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G.R. No. 170671. August 19, 2015.*

FILADELFA T. LAUSA, LORETA T. TORRES,
PRIMITIVO TUGOT and ANACLETO T. CADUHAY,
petitioners, vs. MAURICIA QUILATON, RODRIGO Q.
TUGOT, PURIFICACION T. CODILLA, TEOFRA T.
SADAYA, ESTRELLITA T. GALEOS and ROSITA T.
LOPEZ, respondents.

Civil Law; Land Registration; Friar Lands; According to

jurisprudence, Section 15 of Act No. 1120 reserves to the
government the naked title to the friar lands, until its beneficiaries
have fully paid their purchase price.According to jurisprudence,
Section 15 of Act No. 1120 reserves to the government the naked
title to the friar lands, until its beneficiaries have fully paid their
purchase price. Since the intent of Act No. 1120 was to transfer
ownership of the friar lands to its actual occupants, the equitable
and beneficial title to the land passes to them the moment the
first installment is paid and a certificate of sale is issued. This
right is subject to the resolutory condition that the sale may be
rescinded if the agreed price shall not be paid in full.

_______________

* SECOND DIVISION.

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400 SUPREME COURT REPORTS ANNOTATED

Lausa vs. Quilaton

Same; Same; Acquisitive Prescription; Land registered under

the Torrens system cannot be acquired through prescription.
Land registered under the Torrens system cannot be acquired
through prescription. As early as 1902, Section 46 of Act No. 496
categorically declared that lands registered under the Torrens
system cannot be acquired by prescription, viz.: Section 46. No

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title to registered land in derogation to that of the registered

owner shall be acquired by prescription or adverse possession.
Same; Same; Friar Lands; Under Act No. 1120, the Chief of
the Bureau of Public Lands is required to register title to the friar
lands acquired by the government through Act No. 496.Under
Act No. 1120, the Chief of the Bureau of Public Lands is required
to register title to the friar lands acquired by the government
through Act No. 496. Section 6 of Act No. 1120, in particular,
provides: SECTION 6. The title, deeds and instruments of
conveyance pertaining to the lands in each province, when
executed and delivered by said grantors to the Government and
placed in the keeping of the Chief of the Bureau of Public Lands,
as above provided, shall be by him transmitted to the register of
deeds of each province in which any part of said lands lies, for
registration in accordance with law. But before transmitting the
title, deeds, and instruments of conveyance in this section
mentioned to the register of deeds of each province for
registration, the Chief of the Bureau of Public Lands shall record
all such deeds and instruments at length in one or more books to
be provided by him for that purpose and retained in the Bureau of
Public Lands, when duly certified by him shall be received in all
courts of the Philippine Islands as sufficient evidence of the
contents of the instrument so recorded whenever it is not
practicable to produce the originals in court. The law on land
registration at that time was Act No. 496, which established the
Torrens system in the Philippines. As earlier pointed out, a piece
of land, once registered under the Torrens system, can no longer
be the subject of acquisitive prescription.
Same; Land Titles and Deeds; Innocent purchasers in good
faith may safely rely on the correctness of the certificate of title
issued therefor, and neither the law nor the courts can oblige them
to go behind the certificate and investigate again the true condition
of the property.As a general rule, a person transmits only the
rights that he possesses. When innocent third persons, however,
purchase or acquire rights over the property relying on the
correctness of its certificate of title,

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Lausa vs. Quilaton

courts cannot disregard the rights they acquired and order

the cancellation of the certificate. As the third paragraph of
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Section 53 of Presidential Decree No. 1529, otherwise known as

the Property Registration Decree, provides: Section 53.
x x x x x x x In all cases of registration procured by fraud, the
owner may pursue all his legal and equitable remedies against
the parties to such fraud without prejudice, however, to the
rights of any innocent holder for value of a certificate of
title. After the entry of the decree of registration on the original
petition or application, any subsequent registration procured by
the presentation of a forged duplicate certificate of title, or a
forged deed or other instrument, shall be null and void. Thus,
innocent purchasers in good faith may safely rely on the
correctness of the certificate of title issued therefor, and neither
the law nor the courts can oblige them to go behind the certificate
and investigate again the true condition of the property. They are
only charged with notice of the liens and encumbrances on the
property that are noted on the certificate.
Same; Property Registration Decree; Buyer in Good Faith;
Innocent Purchaser for Value; Presidential Decree (PD) No. 1529
has expanded the definition of an innocent purchaser for value to
include an innocent lessee, mortgagee, or other encumbrancer for
value.Jurisprudence defines innocent purchaser for value as
one who buys the property of another, without notice that
some other person has a right or interest in such property
and pays a full price for the same, at the time of such
purchase or before he has notice of the claims or interest of some
other person in the property. PD 1529 has expanded the
definition of an innocent purchaser for value to include an
innocent lessee, mortgagee, or other encumbrancer for value.
Neither PD 1529 nor jurisprudence, however, has included an
innocent donee to the definition, and for good reason. An innocent
purchaser for value pays for the full price of the property, while a
donee receives the property out of the donors liberality.
Additionally, what the law does not include, it excludes, and a
donee is not included in the expansion of the term innocent
purchaser for value.
Same; Torrens Certificate of Title; As a general rule, a person
dealing with registered land has a right to rely on the Torrens
certificate of title (TCT) and to dispense with the need of further
inquiring over the status of the lot.As a general rule, a person
dealing with registered land has a right to rely on the Torrens
certificate of title

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402 SUPREME COURT REPORTS ANNOTATED

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Lausa vs. Quilaton

and to dispense with the need of further inquiring over the

status of the lot. Jurisprudence has established exceptions to the
protection granted to an innocent purchaser for value, such as
when the purchaser has actual knowledge of facts and
circumstances that would compel a reasonably cautious man to
inquire into the status of the lot; or of a defect or the lack of title
in his vendor; or of sufficient facts to induce a reasonably prudent
man to inquire into the status of the title of the property in
litigation. The presence of anything that excites or arouses
suspicion should then prompt the vendee to look beyond the
certificate and investigate the title of the vendor appearing on the
face of the certificate. One who falls within the exception can
neither be denominated as innocent purchaser for value nor a
purchaser in good faith, and hence does not merit the protection
of the law. In particular, the Court has consistently held that that
a buyer of a piece of land that is in the actual possession of
persons other than the seller must be wary and should investigate
the rights of those in possession. Without such inquiry, the buyer
can hardly be regarded as a buyer in good faith.
Same; Annulment of Title; An action for annulment of title or
reconveyance based on fraud is imprescriptible where the plaintiff
is in possession of the property subject of the fraudulent acts.An
action for annulment of title or reconveyance based on fraud is
imprescriptible where the plaintiff is in possession of the property
subject of the fraudulent acts. One who is in actual possession of a
piece of land on a claim of ownership thereof may wait until his
possession is disturbed or his title is attacked before taking steps
to vindicate his right.

