G.R. No. L-38622 October 26, 1987
VALENTIN BERMUDO, petitioner, vs. THE HONORABLE COURT OF APPEALS, FORMER SIXTH DIVISION; THE HONORABLE COURT OF FIRST INSTANCE OF LEYTE, BRANCH 1 and THE CHINESE NATIONALIST PARTY OF TACLOBAN, respondents.

FACTS

Tom Chow and Go Se Pieng obtained a decree of registration for Lot 776 in 1931 and were issued Original Certificate of Title (OCT) No. 10256 in 1932. However, in 1931, they had executed a document renouncing their interests, stating they were mere trustees for the Chinese Nationalist Party of Tacloban, which subsequently obtained Transfer Certificate of Title (TCT) No. 858 in 1940. In 1964, petitioner Valentin Bermudo, claiming to be a vendee of a one-half interest from Tom Chow’s widow, filed a petition for reconstitution of the allegedly destroyed OCT No. 10256. The Court of First Instance granted the petition, leading to the issuance of TCT No. 1948 in the names of Bermudo and Go Se Pieng.
The Chinese Nationalist Party filed a petition for relief, alleging the reconstitution was obtained through fraud and misrepresentation, as Bermudo, an adjacent owner, knew the Party was in possession under TCT No. 858. The lower court granted the petition, set aside the reconstitution order, annulled TCT No. 1948, and upheld TCT No. 858. The Court of Appeals affirmed this decision. Bermudo’s subsequent appeal to the Supreme Court was initially denied, leading to this special civil action for certiorari and prohibition.

ISSUE

Whether the Court of Appeals acted with grave abuse of discretion in affirming the lower court’s decision to set aside the order for reconstitution of OCT No. 10256.

RULING

The Supreme Court dismissed the petition. The legal logic rests on the principle that reconstitution under Republic Act No. 26 is a proceeding in rem, requiring strict compliance with jurisdictional requirements, including notice to all interested parties. The Court found that Bermudo, as an adjacent lot owner, was in bad faith, having knowledge of the Party’s long-standing possession and claim of ownership under TCT No. 858. Crucially, the reconstitution of OCT No. 10256 was legally impermissible because that title had already been cancelled and superseded by TCT No. 858 in 1940. Reconstitution applies only to existing, valid titles; it cannot revive a title that has been extinguished by the issuance of a new one.
Furthermore, the Court addressed the Party’s capacity to own land, noting serious constitutional and legal questions under the 1935 Constitution regarding alien ownership. It also discovered an anomaly—three different TCTs bearing the same number (858) issued to different entities. Consequently, while dismissing Bermudo’s petition due to his bad faith and the invalidity of the reconstituted title, the Supreme Court did not affirm the Party’s ownership. Instead, it directed the Solicitor General to initiate escheat proceedings to definitively settle the ownership of Lot 776, ensuring all interested parties, including Bermudo and actual occupants, could present their claims, with reversion to the state as the ultimate resolution if no valid claim is established.