This is a petition for review assailing the decision of the Court of Appeals,1 [CA - G. R. CV No. 16757, promulgated on May 25, 1992, Justice Nathanael P. de Pano, Jr., ponente, Justices Jesus M. Elbinias and Angelina S. Gutierrez, concurring, Rollo, pp. 44-60.] reversing and setting aside that of the Regional Trial Court, Branch 22, General Santos City,2 [In Civil Case No.1678, Decision dated July 9, 1987, Judge Abednego O. Adre. Original Record, pp. 217-235.] and dismissing the complaint for reversion of lot 5249, Ts-217, situated at Dadiangas. General Santos City and cancellation of titles, for lack of merit.

The facts are as follows:

After public bidding held on March 18, 1950, the Board of Liquidators,3 [Pursuant to Executive Order No. 60, in relation to Republic Act 1160, the Board of Liquidators became the office in charge of disposition of home lots formerly under the administration of the defunct LASEDECO.] awarded Lot 5249 Ts-217, a 450 square meter land situated in Dadiangas, General Santos City, to Eusebio Diones of Takurong, Bubon, Cotabato. On March 11, 1955, Eusebio Diono transferred his rights over the lot to Enrique P. de Guzman (de Guzman, for brevity) for P700.00, evidenced by an Agreement of Transfer of Right.4 [Exhibit P, Folder of Exhibits, p. 34.] On November 12, 1956, the Board of Liquidators cancelled the award previously given to Eusebio Diones.5 [Exhibit T, Folder of Exhibits, p. 39.]

From the time he purchased the lot, de Guzman did not occupy it. In 1963, Lucena Ong Ante, another claimant of Lot 5249 Ts-217, authorized Carmen Ty to occupy the land. Ong Ante paid the corresponding real estate taxes from 1963 until 1980. Carmen Ty remained the occupant of the land until this time.

On August 12, 1967, de Guzman filed with the Board of Liquidators, Miscellaneous Sales Application No. 00222-E,6 [Exhibit S, Folder of Exhibits, p. 38.] and submitted supporting documents.

On August 29, 1967, the Director of Lands ordered the award and issuance of a patent in favor of de Guzman.7 [Exhibit M, Folder of Exhibits, p. 31.] On September 5, 1967, the Department of Agriculture and Natural Resources approved and issued Miscellaneous Sales Patent No. 814 to de Guzman.8 [Exhibit L, Folder of Exhibits, p. 29.] On September 26, 1967, the Register of Deeds, General Santos, issued Original Certificate of Title No. P-29712 in the name of de Guzman.9 [Exhibit I, Folder of Exhibits, pp. 25-26.]

Sometime in 1973, de Guzman sold the lot to his married daughter and her husband, Carolina R. de Guzman and Rio Rivera for P5,000.00. The covering deed of sale could not be located10 [TSN, February 21, 1985, p. 66.] and Rio Rivera admitted that his father-in-law Enrique P. de Guzman was not in occupation of the lot in question.11 [TSN, Ibid., pp. 80-81.] On September 4, 1973, the Register of Deeds of General Santos City issued Transfer Certificate of Title No.T-7203 to spouses Rio Rivera and Carolina R. de Guzman.12 [Exhibit Z, Folder of Exhibits, p. 94.] On March 21, 1974, Lucena Ong-Ante’s adverse claim was annotated on the title of the lot.13 [Exhibit I-1, Folder of Exhibits, p. 26.]

Meanwhile, on February 13, 1974, spouses Rivera and Hoeschst, Phils., Inc., as mortgagor and mortgagee, respectively, executed a deed of real estate mortgage involving the lot. For failure to settle their obligation, on October 29, 1977, mortgagee Hoechst Phils., Inc., foreclosed on the mortgage and acquired the lot at the foreclosure sale. A certificate of sale was issued in favor of Hoechst Phils., Inc. However, for unknown reasons, the real estate mortgage and certificate of sale were not registered with the Register of Deeds. Thus, the transfer certificate of title remained in the name of spouses Rivera.