PETITION for review on certiorari of a decision of the

Court of Appeals.
The facts are stated in the opinion of the Court.
Eric S. Carin for petitioners.
Albert L. Hontanosas for respondents.

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BRION, J.:

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Before us is a petition for review on certiorari assailing

the Court of Appeals (CA) Decision in C.A.-G.R. CV No.
63248. The CA reversed the decision of the Regional Trial
Court (RTC) of Cebu City, Branch 15 in Civil Case No.
CEB-17857, and upheld the validity of Transfer Certificate
Title (TCT) No. 571.

Factual Antecedents

The main issue in the present case involves the title to
Lot No. 557, a parcel of land situated in V. Ranudo and D.
Jakosalem Streets, Cogon Central, Cebu City.
The petitioners and the respondents are relatives
residing in Lot No. 557.
Petitioners Filadelfa T. Lausa, Loreta T. Torres,
Primitivo Tugot, and Anacleto T. Caduhay are the cousins
of respondents Rodrigo Tugot, Purificacion Codilla, Teofra
Sadaya, and Estrellita Galeos; while Mauricia Quilaton is
the respondents mother and the petitioners aunt-in-law.
The respondent Rosita T. Lopez, on the other hand,
acquired the rights of Rodrigo when he mortgaged Lot No.
557-A, a portion of Lot No. 557, to her. Rodrigo
subsequently defaulted on his loan.
The petitioners and respondents, with the exception of
Mauricia and Rosita, are all grandchildren of Alejandro
Tugot. Alejandro had possessed Lot No. 557 since
September 13, 1915, after it was assigned to him by Martin
Antonio.
Lot No. 557 formed part of the Banilad Friar Estate
Lands, which had been bought by the government through
Act No. 1120 for distribution to its occupants. Antonio had
initially been Lot No. 557s beneficiary, but subsequently
assigned his rights over Lot No. 557 to Alejandro.


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Since then, Alejandro possessed Lot No. 557 until his

death; thereafter, his children and grandchildren continued
to reside in the lot. The present controversy arose when the
respondents, claiming to be its registered owners,
attempted to eject the petitioners from Lot No. 557.
On January 1993, Mauricia filed before the RTC of Cebu
City Branch 17 a petition for the issuance of a new owners
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duplicate of TCT No. 571, which purportedly covers Lot No.

557. Mauricia claimed to own TCT No. 571, but lost her
owners duplicate during a strong typhoon sometime in
1946. The RTC, after due hearing, granted Quilatons
petition and directed the issuance of a new owners
duplicate of TCT No. 571.
On September 27, 1994, Mauricia donated Lot No. 557
to her children Rodrigo, Purificacion, Teofra and Estrellita.
Thus, TCT No. 571 was cancelled, and reissued as TCT
Nos. 130517, 130518, 130519, 130520 and 130521 in the
names of Mauricias children.1
Mauricias children subsequently performed several acts
of ownership over Lot 571: first, Rodrigo, on March 23,
1995, mortgaged TCT No. 130517 to Lopez as security for a
loan he obtained from the latter. Rodrigo subsequently
defaulted on his loan, prompting the foreclosure of TCT No.
130517. The land covered by TCT No. 130517 was
thereafter sold by public auction to Lopez, for which she
was issued TCT No. 143511 on March 31, 1997.
Second, Mauricias children filed a complaint for
ejectment against the petitioners, docketed as Civil Case
No. R-35137, on August 4, 1995.

_______________

1 TCT No. 130517 was issued in Rodrigos name; TCT No. 130518 in
Purificacions name; TCT No. 130519 in Teofras name; TCT No. 130520 in
Estrellitas name; and TCT No. 130521 in Rodrigos name.

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In response, the petitioners filed Civil Case No. CEB-

17857 for the annulment of TCT No. 571 and the
subsequent titles that originate from TCT No. 571, as well
as criminal complaints2 for falsification and perjury against
the respondents.

The Regional Trial Courts Ruling

The RTC found TCT No. 571 to be a forgery, and
declared it and all titles originating from it to be null and

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void ab initio. The RTC gave the following reasons as basis

for this conclusion:
First, the RTC noted several discrepancies in TCT No.
571 indicating that it is a forgery, viz.:
(i) The TCTs issued before and after TCT No. 571, that
is, TCT No. 570 and TCT No. 572, both use a different
and more recent form than TCT No. 571, TCT Nos.
570 and 572 use Judicial Form No. 109, which was
issued in June 1945, while TCT No. 571 uses Judicial
Form No. 140-D, which was issued in April 1936.
(ii) TCT Nos. 570 and 572 was signed by Martina L.
Arnoco as Register of Deeds, while TCT No. 571 was
signed by Gervasio Lavilles as Acting Register of
Deeds.
(iii) There are distinct differences in Lavilles signature
as it appears in TCT No. 571 from his signatures in
other TCTs, such as TCT Nos. 525 and 526.
Second, Mauricias previous acts show that she
acknowledged Alejandros ownership over Lot No. 557.
Prior to instituting a petition for issuance of a new owners
duplicate in

_______________

2 A criminal complaint for falsification of TCT No. 571 against the

respondents Rodrigo, Purificacion, Teofra, Estrellita and Mauricia. They
also filed a criminal complaint for three counts of perjury against
Mauricia for perjuring statements in her petition for issuance of a new
owners duplicate of TCT No. 571.

