MENDOZA, J.: Misact

This is a petition for certiorari seeking to reverse the decision1 [Per Justice Ruben T. Reyes and concurred in by Justices Fidel P. Purisima (now Associate Justice of the Supreme Court) and Conrado M. Vasquez, Jr.] and resolution2 [Per Justice Ruben T. Reyes and concurred in by Justices Romeo A. Brawner and Conrado M. Vasquez, Jr.] of the Court of Appeals dated August 30, 1996 and April 23, 1997, respectively, declaring private respondent Carlos Cajes the owner of 19.4 hectares of land embraced in TCT No. 10101 and ordering the segregation and reconveyance of said portion to him.

The antecedent facts are as follows:

The land in dispute, consisting of 19.4 hectares located in San Miguel, Province of Bohol, was originally owned by Ulpiano Mumar, whose ownership since 1917 was evidenced by Tax Declaration No. 3840.3 [Exh. 4.] In 1950,4 [TSN, p. 8, Jan. 19, 1989.] Mumar sold the land to private respondent who was issued Tax Declaration No. R-1475 that same year.5 [Exh. 4.] The tax declaration was later superseded by Tax Declaration Nos. R-799 issued in 19616 [Exh. 2.] and D-2247 issued in 1974.7 [Exh. 3.] Private respondent occupied and cultivated the said land,8 [TSN, p. 7, April 6, 1989.] planting cassava and camote in certain portions of the land.9 [Exh. C.]

In 1969, unknown to private respondent, Jose Alvarez succeeded in obtaining the registration of a parcel of land with an area of 1,512,468.00 square meters,10 [TSN, p. 28, Oct. 7, 1988.] in his name for which he was issued OCT No. 546 on June 16, 1969.11 [TSN, p. 5, April 6, 1989; Exh. A.] The parcel of land included the 19.4 hectares occupied by private respondent. Alvarez never occupied nor introduced improvements on said land.12 [TSN, p. 6, April 6, 1989.]

In 1972, Alvarez sold the land to the spouses Gaudencio and Rosario Beduya to whom TCT No. 10101 was issued.13 [Exh. A.] That same year, the spouses Beduya obtained a loan from petitioner Development Bank of the Philippines for P526,000.00 and, as security, mortgaged the land covered by TCT No. 10101 to the bank.14 Exh. A-2.] In 1978, the SAAD Investment Corp., and the SAAD Agro-Industries, Inc., represented by Gaudencio Beduya, and the spouses Beduya personally executed another mortgage over the land in favor of petitioner to secure a loan of P1,430,000.00.15 [Exh. A-3.] Sdjad

The spouses Beduya later failed to pay their loans, as a result of which, the mortgage on the property was foreclosed.16 [TSN, p. 6, Oct. 7, 1988.] In the resulting foreclosure sale held on January 31, 1985, petitioner was the highest bidder.17 [Exh. B.] As the spouses Beduya failed to redeem the property, petitioner consolidated its ownership.18 [TSN, p. 7, Oct. 7, 1988.]

It appears that private respondent had also applied for a loan from petitioner in 1978, offering his 19.4 hectare property under Tax Declaration No. D-2247 as security for the loan. As part of the processing of the application, a representative of petitioner, Patton R. Olano, inspected the land and appraised its value.

Private respondent’s loan application was later approved by petitioner.19 [Id., pp. 9-11.] However after releasing the amount of the loan to private respondent, petitioner found that the land mortgaged by private respondent was included in the land covered by TCT No. 10101 in the name of the spouses Beduya. Petitioner, therefore, cancelled the loan and demanded immediate payment of the amount.20 [Brief for the Appellant, p. 3; CA Rollo, p. 22.] Private respondent paid the loan to petitioner for which the former was issued a Cancellation of Mortgage, dated March 18, 1981, releasing the property in question from encumbrance.21 [Exh. 5.]

