In the recent en banc case of Plana v. Tan Chua,1 the Supreme Court had the occasion to tackle the application of the mirror doctrine regarding registered land. Under that doctrine as codified in Section 44 of the Property Registration Decree, a purchaser of registered land taking a certificate of title for value and in good faith (i.e., an innocent purchaser for value) shall hold the same free from all encumbrances except those noted in the certificate of title. The doctrine provides that a person dealing with registered land is not obligated to look beyond the four corners of the certificate of title. This is a salutary rule which furthers the public policy of instilling trust and confidence in the Torrens system of land registration and encouraging real estate transactions. Under Section 32 of the Property Registration Decree, the term “innocent purchaser for value” is deemed to include an innocent mortgagee for value.
Plana involved a landowner whose certificate of title was fraudulently cancelled and a new one issued in the name of the defrauder who then encumbered the land to an innocent mortgagee for value. The certificate of title issued in the name of the defrauder was subsequently nullified and the landowner’s certificate of title reinstated. The Court was faced with the issue of determining who between the defrauded owner or the innocent mortgagee for value had the better right, that is, whether the mortgage should be cancelled or whether it should be annotated on the owner’s reinstated certificate of title.
Void Root Doctrine
The mirror doctrine is not a 100% guarantee that an innocent purchaser or mortgagee for value will acquire a valid title. The rule is that an innocent purchaser or mortgagee for value will not obtain a valid title if the certificate of title upon which he relies upon is void. Otherwise put, a void title cannot be the root of a valid title. This rule is anchored on the axiom that a void transaction or proceeding produces no legal effect.
Thus, an innocent purchaser for value will acquire no rights from a certificate of title issued over inalienable land of the public domain.2 A registration procured by the presentation of a forged duplicate certificate of title, or a forged deed or other instrument, shall be null and void.3 A forged deed is an absolute nullity and conveys no title.4
Chain of Title Doctrine 1.0
Jurisprudence however has laid down an exception to the void root doctrine: a void title may be the root of a valid title in the hands of an innocent purchaser for value if the true owner was negligent or had committed an act which enabled a forger or defrauder to procure a new certificate of title in his name and upon which the innocent purchaser for value had relied upon. This is known as the “chain of title” doctrine5 and is anchored on the maxim that as between two innocent persons who are the victims of fraud, the one who made the fraud possible must bear the loss.6 Another way of putting it is “that when one of two persons must suffer by the wrongful act of a third person, the loss falls on him who put it into the power of that third person to perpetuate the wrong.”7
The chain of title doctrine complements the mirror doctrine: a person dealing with registered land has a right to rely on the certificate of title and should not be burdened with the duty of investigating whether fraud attended the issuance of the certificate. The doctrine also finds textual support in Section 53 of the Property Registration Decree which provides that “[i]n 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 purchaser for value of a certificate of title.”8
In a case, the owner entrusted a certificate of title over his land to his niece who forged the owner’s signature in a deed of donation to herself. The niece was thus able to obtain a certificate of title in her name. She then sold the land to an innocent purchaser for value who relied on the niece’s apparently valid title. The Supreme Court held that the innocent purchaser for value’s rights must be respected and protected notwithstanding the fact that the seller employed fraud in securing a void title.9 The loss or fraud was made possible by the true owner’s act of confidence in entrusting the certificate of title to his niece.
On the other hand, if the true owner was not negligent or did not commit an act which brought about the issuance of a certificate of title in the name of the forger or defrauder, then the void root doctrine applies and the true owner’s rights would prevail over that of an innocent purchaser for value. This is illustrated by the cases of Bautista v. Jalandoni10 and Baltazar v. Court of Appeals.11
In Bautista, the certificates of title in the name of the spouses Jalandoni were fraudulently cancelled and new certificates of title issued in the name of the spouses Bautista who then mortgaged these to Manila Credit Corporation. The Jalandonis were surprised since the owner’s duplicate certificates of title were in their possession all the time. The Court held that the Spouses Jalandoni had not been negligent in any manner and indeed had not performed any act which gave rise to any claim by a third person; hence, the void certificates of title in the names of the spouses Bautista could not be the root of a valid mortgage.
