Mr. A retires at 65, after working for 40 years. He enjoys the fruits of his retirement and goes on a very long trip abroad with his wife. While frolicking on the beaches of the Caribbean, Mr. B fraudulently causes the cancellation of Mr. A’s title to his land, and transfers it to himself. He then mortgages the property to Ms. X, who is totally unaware of what Mr. B did. Since the land is not his anyway, he intentionally defaults on the payment and allows Ms. X to foreclose on the mortgage. Ms. X subsequently sells the property to Ms. Z, after examining Ms. X’s title and sees it clean.
Obviously, Mr. A being abroad is oblivious to all these goings on. Little did he know his property was already owned by Ms. Z, who also was not party to what Mr. B did. To cut the story short, time came when Ms. Z came to claim her property. To her surprise, Mr. A, who had long come back from his relaxing vacation, was dumbfounded why Ms. Z was asserting ownership over his property. No one budged, of course, both standing their ground as the rightful owner of the same property. This led Mr. A to go to court to claim the property as his. Will he be able to get it back from Ms. Z, under the circumstances?
No. Believe it or not, he will not be able to. This is so because Ms. Z is considered an innocent purchaser for value. This is even if Mr. B, the person who caused all this, was in bad faith and supposedly should not have been able to pass the title to Ms. X, his mortgagee.
If Mr. A can no longer get his property back, what then is his remedy?
To shed light on the matter, let us refer to Stilianopoulos vs Register of Deeds of Legazpi City et al., GR 224678 promulgated on 3 July 2018.
On the issue why Ms. Z retains the land, “every person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property. When a certificate of title is clean and free from any encumbrance, potential purchasers have every right to rely on such certificate.
Individuals who rely on a clean certificate of title in making the decision to purchase the real property are often referred to as ‘innocent purchaser for value’ and ‘in good faith.’ ‘Where innocent third persons relying on the correctness of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the total cancellation of the certificate. The effect of such an outright cancellation would be to impair public confidence in the certificate of title….”
As to Mr. A’s remedy, “(a) person who, without negligence on his part, sustains loss or damage, or is deprived of land or any estate or interest therein in consequence of the bringing of the land under the operation of the Torrens system or arising after the original registration of land, through fraud or in consequence of any error, omission, mistake, misdescription in any certificate of title or in any entry or memorandum in the registration book, and who by the provisions of this Decree is barred or otherwise precluded under the provision of any law from bringing an action for the recovery of such land or the estate or interest therein, may bring an action in any court of competent jurisdiction for the recovery of damages to be paid out of the Assurance Fund.…”
“It should be clarified that loss, damage or deprivation of land or any estate or interest therein through fraudulent registration alone is not a valid ground to recover damages against the Assurance Fund…
Instead, the loss, damage or deprivation becomes compensable under the Assurance Fund when the property has been further registered in the name of an innocent purchaser for value. This is because in this instance, the loss, damage, or deprivation is not actually caused by any breach of trust but rather, by the operation of the Torrens system of registration which renders indefeasible the title of the innocent purchaser for value. To note, it has been held that a mortgagee in good faith… stands as an innocent mortgagee for value with the rights of an innocent purchaser for value.”
So, to clarify, if Mr. B did not mortgage the property Ms. X and Mr. A timely found out about the fraudulent transfer, then Mr. A can claim the property back from Mr. B, plus a whole lot of damages. Add to that the criminal case he can make Mr. B liable for. But since Mr. B eventually mortgaged the land to someone who is not aware of his wrongdoing, the transaction becomes an innocent one with Ms. X being in good faith. And when Ms. X, after having rightful title over the land, sold it to Ms. Z, who also had no knowledge of what Mr. B did, Ms. Z acquired lawful title over the land. Such an ownership she could assert even against Mr. A.
The takeaway. Do not go on vacation. (Kidding.)