Sometime in April of 1986, more than a year after the foreclosure sale, a re-appraisal of the property covered by TCT No. 10101 was conducted by petitioner’s representatives. It was then discovered that private respondent was occupying a portion of said land. Private respondent was informed that petitioner had become the owner of the land he was occupying, and he was asked to vacate the property. As private respondent refused to do so,22 [TSN, pp. 17-18, Oct. 7, 1988.] petitioner filed a complaint for recovery of possession with damages against him. The case was assigned to Branch 1 of the Regional Trial Court, Tagbilaran City,23 [Records, pp. 1-3.] which after trial, rendered a decision, dated August 22, 1989, declaring petitioner the lawful owner of the entire land covered by TCT No. 10101 on the ground that the decree of registration was binding upon the land.24 [Decision, pp. 2-3; Records, pp. 69-70.] The dispositive portion of the decision reads:

On appeal, the Court of Appeals reversed and gave judgment for private respondent, declaring him the owner of the 19.4 hectares of land erroneously included in TCT No. 10101. The dispositive portion of the appellate court’s decision reads:

Petitioner moved for a reconsideration but its motion was denied in a resolution dated April 23, 1997.26 [Rollo, p. 59.] Hence this petition.

Petitioner contends that:

First. Petitioner invokes the ruling of this Court in Benin v. Tuason28 [57 SCRA 531 (1974)] in support of its claim that its predecessor-in-interest, Jose Alvarez, became the owner of the land by virtue of the decree of registration issued in his name. In Benin, three sets of plaintiffs filed separate complaints against Mariano Severo Tuason and J.M. Tuason & Co., Inc., praying for the cancellation of OCT No. 735 covering two parcels of land called the Sta. Mesa Estate, or Parcel 1, with an area of 8,798,617.00 square meters, and the Diliman Estate, or Parcel 2, with an area of 15,961,246.00 square meters. They asked that they be declared the owners and lawful possessors of said lands.

Benin is distinguished from this case. In the first place, Benin involved vast tracts of lands which had already been subdivided and bought by innocent purchasers for value and in good faith at the time the claimants obtained registration. Secondly, when the claimants’ ancestors occupied the lands in question and declared them for tax purposes in 1944, the lands were already covered by the tax declarations in the name of J. M. Tuason & Co., Inc. In 1914, OCT No. 735 was issued in the name of Tuason so that, from that time on, no possession could defeat the title of the registered owners of the land. Thirdly, the validity of OCT No. 735 had already been recognized by this Court in several cases29 [Bank of the Philippine Islands v. Acuña, 59 Phil. 183 (1933); Alcantara v. Tuason, 92 Phil. 796 (1953); Santiago v. J.M. Tuason & Co., Inc., 110 Phil. 16 (1960)] and, as a result thereof, the transfer certificates of title acquired by the innocent purchasers for value were also declared valid. It was held that neither could the claimants file an action to annul these titles for not only had these actions prescribed, but the fact was that the claimants were also barred from doing so by laches, having filed the complaint only in 1955, or 41 years after the issuance of OCT No. 735 to J.M. Tuason & Co., Inc. Thus, it was not solely the decree of registration which was considered in resolving the Benin case. What was considered decisive was the valid title or right of ownership of J. M. Tuason & Co., Inc. and that of the other innocent purchasers for value and in good faith compared to the failure of the claimants to show their right to own or possess the questioned properties. Sccalr

Petitioner maintains that the possession by private respondent and his predecessor-in-interest of the 19.4 hectares of land for more than 30 years cannot overcome the decree of registration issued in favor of its predecessor-in-interest Jose Alvarez. Petitioner quotes the following statement in the Benin case:

Petitioner would thus insist that, by virtue of the decree of registration, Jose Alvarez and those claiming title from him (i.e., the spouses Beduya) acquired ownership of the 19.4 hectares of land, despite the fact that they neither possessed nor occupied these lands.

