A CERTIFICATE OF TITLE TAINTED WITH FRAUD AND MISREPRESENTATION CAN BE A SOURCE OF A VALID TITLE

John Campos falsified the signature of the owner of a parcel of land in a Deed of Sale and was able to transfer the Certificate of Tile to his name. He thereafter sold the property to Spouses Decena, who was purchaser in good faith.

Is the transfer from the real owner of the property to John Campos Valid?

No, it is not valid since it is fraudulent. The Certificate of Title is defective and VOID. It can be cancelled and repudiated anytime.

Is the transfer from John Campos to Spouses Decena Valid?

Yes, it is valid and the Certificate of Title issued to spouses Decena become infallible. Considering that the Spouses Decena are purchaser in good faith, they validly acquire right over the property. 

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            It is true, a falsified Land Title can be a source of a valid land title. This may occur when the falsified or fraudulent land title is transferred to an innocent buyer in good faith. The buyer must have not known, or could have not known that the property he is buying has a fraudulent Certificate of Title. This is based on the principle that public confidence in the Certificate of Title cannot be impaired.

            "Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquired rights over the property the court cannot disregards such rights and order the total 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 whether the title has been regularly or irregularly issued. This is contrary to the evident purpose of the law. 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."

            It is a familiar doctrine that a forged or fraudulent document may become the root of a valid title, if the property has already been transferred from the name of the owner to that of the forger. This doctrine serve to emphasize that a person who deals with registered property in good faith will acquire good title from a forger and be absolutely protected by a Torrens title. In the final analysis, the resolution of this case depends on whether the petitioners are purchasers in good faith.

What is a purchaser in good faith?

A purchaser in good faith is one who buys property of another without notice that some other person has a right to, or interest in, such property and pays full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property.

Is the principle that a person dealing on a registered land need not go beyond its certificate of title absolute?

            No. The exception to rule is where there are circumstances which would put a party on guard and prompt him to investigate or inspect the property being sold to him, such as the presence of occupants/ tenants thereon, it is of course expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants.

What is the remedy of the Real Owner?

            The real owner may file a complaint for the Reconveyance of Certificate of Title fraudulently issued. An annotation may be recorded in the title while the case is pending in court. Nevertheless, if the Buyer is a purchaser in good faith, the real owner may not be able to cancel the title.

            In this instance, the proper remedy would be to file a CRIMINAL CASE FOR FALSIFICATION OF PRIVATE DOCUMENT. Since it is clear that the transfer was fraudulent, the Deed of Sale showing that the forger is the real owner when in fact he is not, a falsification would be a proper action. Falsification has a penalty of imprisonment and, when properly alleged, damages.

(G.R. No. 164801)

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Loan Shark Scam (10% interest per month)

FACTS:

            Peter John Nunez is an employee of Zardo International currently assigned at the Accounting Department as a Payroll Supervisor. He is also the Secretary of the employees association. Reports and complaints have reached the Management of Zardo International that Nunez had been lending money to his co-employee with 10% interest per month. He also collected the ATM cards of the employees and forcibly collects the payment of the loan by withdrawing the money from the ATM cards of the employees.

ISSUES:

            Zardo International sought assistance to determine whether:

1.    The actuation of Nunez in lending with 10% interest is legal.

2.    The actuation of Nunez in collecting the ATM cards and forcing withdrawal as payment is legal

3.    The actuation of Nunez in having a loan business and at the same time employee legal

OPINION:

A.   10% MONTHLY INTEREST ON A LOAN IS VOID AND ILLEGAL

The loan with 10% monthly interest is void, illegal, and has no legal effect. The 10% monthly interest is illegal since it was declared by the Supreme Court as excessive. As point of reference, the Court in a case ruled that 5.5% per month or 66% per annum interest in a loan is excessive, iniquitous, unconscionable and exorbitant (Medel v. Court of Appeals, and Spouses Solangon v. Salazar). Clearly, this is smaller than 10% per month, yet the Court ruled it as illegal. The reasonable rate is 12% per annum (in a year) or 1% per month interest.

