The land involved in this case is a parcel of land in a subdivision covered by a Torrens Title no. 294192 in the name of Danny and Lisa. It was one of the three titles originally mortgaged by the couple to a bank to secure a loan totaling P 700,000. Before maturity of the loan, Danny died.
So when the loans matured, the bank demanded their payment from Lisa as the administratrix of Danny’s estate. Since Lisa failed to pay despite demands, the bank foreclosed the lands mortgaged mortgaged to it. In the auction sale, the bank emerged as the highest bidder.
Before the expiration of the redemption period, Lisa filed a complaint with the Regional Trial Court (RTC) for the nullification of the aforesaid foreclosure proceedings. While this case was pending, the bank consolidated ownership over the land and obtained titles over them. Then it sold one of the lands to a realty company which obtained title thereto. To finally end their dispute, Lisa and the bank stipulated that the decision to be rendered by the RTC shall be final and unappealable.
After five (5) years of hearing, the bank rendered a judgment, nullifying the foreclosure proceedings and ordering the Register of Deeds (RD) to cancel the titles issued in the name of the bank and the realty company; and to issue in lieu thereof, new titles in the name of Lisa or her successor in interest upon proof of payment of the loan or that such amount of loan has been deposited with the bank.
On the basis of this decision, the RD cancelled the two titles in the name of the bank and one title issued in the name of the realty company. In lieu thereof the RD issued new titles in the name of Lisa. Two months later, Lisa sold one of the lands covered by TCT 294192, free from all liens and encumbrances, to Renato who obtained a new title thereon (TCT 296945).
But only two months after he bought the property, Renato received a copy of the petition for certiorari filed by the bank in the Court of Appeals (CA) asking that it be allowed to appeal from the decision of the RTC despite the stipulation as to its finality .Said petition stated that Renato was "being sued as a nominal party as the new registered owner of of TCT 296945". It was only then that Renato learned that the lot he purchased from Lisa was subject of legal dispute between her and the bank.
Eventually, the CA issued a resolution allowing the bank to appeal the RTC decision despite the stipulation of the parties as to its finality, and directing the RD to reinstate the cancelled two titles in the name of the bank and one title in the name of the realty company pending review of the case on appeal.
Was the CA correct?
No.
Renato was not even a party to the action between Lisa and the bank.He was impleaded only in the certiorari case filed by the bank in the CA. In fact the petition filed in the CA merely stated that Renato was being sued as a nominal party in his capacity as the "new registered owner of TCT 296945" Other than this averment there were no allegations to constitute a cause of action against Renato.
Renato’s title was regularly issued after the lot covered by the same was sold to him by Lisa. He relied on Lisa’s title which was then free from any claims liens or encumbrances appearing thereon. As such his title can only be challenged in a direct action. A certificate of title cannot be subject to collateral attack, and can be altered, modified or cancelled only in a direct proceeding in accordance with law. Having obtained a valid title over the subject lot, Renato is entitled to protection against indirect attacks on the title.
If a person purchases a piece of land on the assurance that the seller’s title thereto is valid, he should not run the risk of being told later on that his acquisition was ineffectual after all. This would not only be unfair to him. What is worse is that if this were permitted, public confidence in the Torrens system would be eroded and land transactions would have to be attended by complicated and not necessarily conclusive investigations and proof of ownership. Land conflicts could even be more numerous and complex than they are now and possibly more abrasive, if not violent (Tan vs. Philippine Banking Corp. et al., G.R. 137739, March 26, 2001).