In Baltazar, X filed an action for the annulment of the transfer certificate of title in the name of O Corporation. Service of summons was effected by publication, although X could have easily caused service of summons on O Corporation through its officers by locating the address of O Corporation from its SEC articles of incorporation. O Corporation did not know that a case had been filed against it. The trial court rendered judgment annulling the certificate of title of O Corporation and issuing a new certificate of title in the name of X. X then sold the land to Y who relied upon the title in the name of X. The title of X was cancelled and a new title issued in the name of Y. Later, O Corporation discovered that its certificate of title was cancelled and a new one issued in the name of Y. O Corporation forthwith filed the action for recovery of land and the nullification of Y’s title.
The Supreme Court held that O Corporation may recover the land from Y even though Y was an innocent purchaser for value. The title issued in the name of X arose from a void proceeding since there was no proper service of summons upon O Corporation. Hence, Y likewise acquired no title over the land of O Corporation. The chain of title doctrine will not apply since there was no negligence or act of confidence on the part of O corporation. O Corporation did not part with possession of its title nor did it deliver or entrust the title to another person and it immediately filed the action to recover the property upon learning of the cancellation of its title.
It should be noted that under the chain of title doctrine, what is taken into consideration are the acts or omissions of the true owner which brought about or made possible the fraud. In other words, these are pre-fraud acts. Assuming the presence of pre-fraud acts, acts which were done by the true owner after the fraud or post-fraud acts are not relevant insofar as the chain of title doctrine is concerned. Whatever acts or measures the true owner did or took after the fraud would no longer negate the application of the chain of title doctrine if the land had already been acquired by or mortgaged to an innocent purchaser or mortgagee for value.
To illustrate: True owner O entrusts his duplicate certificate of title to X. X forges O’s signature in a deed of sale to X and obtains a certificate of title in X’s name. X then sells the land to Y, an innocent purchaser for value who relied on X’s void but apparently valid certificate of title. The chain of title doctrine would come into play, and O can no longer recover the land from Y. O’s act of confidence in entrusting the duplicate certificate of title to X made the fraud possible. Even assuming that O immediately files an action for recovery of the land after learning of the fraud and annotates a notice of lis pendens, such post-fraud acts would no longer allow him to recover the land from Y.
Court en banc revisits the chain of title doctrine in Plana
In Plana, the Court en banc revisited the chain of title doctrine. As may be gleaned from the separate opinions, the chain of title doctrine came under heavy fire during the deliberations. Some Justices believed that the chain of title doctrine should be re-examined and circumscribed and that preference should be given to the rights of a true owner who had been defrauded over that of an innocent purchaser or mortgagee for value.12 While the Supreme Court upheld the continuing vitality of the chain of title doctrine, the doctrine which emerged after Plana is unrecognizable from the one which came before it.
Facts of Plana v. Tan Chua
1. Merlinda and her husband Nelson Plana owned five lots covered by transfer certificates of titles (TCTs) registered in the name of Nelson Plana married to Merlinda Relano. The fifth lot (Lot 10031) was covered by TCT No. 57961. Nelson died in 1971.
2. In 1975, Merlinda got married to Ramon Chiang. Ramon fraudulently made Merlinda sign a deed of sale in 1975 purportedly selling the five lots to Ramon. Thus, the certificates of title over the five lots were cancelled and new TCTs were issued over the lots in the name of “Ramon Chiang, single,” including TCT No. 86916 covering the 5th lot (Lot 10031). In 1979, Merlinda and Ramon separated.
3. In 1980, Merlinda sued Ramon for recovery of the four lots (not including the 5th lot) which Ramon had sold to Serafin Modina. In 1999, the Supreme Court declared the 1975 deed of sale as void for being bereft of consideration and nullified the sale by Merlinda to Ramon of the four lots. Consequently, the Court also nullified the sale by Ramon of the four lots to Modina.13
4. In 1996, Ramon mortgaged the 5th lot (Lot 10031), which was still registered in his name alone, to Lourdes Tan Chua to secure the payment of a ₱130,000 loan. The mortgage was registered and annotated on TCT No. 86916.