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1993, Mauricia had been paying Alejandro (and

subsequently Aurea) contributions for the real estate taxes
due on Lot No. 557.
Third, Mauricia exercised acts of full ownership over
Lot No. 557 only in 1994, after she had filed a petition for
the issuance of a new owners duplicate, even as she
claimed to have owned the lot since 1946.
Fourth, Mauricia failed to present evidence showing
how she acquired title to Lot No. 557. If indeed the land
was purchased from Martin Antonio, she could have

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secured a copy of its document of sale from the Archives

Office, Manila.
Additionally, the RTC held that the petitioners had
better title to Lot No. 557 than the respondents. The RTC
found that Lot No. 557 had been in the possession of
Alejandro since September 13, 1915, when the lots owner,
Martin Antonio, executed a Deed of Assignment in favor of
Alejandro. This conveyance, together with Alejandro and
his heirs continuous payment of Lot No. 557s real estate
taxes since 1928, amounts to more than thirty years of
adverse possession, so that ownership over the lot vested in
him.
As Alejandros heirs, both the petitioners and
respondents are entitled to a share in Lot No. 557.
Lastly, the RTC declared Lopezs TCT No. 143511,
which she acquired when she purchased TCT No. 130517,
to be null and void. TCT No. 130517 covers Lot No. 557-A,
and had been annotated with a Notice of Lis Pendens at the
time Lopez purchased it. Thus, Lopez had knowledge of the
dispute over the ownership of the lot she bought, and could
not claim the defense of a purchaser in good faith. She
acquired no greater title to the lot than Rodrigo, who
mortgaged TCT No. 130517.
The respondents filed a motion for reconsideration
contesting the RTCs decision. After the RTC denial of the
motion, the respondents appealed to the CA.


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The Court of Appeals Ruling

The CA reversed the RTCs decision, and upheld the
validity of TCT No. 571 and all the titles originating from
it.
In upholding the validity of TCT No. 571 (and all the
titles originating from it), the CA emphasized the existence
of a copy of TCT No. 571 in the custody of the Office of the
Register of Deeds of Cebu City, and noted that it is
presumed by law to have been issued in a regular manner.
The application of this presumption is called for by the
purpose of the Torrens system, which is to promote the
stability and integrity of land titles.

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According to the CA, the petitioners have failed to

disprove this presumption of regularity. The pieces of
evidence that the petitioners presented (i.e., the tax
receipts and Antonios Deed of Assignment of Lot No. 557
to Alejandro) do not prove with clear, positive, and
convincing evidence that TCT No. 571 had been
fraudulently issued. The payment of real estate taxes over
Lot No. 557 does not prove ownership. The Deed of
Assignment, on the other hand, had been subsequently
cancelled, as shown by the Friar Lands Sale Certificate
Register on file with the DENR. It proves that the lot had
been earlier assigned to Alejandro, but because the
assignment was canceled, the ownership of Lot No. 557
remained with Antonio.
The CA also noted that the lot that Alejandro appears to
have owned was not Lot No. 557 but Lot No. 357. The
description of Lot No. 557 as set forth by the petitioners
in their original complaint substantially varies from the
actual and precise technical description of Lot No. 557.
Additionally, some of the documentary evidence in the case
(such as tax declarations, tax receipts and notices of tax
delinquency) show that what Alejandro owned was Lot No.
357, not Lot No. 557.
The CA also pointed out that Alejandro could not have
acquired Lot 557 through acquisitive prescription for two
reasons: first, Mauricia had been in possession of the
property since 1946; and second, a lot registered under the
Torrens


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Lausa vs. Quilaton

system cannot be acquired through acquisitive

prescription. Records show that the lands comprising the
Banilad Friar Lands Estate, of which Lot No. 557 was a
part, had been brought under the operation of the Torrens
system on September 23, 1913.
The CA found Lopez to be an innocent purchaser for
value. Applying the Courts ruling in Bank of the Philippine
Islands v. Noblejas, the CA held that Lopezs good faith as
a mortgagee extends to her eventual purchase of the lot
during its foreclosure. Since TCT No. 130517 had no notice
of any adverse claim at the time it was mortgaged to Lopez,
then the subsequent annotation of Notice of Lis Pendens
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prior to TCT No. 130517s foreclosure should not affect her

status as a mortgagee-in-good-faith. The clean title
presented to Lopez at the time TCT No. 130517 was
mortgaged to her maintains this status at the time of its
foreclosure, and cannot be prejudiced by the subsequent
annotation of a claim to it before the lot is foreclosed.
Lastly, the CA found that the RTC erred when it did not
immediately dismiss the petitioners complaint, as their
cause of action had been barred by prescription and laches.
An action for the annulment of title to land prescribes in
ten years. The petitioners filed their complaint only on
September 20, 1995, almost fifty years after Mauricia had
been issued TCT No. 571 on July 16, 1946. Thus, the
petitioners had slept on their claimed right over Lot 557;
consequently, they are now barred by laches from seeking
redress before the courts.
The petitioners filed a motion for reconsideration
assailing the CAs decision, which motion the CA denied.
The denial opened the way for the present petition for
review on certiorari before this Court.

The present petition

In their present petition, the petitioners seek the
reversal of the CAs decision through their assertion that
they have


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Lausa vs. Quilaton

acquired ownership over Lot No. 557 by acquisitive

prescription.
The petitioners claim that the CA committed the
following errors:
First, the CA erred in upholding the validity of TCT No.
571, which is a fake and fabricated title.
Second, the CA erred in finding that Mauricia owned
and possessed Lot No. 557, as it was Alejandro who
exercised acts of exclusive ownership and possession over
the lot since it was assigned to him in 1915. The lot
Antonio assigned to Alejandro covered Lot No. 557,
although earlier tax declarations indicated the areas of the
lot to be Lot No. 357. This error was corrected in

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subsequent tax declarations by the City of Cebu Assessors

Office in 1997.
Third, the CA erred in holding that Lopez is an
innocent purchaser in good faith, as she knew that the
portion of Lot No. 557 being mortgaged to her was in the
possession of Filadelfa, and not Rodrigo. She knew of this
possession before she executed the real estate mortgage
contract over the property with Rodrigo.
Fourth, the CA erred in finding the petitioners cause of
action barred by prescription and laches, as they discovered
the existence of TCT No. 571 only in August 1995, when
Mauricia and her children instituted ejectment proceedings
against them.
In response, the respondents argue that the petitioners
have no cause of action against them because Alejandros
tax declarations cover Lot No. 357, and not Lot No. 557,
which is covered by their TCTs. They also cited the CAs
decision, and argued that the CA committed no error of law
in upholding the validity of their TCTs.
Lopez, on the other hand, asserted that her status as an
innocent purchaser or mortgagor in good faith had not been
included in the petitioners amended complaint including
her as an indispensible party, and should thus not have
been


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Lausa vs. Quilaton

considered as an issue in the case. In any case, Lopez

asserts that her title to Lot No. 557-A is valid because she
is an innocent purchaser in good faith.

