Benito vs. Saquitan-Ruiz

The cause of action is determined from the allegations of the complaint, not from its caption; where the allegations constitute a suit for reconveyance based on implied or constructive trust, the prescriptive period is ten years from the issuance of the certificate of title, not one year from the entry of the decree of registration, and the right to seek reconveyance does not prescribe when the claimant is in actual possession of the property.

Respondent Agapita Saquitan-Ruiz purchased a 60-square-meter parcel of land from petitioners Spouses Horacio and Felisa Benito under a deed of absolute sale executed on April 17, 1979. Petitioners thereafter re-subdivided the property and caused the issuance of new transfer certificates of title that included the portion previously sold to respondent. The dispute concerns whether respondent's complaint to compel delivery of title and to cancel the fraudulently obtained certificates states a cause of action for reconveyance — which prescribes in ten years — or an action to invalidate certificates of title grounded on fraud, which prescribes in one year from the entry of the decree of registration.

On April 17, 1979, petitioners Spouses Horacio and Felisa Benito sold to respondent Agapita Saquitan-Ruiz a 60-square-meter parcel of land located in Pasig City, designated as Lot 1-B-2 of Subdivision Plan (LRC) Psf-286352, covered by Transfer Certificate of Title No. 17136-T-86-D-II, for the amount of P6,000. The deed of absolute sale warranted petitioners' quiet and clean title. Despite repeated verbal and written demands, petitioners failed to deliver or cause the issuance of a new certificate of title in respondent's name.

Petitioners, allegedly in gross bad faith and with fraudulent intent, re-subdivided the entire parcel covered by TCT No. 17136/T-86-D-II — originally consisting of three lots: Lot I-B-1 (80 sq m), Lot I-B-3 (60 sq m), and petitioners' Lot I-B-2 (60 sq m) — into five lots, and caused the issuance of Transfer Certificate of Title Nos. PT-101743 through PT-101747 under petitioner Horacio Benito's name. These new titles included the 60-square-meter portion previously sold to respondent, rendering the five titles null and void, according to the complaint.

On April 1, 1999, respondent filed a civil suit for "specific performance with declaration of nullity of titles and damages." The RTC dismissed the complaint on June 28, 1999, on grounds of prescription and laches, noting that the assailed certificates of title had been issued on March 25, 1996 — more than one year before the complaint was filed — and that respondent had waited 20 years from the execution of the deed of absolute sale before filing suit. Respondent's motion for reconsideration and for leave to amend the complaint was denied on August 20, 1999, the RTC ruling that the amendment would change the theory of the case. The CA reversed, holding that the action was for reconveyance, which prescribes in ten years from the issuance of the title, and thus had not prescribed.

Petitioners alleged additional facts in their Memorandum: the parties were originally squatters on land owned by Francisco Valmores, who offered to sell the land to them, but only petitioners agreed to buy it. After purchasing the land, petitioners instituted ejectment proceedings against the other squatters. Respondent bought on installment the portion of the land where her property stood. Petitioners claimed respondent reneged on her promise to contribute P6,000 for ejectment expenses, which they characterized as the consideration of the sale. Petitioners later borrowed money from Basilia dela Cruz, who sued them for collection and obtained a judgment for P75,000. A writ of execution was issued, and the disputed portion was sold to dela Cruz at a public auction. The Certificate of Sale was issued on May 26, 1998, and the Certificate of Final Deed of Sale on May 27, 1999. Respondent remained in actual possession of the disputed property throughout.

• Sale to Third Party: Petitioners argued that the action for reconveyance had been rendered moot and academic because the disputed lot was already sold to Basilia dela Cruz at a public auction, and that the property was transferred in good faith and for value to a third party, making the exercise of the right to reconveyance no longer feasible.
• Nonpayment of Consideration: Petitioners contended that respondent did not pay any consideration for the sale, which explained why she did not demand the certificate of title for twenty years.
• Laches: Petitioners maintained that respondent's long inaction or passivity in asserting her rights over the disputed property precluded any recovery.
• Amendment of Complaint: Petitioners argued before the RTC that the amendment of the complaint would change the theory of the case and subject them to an entirely new liability.

• Nature of Action and Prescription: Whether the allegations of the complaint constitute a cause of action for reconveyance, which prescribes in ten years from the issuance of the certificate of title, rather than an action to invalidate certificates of title grounded on fraud, which prescribes in one year from the entry of the decree of registration.
• Transfer to Third Party: Whether the action for reconveyance was rendered moot and academic by the sale of the disputed property to a third party at a public auction.
• Nonpayment of Consideration and Unilateral Rescission: Whether respondent's alleged nonpayment of consideration entitled petitioners to unilaterally rescind the contract of sale.
• Laches: Whether respondent was guilty of laches for her failure to assert her rights over the disputed property for an unreasonable length of time.