5. In 2000, Merlinda filed with the RTC an action for reconveyance of the 5th lot against Ramon and Lourdes. Following Modina, the RTC nullified the sale to Ramon. The RTC also nullified the mortgage in favor of Lourdes and ordered the cancellation of TCT No. 86916 and the reinstatement of TCT No. 57961 in the name of Nelson married to Merlinda, sans the mortgage annotation in favor of Lourdes.14
6. Lourdes appealed to the Court of Appeals (CA). The CA affirmed the nullification of the sale to Ramon but upheld the validity of the mortgage, stating that Lourdes was a mortgagee in good faith. The CA thus ordered the annotation of the mortgage on TCT No. 57961.
7. Merlinda appealed to the Supreme Court, arguing that Lourdes was not a mortgagee in good faith, and hence the annotation of the mortgage on the certificate of title should be cancelled.
8. In her petition with the Supreme Court, Merlinda disclosed that Ramon had in 1998 filed against Lourdes a complaint with the RTC for accounting and damages and that a partial compromise agreement was later entered into between Ramon and Lourdes which indicated that Ramon’s obligation had been substantially if not fully paid.
Ruling of the Supreme Court
The Supreme Court affirmed the finding of the CA that Lourdes was a mortgagee in good faith because she had a right to rely upon the certificate of title which was in the name of Ramon alone. The Court stated that Lourdes was under no obligation to look beyond the certificate of title pursuant to the mirror doctrine.
Mortgage in favor of Lourdes should be cancelled
Nevertheless, the Court, despite finding that Lourdes was an innocent mortgagee for value, ruled that the mortgage in her favor should be cancelled. The Court held that the void certificate of title in the name of Ramon could not be the root of a valid mortgage. The Court found that “insofar as the issuance of TCT No. T-86916 is concerned, Merlinda was not shown to have … directly or indirectly caused it through her fault or negligence.”
Chain of Title Doctrine 2.0, critical analysis of Plana ruling
In Plana, the Court upheld the continuing vitality of the chain of title doctrine which it quoted as follows:
“[W]here the true owner has not been found negligent or has not committed an act which could have brought about the issuance of another title relied upon by the purchaser or mortgagee for value, then the true innocent owner … has a better right over the mortgagee in good faith.”15
With its invocation of the doctrine, the Court appeared to be leaning towards a decision in favor of Lourdes. The Court, however, found that Merlinda was not negligent or had not committed an act which could have brought about the issuance of TCT No. 86916. The Court thus applied the void root doctrine and cancelled Lourdes’s mortgage annotation since Ramon’s void title cannot be the root of a valid mortgage.
“Here, insofar as the issuance of TCT No. T-86916 is concerned, Merlinda was not shown to have … directly or indirectly caused it through her fault or negligence. Nor was it shown that, in one way or another, she led Lourdes, a mortgagee in good faith, to believe in, let alone, rely on the said title. It did not matter that Merlinda had by then been eased out, or erased, as the lot’s registered owner due to the fraud perpetrated on her by Ramon.”16
Plana appears to have deviated from previous jurisprudence in the way it applied the chain of title doctrine. It should be noted that the loss or fraud was occasioned by the act of the true owner Merlinda of signing and executing a deed of sale in favor of her husband Ramon who was thus able to procure a certificate of title in his name alone. One may very well infer that Merlinda delivered the duplicate certificate of title (TCT No. 57691) to Ramon or at the least acquiesced to his possession of the same. Ramon could not have transferred the title to his name unless he was in possession of the duplicate certificate of title.17 It cannot be gainsaid that Merlinda “put it into the power of Ramon to perpetuate a wrong.”
Applying the chain of title doctrine, the rights of Lourdes as an innocent mortgagee for value should have been respected and protected by annotating the mortgage on the reinstated certificate of title. If a true owner whose signature in a deed of sale was forged may lose his rights under the chain of title doctrine, with more reason should the same result apply to a true owner who had signed a deed of sale in favor of the defrauder. Plana in effect discounted or disregarded Merlinda’s pre-fraud acts in applying the chain of title doctrine. Discounting or disregarding the owner’s pre-fraud acts is a substantial recalibration of the chain of title theory.