Issues

The issues, having been properly joined, present to us
the following questions:
(1) Whether the CA erred in finding that the lot that the
petitioners claim to own covers Lot No. 357, and not
Lot No. 557;
(2) Whether the CA erred in finding that the
respondents, and not the petitioners, are the owners
and possessors of Lot No. 557;
(3) Whether the CA erred in finding Lopez an innocent
purchaser in good faith; and
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(4) Whether the CA erred in finding the petitioners

cause of action to have been barred by prescription
and laches.

The Courts Ruling

We find the petition meritorious.
We note at the outset that the Court is not a trier of
facts, and our jurisdiction in cases brought before us from
the appellate court is limited to the review of errors of law.
We have, however, recognized several exceptional
situations that call for a reevaluation of the CAs factual
conclusions, among them, the situation when the CAs
findings are contrary to that of the trial court, and when
the CA manifestly overlooks relevant facts not disputed by
the parties and which, if properly considered, would lead to
a different conclusion.3

_______________

3 G.R. No. 171982, August 18, 2010, 628 SCRA 404.

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Lausa vs. Quilaton

We find these circumstances in the present case,

prompting us to reexamine the records of the case and to
reverse the CAs decision after due consideration of the
records.

The CA erred in finding
that the lot that the peti-
tioners claim to own is Lot
No. 357, and not Lot No. 557

The CA, in upholding the validity of Mauricias title and
ownership over Lot No. 557, pointed out that the lot that
Alejandro claimed to own was not Lot No. 557, but Lot No.
357.
The CA based this conclusion on several tax documents
in the name of Alejandro Tugot, which indicate that the lot
covered is Lot No. 357, and not Lot No. 557.

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In so doing, the CA overlooked several key pieces of

evidence presented before the RTC, which had led the
latter to conclude that the designation of Lot No. 357 in
Alejandros tax declarations actually pertained to Lot No.
557. These pieces of evidence are as follows:
First, the testimony of Mr. Antonio Abellana of the City
of Cebu Assessors Office established that he issued a
Certification of Correction to change Alejandros tax
declarations, which initially covered Lot No. 357, to Lot No.
557.
According to Abellana, Lot No. 357 is located in a
barangay different from the address found in Alejandros
tax declaration. The base map of Cebu locates Lot No. 357
to be in Barangay Day-as, almost five meters from
Sikatuna Street, while the address in Alejandros erroneous
tax declaration indicates that Lot No. 357 is located in
Jakosalem Street.
Second, records of the Cebu City Assessors Office show
that Lot No. 357 is covered by another tax declaration with
an address corresponding to the citys base map. In this tax
declaration, Lot No. 357 is owned by a certain Antonio Yap.


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Third, the deed of donation4 of Lot No. 558, which

adjoins Lot Nos. 557 and 559, recognized Alejandro Tugot
as the owner of Lot No. 557.
We find that these pieces of evidence sufficiently explain
that the lot in Alejandro and Aureas tax declarations
actually covered Lot No. 557, and its initial designation as
Lot No. 357 was an error. The Assessors Office of Cebu
City, which had the responsibility of classifying,
appraising, and assessing real property in Cebu, had
acknowledged this designation to be erroneous, and
subsequently made rectification. This acknowledgment is
not only entitled to the presumption of regularity; it is also
corroborated by the Deed of Donation of an adjoining lot.
Additionally, we also found other pieces of evidence
supporting the conclusion of the Cebu City Assessors
Office. The tax declarations in Alejandro and
(subsequently) Aureas names indicate that they covered
the same address as the Lot No. 557 described in the Deed
of Assignment that Antonio executed in Alejandros favor in
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1915. The identity of the addresses in these two documents

show that what the petitioners intended to pay real
property tax for, was the lot covered in the Deed of
Assignment, which was Lot No. 557. Thus, the tax
declarations that placed Lot No. 357 under Alejandros
name actually pertained to the lot covered by Lot No. 557;
its designation as covered by Lot No. 357 was an error that
the Cebu City Assessors Office eventually discovered and
corrected.
In the same vein, the court-approved subdivision plan
for Lot No. 557 indicated it to be found along Jakosalem
Street, the address of the lot covered by Alejandro and
Aureas tax declarations. The plan was commissioned for
Alejandro and his children, including Romualdo (Mauricias
husband and

_______________

4 This Deed of Donation, whereby Sotero Codilla donated Lot No. 558
to Encarnacion Codilla in 1934, included Lot No. 557 as one of Lot No.
558s boundaries.

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the father of her children), in 1960. That the address of Lot

No. 557 in the subdivision plan is identical to the address
in Alejandro and Aureas tax declarations establishes that
what they actually claim to own is Lot No. 557, and not Lot
No. 357.
With this foundation established, we now resolve the
issue of who among them have the better right over Lot No.
557.

The CA erred in finding
that the petitioners failed
to prove that TCT No. 571
is a fabricated title

In upholding the validity of Mauricias TCT No. 571, the
CA held that the petitioners failed to overcome the
presumption of regularity that attended its issuance. The
CA emphasized that a copy of TCT No. 571 is currently

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with the Register of Deeds, and that the documents that

the petitioners presented do not prove their ownership over
the lot.
The CAs conclusion, however, overlooked the evidence
that the petitioners presented before the RTC to prove that
TCT No. 571 is a fabricated title. These pieces of evidence
include the TCTs issued immediately before and after TCT
No. 571; TCT No. 16534 (the TCT from which TCT No. 571
allegedly originated); and several TCTs that contain the
signature of the Acting Register of Deeds who signed TCT
No. 571. Taken together, all these pieces of evidence
sufficiently prove, by preponderance of evidence, that TCT
No. 571 is a fabricated title.
We cite with approval the RTCs factual observations
and conclusions, viz.:
First, the text of TCT No. 571 contains glaring
discrepancies with TCT No. 16534, the title indicated in
TCT No. 571 as its precursor.
TCT No. 16534 covered a different area from TCT No.
571. TCT No. 16534 covered Lot 7005-E-2, which has an
area of


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414 SUPREME COURT REPORTS ANNOTATED