On January 14, 1981, petitioner Republic of the Philippines filed with the Court of First Instance, 16th Judicial District, General Santos City re-amended complaint14 [Original Record, pp. 85-97. On July 23, 1976, the Republic of the Philippines filed a complaint for reversion and cancellation of titles with then Court of First Instance, 16th Judicial District, General Santos City against Enrique P. de Guzman, spouses Rio Rivera and Carolina R. de Guzman and the City Registrar of Deeds, General Santos City. On March 10, 1978, the trial court ordered petitioner to implead as party defendant, Hoechst Philippines, Inc., subsequent buyer of subject land, Lot 5249 Ts-217, from spouses Rio and Carolina de Guzman. On December 29, 1978, the court dismissed the complaint for failure to comply with the above order and for failure to prosecute. On January 16, 1979, petitioner filed an amended complaint impleading Hoechst Phils. Upon motion of petitioner, on March 2, 1979, the court set aside the order of dismissal and reinstated the case. On January 14, 1981, petitioner filed re-amended complaint On March 4, 1983, the court again dismissed the case for failure to prosecute. However, on June 10, 1983, it set aside the order of dismissal and reinstated the case.] for reversion of Lot 5249 Ts-217 and cancellation of titles against Enrique P. de Guzman, spouses Rio Rivera and Carolina R. de Guzman, the City Registrar of Deeds, General Santos City and Hoechst Phils., Inc.

In its re-amended complaint,15 [Original Records, pp. 85-97.] petitioner Republic of the Philippines averred that Enrique P. de Guzman obtained Original Certificate of Title No. P-29712 through fraudulent means. Petitioner contended since Lot 5249 Ts-217 was awarded to Eusebio Diones, hence, Eusebio Diono had no right to execute a deed of transfer in favor of Enrique de Guzman. Petitioner maintained that the documents presented by de Guzman to support his miscellaneous sales application were either issued by fictitious persons who were not employees of the Board of Liquidators, or contained inconsistencies that cast doubt on their authenticity.

De Guzman was neither in actual possession of the land, nor made improvements thereto, as he alleged in his sales application. Actual possession of the land by the applicant and making improvements thereto were among the legal requirements to be complied with by an applicant. Thus, Miscellaneous Sales Patent No. 814 and Original Certificate of Title No. P-29712 issued to de Guzman pursuant thereto were null and void. Also, Transfer Certificate of Title No. T-2703 in the name of spouses Rivera was null and void for they were not innocent purchasers for value. Admittedly, they knew that their vendor de Guzman was not in possession of the lot. Petitioner asserted that Lot 5249 Ts-217 must be reverted back to the mass of public domain.

On July 9, 1987, the trial court rendered decision in favor of petitioner.16 [Original Records, pp. 217-235.] It held that the supporting documents submitted by de Guzman were falsified, hence, OCT No. P-29712 issued in his name was obtained through fraudulent means. Furthermore, the fact that de Guzman was not in possession of the property disqualified him from being awarded the sales patent. The trial court ruled that Rio Rivera and Carolina R. de Guzman were not innocent purchasers for value since their close relationship with Enrique P. de Guzman put them on notice of knowledge of a defect in the acquisition of title to the land. The trial court ordered the reversion of the land to the mass of public domain.

The dispositive portion decreed as follows:

On November 10, 1988, spouses Rivera appealed the decision to the Court of Appeals.18 [Docketed as CA - G. R. CV No. 16757.]

On May 25, 1992, the Court of Appeals rendered decision reversing the decision of the trial court.19 [Rollo, pp. 44-60.] The Court of Appeals ruled that when Enrique P. de Guzman obtained Original Certificate of Title No. P-29712, the land ceased to be part of the public domain. The land became registered under the Torrens system, converted into a private registered land, and governed by the Property Registration Decree (P.D. 1529). Being a private land, the Director of Lands had neither control nor jurisdiction over the land. Furthermore, the title became indefeasible after the expiration of one (1) year from issuance thereof.

The Court of Appeals found that no fraud attended the issuance of the patent and Original Certificate of Title to de Guzman. It stated that the discrepancy in the name Diono and Diones appearing in the records was a mere typographical error.

The appellate court gave little credit to the investigation report relied upon by the trial court. It held that no other evidence, whether testimonial or documentary, was presented to prove that the documents presented by de Guzman were issued by fictitious persons or entirely fabricated.

However, the Court of Appeals sustained the finding of the trial court that Enrique P. de Guzman and spouses Rivera were not in possession of the property. The Court of Appeals concluded that de Guzman misrepresented facts in his application since he was not the possessor at the time he applied for the sales patent. Nonetheless, the Court of Appeals ruled that title founded on fraud or misrepresentation could not be assailed since more than one year had lapsed from the issuance of the public land patent.

At any rate, the Court of Appeals held that the land has passed to innocent purchasers for value, namely, spouses Rivera. The Court of Appeals argued that mere relationship to de Guzman, without any other proof of bad faith on the part of spouses Rivera, did not dispute the presumption that they were innocent purchasers for value.

On August 19, 1992, the Republic of the Philippines filed with this Court, a petition for review on certiorari of the Court of Appeals’ decision.20 [Rollo, pp. 13-42.]

On February 17, 1993, we gave due course to the petition and required the parties to file their respective memoranda.21 [Rollo, p. 103.] The parties have complied.

