Development Bank of the Philippines v. Cajes
REITERATIONFacts
The Antecedents: The disputed 19.4 hectares in San Miguel, Bohol, was owned by Ulpiano Mumar since 1917 per Tax Declaration No. 3840; in 1950, Mumar sold it to Carlos Cajes (private respondent), who received Tax Declaration No. R-1475, later updated to R-799 (1961) and D-2247 (1974), and continuously occupied/cultivated it (cassava, camote) openly and peacefully. Unknown to Cajes, in 1969 Jose Alvarez fraudulently or erroneously registered 1,512,468 sqm including Cajes' portion, obtaining OCT No. 546 without possession or improvements. In 1972, Alvarez sold to spouses Gaudencio and Rosario Beduya (TCT 10101), who mortgaged it to DBP for P526,000; in 1978, additional mortgage by SAAD entities/Beduyas for P1,430,000. Meanwhile, Cajes applied for DBP loan in 1978 offering his 19.4ha (D-2247); DBP's Patton Olano inspected/appraised, approved/released loan, but later discovered overlap with TCT 10101, cancelled loan, demanded repayment (complied March 18, 1981, mortgage cancelled). Beduyas defaulted; DBP foreclosed (Jan 31, 1985 sale, highest bidder), consolidated ownership post-redemption period. In April 1986 re-appraisal, DBP discovered Cajes' occupation, demanded vacate; refused. Procedural History: DBP filed recovery of possession/damages (RTC Branch 1, Tagbilaran, 1986); RTC ruled for DBP (Aug 22, 1989), declaring DBP owner via TCT 10101 binding decree, ordering ejectment/cease-desist. CA reversed (Aug 30, 1996), declared Cajes owner of 19.4ha, ordered segregation/reconveyance; MR denied (Apr 23, 1997). The Petition: DBP certiorari: (I) CA erred vs. Secs. 38/46 Act 496/Benin v. Tuason (decree binds, prescription cut off); (II) Overlooked DBP innocent mortgagee/purchaser at 1985 foreclosure; (III) Illogical estoppel from 1978 loan/mortgage on Cajes' land.
Issue(s)
Whether a Torrens decree vests ownership despite prior 30+ years adverse possession by another, cutting off prescription per Benin v. Tuason. Whether DBP is an innocent mortgagee/purchaser for value entitled to indefeasibility vs. reconveyance. Whether DBP is estopped from denying Cajes' title due to 1978 loan approval.
Ruling
The decision of the Court of Appeals is AFFIRMED in toto, declaring Carlos Cajes owner of 19.4ha erroneously included in TCT 10101, ordering segregation and reconveyance to him; DBP not innocent purchaser, prescription ripened pre-registration.
Ratio Decidendi
On Issue 1 (Torrens Decree vs. Prescription): Registration confirms, not creates, title (City of Manila v. Lack, 19 Phil 324; Angeles v. Samia, 66 Phil 444; Reyes v. CA, GR 127608, Sep 30, 1999); erroneous inclusion of possessed land does not vest ownership in non-possessor registrant (Avila v. Tapucar, 201 SCRA 148). Distinguished Benin v. Tuason (57 SCRA 531): There, vast subdivided lands sold to innocents post-1914 OCT, prior tax decs in Tuason's name, laches (41 yrs); here, Cajes' continuous possession from 1950 (tacked to Mumar's 1917, 30 yrs extraordinary prescription, Art. 1137 CC) pre-1969 OCT, corroborated by tax decs R-1475/R-799/D-2247, witness Cambangay, cultivation—strong ownership indicia (Republic v. CA, 328 Phil 238). Sec. 39 Act 496 cuts off liens/encumbrances, not fee ownership via prescription (Cid v. Javier, 108 Phil 850; Purugganan v. Paredes, 161 Phil 91); Alvarez/Beduyas never possessed, Beduya knew occupation but no ejectment—registration indefeasible only for good faith holders, not fraud/oversight vs. prior owner. Remedy: Reconveyance via equity, no title cancellation (Vital v. Amore, 90 Phil 955; Bustarga v. Novo, 129 SCRA 125; Linaza v. IAC, 182 SCRA 855). On Issue 2 (Innocent Mortgagee/Purchaser): Not innocent: Banks exercise heightened diligence (Cavite Devt Bank v. Lim, GR 131169, Feb 1, 2000; Tomas v. Tomas, 98 SCRA 280); 1972 mortgage sans possession check; 1978 Cajes loan inspection (Olano) revealed overlap, cancelled; Beduya admitted Cajes' occupation; 1979 investigation confirmed; 1986 re-appraisal post-foreclosure. Visible possession inquiry notice (Sec. 38 Act 496 protects only innocents; Art. 2085 CC); 'cannot close eyes to facts putting reasonable man on guard' (Lucena v. CA, GR L-77468, Aug 25, 1999; Santiago v. CA, 247 SCRA 336)—gross negligence = bad faith (Rural Bank of Sariaya v. Yacon, 175 SCRA 62). Reconveyance prescribes in 10 yrs from decree only if not possessing (Vda. de Cabrera v. CA, 335 SCRA 19; Heirs of Olviga v. CA, 227 SCRA 330)—Cajes possesses, counterclaim quiets title (A. Francisco Realty v. CA, 298 SCRA 349; Mendoza v. CA, 158 SCRA 508), direct attack. On Issue 3 (Estoppel): No estoppel (Ibaan Rural Bank v. CA, GR 123817, Dec 17, 1999): Prompt loan cancellation/demand upon overlap discovery; Cajes' docs (tax decs, CFI cert no cases) bona fide, no misrepresentation—does not imply acquiescence to title validity.
Main Doctrine
Registration under the Torrens system confirms but does not create title; thus, a decree cannot extinguish pre-existing ownership acquired through extraordinary acquisitive prescription (30 years uninterrupted adverse possession without just title). Where land is erroneously included in a registrant's OCT due to oversight, the actual owner-possessor since prior to registration retains title, and reconveyance is the equitable remedy without canceling the title outright. Banks, as mortgagees/purchasers, are not innocent for value if they fail to investigate visible adverse possession, especially with prior knowledge (e.g., loan processing inspections revealing overlaps), as they must exercise heightened diligence given public interest in banking. Actions for reconveyance based on constructive trust do not prescribe against possessors, allowing quieting of title via counterclaim even in ejectment/recovery suits. Estoppel does not arise from approving a loan on tax-declared land later found overlapping a TCT if the lender promptly cancels upon discovery, but this does not override prescription-based ownership.