Lausa vs. Quilaton

3,311 square meters, while TCT No. 571 covers Lot No. 557
with an area of 525 square meters. Too, TCT No. 16534
was issued in September 1957, or almost ten years after
the title it supposedly gave rise to was issued in 1946.
Second, TCT No. 571 contains discrepancies when
compared with TCT Nos. 570 and 572, the TCTs that were
supposedly issued before and after TCT No. 571. These
discrepancies are as follows:
(i) TCT Nos. 570 and 572 had both been issued on
February 26, 1947, almost a year after TCT No. 571
was issued on July 16, 1946. Since TCT No. 571 was
an intervening title between TCT Nos. 570 and 572,
then it should have also been issued on February 26,
1947.
(ii) TCT No. 571 used an old form, Judicial Form No.
140-D, which was revised in June 1945 by Judicial
Form No. 109. Since TCT No. 571 shows that it was
issued in 1946, then it should have used Judicial
Form No. 109. Notably, both TCT Nos. 570 and 572
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used the updated Judicial Form No. 109, as they were

issued in 1947.
(iii) TCT Nos. 570 and 572 were signed by Martina L.
Arnoco as Register of Deeds, while TCT No. 571 was
signed by Gervasio Lavilles as Acting Register of
Deeds.
(iv) There are distinct differences in Lavilles signature
as it appears in TCT No. 571, compared with his
signatures in other TCTs, such as TCT Nos. 525 and
526.

Additionally, we note that Mauricias claim that she
bought Lot No. 557 from Antonio is contradicted by the
contents of TCT No. 16534.
For a new TCT to be issued, the owners duplicate of the
seller should have been surrendered to the Registry of
Deeds, along with a copy of the TCTs Deed of Sale. Thus,
the sellers TCT would be cancelled, and the new TCT of
the buyer would indicate the sellers TCT as its TCT of
origin.


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Lausa vs. Quilaton

The text of TCT No. 571 shows that it originated from

TCT No. 16534. If indeed TCT No. 571 was issued to
Mauricia because the latter bought Lot No. 557 from
Antonio, then TCT No. 16534 should have reflected this
transaction.
However, instead of reflecting Antonios title to Lot No.
557, TCT No. 16534 shows that it pertained to a different
lot, and had been issued ten years after the issuance of
TCT No. 571 to a certain Crispina Lopez.
The original certificate of title from which TCT No. 571
and TCT No. 16534 originated are also different: TCT No.
571 originated from Original Certificate of Title (OCT) No.
251-253, while TCT No. 16534 originated from OCT No.
11375.
These discrepancies, taken together with its variations
from the other titles issued around the same time and
Mauricias failure to present proof of how she acquired the
lot from Antonio, reasonably establish that TCT No. 571 is
a fabricated title.

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We now proceed to determine whether Alejandro was

Lot No. 557s rightful owner.

The CA erred in relying on
a fabricated title as basis to
deny Alejandros claim to
acquisitive prescription

The CA, in reversing the RTCs decision recognizing
Alejandros ownership over Lot No. 571, held that Lot No.
557 could no longer be acquired through prescription
because it had already been brought under the Torrens
system, in Registry Book No. A-3.
Registry Book No. A-3 refers to the registry book where
OCT No. 251-253 is registered, as indicated in TCT No.
571. Thus, the CA concluded that Lot No. 557 has been
brought under the Torrens system because TCT No. 571 is
already covered by the system. But as TCT No. 571 is a
fabricated title, the CA erred in relying on its contents to
conclude that


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Lausa vs. Quilaton

Lot No. 557 has already been brought under the Torrens
system.

Alejandro Tugot did not ac-
quire Lot No. 557 through
acquisitive prescription

We agree with the CAs conclusion that Lot No. 557
cannot be acquired through prescription, but for a different
reason.
In the present case, the Deed of Assignment between
Antonio and Alejandro was cancelled three months after it
was executed. The Deed, executed on September 13, 1915,
was inscribed with the phrase: Cancelled December 21,
1915. See letter # 12332.
Both the trial court and the CA found this inscription to
be sufficient proof that the Deed of Assignment had been
cancelled three months after its execution. As a
consequence, the Deed of Assignment could not have vested
Antonios rights over Lot No. 557 to Alejandro.
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Thus, Lot No. 557 reverted to its original status after

the Deed of Assignment was cancelled. It remained subject
to the conditional sale5 between the government and
Antonio; under the Certificate of Sale between the Bureau
of Lands and Antonio, the government should transfer title
to Lot No. 557 to Antonio upon full payment of the lots
purchase price.
The nature of the contract of sale between Antonio and
the government is in line with Section 15 of Act No. 1120,
which provides for the administration, temporary lease,
and sale of friar lands that the government bought through
Sections 63 to 65 of An Act temporarily to provide for the
administration

_______________

5 In the sale of friar lands, upon execution of the contract to sell, a

certificate of sale is delivered to the vendee and such act is considered as a
conveyance of ownership, subject only to the resolutory condition that the
sale may be rescinded if the agreed price shall not be paid in full.

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Lausa vs. Quilaton

of the affairs of civil government in the Philippine Islands,

and for other purposes. These friar lands included the
Banilad Estate Friar Lands, from where Lot No. 557
originated.
Section 15 of Act No. 1120 that applied to Lot No. 557
provides:

Sec. 15. The Government hereby reserves the title to each

and every parcel of land sold under the provisions of this
Act until the full payment of all installments or purchase
money and interest by the purchaser has been made, and
any sale or encumbrance made by him shall be invalid as against
the Government of the Philippine Islands and shall be in all
respects subordinate to its prior claim.
xxxx

According to jurisprudence, Section 15 of Act No. 1120
reserves to the government the naked title to the friar
lands, until its beneficiaries have fully paid their purchase
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price. Since the intent of Act No. 1120 was to transfer

ownership of the friar lands to its actual occupants, the
equitable and beneficial title to the land passes to them the
moment the first installment is paid and a certificate of
sale is issued. This right is subject to the resolutory
condition that the sale may be rescinded if the agreed price
shall not be paid in full.
When the Certificate of Sale was executed, Antonio
obligated himself to pay P9.00 as the final installment to
purchase Lot No. 557. His previous lease payments to the
lot were applied as initial installments for the payment of
the lots purchase price of P15.16. Upon full payment of the
installment and its annual 4% interest, the government
was bound to transfer full ownership of Lot No. 557 to
Antonio under Section 122 of Act No. 496.
While the records of the case do not show any documents
or paper trail showing the actions of the parties to the
Certificate of Sale after the Deed of Assignment was
cancelled, we


