Carantes vs. Court of Appeals

The governing principle is that the registration of an instrument with the Register of Deeds constitutes constructive notice to the whole world, fixing the commencement of the four-year prescriptive period for an action to annul a contract on the ground of fraud at the date of registration. Where a party registers a title in his exclusive name and exercises overt acts of ownership inconsistent with a fiduciary obligation, such conduct constitutes an unequivocal repudiation that starts the running of the prescriptive period for reconveyance based on implied or constructive trust.

Mateo Carantes owned Lot No. 44 in Baguio City under Original Certificate of Title No. 3. Upon his death in 1913, he was survived by his widow and six children, including petitioner Maximino Carantes. In 1930, the government commenced expropriation proceedings for the construction of Loakan Airport. During the subsequent estate settlement proceedings in 1933, Maximino was appointed judicial administrator. In 1939, the other heirs and the heirs of a predeceased brother executed a deed denominated “Assignment of Right to Inheritance” in favor of Maximino for a nominal consideration of P1.00. The instrument recited that the decedent had verbally designated Maximino as the exclusive owner. Maximino subsequently registered the deed, secured the cancellation of the joint title, and obtained a new transfer certificate of title issued solely in his name. He thereafter sold portions of the property to the government and mortgaged the remainder. Nearly two decades later, the other heirs filed suit to annul the assignment deed, alleging fraud and claiming they had only intended to authorize Maximino to represent them in government negotiations.

• Mateo Carantes held Original Certificate of Title No. 3 over Lot No. 44. He died in 1913, survived by his widow Ogasia and six children.
• In 1930, the government instituted expropriation proceedings for the Loakan Airport. In 1933, estate settlement proceedings were initiated, and Maximino Carantes was appointed judicial administrator.
• On October 23, 1939, four surviving children and the heirs of a predeceased son executed an “Assignment of Right to Inheritance” in favor of Maximino. The deed stated a P1.00 consideration and recited that the decedent had verbally designated Maximino as the exclusive owner.
• On February 6, 1940, the trial court cancelled OCT No. 3 and issued Transfer Certificate of Title No. 2533 in the joint names of the heirs.
• On March 16, 1940, Maximino registered the assignment deed. TCT No. 2533 was cancelled, and TCT No. 2540 was issued exclusively in Maximino’s name. On the same date, he executed a formal deed of sale over portions of the lot in favor of the government.
• Between 1940 and 1948, Maximino sold additional portions to the government, secured TCT No. T-99 for the remaining lots in his name, and mortgaged the property to the Philippine National Bank.
• On September 4, 1958, the other heirs filed a complaint alleging fraud, claiming they only signed the 1939 deed to authorize Maximino to negotiate with the government, and that they discovered the alleged fraud only in February 1958. They sought annulment of the deed and partition of the remaining lots.
• The trial court dismissed the complaint, holding that the action prescribed four years from the 1940 registration and that Maximino acquired ownership by acquisitive prescription. The Court of Appeals reversed, declaring the deed void ab initio for lack of real consent and consideration.

• Petitioner maintained that the respondents’ action is for annulment on the ground of fraud, and that defenses not pleaded in the answer cannot be raised for the first time on appeal.
• Petitioner argued that the deed of assignment was supported by valid consideration, comprising both the nominal P1.00 and the heirs’ express acknowledgment of the decedent’s verbal designation.
• Petitioner contended that registration of the deed in 1940 constituted constructive notice to the world, thereby commencing the four-year prescriptive period for annulment based on fraud.
• Petitioner asserted that no continuing or constructive trust existed, as the registration of the title and subsequent acts of exclusive dominion constituted an open repudiation of any fiduciary relationship, rendering the respondents’ action barred by extinctive prescription.

• Respondents argued that the deed of assignment is void ab initio and inexistent due to lack of real consent and grossly inadequate consideration.
• Respondents contended that the action does not prescribe under Article 1410 of the Civil Code because an inexistent contract produces no legal effect.
• Respondents maintained that a constructive trust arose in their favor due to the fiduciary relationship, and that an action for reconveyance based on such trust is imprescriptible.
• Respondents alternatively argued that the four-year period for annulment on the ground of fraud should be computed from their actual discovery in 1958, given the alleged fiduciary relationship and concealment.

• Procedural Issues: Whether a party may fundamentally change the theory of the case and raise new defenses for the first time on appeal.
• Substantive Issues: Whether the deed of assignment is void ab initio for lack of consideration. Whether the action for annulment on the ground of fraud has prescribed. Whether registration constitutes constructive notice that fixes the commencement of the prescriptive period. Whether a constructive or continuing trust subsisted to toll prescription.