This view is mistaken. A consideration of the cases shows that a decree of registration cut off or extinguished a right acquired by a person when such right refers to a lien or encumbrance on the land ¾ not to the right of ownership thereof ¾ which was not annotated on the certificate of title issued thereon. Thus, Act No. 496 provides:

Hence, in Cid v. Javier,31 [108 Phil. 850, 853 (1960). (Emphasis added)] it was helds:

This principle was reiterated in Purugganan v. Paredes32 [161 Phil. 91 (1976)] which also involved an easement of light and view that was not annotated on the certificate of title of the servient estate. Scedp

But to make this principle applicable to a situation wherein title acquired by a person through acquisitive prescription would be considered cut off and extinguished by a decree of registration would run counter to established jurisprudence before and after the ruling in Benin. Indeed, registration has never been a mode of acquiring ownership over immovable property. As early as 1911, in the case of City of Manila v. Lack,33 [19 Phil. 324, 328 (1911)] the Court already ruled on the purpose of registration of lands, viz.:

Again, in the case of Angeles v. Samia34 [66 Phil. 444 (1938)] where land was erroneously registered in favor of persons who neither possessed nor occupied the same, to the prejudice of the actual occupant, the Court held:

The principle laid down in this 1938 case remains the prevailing doctrine, its latest application being in the case of Reyes v. Court of Appeals36 [G.R. No. 127608, Sept. 30, 1999. See also Santiago v. Court of Appeals, 278 SCRA (1997)] wherein we ruled that the fact that a party was able to secure a title in his favor did not operate to vest ownership upon her of the property.

In the present case, private respondent has been in actual, open, peaceful and continuous possession of the property since 1950. This fact was corroborated by the testimony of Eleuterio Cambangay who personally knew that Ulpiano Mumar transferred the land covered by Tax Declaration No. 384037 [Exh. 4.] in favor of private respondent in 1950.38 [TSN, pp. 25-26, January 19, 1999.] Private respondent’s claim based on actual occupation of the land is bolstered by Tax Declaration Nos. R-1475, R-799 and D-224739 [Exh. 4; Exh. 2; Exh. 3.] which were issued in his name in 1950, 1961 and 1974, respectively. Together with his actual possession of the land, these tax declarations constitute strong evidence of ownership of the land occupied by him. As we said in the case of Republic vs. Court of Appeals:40 [328 Phil. 238, 248 (1996)]

More importantly, it was established that private respondent, having been in possession of the land since 1950, was the owner of the property when it was registered by Jose Alvarez in 1969, his possession tacked to that of his predecessor-in-interest, Ulpiano Mumar, which dates back to 1917.41 [Exh. 4.] Clearly, more than 30 years had elapsed before a decree of registration was issued in favor of Jose Alvarez. This uninterrupted adverse possession of the land for more than 30 years could only ripen into ownership of the land through acquisitive prescription which is a mode of acquiring ownership and other real rights over immovable property. Prescription requires public, peaceful, uninterrupted and adverse possession of the property in the concept of an owner for ten (10) years, in case the possession is in good faith and with a just title. Such prescription is called ordinary prescription, as distinguished from extraordinary prescription which requires possession for 30 years in case possession is without just title or is not in good faith.42 [Gesmundo v. Court of Appeals, G.R. No. 119870, Dec. 23, 1999.] Edp

In contrast to private respondent, it has been shown that neither Jose Alvarez nor the spouses Beduya were at any time in possession of the property in question. In fact, despite knowledge by Gaudencio Beduya that private respondent occupied this 19.4 hectares included in the area covered by TCT No. 10101,43 [TSN, p. 9, Oct. 7, 1988.] he never instituted any action to eject or recover possession from the latter. Hence, it can be concluded that neither Jose Alvarez nor the spouses Beduya ever exercised any right of ownership over the land. The fact of registration in their favor never vested in them the ownership of the land in dispute. "If a person obtains a title under the Torrens system, which includes by mistake or oversight land which can no longer be registered under the system, he does not, by virtue of the said certificate alone, become the owner of the lands illegally included."44 [Avila v. Tapucar, 201 SCRA 148, 155 (1991)]

Considering the circumstances pertaining in this case, therefore, we hold that ownership of the 19.4 hectares of land presently occupied by private respondent was already vested in him and that its inclusion in OCT No. 546 and, subsequently, in TCT No. 10101, was erroneous. Accordingly, the land in question must be reconveyed in favor of private respondent, the true and actual owner thereof, reconveyance being clearly the proper remedy in this case.