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can, with certainty, rule out the possibility that Alejandro

acquired title to it through prescription.
Three scenarios could have happened after the Deed of
Assignment was cancelled all of which forego the
possibility of acquisitive prescription.
First, Antonio could have completed payment of the
purchase price of Lot No. 557. Upon full payment, the lot
would have then been registered in Antonios name.
The Certificate of Sale between Antonio and the
government requires registration under Section 122 of Act
No. 496, or the Land Registration Act of 1902, for the
ownership over Lot No. 557 to be transferred to Antonio.
Section 122 of Act No. 496 provides:

Section 122. Whenever public lands in the Philippine Islands

belonging to the Government of the United States or to the
Government of the Philippine Islands are alienated, granted, or
conveyed to persons or to public or private corporations, the same
shall be brought forthwith under the operation of this Act and
shall become registered lands. It shall be the duty of the official
issuing the instrument of alienation, grant, or conveyance in

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behalf of the Government to cause such instrument, before its

delivery to the grantee, to be filed with the register of deeds for
the province where the land lies and to be there registered like
other deeds and conveyances, whereupon a certificate shall be
entered as in other cases of registered land, and an owners
duplicate certificate issued to the grantee. The deed, grant, or
instrument of conveyance from the Government to the
grantee shall not take effect as a conveyance or bind the
land, but shall operate as a contract between the
Government and the grantee and as evidence of authority
to the clerk or register of deeds to make registration. The
act of registration shall be the operative act to convey and
affect the lands, and in all cases under this Act registration
shall be made in the office of the register of deeds for the

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Lausa vs. Quilaton

province where the land lies. The fees for registration shall be
paid by the grantee. After due registration and issue of the
certificate and owners duplicate such land shall be registered
land for all purposes under this Act.

Thus, the government could have registered the title to
Lot No. 557 in Antonios name only after he had paid the
purchase price in full. Had Antonio eventually completed
the payment of Lot No. 557s purchase price, it would have
been registered under the Torrens system, through Section
122 of Act No. 496.
Land registered under the Torrens system cannot be
acquired through prescription. As early as 1902, Section 46
of Act No. 496 categorically declared that lands registered
under the Torrens system cannot be acquired by
prescription, viz.:

Section 46. No title to registered land in derogation to that of

the registered owner shall be acquired by prescription or adverse
possession.

Second, Antonio could have failed to complete payment
of Lot No. 557s purchase price; thus, the naked title to Lot
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No. 557 remains with the government.

Under Act No. 1120, the Chief of the Bureau of Public
Lands is required to register title to the friar lands
acquired by the government through Act No. 496. Section 6
of Act No. 1120, in particular, provides:

SECTION 6. The title, deeds and instruments of conveyance

pertaining to the lands in each province, when executed and
delivered by said grantors to the Government and placed in the
keeping of the Chief of the Bureau of Public Lands, as above
provided, shall be by him transmitted to the register of deeds of
each province in which any part of said lands lies, for registration
in accordance with law. But before transmitting the title, deeds,
and instruments of conveyance in this section mentioned to the
register of deeds of each province for

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Lausa vs. Quilaton

registration, the Chief of the Bureau of Public Lands shall record

all such deeds and instruments at length in one or more books to
be provided by him for that purpose and retained in the Bureau of
Public Lands, when duly certified by him shall be received in all
courts of the Philippine Islands as sufficient evidence of the
contents of the instrument so recorded whenever it is not
practicable to produce the originals in court.

The law on land registration at that time was Act No.
496, which established the Torrens system in the
Philippines. As earlier pointed out, a piece of land, once
registered under the Torrens system, can no longer be the
subject of acquisitive prescription.
No certificate of title pertaining to the governments
transfer of ownership of Lot No. 557 was ever presented in
evidence. Assuming, however, that the Chief of the Bureau
of Public Lands failed to register Lot No. 557, the lot could
not have been acquired by Alejandro through prescription,
under the rule that prescription does not lie against the
government.
Third, Antonio could have sold his rights to Lot No. 557
to another person. Assuming he did, only that person could
have stepped into his shoes, and could have either
completed payment of the purchase price of Lot No. 557
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and had it registered in his name; or he could have failed to

pay the purchase price in full, in which case the naked title
to the lot remains government property.
In all three scenarios, Alejandro could not have acquired
ownership over Lot No. 557 through prescription.

Republic Act No. 9443
and the friar lands

The Court is not unaware of the enactment of Republic
Act No. 9443, which confirms the validity of titles covering
any portion of the Banilad Friar Lands with Certificates of
Sale and Assignment of Sale that do not contain the
signature of


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the then Secretary of the Interior and/or Chief of the

Bureau of Public Lands. It does not apply to TCTs that
have been fraudulently issued and registered.
Republic Act No. 9443, however, does not validate any of
the parties claims of ownership over Lot No. 557.
Mauricias title, as earlier established, is fabricated;
thus, her situation falls within the exception expressed
under Section 1 of RA No. 9443, viz.:

This confirmation and declaration of validity shall in all

respects be entitled to like effect and credit as a decree of
registration, binding the land and quieting the title thereto and
shall be conclusive upon and against all persons, including the
national government and all branches thereof; except when, in a
given case involving a certificate of title or a reconstituted
certificate of title, there is a clear evidence that such
certificate of title or reconstituted certificate of title was
obtained through fraud, in which case the solicitor general or
his duly designated representative shall institute the necessary
judicial proceeding to cancel the certificate of title or reconstituted
certificate of title as the case may be, obtained through such
fraud.

With respect to Alejandro, his claim to Lot No. 557 rests
on the Deed of Assignment executed between him and

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Antonio, which had been cancelled; hence, it cannot be

confirmed through Republic Act No. 9443.

Effects of the nullity
of TCT No. 571

After establishing that neither Mauricia nor Alejandro
has title over Lot No. 557, we now resolve the validity of
the TCTs that originated from TCT No. 571.
As a general rule, a person transmits only the rights
that he possesses. When innocent third persons, however,
purchase or acquire rights over the property relying on the
cor-


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Lausa vs. Quilaton

rectness of its certificate of title, courts cannot disregard

the rights they acquired and order the cancellation of the
certificate. As the third paragraph of Section 53 of
Presidential Decree No. 1529, otherwise known as the
Property Registration Decree, provides:

Section 53. xxx

xxxx
In all cases of registration procured by fraud, the owner may
pursue all his legal and equitable remedies against the parties to
such fraud without prejudice, however, to the rights of any
innocent holder for value of a certificate of title. After the
entry of the decree of registration on the original petition or
application, any subsequent registration procured by the
presentation of a forged duplicate certificate of title, or a forged
deed or other instrument, shall be null and void.