Stipulations in a contract authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law (Cauton v. Salud). Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived. Therefore, even if the employees who loaned signed a contract agreeing to the 10% interest, this has no effect since it is against morals and law. As a result, it would mean that the contracts have no stipulations on interest at all. The employees who made a loan are not required to pay interest.

B.   COLLECTING ATM AND FORCING WITHDRAWAL AS PAYMENT IS ILLEGAL

The act of collecting ATM cards and forcing withdrawal as payment could fall as a criminal offense of COERCION, punishable under the Revised Penal Code Art. 286 and 287. Any person who, without authority of law, compel another to do something against his will, whether it be right or wrong, is liable for coercion. The act of forcing withdrawal from the ATM, even if the employee has a valid debt is illegal.

C.   BEING EMPLOYED AND MAINTAINING A LOAN BUSINESS IS NOT ILLEGAL PER SE, BUT IF PERFORMRED DURING WORKABLE HOURS AND WITHIN THE PREMISES OF THE COMPANY, IT IS ILLEGAL

The employee when inside the premises of the company must perform actions to the benefit of the company. He is not allowed to engage in any other business during workable hours.  

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Survey of cases on Flooding and Fortuitous Events

Considering the heavy rains and floods, I have collected few relevant cases and provisions of the law.

1.     What is a fortuitous event?

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been forseen or anticipated, as is commonly believed but it MUST BE IMPOSSIBLE TO FORSEE OR AVOID. The mere difficulty to forsee the happening is not impossibility to foresee the same (Sicam v. Jorge, G.R. No. 159617, August 8, 2007).

2.     Is flood a fortuitous event?

As a general rule, flood, being caused by heavy rains, is a fortuitous event. However, in the event that there is a human intervention that showed negligence, flood ceases to be a fortuitous event. (Napocor v. CA, G.R. No. 96410, July 3, 1992)

3.     The TYPHOON KADING had caused floods in the town of Bulacan. Mr. Palad filed a case against NAPOCOR since according to him, he suffered extensive property damage due to flood. He attributed the flooding to the negligent release of flood waters in Angat Dam by NAPOCOR. The NAPOCOR alleged that the flood was a fortuitous event and that they cannot be held liable.

Is NAPOCOR liable?

The Supreme Court held that NAPOCOR is liable since, considering that it can anticipate the abnormal rise of the water level in the dam, NAPOCOR should have started gradually spilling water from the dam into the Angat river but instead it waited until it was too late to release the flood water. The flood gates were opened at 5 mts to 14 mts  in 3 hours instead of 2 meters per hour. The witness also testified that the water rises so fast within the period of 10 minutes from knee level to up to the neck. The unusual flood, which destroyed Mr. Palad’s properties, was not brought about by the rain waters that came from typhoon Kading but by NAPOCOR’s delayed opening of the spillway gates. (NAPOCOR v. Palad, G.R. No. 102206)

4.     Isabel was crossing a waist deep flood to check on her merchandise in her grocery store when she was electrocuted and eventually died. Her heirs filed a case for damages against the Ilocos Norte Electric Company. The defendant alleged that they are not liable due to fortuitous event and that Isabel assumed risk when she deliberately crossed the flood instead of staying at home. Is INEC liable?

The Supreme Court held that INEC is liable since it did not exercise the required high degree of diligence and care.  The circumstances of the case showed that INEC was negligent in seeing to it that no harm is done to the general public. The negligence of petitioner having been shown, it may not absolve itself from liability by arguing that the victim’s death was solely due to a fortuitous event.