Second. Generally, an action for reconveyance based on an implied or constructive trust, such as the instant case, prescribes in 10 years from the date of issuance of decree of registration.46 [Ramos v. Court of Appeals, 302 SCRA 589 (1999)] However, this rule does not apply when the plaintiff is in actual possession of the land. Thus, it has been held: Misedp

Having been the sole occupant of the land in question, private respondent may seek reconveyance of his property despite the lapse of more than 10 years.

Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is true that the indefeasibility of torrens titles cannot be collaterally attacked. In the instant case, the original complaint is for recovery of possession filed by petitioner against private respondent, not an original action filed by the latter to question the validity of TCT No. 10101 on which petitioner bases its right. To rule on the issue of validity in a case for recovery of possession is tantamount to a collateral attack. However, it should not be overlooked that private respondent filed a counterclaim against petitioner, claiming ownership over the land and seeking damages. Hence, we could rule on the question of the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on the same. "A counterclaim is considered a complaint, only this time, it is the original defendant who becomes the plaintiff. . . . It stands on the same footing and is to be tested by the same rules as if it were an independent action."48 [A. Francisco Realty and Development Corp. v. Court of Appeals, 298 SCRA 349, 358 (1998)] In an analogous case,49 Mendoza v. Court of Appeals, 158 SCRA 508 (1988)] we ruled on the validity of a certificate of title despite the fact that the original action instituted before the lower court was a case for recovery of possession. The Court reasoned that since all the facts of the case are before it, to direct the party to institute cancellation proceedings would be needlessly circuitous and would unnecessarily delay the termination of the controversy which has already dragged on for 20 years.

Third. Petitioner nonetheless contends that an action for reconveyance does not lie against it, because it is an innocent purchaser for value in the foreclosure sale held in 1985.

This contention has no merit. Sec. 38 of Act No. 496, the Land Registration Act, provides: Misoedp

Succinctly put, §38 provides that a certificate of title is conclusive and binding upon the whole world. Consequently, a buyer need not look behind the certificate of title in order to determine who is the actual owner of the land. However, this is subject to the right of a person deprived of land through fraud to bring an action for reconveyance, provided that it does not prejudice the rights of an innocent purchaser for value and in good faith. "It is a condition sine qua non for an action for reconveyance to prosper that the property should not have passed to the hands of an innocent purchaser for value."50 [Lucena v. Court of Appeals, G.R. No. L-77468, Aug. 25, 1999.] The same rule applies to mortgagees, like petitioner. Thus, we held:

The evidence before us, however, indicates that petitioner is not a mortgagee in good faith. To be sure, an innocent mortgagee is not expected to conduct an exhaustive investigation on the history of the mortgagor’s title. Nonetheless, especially in the case of a banking institution, a mortgagee must exercise due diligence before entering into said contract. Judicial notice is taken of the standard practice for banks, before approving a loan, to send representatives to the premises of the land offered as collateral and to investigate who are the real owners thereof. Banks, their business being impressed with public interest, are expected to exercise more care and prudence than private individuals in their dealings, even those involving registered lands.52 [Cavite Development Bank v. Lim, G. R. No. 13169, Feb. 1, 2000 citing Tomas v. Tomas, 98 SCRA 280 (1980)] Jjsc

In this case, petitioner’s representative, Patton R. Olano, admitted that he came to know of the property for the first time in 1979 when he inspected it to determine whether the portion occupied by private respondent and mortgaged by the latter to petitioner was included in TCT No. 10101. This means that when the land was mortgaged by the spouses Beduya in 1972, no investigation had been made by petitioner. It is clear, therefore, that petitioner failed to exercise due care and diligence in establishing the condition of the land as regards its actual owners and possessors before it entered into the mortgage contract in 1972 with the Beduyas. Had it done so, it would not have failed to discover that private respondent was occupying the disputed portion of 19.4 hectares. For this reason, petitioner cannot be considered an innocent purchaser for value when it bought the land covered by TCT No. 10101 in 1985 at the foreclosure sale.