Thus, innocent purchasers in good faith may safely rely
on the correctness of the certificate of title issued therefor,
and neither the law nor the courts can oblige them to go
behind the certificate and investigate again the true
condition of the property. They are only charged with
notice of the liens and encumbrances on the property that
are noted on the certificate.
Jurisprudence defines innocent purchaser for value as
one who buys the property of another, without notice

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that some other person has a right or interest in such

property and pays a full price for the same, at the
time of such purchase or before he has notice of the
claims or interest of some other person in the property.
PD 1529 has expanded the definition of an innocent
purchaser for value to include an innocent lessee,
mortgagee, or other encumbrancer for value.
Neither PD 1529 nor jurisprudence, however, has
included an innocent donee to the definition, and for good
reason. An innocent purchaser for value pays for the full
price of the property, while a donee receives the property
out of the do-


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Lausa vs. Quilaton

nors liberality. Additionally, what the law does not

include, it excludes, and a donee is not included in the
expansion of the term innocent purchaser for value.
Applying these principles of law in the case at hand, we
hold that the Deed of Donation Mauricia issued in favor of
her children immediately after getting a copy of TCT No.
571 could not have transferred ownership over Lot No. 557
to her children. Since TCT No. 571 is a fabricated title, it
does not indicate ownership over Lot No. 557; thus, the
Deed of Donation involving TCT No. 571 could not have
conveyed the ownership of Lot No. 557 to Mauricias
children.
Neither could her children claim the status of an
innocent purchaser in good faith, as they received the
property through donation.
The TCTs issued to Mauricias children pursuant to the
donation should thus be cancelled, as they do not signify
ownership over Lot No. 557.
We also note several circumstances that cast doubt over
the ignorance of Mauricias children regarding the
fabricated nature of TCT No. 571, viz.: (1) the petitioners
are their close relatives, who have been residing in Lot No.
557 as early as 1928; (2) their father, Romualdo, signed and
recognized a subdivision plan of Lot No. 557 that would
divide the lot among all of Alejandros heirs, including the
petitioners; (3) their mother executed the deed of donation
as soon as she acquired a copy of TCT No. 571; (4) their
mothers nonpayment of taxes due Lot No. 557 since 1946;
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and (5) the payment of real property taxes only to facilitate

the subdivision of Lot No. 557 among them.

Lopez is not an innocent pur-
chaser for value of Lot 557-A

We now determine Lopezs claim that she is an innocent
purchaser for value of Lot No. 557-A, and should thus be
allowed to keep her title over it.


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Lausa vs. Quilaton

The CA, in affirming Lopezs title over Lot No. 557-A,

held that she was an innocent mortgagee for value.
According to the CA, TCT No. 130517 had no
encumbrances and liens at the time it was mortgaged to
Lopez, and this status extended to the time that TCT No.
130517 was foreclosed to answer for Rodrigos loan.
We cannot agree with the CAs conclusion.
As a general rule, a person dealing with registered land
has a right to rely on the Torrens certificate of title and to
dispense with the need of further inquiring over the status
of the lot.
Jurisprudence has established exceptions to the
protection granted to an innocent purchaser for value, such
as when the purchaser has actual knowledge of facts and
circumstances that would compel a reasonably cautious
man to inquire into the status of the lot; or of a defect or
the lack of title in his vendor; or of sufficient facts to induce
a reasonably prudent man to inquire into the status of the
title of the property in litigation.
The presence of anything that excites or arouses
suspicion should then prompt the vendee to look beyond
the certificate and investigate the title of the vendor
appearing on the face of the certificate. One who falls
within the exception can neither be denominated as
innocent purchaser for value nor a purchaser in good faith,
and hence does not merit the protection of the law.
In particular, the Court has consistently held that that a
buyer of a piece of land that is in the actual possession of
persons other than the seller must be wary and should
investigate the rights of those in possession. Without such

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inquiry, the buyer can hardly be regarded as a buyer in

good faith.
We find that Lopez knew of circumstances that should
have prodded her to further investigate the Lot No. 557-As
status before she executed a mortgage contract over it with
Rodrigo.


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In the pretrial brief she submitted before the trial court,

Lopez made the following admissions:

xxx Only after these checking did an actual inspection of the

properties took (sic) place, but on this occasion, unfortunately,
none of the plaintiffs, especially plaintiff Filadelfa T. Lausa, who
is found lately to be residing nearby, furnished her the
information of the present claims.

She likewise made the same admission in an affidavit,
viz.:

6. The properties which were mortgaged were checked and no

one at that time, even plaintiff Filadelfa T. Lausa who is just
residing nearby, disputed that the absolute owners thereof were
the spouses Rodrigo and Ligaya Tugot.

While these admissions pertain to the petitioners act of
not telling Lopez of the status of Lot No. 557-A, it implies
that she had inspected the property, and accordingly found
that Rodrigo did not reside in Lot No. 557-A.
Records of the case show that Filadelfa resided in Lot
No. 557-A at the time Lopez executed the real estate
mortgage with Rodrigo. In August 1995, Rodrigo and his
siblings filed an ejectment case against the petitioners
Filadelfa Lausa and Anacleto Caduhay Filadelfa resides
in Lot No. 557-A while Anacletos in Lot 557-B. Notably,
this ejectment case was filed five months after Lopez had
entered into the real estate mortgage contract. Thus, at the
time Lopez inspected Lot No. 557, she would have found
Filadelfa residing in it, and not Rodrigo.
That Filadelfa and not Rodrigo resided in Lot No.
557-A should have prompted Lopez to make further
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inquiries over its status. Further inquiries with the lot

owners of surrounding property could have informed her of
its actual status. Instead, she contented herself with
checking the copy of the title to Lot No. 557-A against the
copy in the Registry of


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426 SUPREME COURT REPORTS ANNOTATED