The court added that “a person is excused from the force of rule, that when he voluntarily assents to a known danger he must abide by the consequences, if an emergency is found to exist or if the life or property of another is in peril, or when he seeks to rescue his endangered property. Clearly, an emergency was at hand as Isabel’s property, as source of her livelihood, was faced with an impending loss. (Ilocos Electric Company v. CA, G.R. No. L-53401)

5.     Philippine Lexus Amusement Corporation leased a warehouse in Libertad St., Mandaluyong City, from Guevent Industrial Development Corporation. On September 25, heavy rains flooded Libertad St. and damaged the property of Philippine Lexus. A case of damages was filed by Philippine Lexus alleging that the clogged storm drainage and sewer pipes installed underground the warehouse caused the flooding. It further alleged that their contract stipulates that Guevent must maintain the warehouse in good and tenable condition. Guevent denied liability and alleged that it was public drainage of Mandaluyong City that caused the flood. Is Guevent liable?

The Supreme Court held that Guevent was not liable since the flood was attributed to the clogging of the public pipes and not of the internal pipes.

It held that it cannot hold Guevent negligent, for the record revels that it had constantly requested the local government to dredge and de-clog public sewers. The maintenance of the public drainage system could not have been contemplated by the lease contract when it provided that the lessor shall maintain the premises in good and tenable condition. The law of contract does not force the performance of impossible obligations by the parties, and the maintenance of the public sewers is something impossible to expect from the lessor. He is accountable only for its pipes, and it should not be held responsible for the maintenance of the public sewers. (Guevent Industrial Development Corporation v. Philippine Lexus Amusement Corporation, G.R. No. 159279, July 11, 2006)

6.     Laureta Trinidad approached Vicente Francisco and offered to buy his house in Commonwealth, Quezon City. She inspected the house and examined the vicinity map which indicated a drainage canals along the property. They agreed for a five year installment period on payment. When Laureta transferred and decorated the house, the neighbors told her that 2 other buyers backed out since the house is flooded. She answered that Vicente assured him that it has been fixed and the house would never be flooded again. Laureta was able to pay installments in 2 years, however, she eventually decided not to continue paying because the house was flooded again. Laureta filed a case of rescission due to fraud which induced her to enter into a contract of sale. Is there fraud sufficient to rescind the contract?

The Supreme Court held that the allegations of Laureta cannot justify rescission of the contract. “Fraud is never lightly inferred; it is good faith that is. The fraud alleged by Laureta has not been satisfactorily established to call for the annulment of the contract.

First, it was laureta who admittedly approached Vicente, who never advertised the property or offer it for sale.

Second, Laureta has full opportunity to inspect the premises, including the drainage canals indicated in the vicinity map that was furnished to her.

Third, it was assumed that she made her appraisal of the property not with the untrained eye of the ordinary prospective buyer but with the experience and expertise of the licensed real estate broker that she was.

Fourth, seeing that the lot was depressed and there was a drainage lot abutting it, she cannot say that she was not forewarned of the possibility that the place might be flooded.

Fifth, there is no evidence except her own testimony that two buyers vacated the property because of floods and that Vicente assured her that the house will not be flooded again.

The pertinent provision of the Civil Code on fraud are the following:

Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.

Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are bound by confidential relations, constitute fraud.

Article. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent.

The Supreme Court further held that the transaction was a BAD BARGAIN, NOT AN ILLEGAL TRANSACTION VITIATED BY FRAUD, as states:

. . . Courts cannot follow one every step of his life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of persons who are not legally incompetent. Court operate not because one person has been defeated or overcome by another, but because he has been defeated or overcome illegally. MEN MAY DO FOOLISH THINGS, MAKE RIDICULOUS CONTRACTS, USE MISERABLE JUDGMENT, AND LOSE MONEY BY THEM – indeed, all they have in the world; but not for that alone can the law intervene and restore. There must be, in addition, a violation of law, the commission of what the law knows as an actionable wrong, before the courts are authorized to lay hold of the situation and remedy it. (Laureta Trinidad v. Vicente Francisco, G.R. No. L-65922)