deemed to include an innocent lessee, mortgagee, or other encumbrancer for value. The Supreme Court of the Philippines reaffirmed the exception that a forged deed can be the root of a valid title, which exception applies only when the following requisites are met: (a) the title has been transferred from the name of the true owner to the name of the forger, (b) the forged deed is registered, and a new title is issued in the name of the forger, and (c) the property is subsequently sold or mortgaged to an innocent purchaser for value who relies in good faith on the clean face of the Torrens title.
The Principle of a Complete Chain of Registered Titles: The Supreme Court clarified that for a forged deed to become the root of a valid title, there must be an unbroken chain of registered titles. This means that the transfer from the original owner to the forger, and the subsequent transfer from the forger to the innocent purchaser, must be duly registered in the Registry of Deeds, and new titles must be issued. If the subsequent purchaser deals with a person who has already obtained a registered Torrens title, the purchaser has the right to rely on the face of that title and is not required to look beyond the title.
The Limit of the Mirror Doctrine under Section 32: The mirror doctrine, which allows a person to rely solely on the face of a clean Torrens certificate of title, is available only to purchasers who act in good faith and without notice of any defect or adverse interest. If a purchaser has actual knowledge of facts and circumstances that would excite suspicion in a reasonable person, or if the purchaser fails to perform ordinary precautions such as examining the original copy of the title rather than a photocopy, the purchaser cannot claim good faith. Spouses Peralta's reliance on a photocopy of Transfer Certificate of Title No. 42108 constitutes bad faith because a photocopy does not afford the same legal guarantees of authenticity as an original duplicate, and such reliance should have alerted Spouses Peralta to conduct a thorough investigation.
The Incontrovertibility of Torrens Titles: The primary purpose of the Torrens system under Section 32 of Presidential Decree No. 1529 is to quiet title to land and put an end to questions of legality of title. While the law provides remedies for fraudulent registrations within one year from the issuance of the decree, the decree becomes incontrovertible and indefeasible after the lapse of one year, except that an action for reconveyance remains available against the fraudulent party or bad faith purchasers.

Doctrine

Doctrines / Rules / Principles Laid Down.

The Rule on Forged Deeds as a Root of Title: A forged or fraudulent deed is a nullity and conveys no title; however, a fraudulent document may become the root of a valid title if the certificate of title was already transferred from the name of the true owner to the forger, and while the title remained in that state, the land was subsequently sold to an innocent purchaser for value who had the right to rely on the face of the Torrens certificate.
The Rule on the Chain of Titles: To invoke the exception that a forged deed is the root of a valid title, the subsequent purchaser must prove a complete chain of registered titles, meaning that the title must have been officially transferred and registered under the name of the forger before the subsequent sale is executed.
The Rule on Bank and Buyer Diligence: A buyer of registered land cannot claim the status of an innocent purchaser for value in good faith if the buyer fails to examine the original owner's duplicate or a certified true copy of the title on file with the Register of Deeds, and instead relies merely on a photocopy of the title, as such reliance constitutes gross negligence and bad faith.

Distinctions / Limitations / Qualifications.

The Pre-Existing Owner Duplicate Exception: The exception that a forged deed may become the root of a valid title cannot be applied if the original registered owner still holds a valid and existing certificate of title, and the title of the original registered owner has not been cancelled in the Registry of Deeds. In G.R. Nos. 183448 & 183464, because Restituto M. Rellama succeeded in causing the physical cancellation of Original Certificate of Title No. (O) 16 in the records of the Register of Deeds and obtaining a new registered title in the name of Restituto M. Rellama, the exception applies to protect the Andals who relied on the registered title.
The Actual Knowledge Exception: The protection accorded to subsequent purchasers who rely on a clean Torrens title is unavailable if the purchaser has actual knowledge of facts and circumstances that would impel a reasonably cautious person to make further inquiry, such as the actual physical possession of the land by a person other than the registered owner.

Topic/Subtopic Integration (Mandatory).

Classification of Relationship: DIRECT.
Integration: The case of Spouses Peralta v. Heirs of Bernardina Abalon is a direct and controlling authority on the application of the forged deed as the root of a valid title exception under Section 32 of Presidential Decree No. 1529. The decision establishes that when a person fraudulently registers a forged deed of sale and obtains a new Torrens title, that void title can become the root of a completely valid and legal title in the hands of an innocent purchaser for value who relies in good faith on the clean face of the registered title. By clarifying that this exception is strictly conditioned upon the existence of a complete, unbroken chain of registered titles and the subsequent purchaser's good faith—which is defeated by negligence such as relying on a photocopy—the Supreme Court of the Philippines protected the security of transactions under the Property Registration Decree while safeguarding the rights of the true registered owners from bad faith land grabbers.

Separate Opinions

NOT APPLICABLE / NOT IN RECORD. (The Decision was rendered unanimously by the First Division of the Supreme Court of the Philippines, with Chief Justice Maria Lourdes P. A. Sereno as the ponente, and with Associate Justices Teresita J. Leonardo-De Castro, Lucas P. Bersamin, Martin S. Villarama, Jr., and Bienvenido L. Reyes concurring, and with no separate written opinions being filed in the record).