It is submitted that Bautista and Baltazar, which were cited in Plana, are not sufficiently compelling to justify a recalibration of the chain of title doctrine. In both cases, the true owner continued to possess the owner’s duplicate certificate of title. The chain of title doctrine will not apply where the owner still holds a valid and existing certificate of title over the property.18 In Plana in contrast, Merlinda’s duplicate certificate of title was cancelled and a new one issued in the name of Ramon.
The ruling in Plana, insofar as it recalibrates the chain of title doctrine, should be considered as pro hac vice
The way Plana recalibrated the chain of title doctrine by discounting the owner’s pre-fraud acts may be justified because of a peculiar circumstance of the case, i.e., the concealment or nondisclosure by the mortgagee Lourdes of a civil case for accounting and damages filed by Ramon against her and the execution therein of a partial compromise agreement which showed that the mortgage obligation had been fully or at least substantially paid by Ramon. Doubtless, this influenced the ruling of the Court which found such facts as “material to the just resolution of the … case.” The Court stated that Lourdes “has been amply protected and will still be even with the consequent cancellation of the mortgage.”19 It is submitted that if not for these facts, the ruling would have been in favor of Lourdes since her rights as an innocent mortgagee for value need to be respected and protected.
It is the author’s respectful view that the long-standing iteration of the chain of title doctrine should be maintained and not recalibrated. From the viewpoint of justice and equity, as between two innocent persons who have been victimized by fraud, it is more in accord with justice that the one who made the fraud possible must bear the loss. A contrary rule would favor the less than careful over the careful person. From the viewpoint of advancing the policy considerations of the Torrens system, the doctrine encourages dealings in real estate by not burdening the prospective buyer or mortgagee with the duty of investigating whether there was fraud in the issuance of the certificate of title, a difficult task which many individuals are ill-equipped to perform. Requiring such a duty would discourage or significantly drive up the costs of real estate and mortgage transactions to the detriment of society at large.
-oOo-
- G.R. No. 250636, 10 January 2023, Lazaro-Javier, J. ↩︎
- Heirs of Venturanza v. Republic, 528 SCRA 238, 246-247 (2007). ↩︎
- Section 53, Property Registration Decree. ↩︎
- Director of Lands v. Addison, 49 Phil. 19 (1926). ↩︎
- See Peralta v. Heirs of Abalon, 727 SCRA 477, 498 (2014). The chain of title starts from the certificate of title of the (1) true owner, then to that of the (2) forger/defrauder, and finally to a registered sale in favor of the (3) innocent purchaser for value. ↩︎
- Blondeau v. Nano, 61 Phil. 625, 632 (1935). ↩︎
- De la Cruz v. Fabie, 35 Phil. 144 (1916). ↩︎
- Emphasis supplied. ↩︎
- Eduarte v. Court of Appeals, 253 SCRA 391, 401-403 (1996). ↩︎
- 710 SCRA 670 (2013). ↩︎
- 168 SCRA 354 (1988). ↩︎
- In his separate concurring opinion, Justice Caguioa wrote, “even as a mortgagee is found to have been in good faith, such mortgagee’s rights cannot trump the rights of a registered owner of the property who had been defrauded.” Chief Justice Gesmundo put it more strongly when he wrote in his separate concurring opinion that the right of an innocent mortgagee for value cannot prevail over that of the true owner because under Article 2085 of the Civil Code, it is a requisite of a valid mortgage that the mortgagor be the absolute owner of the thing mortgaged. ↩︎
- Modina v. Court of Appeals, 317 SCRA 696, 703 (1999). ↩︎
- The RTC found that Lourdes was a mortgagee in good faith but nevertheless nullified the mortgage stating that it was void because Ramon was not the owner of the mortgaged property. ↩︎
- Decision, p. 9. ↩︎
- Ibid. ↩︎
- See Section 53, Property Registration Decree. ↩︎
- Torres v. Court of Appeals, 186 SCRA 672, 677 (1990). ↩︎
- Decision, pp. 12-13. ↩︎