• Procedural: The Court held that defenses not pleaded in the answer may not be raised for the first time on appeal. A party cannot fundamentally alter the nature of the issue on appeal after deliberately adopting a specific theory at the trial level. The Court disregarded the petitioner’s belated theory of reformation and proceeded on the basis of annulment for fraud.
• Substantive: The Court ruled that the deed was not void ab initio. Consideration was present, consisting of the P1.00 payment and the heirs’ express acknowledgment of the decedent’s verbal designation. The Court classified the action as one for annulment based on fraud, which prescribes in four years under Article 1390 of the Civil Code. Registration in the Office of the Register of Deeds constitutes constructive notice to the whole world; thus, the prescriptive period commenced on March 16, 1940. The 1958 filing was barred by prescription. The Court further held that an action for reconveyance based on an implied or constructive trust prescribes in ten years, which also lapsed. No continuing trust existed because the registration of the title in the petitioner’s exclusive name and his subsequent acts of dominion, including sale and mortgage, constituted an open and unequivocal repudiation of any trust relationship.

• Constructive Notice of Registration — Registration of an instrument with the Register of Deeds operates as constructive notice to the whole world. Knowledge of the instrument’s contents and its legal implications is imputed to all persons from the date of registration. The Court applied this doctrine to fix the commencement of the four-year prescriptive period for annulment on the ground of fraud at the date the deed was registered, rejecting the respondents’ claim of delayed actual discovery.
• Prescriptibility of Actions Based on Constructive Trust — An action for reconveyance grounded on an implied or constructive trust is not imprescriptible. It prescribes in ten years from the date the cause of action accrues, typically from the issuance of a new title in the defendant’s name. The Court applied this rule to bar the respondents’ claim for reconveyance, noting that the ten-year period commenced upon registration in 1940.
• Repudiation of Trust — A trustee’s registration of a title in his own name, coupled with overt acts of ownership inconsistent with a fiduciary obligation, constitutes an open and adverse repudiation of the trust. Such repudiation starts the running of the prescriptive period for reconveyance. The Court found that the petitioner’s exclusive registration and subsequent sale and mortgage of the property unequivocally repudiated any alleged trust.

• "The weight of authorities is to the effect that the registration of an instrument in the Office of the Register of Deeds constitutes constructive notice to the whole world, and, therefore, discovery of the fraud is deemed to have taken place at the time of the registration." — The Court invoked this principle to reject the respondents’ argument that prescription should run from their actual discovery in 1958, holding that the 1940 registration legally imputed knowledge to all co-heirs.
• "The settled rule is that defenses not pleaded in the answer may not be raised for the first time on appeal. A party cannot, on appeal, change fundamentally the nature of the issue in the case." — The Court applied this procedural rule to bar the petitioner’s attempt to recast the respondents’ action as one for reformation rather than annulment.

• Central Bank of the Philippines v. Court of Appeals — Cited for the procedural rule that defenses not raised in the pleadings cannot be invoked for the first time on appeal.
• Lopez v. Gonzaga — Followed to establish that registration of judicial orders or deeds constitutes constructive notice to co-heirs, imputing knowledge of the transfer even without actual notice.
• Gerona v. De Guzman — Applied to hold that registration of an extra-judicial settlement or deed operates as constructive notice to the whole world, fixing the start of the prescriptive period for fraud or reconveyance.
• Gayandato v. Treasurer of the Philippine Islands — Distinguished by the Court, which found no support in that case for the proposition that an action for reconveyance based on constructive trust is imprescriptible.
• Essay v. Court of Appeals — Cited to affirm the settled doctrine that an action for reconveyance based on implied or constructive trust prescribes in ten years.

• Article 1390, New Civil Code — Cited to classify the contract as voidable or annullable when consent is vitiated by fraud, rather than void ab initio.
• Article 1391, New Civil Code — Cited to establish the four-year prescriptive period for actions to annul contracts on the ground of fraud, commencing from discovery.
• Article 1409(2), New Civil Code — Referenced to address absolutely simulated contracts; the Court clarified this provision and found it inapplicable because valid consideration existed.
• Article 1410, New Civil Code — Referenced regarding the non-prescription of actions against inexistent contracts; the Court ruled it inapplicable because the contract was merely voidable, not inexistent.
• Article 1144, New Civil Code — Referenced regarding the ten-year period for actions upon written contracts, relevant to the trial court’s initial prescription analysis.
• Section 38, Code of Civil Procedure — Cited to address the exception for continuing and subsisting trusts; the Court held it inapplicable due to the open repudiation of the trust.

• Justice Teehankee — Concurred solely on the ground that the respondents’ action based on constructive trust prescribed after ten years, aligning with the Court’s application of the established prescriptive period for reconveyance.