TRADERS ROYAL BANK vs. HON.

COURT OF APPEALS
GR No. 114299 September 24, 1999
Facts:
A mortgage was executed by the spouses Maximo and Patria Capay in favour of Traders Royal Bank
(TRB) pursuant to a loan extended by the latter to the former. The mortgage covered several properties,
including a parcel of land, the subject of the present dispute. The loan became due on January 8, 1964
and the same having remained unpaid, TRB instituted extra-judicial foreclosure proceedings upon the
mortgaged property. To prevent the property's sale by public auction, the Capays, on September 22,
1966, filed a petition for prohibition with preliminary injunction before the Court of First Instance,
alleging that the mortgage was void since they did not receive the proceeds of the loan. The trial court
initially granted the Capays' prayer for preliminary injunction.
On March 17, 1967, the Capays caused to be filed in the Register of Deeds a notice of lis pendens over
the disputed property. Said notice was entered in the Day Book, as well as in the Capays' certificate of
title.
Subsequently, the injunction issued by the trial court was lifted thus allowing the foreclosure sale to
proceed. Foreclosure proceedings were initiated and on October 17, 1968, the property was sold to TRB
which was the highest bidder at the auction sale. Thereafter, the Capays filed with the CFI a
supplemental complaint praying for the recovery of the property with damages and attorney's fees. Trial
in Civil Case No. Q-10453 proceeded and, on October 3, 1977, the CFI rendered its decision declaring
the mortgage void for want of consideration.
TRB appealed to the Court of Appeals. While the case was pending in the Court of Appeals, TRB on
March 17, 1982 sold the land to Emelita Santiago in whose name a new certificate of title, TCT No.
33774, was issued, also, without any notice of lis pendens annotated thereon. Santiago in turn divided
the land into six (6) lots.
Issue:
Whether or not the Capays has a better right over the property.
Held:
The Court rule for the non-bank respondents. The main purpose of the Torrens system is to avoid possible
conflicts of title to real estate and to facilitate transactions relative thereto by giving the public the right to
rely upon the face of a Torrens certificate of title and to dispense with the need of inquiring further,
except when the party concerned has actual knowledge of facts and circumstances that should impel a
reasonably cautious man to make such further inquiry. 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, for everyone dealing with
property registered under the Torrens system would have to inquire in every instance as to whether the
title has been regularly or irregularly issued by the court. 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 beyond the certificate to determine the condition of the property.