Aznar Brothers Realty Company vs. Aying

An action for reconveyance based on an implied or constructive trust prescribes in ten years from the time the right of action accrues, and where the conveyance was registered under Act No. 3344 instead of the Land Registration Act, the prescriptive period runs from the time the aggrieved parties had actual notice of the conveyance, not from the date of such registration.

The disputed property, Lot No. 4399 in Dapdap, Lapu-Lapu City, was originally titled in the names of eight Aying siblings under OCT No. RO-2856, which was reconstituted after the original certificate was lost during the war. Aznar Brothers Realty Company acquired the property through an Extra-Judicial Partition of Real Estate with Deed of Absolute Sale executed by some but not all of the Aying heirs on March 3, 1964. The deed was registered under Act No. 3344, the law governing registration for unregistered land, even though the property was already titled under the Land Registration Act (Act No. 496). Aznar had previously litigated and won an ejectment case against occupants of the property, which reached the Supreme Court as G.R. No. 128102.

The disputed property is Lot No. 4399, a 34,325-square-meter parcel in Dapdap, Lapu-Lapu City. Crisanta Maloloy-on petitioned for a cadastral decree over the property, but after her death in 1930, the Cadastral Court directed the issuance of a decree in the name of her eight children: Juan, Celedonio, Emiliano, Francisco, Simeon, Bernabe, Roberta, and Fausta, all surnamed Aying. The certificate of title was lost during the war.

On March 3, 1964, the heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with Deed of Absolute Sale conveying the property to Aznar Brothers Realty Company. The deed was registered with the Register of Deeds of Lapu-Lapu City on March 6, 1964 under Act No. 3344, the law governing registration for unregistered land, even though the property was already titled under the Land Registration Act. Aznar thereafter religiously paid real property taxes on the property. In 1988, Aznar filed a petition for reconstitution of the original title, which was granted on April 12, 1988, resulting in the issuance of OCT No. RO-2856 in the name of the eight Aying siblings.

In 1991, Aznar, claiming to be the rightful owner, sent notices to vacate to persons occupying the property. Unheeded, Aznar filed an ejectment complaint before the Metropolitan Trial Court of Lapu-Lapu City, which on February 1, 1994, ordered the occupants to vacate. The case eventually reached the Supreme Court as G.R. No. 128102, where on March 7, 2000, Aznar was declared the rightful possessor.

Meanwhile, respondents—descendants of the eight Aying siblings numbering around 220 persons—filed a complaint for cancellation of the Extra-Judicial Partition with Absolute Sale, recovery of ownership, injunction, and damages with the RTC of Lapu-Lapu City. The complaint was dismissed twice without prejudice and re-filed on August 19, 1993, docketed as Civil Case No. 2930-L. In their amended complaint filed on December 6, 1993, respondents alleged that they were co-owners of the property as descendants of the registered owners, that they had been in actual, peaceful, open, adverse, and continuous possession since time immemorial, and that their possession was disturbed only in the last quarter of 1991 when some received notices to vacate and earthmoving equipment entered the land, bulldozing it and destroying plants, trees, and monuments. They alleged that the Extra-Judicial Partition with Deed of Absolute Sale was null and void ab initio because not all co-owners signed it and some signatories had already been dead at the time of execution.

Aznar denied that respondents were the lawful owners, asserting that it had been in actual possession as owner by virtue of the deed, that it had been paying taxes religiously, and that it had tolerated about six persons to live on the land but these were eventually ejected by court order. Aznar raised the affirmative defenses of failure to state a cause of action and prescription, arguing that respondents took 27 years, 10 months, and 27 days to file the action. The RTC found that the deed was not forged or simulated and declared it valid, effectively conveying the property to Aznar. It ruled that respondents' action had prescribed—whether treated as an action for reconveyance based on implied trust (10 years from registration on March 6, 1964) or as an action for annulment based on fraud (4 years from discovery). The RTC also found that respondents failed to present admissible proof of filiation. The CA affirmed with modification, holding that the action had not prescribed because no title to registered land could be acquired by prescription and no evidence of repudiation of trust was made known to non-participating heirs. The CA upheld the validity of the deed except as to the shares of the heirs of Emiliano, Simeon, and Roberta Aying, who did not participate in its execution, declaring them owners of a 3/8 portion.