Lausa vs. Quilaton

Deeds of Cebu, which she had done prior to the actual

inspection of Lot No. 557-A. The law cannot protect Lopezs
rights to Lot 557-A given her complacency.
Further, the status of an innocent-purchaser for value or
innocent mortgagor for value is established by the person
claiming it, an onus probandi that Lopez failed to meet.
In her memorandum, Lopez urged the Court to
acknowledge her rights over Lot No. 557-A, arguing that
the declaration of her status as an innocent-purchaser and
innocent mortgagor is a nonissue because it was never
pleaded in her corespondents amended complaint. She also
pointed out that a valid title can emerge from a fabricated
title, and essentially invoked the innocent purchaser for
value doctrine.
The amended complaint alleges that Lopezs status as
current owner of Lot 557-A prejudices the rights of the
petitioners, who are its true owners. The circumstances
regarding how Lopez acquired ownership over Lot No. 557-
A had also been pleaded therein.
Verily, the amended complaint does not need to allege
Lopezs status as an innocent purchaser or mortgagor in
good faith precisely because it was incumbent upon her to
allege and prove this to defend her title to Lot No. 557-A. It
merely needed to allege a cause of action against Lopez,
(which it did by alleging the circumstances surrounding
Lopezs ownership of Lot No. 557-A) and that it prejudices
the petitioners rights as its true owners.
Further, Lopez chose to ignore in her Memorandum the
petitioners contention that she knew that Filadelfa Lausa,
and not Rodrigo, resided in Lot No. 557-A. To reiterate,
Lopez has the burden of proving her status as an innocent
purchaser for value in order to invoke its application.
Failing in this, she cannot avail of the protection the law
grants to innocent purchasers for value.

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The CA erred in finding that the

petitioners claim of ownership
over Lot No. 557 had been barred
by prescription and laches

The outcome of the present case dispenses with the need
for a discussion regarding extinctive prescription and
laches.
We note, however, that the CA erred in applying the
principle of prescription and laches to the petitioners cause
of action involving Lot No. 557.
An action for annulment of title or reconveyance based
on fraud is imprescriptible where the plaintiff is in
possession of the property subject of the fraudulent acts.
One who is in actual possession of a piece of land on a claim
of ownership thereof may wait until his possession is
disturbed or his title is attacked before taking steps to
vindicate his right.
The records of the case show that the petitioners resided
in the property at the time they learned about TCT No.
571. Being in possession of Lot No. 557, their claim for
annulment of title had not expired. Their ownership of Lot
No. 571, however, is a different matter.

Effects of the Courts Decision

Our decision in the present case does not settle the
ownership of Lot No. 557. To recapitulate, our examination
of the records and the evidence presented by the petitioners
and the respondents lead us to conclude that neither of
them own Lot No. 557.
Despite the intent of Act No. 1120 and Republic Act No.
9443 to transfer ownership of the Banilad Friar Estate
Lands to its occupants, we cannot settle the ownership of
Lot No. 557 in the present case.
Indeed, the petitioners and the respondents are the
actual occupants of Lot No. 557, and they and their
families (with

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the exception of Rosita Lopez) have resided in the lot since

1915.
However, as we have discussed above, neither party had
been able to establish their right of ownership, much less
possession, of Lot No. 557. The petitioners anchor their
claim on acquisitive prescription, which does not lie against
registered land or the government. The respondents, on the
other hand, presented spurious TCTs. Thus, no amount of
liberal interpretation of Act No. 1120 or Republic Act No.
9443 could give either party the right over the lot.
Neither can we ignore the evidence showing that none of
them could rightfully own Lot No. 557. The petitioners
cancelled deed of assignment and tax declarations cannot
establish their ownership over Lot No. 557; especially since
the operation of pertinent laws prevented the possibility of
acquisitive prescription. The respondents TCT No. 571, on
the other hand, had several discrepancies indicating that it
was a fake.
The exercise of the Courts judicial power settles actual
controversies between parties, through which the Court
establishes their legally enforceable and demandable
rights. We determine the parties rights based on the
application of the law to the facts established through the
pieces of evidence submitted by the parties. The application
of the law on the facts of the present case establishes that
neither party has a legally enforceable right over Lot No.
557.
Given this situation, we direct that the records of the
case be transmitted to the Land Management Bureau6 for
further investigation and appropriate action over Lot No.
557 of the Banilad Friar Estate Lands.
Additionally, we direct that a copy of the records of the
case be transmitted to the Ombudsman, for further
investigation

_______________

6 The Land Management Bureau is the government agency

responsible for administering, surveying, managing, and disposing
alienable and disposable lands of the government.

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regarding how the fake TCTs covering Lot No. 557 ended
up in the Registry of Deeds of Cebu City, and for the
criminal and administrative investigation of government
officials liable for them.
WHEREFORE, premises considered, the instant
Petition for Review on Certiorari is PARTIALLY
GRANTED. The Court of Appeals Decision in C.A.-G.R.
CV No. 63248 is MODIFIED, and the following titles are
declared null and void: (1) TCT No. 571 issued to Mauricia
Quilaton; (2) TCT No. 130517 issued to Rodrigo Tugot; (3)
TCT No. 130518 issued to Purificacion Codilla; (4) TCT No.
130519 issued to Teofra Sadaya; (5) TCT No. 130520 issued
to Estrellita Galeos; (6) TCT No. 130521 issued to Rodrigo
Tugot; and (7) TCT No. 143511 issued to Rosita Lopez.
The claim of the petitioners Filadelfa T. Lausa, Loreta
T. Torres, Primitivo Tugot and Anacleto T. Caduhay for
recognition of their ownership over Lot No. 557 is
DENIED.
We DIRECT that a copy of the records of the case be
transmitted to the Land Management Bureau and the
Ombudsman for further investigation and appropriate
action.
SO ORDERED.

Carpio (Chairperson), Del Castillo, Mendoza and

Leonen, JJ., concur.

Petition partially granted, judgment modified.

Notes.Acquisitive prescription is a mode of acquiring

ownership by a possessor through the requisite lapse of
time; Mere possession with a juridical title, such as by a
usufructuary, a trustee, a lessee, an agent or a pledgee, not
being in the concept owner cannot ripen into ownership by
acquisitive prescription unless the juridical relation is first
expressly repudiated and such repudiation has been
communicated to the other party. (Esguerra vs. Manantan,
516 SCRA 561 [2007])

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An aggrieved party may file an action for reconveyance

based on implied or constructive trust, which prescribes in
ten years from the date of the issuance of the certificate of
title over the property provided that the property has not
been acquired by an innocent purchaser for value.
(Khemani vs. Heirs of Anastacio Trinidad, 540 SCRA 83
[2007])


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