Indeed, two circumstances negate petitioner’s claim that it was an innocent purchaser for value when it bought the land in question, including the portion occupied by private respondent: (1) petitioner was already informed by Gaudencio Beduya that private respondent occupied a portion of the property covered by TCT No. 10101; and (2) petitioner’s representative conducted an investigation of the property in 1979 to ascertain whether the land mortgaged by private respondent was included in TCT No. 10101. In other words, petitioner was already aware that a person other than the registered owner was in actual possession of the land when it bought the same at the foreclosure sale. A person who deliberately ignores a significant fact which would create suspicion in an otherwise reasonable man is not an innocent purchaser for value. "It is a well-settled rule that a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor."53 [Lucena v. Court of Appeals, supra citing Santiago v. Court of Appeals, 247 SCRA 336 (1995)]

Petitioner deliberately disregarded both the fact that private respondent already occupied the property and that he was claiming ownership over the same. It cannot feign ignorance of private respondent’s claim to the land since the latter mortgaged the same land to petitioner as security for the loan he contracted in 1978 on the strength of the tax declarations issued under his name. Instead of inquiring into private respondent’s occupation over the land, petitioner simply proceeded with the foreclosure sale, pretending that no doubts surround the ownership of the land covered by TCT No. 10101. Considering these circumstances, petitioner cannot be deemed an innocent mortgagee/purchaser for value. As we ruled: Scjj

Fourth. From the foregoing, we find that the resolution of the issue of estoppel will not affect the outcome of this case. Petitioner claims that the fact that it approved a loan in favor of private respondent and executed a mortgage contract covering the 19.4 hectares covered by tax declarations issued under private respondent’s name does not mean that it is estopped from questioning the latter’s title. Petitioner accuses private respondent of having made misrepresentations which led it to believe in his valid title and ownership.

The claim has no basis. Private respondent made no misrepresentation with regard to the land occupied by him as he is actually the real owner thereof. Moreover, when private respondent entered into a mortgage contract with petitioner, his claim of ownership was supported not only by the tax declarations but also by a certification of the Clerk of Court of the Court of First Instance of Bohol that no civil, land registration or cadastral case has been filed or instituted before the court affecting the validity of Tax Declaration No. D-2247 covering the land located in Bugang, San Miguel, Bohol and declared in the name of Carlos Cajes.55 [Exh. 8.] These documents were relied upon by private respondent in support of his claim of ownership. We cannot consider the submission of these documents as misrepresentations by private respondent as to the actual ownership of the land. Rather, private respondent believed in good faith and with good reason that he was the owner of the 19.4 hectares occupied by him. Sjcj

As to the question of estoppel, we do not find petitioner to be estopped from questioning private respondent’s title. "Estoppel in pais arises when one, by his acts, representations or admission, or by his own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to deny the existence of such facts."56 [Ibaan Rural Bank, Inc. v. Court of Appeals, G.R. No. 123817, Dec. 17, 1999.] In the case at bar, upon learning that the land occupied by private respondent was also covered by TCT No. 10101, petitioner immediately demanded full payment of the loan and thereafter cancelled the mortgage contract, a fact that is admitted by private respondent himself.57 [Brief for the Appellant, p. 3; CA Rollo, p. 22.] Indeed, nothing in record indicates that petitioner impliedly acquiesced to the validity of private respondent’s title when it found out that the latter was occupying a portion of the land covered by TCT No. 10101.

However, for reasons aforestated, we uphold private respondent’s ownership of 19.4 hectares occupied by him. As a necessary consequence thereof, such portion of land included in TCT No. 10101 must be segregated and reconveyed in his favor.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED in toto.

SO ORDERED. Supreme

Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.