• Laches: Petitioner argued that the CA erred in failing to apply the rule that an heir of the original registered owner may lose the right to recover a titled property by reason of laches.
• Repudiation of Trust: Petitioner maintained that the CA erred in failing to apply the rule that the act of registration of the deed of partition with sale may be considered an unequivocal repudiation of the trust giving rise to prescription.
• Article 1104 of the Civil Code: Petitioner argued that the CA erred in failing to apply Article 1104, which provides that in the absence of bad faith or fraud, a partition with preterition of any compulsory heir shall not be rescinded.

• Imprescriptibility: Respondents argued that the case is an action to declare the Extra-Judicial Partition with Deed of Absolute Sale null and void, hence under Article 1410 of the Civil Code, an action for declaration of an inexistent contract does not prescribe.
• Laches Against Petitioner: Respondents posited that the principle of laches should be applied against petitioner and not against them, as they had been in actual possession of the subject property while petitioner merely brought action to eject them more than 29 years after the alleged execution of the deed.
• Trust Principles: Respondents refuted petitioner's arguments regarding the application of implied and constructive trust principles.

• Prescription: Whether respondents' cause of action is imprescriptible.
• Laches: Whether the principle of laches may apply if respondents' right to bring action is imprescriptible.

• Prescription: No. The cause of action is not imprescriptible; an action for reconveyance based on an implied or constructive trust prescribes in ten years from the time the right of action accrues under Article 1144 of the Civil Code. The prescriptive period runs from actual notice where the deed was registered under Act No. 3344 instead of the Land Registration Act.
• Laches: As to the heirs of Emiliano and Simeon Aying, no; they filed within the prescriptive period. As to the heirs of Roberta Aying, their claim is already barred by prescription, having known of the conveyance since 1967.

• Prescription: The Extra-Judicial Partition with Deed of Absolute Sale was valid and binding only as to the heirs who participated in its execution; the heirs of Emiliano, Simeon, and Roberta Aying did not participate and could not be bound. Petitioner acquired the entire property under the mistaken belief that all heirs had executed the document, bringing Article 1456 of the Civil Code into play—property acquired through mistake or fraud creates an implied or constructive trust. Under established jurisprudence, an action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title. However, because the deed was registered under Act No. 3344 and not under the Land Registration Act (Act No. 496), it was deemed not registered and could not operate as constructive notice. The prescriptive period therefore ran from actual notice, not from the date of registration. Petitioner, as the party asserting the affirmative defense of prescription, bore the burden of proving when respondents learned of the conveyance. Evidence existed only for the heirs of Roberta Aying—Wenceslao Sumalinog admitted they learned of the deed around 1967, giving them until 1977 to file. For the heirs of Emiliano and Simeon Aying, petitioner failed to adduce proof of when they discovered the conveyance, so the admission in the amended complaint that they learned of it in 1991 when notices to vacate were sent was used as the reckoning date. Their amended complaint filed on December 6, 1993 was thus within the ten-year period.

• Laches: Laches cannot be applied against the heirs of Emiliano and Simeon Aying because they took action to protect their interest well within the period accorded by law. As to the heirs of Roberta Aying, their claim was already barred by prescription. Petitioner's argument regarding Article 1104 was rejected because the Extra-Judicial Partition was not being rescinded—its validity was upheld but only as to the participating heirs. What was conveyed to Aznar was ownership over the shares of those who executed the deed; Article 1456 imposed upon Aznar the obligation to act as trustee for the benefit of the non-participating heirs who filed within the prescriptive period.

• Constructive Trust (Article 1456, Civil Code) — If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. A constructive trust, unlike an express trust, does not emanate from or generate a fiduciary relation; it is created by construction of equity to prevent unjust enrichment. The Court applied this because Aznar acquired the entire property under the mistaken belief that all heirs had executed the deed, making it a constructive trustee for the non-participating heirs.