• Nature of Action and Prescription: No. The complaint's allegations, not its caption, determine the cause of action; the allegations constitute a suit for reconveyance based on implied or constructive trust, which prescribes in ten years from the issuance of the title, and the complaint was filed within that period.
• Transfer to Third Party: No. The complaint was filed before the third party purchaser's ownership was confirmed, the redemption period had not yet expired, and respondent remained in actual possession of the property, preserving her right to seek reconveyance.
• Nonpayment of Consideration and Unilateral Rescission: No. A seller cannot unilaterally and extrajudicially rescind a contract of sale absent an express stipulation authorizing it, and the alleged nonpayment was an unsubstantiated allegation requiring trial.
• Laches: No. There was no showing that petitioners ever demanded the alleged unpaid consideration, and respondent's actual possession of the property gave her a continuing right to vindicate her title, precluding a finding of laches.

• Nature of Action and Prescription: The cause of action is determined from the allegations of the complaint, not from its caption. The complaint alleged that petitioners fraudulently caused the issuance of new titles that included the portion previously sold to respondent, rendering those titles null and void and warranting their cancellation. These allegations constituted a suit for reconveyance — the transfer of property wrongfully or erroneously registered in another person's name to its rightful and legal owner. While a review of the decree of registration can no longer be done after one year from its entry, those wrongfully deprived of property may still initiate an action for reconveyance. Such an action based on implied or constructive trust prescribes in ten years from the issuance of the assailed certificate of title. Since the titles were issued on March 25, 1996, and the complaint was filed on April 1, 1999, the action had not prescribed.

• Transfer to Third Party: The complaint was seasonably filed on April 16, 1999, before the ownership of the third party purchaser, Basilia dela Cruz, had been confirmed. dela Cruz acquired the property through a judicial execution sale, meaning her right to conveyance and possession was subject to the 12-month redemption period under Section 33, Rule 39 of the Rules of Court. The Certificate of Sale was issued on May 26, 1998, and the Certificate of Final Deed of Sale only on May 27, 1999 — after the complaint had already been filed. Section 16 of the same Rule provides that nothing shall prevent the vindication of any third person's claim to property subjected to execution in a separate action. Furthermore, respondent was in actual possession of the disputed property, and where a person claiming ownership is in actual possession, the right to seek reconveyance does not prescribe.

• Nonpayment of Consideration and Unilateral Rescission: When the obligor fails to comply with a reciprocal obligation, the injured party's remedies are specific performance or judicial rescission under Article 1191 of the Civil Code. A seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express stipulation authorizing it. Unilateral rescission will not be judicially favored where the breach is not substantial and fundamental. Moreover, petitioners' allegations of nonpayment were unsubstantiated and were not raised in their motion to dismiss; they possessed neither persuasive nor evidentiary value. It would be a denial of due process to dismiss the complaint based on grounds not relied upon in the motion to dismiss, depriving respondent of any opportunity to dispute the allegations. Section 2, Rule 16 of the Rules of Court requires parties to submit evidence on questions of fact during the hearing of a motion to dismiss, and the evidence for alleged nonpayment already existed at that time.

• Laches: Laches is the failure or neglect for an unreasonable and unexplained length of time to do that which, by due diligence, could or should have been done earlier. Respondent could not be held guilty of laches because there was no showing that petitioners ever demanded the alleged unpaid consideration for the sale. The motion to dismiss filed by petitioners contained no hint of nonpayment, breach of contract, or extinguishment of obligation. The external facts petitioners presented were merely unsubstantiated allegations. As a general rule, a complaint cannot be dismissed based on a ground not relied upon in a motion to dismiss. The continuation of trial was necessary to allow the parties to fully ventilate their claims and defenses, the Court not being a trier of facts.

• Cause of Action Determined by Allegations, Not Caption — The nature of a cause of action is determined from the allegations of the complaint, not from its caption or designation. Applied here to hold that although the complaint was captioned "specific performance with declaration of nullity of titles and damages," its allegations constituted an action for reconveyance.

• Action for Reconveyance Based on Implied or Constructive Trust — An action for reconveyance transfers property wrongfully or erroneously registered in another person's name to its rightful and legal owner or to one with a better right. Though the decree of registration is incontrovertible, a reconveyance suit may still be pursued. The prescriptive period is ten years, counted from the date of issuance of the assailed certificate of title, provided the property has not yet passed to an innocent purchaser for value.

