G.R. No. 128573; January 13, 2003
NAAWAN COMMUNITY RURAL BANK INC., petitioner, vs. THE COURT OF APPEALS and SPOUSES ALFREDO AND ANNABELLE LUMO, respondents.

FACTS

On April 30, 1988, Guillermo Comayas offered to sell a house and lot in Cagayan de Oro City to spouses Alfredo and Annabelle Lumo (private respondents). The private respondents inquired at the Register of Deeds and the Bureau of Lands and found the property was mortgaged to a Mrs. Galupo. They gave Comayas P10,000 to redeem it, and the adverse claim was released on May 30, 1988. On May 17, 1988, they executed a deed of absolute sale with Comayas. The sale was registered on June 9, 1988, and TCT No. T-50134 was issued in their favor. When they sought a new tax declaration, they discovered the property was also declared in the name of Naawan Community Rural Bank Inc. (petitioner bank).
Earlier, on February 7, 1983, Comayas obtained a loan from the petitioner bank using the unregistered property as security. The Deed of Real Estate Mortgage and Special Power of Attorney were recorded in the registration book of Misamis Oriental. After Comayas defaulted, the mortgage was foreclosed, and the property was sold at public auction to the bank on April 17, 1984. The sheriff’s certificate of sale was registered under Act 3344 in the Register of Deeds of Misamis Oriental. On the same date, April 17, 1984, the property was registered under the Land Registration Act, and Original Certificate of Title No. 0-820 was issued. On July 23, 1984, TCT No. T-41499 was issued in Comayas’s name. After the redemption period lapsed, the sheriff’s deed of final conveyance was issued to the bank on September 5, 1986, and registered under Act 3344 in the Register of Deeds of Cagayan de Oro City. The bank obtained a tax declaration and won an ejectment case against Comayas. When a writ of execution was served, the private respondents were in possession, leading them to file an action for quieting of title.

ISSUE

Whether the private respondents are purchasers in good faith and for value, making them the rightful owners of the property over the petitioner bank, despite the bank’s prior registration of the sheriff’s deed of final conveyance under Act 3344.

RULING

The Supreme Court denied the petition and affirmed the Court of Appeals’ decision, declaring the private respondents as the absolute owners. The Court ruled that when the private respondents purchased the property, it was already registered under the Torrens System. Persons dealing with registered land may rely on the certificate of title and are not obliged to go beyond it to determine the property’s condition, except when they have actual knowledge of facts requiring further inquiry. The private respondents exercised due diligence by inquiring with the Register of Deeds and the Bureau of Lands and found no liens or encumbrances on Comayas’s title other than the settled claim of Galupo. Therefore, they are innocent purchasers for value and in good faith. The bank’s prior registration of the sheriff’s deed under Act 3344 (for unregistered land) did not prevail over the later registration of the absolute sale under the Property Registration Decree, as the property was already under the Torrens System when the private respondents bought it. The issuance of a certificate of title relieves the land of all claims except those noted thereon.