• Prescription of Actions for Reconveyance Based on Constructive Trust — An action for reconveyance based on an implied or constructive trust prescribes in ten years from the time the right of action accrues under Article 1144 of the Civil Code. The ten-year period generally runs from the date of registration of the deed or issuance of the Torrens title, but if the claimant is in actual possession, the right to seek reconveyance does not prescribe. Where the deed was registered under Act No. 3344 instead of the Land Registration Act, the deed is deemed not registered, and the prescriptive period runs from actual notice to the aggrieved parties.

• Repudiation Not Required for Constructive Trusts — The rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and unless he repudiates the trust applies to express trusts and resulting implied trusts. In constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship; repudiation is not a condition precedent to the running of the prescriptive period.

• Burden of Proof on Prescription — The party asserting the affirmative defense of prescription bears the burden of proving the date from which the prescriptive period began to run. Failure to adduce evidence of when the opposing party discovered the conveyance means the prescriptive period is reckoned from the latest ascertainable date of notice.

• "An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise." — This is the canonical formulation of the prescriptive period for reconveyance actions grounded on constructive trust, frequently cited in subsequent jurisprudence.

• "If the land is registered under the Land Registration Act (and has therefore a Torrens Title), and it is sold but the subsequent sale is registered not under the Land Registration Act but under Act 3344, as amended, such sale is not considered REGISTERED" — This passage establishes that registration under Act No. 3344 of a conveyance involving Torrens-titled land does not constitute valid registration, which determines the reckoning point for the prescriptive period.

• "The rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and unless he repudiates the trust, applies to express trusts and resulting implied trusts. However, in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of said trust is not a condition precedent to the running of the prescriptive period." — This distinguishes constructive trusts from express and resulting trusts regarding the necessity of repudiation for prescription to begin running.

• Vda. De Esconde vs. Court of Appeals, G.R. No. 103635, February 1, 1996, 253 SCRA 66 — Followed. Explained the nature of constructive trusts under Article 1456 and the distinction between express/resulting trusts and constructive trusts regarding repudiation and prescription.

• Amerol vs. Bagumbaran, No. L-33261, September 30, 1987, 154 SCRA 396 — Followed. Established that an action for reconveyance based on implied or constructive trust prescribes in ten years under Article 1144 of the Civil Code, reckoned from the issuance of the Torrens title.

• Heirs of Jose Olviga vs. Court of Appeals, G.R. No. 104813, October 21, 1993, 227 SCRA 330 — Followed. Held that the ten-year prescriptive period begins from registration or issuance of title, but if the claimant is in actual possession, the right to seek reconveyance does not prescribe.

• Spouses Abrigo vs. De Vera, G.R. No. 154409, June 21, 2004 — Followed. Held that registration of instruments must be done in the proper registry to operate as constructive notice; registration under Act No. 3344 of a sale involving Torrens-titled land is not considered registered.

• Article 1456, Civil Code — Provides that property acquired through mistake or fraud creates an implied trust. Applied because Aznar acquired the property under the mistaken belief that all heirs participated in the deed, making it a constructive trustee for the non-participating heirs.

• Article 1144, Civil Code — Provides that actions upon an obligation created by law must be brought within ten years from the time the right of action accrues. Applied as the prescriptive period for reconveyance based on constructive trust.

• Article 1410, Civil Code — Cited by respondents, providing that an action for declaration of the nullity of an inexistent contract does not prescribe. Not applied because the deed was not declared inexistent but valid only as to participating heirs.

• Article 1104, Civil Code — Cited by petitioner, providing that a partition with preterition of a compulsory heir shall not be rescinded absent bad faith or fraud. Rejected because the deed was not being rescinded; its validity was upheld as to participating heirs.

• Act No. 3344 — The law governing registration for unregistered land. Registration of the deed under this Act instead of the Land Registration Act meant the deed was deemed not registered, affecting the reckoning of the prescriptive period.

• Act No. 496 (Land Registration Act) / PD 1520 — The Land Registration Act governing Torrens titles. Section 44 (now Section 47, PD 1520) provides that no title to registered land in derogation of a registered owner shall be acquired by prescription.

Puno (Chairman), Callejo, Sr., Tinga, and Chico-Nazario, JJ., concurred.