Petitioner Republic of the Philippines contends that Enrique de Guzman obtained the Miscellaneous Sales Patent No. 814 and OCT No. P-29712 through fraudulent means. Petitioner avers that the supporting documents submitted by de Guzman together with his sales application, were either fabricated or issued by fictitious persons. Thus, both the sales application and original certificate of title issued in favor of Enrique P. de Guzman were null and void. Petitioner avers that respondent spouses Rivera being related by consanguinity and affinity to de Guzman were not innocent purchasers for value.

We grant the petition.

Initially, we resolve the question of whether or not the Director of Lands loses authority over the land the moment an original certificate of title is issued covering the same. The Court of Appeals ruled that the issuance of the original certificate of title converted the lot into a private land, thereby placing it beyond the authority of the Director of Lands.

We disagree. The authority of the Director of Lands to investigate conflicts over public lands is derived from Section 91 of the Public Land Act. In fact, it is not merely his right but his specific duty to conduct investigations of alleged fraud in securing patents and the corresponding titles thereto. While title issued on the basis of a patent is as indefeasible as one judicially secured, such indefeasibility is not a bar to an investigation by the Director of Lands as to how such title had been acquired, if the purpose of such investigation is to determine whether or not fraud had been committed in securing such title, in order that the appropriate action for reversion may be filed by the Government.22 [Republic v. Court of Appeals, 171 SCRA 723, 731-733 (1989), Republic v. Court of Appeals, 255 SCRA 335, 340-341 (1996), Baguio v. Republic, 301 SCRA 450, 454-455 (1999).]

The next issue to determine is whether or not Enrique P. de Guzman validly obtained the sales patent and the original certificate of title.

We rule in the negative. There is no question that de Guzman was not in possession of the property. Hence, de Guzman misrepresented facts in his application for sales patent. Even the Court of Appeals sustained the factual finding of the trial court on this point. However, the Court of Appeals held that an action for cancellation of patent or title could not be maintained after the lapse of one year from the date of issuance thereof. As heretofore stated, the ruling is erroneous.

The next issue is whether or not the validity of the patent and the original certificate of title can still be assailed after the lapse of one year from the issuance of the disputed title.

We rule that the State can assail a patent fraudulently issued by the Director of Lands. "Where public land is acquired by an applicant through fraud and misrepresentation, the State may institute reversion proceedings even after the lapse of one year."23 [Republic v. Court of Appeals, supra; Baguio v. Republic, supra.] "The indefeasibility of a title does not attach to titles secured by fraud and misrepresentation."24 [Baguio v. Republic, supra.]

The last issue to resolve is whether the spouses Rivera are innocent purchasers for value.

We agree with the trial court that spouses Rivera are not innocent purchasers for value. Spouses Rivera are related by consanguinity and affinity to Enrique P. de Guzman knew that de Guzman was not in possession of the land. In fact, Rio Rivera testified that his father-in-law was not in possession of the lot in question. Carmen Ty was in possession of the land since 1963 and paid the real estate taxes thereon. We do not agree with the Court of Appeals that the presumption of a buyer in good faith must prevail. "The burden of proving the status of a purchaser in good faith and for value lies upon him who asserts that status. In discharging the burden, it is not enough to invoke the ordinary presumption of good faith."25 [Embrado v. Court of Appeals, 233 SCRA 355 (1994).] "The rule is settled that a buyer of real property which is in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. Otherwise, without such inquiry, the buyer can hardly be regarded as buyer in good faith."26 [Embrado v. Court of Appeals, supra.]

"A purchaser or mortgagee 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 or mortgagor. His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect in the vendors or mortgagor's title, will not make him an innocent purchaser or mortgagee for value, if it afterwards develops that the title was in fact defective, and it appears that he had such notice of the defects as would have led to its discovery had he acted with the measure of precaution which may be required of a prudent man in a like situation."27 [Uy v. Court of Appeals, 246 SCRA 701 (1995).]

WHEREFORE, we GRANT the petition and REVERSE the decision of the Court of Appeals. We declare Miscellaneous Sales Patent No. 814 and Original Certificate of Title No. P-29712 in the name of Enrique P. de Guzman, and Transfer Certificate of Title No. T-7203 in the name of spouses Rio Rivera and Carolina R. de Guzman, and all subsequent transfer certificates of title derived therefrom, as null and void. We order the reversion to the mass of public domain of Lot 5249, Ts-217, located in Dadiangas, General Santos City.

No costs.

Davide, Jr., C.J., (Chairman), Puno, and Ynares-Santiago, JJ., concur.

Kapunan, J., No part. Signed the complaint for reversion filed in the OSG.