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RUBY RUTH S. SERRANO MAHILUM v. SPS. EDILBERTO ILANO

FACTS:

Petitioner entrusted the owner's duplicate copy of Transfer Certificate of Title No. 85533 to a real estate broker, who claimed that she can help petitioner obtain a loan using the title as collateral. However, the broker admitted that the title was lost. Petitioner executed an Affidavit of Loss and caused it to be annotated on the title. She later received a letter from the Registry of Deeds informing her that the title was presented by respondents, who claimed that they bought the property covered by the title. Respondents showed petitioner an Agreement with right of repurchase and an unnotarized Deed of Absolute Sale, both containing petitioner's purported signatures. Petitioner denied executing these documents and claimed that her signatures were forged. She filed a complaint for annulment of agreement and deed of absolute sale against respondents. The trial court denied the respondents' demurrer to dismiss, but the Court of Appeals granted their petition for certiorari and dismissed the complaint for lack of cause of action. The Supreme Court affirmed the CA decision, ruling that the complaint failed to allege that the respondents were purchasers in bad faith or had notice of a defect in the title.

ISSUES:

  1. Whether the Court of Appeals (CA) erred in granting demurrer to the complaint without considering that title to the property remained in petitioner's name.

  2. Whether the issue of good or bad faith is relevant in this case where no new title was issued in respondents' favor.

  3. Whether the Torrens system can be used to protect a fraudulent transaction;

  4. Whether the respondents are purchasers in good faith.

  5. Whether or not respondents are purchasers in bad faith

  6. Whether or not the denial of respondents was a negative pregnant

RULING:

  1. The Court grants the Petition and reverses the decision of the CA. The CA erred in granting demurrer without considering that the title to the property remained in petitioner's name. Since no new title was issued in respondents' favor, the issue of their good or bad faith is irrelevant. The CA's pronouncements on the failure to state a cause of action also do not apply as petitioner's case is for annulment of the Agreement and Deed of Absolute Sale, not for annulment of title.

  2. The Torrens system cannot be used to protect a fraudulent transaction. The system merely confirms ownership and does not create it. It cannot be used to divest lawful owners of their title for the purpose of transferring it to another who has not acquired it by any of the modes allowed by law. The defense of indefeasibility of a Torrens title does not extend to a transferee who takes it with notice of a flaw in the title of the transferor.

  3. The respondents are not purchasers in good faith. Their failure to register the unnotarized and undated deed of absolute sale, as well as their subsequent actions of annotating an "affidavit of non-loss" instead of registering their supposed sale, casts serious doubt on their claim of good faith. A true vendee would not delay the registration of the sale, and the nonchalance of the respondents demonstrates their lack of involvement in the purported sale.

  4. Yes, respondents are purchasers in bad faith. The Court held that respondents admitted in their pleadings that they bought the property from their "co-defendants who had a defective title." The ambiguous allegations in respondents' pleadings constituted a negative pregnant, which is considered an admission. The denial of respondents had the earmark of a negative pregnant, denying only the qualification or modification but admitting the fact itself.

  5. Yes, the denial of respondents was a negative pregnant. The Court stated that if an allegation is not specifically denied or the denial is a negative pregnant, the allegation is deemed admitted. A denial in the form of a negative pregnant is an ambiguous pleading since it cannot be ascertained whether it is the fact or only the qualification that is intended to be denied.

PRINCIPLES:

  • The Torrens system of land registration serves to quiet title to land and puts a stop forever to any question as to the legality of the title. A certificate of title serves as evidence of an indefeasible and incontrovertible title to the property.

  • A person dealing with registered land may safely rely on the correctness of the certificate of title issued therefor, and the law will not oblige him to go beyond the certificate to determine the condition of the property.

  • An innocent purchaser for value protected by the Torrens system is one who purchases a titled land by virtue of a deed executed by the registered owner himself, not by a forged deed. If the instrument presented is forged, even if accompanied by the owner's duplicate certificate of title, the registered owner does not lose his title, and neither does the assignee in the forged deed acquire any right or title to the property.

  • The Torrens system confirms ownership and does not create it.

  • The Torrens system cannot be used to protect a fraudulent transaction or to shield the commission of fraud.

  • The defense of indefeasibility of a Torrens title does not extend to a transferee who takes it with notice of a flaw in the title of the transferor.

  • The failure to register a sale and the lack of diligence in protecting one's rights cast doubt on the claim of good faith of the purchaser.

  • Bad faith cannot be presumed, it must be established by clear evidence.

  • A negative pregnant is a form of negative expression that carries with it an affirmation or implication favorable to the adverse party.

  • If an allegation is not specifically denied or the denial is a negative pregnant, the allegation is deemed admitted.