• Non-Prescription When Claimant Is in Actual Possession — If a person claiming to be the owner of wrongfully registered land is in actual possession, the right to seek reconveyance does not prescribe. A person in undisturbed possession may wait until their possession is disturbed or their title attacked before vindicating their right; undisturbed possession gives a continuing right to seek judicial aid.

• Prohibition Against Unilateral Rescission — A seller cannot unilaterally and extrajudicially rescind a contract of sale absent an express stipulation authorizing it. Unilateral rescission will not be judicially favored where the breach is not substantial and fundamental to the fulfillment of the obligation.

• Laches — The failure or neglect for an unreasonable and unexplained length of time to do that which, by exercise of due diligence, could or should have been done earlier. Laches cannot be imputed where there is no showing that the opposing party ever demanded performance or asserted the breach.

• "Basic is the rule that the cause of action is determined from the allegations of a complaint, not from its caption. Since the allegations in the herein Complaint constitute a suit for reconveyance, not an action to invalidate certificates of title grounded on fraud, the prescriptive period is ten years, not one year from the entry of the decree of registration." — This is the opening statement of the decision and encapsulates the controlling ratio decidendi: the nature of the action and its prescriptive period are governed by the complaint's allegations rather than its designation.

• "While a review of the decree of registration can no longer be done after the expiration of one year from the entry of the decree, those wrongfully deprived of their property may still initiate an action for its reconveyance." — This passage articulates the distinction between the one-year period for reviewing a decree of registration and the ten-year prescriptive period for reconveyance, a foundational principle in Torrens system jurisprudence.

• "If a person claiming to be the owner of a wrongfully registered parcel of land is in actual possession, the right to seek reconveyance does not prescribe." — This formulation of the possession-based exception to prescription of reconveyance is frequently cited in subsequent land registration jurisprudence.

• "A seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express stipulation authorizing it." — This statement of the rule against unilateral rescission of contracts of sale was applied to reject petitioners' claim that respondent's alleged nonpayment extinguished the sale.

• Villanueva-Mijares vs. Court of Appeals, 330 SCRA 349 (2000) — Cited for the proposition that those wrongfully deprived of property may still initiate an action for reconveyance even after the one-year period for reviewing the decree of registration has lapsed, and that such action prescribes in ten years from issuance of the title.

• De la Cruz vs. Court of Appeals, 286 SCRA 230 (1998) — Cited to define the purpose of a reconveyance suit as the transfer of property wrongfully or erroneously registered in another's name to its rightful and legal owner.

• Vda. de Cabrera vs. Court of Appeals, 267 SCRA 339 (1997) — Cited for the doctrine that the right to seek reconveyance does not prescribe when the claimant is in actual possession of the disputed property.

• Faja vs. Court of Appeals, 75 SCRA 441 (1977) — Cited for the rule that those in actual possession of land claiming ownership may wait until their possession is disturbed or their title attacked before vindicating their right, their undisturbed possession giving a continuing right to seek judicial relief.

• Laforteza vs. Machuca, 333 SCRA 643 (2000) — Cited for the principle that a seller cannot unilaterally and extrajudicially rescind a contract of sale absent an express stipulation authorizing such rescission.

• Malig vs. Bush, 28 SCRA 449 (1969) — Cited for the procedural rule that a complaint cannot be dismissed based on a ground not relied upon in a motion to dismiss, as this would deny the plaintiff due process.

• Article 1191, Civil Code — Provides that the injured party in a reciprocal obligation may choose between specific performance and judicial rescission when the obligor fails to comply. Applied to hold that petitioners' remedy for alleged nonpayment was judicial rescission, not unilateral rescission.

• Section 33, Rule 39, Rules of Court — Governs the redemption period after a judicial execution sale, providing the judgment obligor one year from registration of the certificate of sale to redeem the property. Applied to show that the third party purchaser's right to conveyance and possession was subject to this redemption period, which had not yet expired when the complaint was filed.

• Section 16, Rule 39, Rules of Court — Provides that nothing shall prevent the vindication of any third person's claim to property subjected to execution in a separate action. Applied to confirm that respondent could pursue her claim to the disputed property notwithstanding the execution sale.

• Section 2, Rule 16, Rules of Court — Requires parties to submit arguments on questions of law and evidence on questions of fact during the hearing of a motion to dismiss. Applied to hold that petitioners should have presented evidence of nonpayment during the hearing on their motion to dismiss, as such evidence already existed at that time.

Puno (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concurred.