GR 41937; (September, 1935) (Digest)
G.R. No. 41937; September 4, 1935
CENTRAL AZUCARERA DE TARLAC, plaintiff-appellee, vs. RICARDO DE LEON and RAFAEL FERNANDEZ, defendants. L. P. MITCHELL, assignee of the Involuntary Insolvency of Rafael Fernandez, appellant.
FACTS
Plaintiff Central Azucarera de Tarlac entered into a 30-year milling contract with defendant Ricardo de Leon over 87 hectares of land in Lubao, Pampanga. De Leon represented that the land was unregistered, and the contract provided for its eventual annotation upon registration. The contract was recorded under the system for unregistered lands. However, De Leon had already obtained a Torrens title for the land over a year before the contract. He later transferred this Torrens title to defendant Rafael Fernandez without annotating the milling contract, although Fernandez had actual knowledge of it. Fernandez was later adjudged an involuntary insolvent, and L.P. Mitchell was appointed as the assignee of his insolvent estate. The assignee took possession of the land, harvested the sugar cane, and milled it elsewhere, in alleged violation of the contract. Plaintiff sued for specific performance and damages, seeking to enforce the contract against Fernandez and his assignee, and to have its rights annotated on the Torrens title.
ISSUE
Whether the assignee in insolvency of Rafael Fernandez, who acquired the insolvent’s Torrens title by operation of law, is bound by the unregistered milling contract, despite Fernandez’s prior knowledge of it, and can be compelled to specifically perform it.
RULING
No. The Supreme Court reversed the trial court’s judgment and ordered the dismissal of the complaint. The assignee in insolvency, representing the collective body of creditors, stands in a different position from the insolvent debtor. The assignee acquired the Torrens title by operation of law under the Insolvency Law, registered the transfer, and obtained a new certificate free from the unregistered milling contract. As a registered owner in good faith (being a court officer acting in his legal duty), the assignee is entitled to the protection of Section 39 of the Land Registration Act (Act No. 496), which provides that a registered owner’s title is free from all encumbrances except those noted on the certificate. The plaintiff’s claim against Fernandez was merely an in personam “equity” arising from fraud, enforceable against Fernandez personally, but not against the assignee representing creditors who did not participate in the fraud. The case of Ingersoll vs. Concepcion is distinguishable as it involved a mortgage lien, a proceeding in rem, specifically provided for in the Insolvency Law.
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