David vs. Malay

An action for reconveyance based on an implied trust does not prescribe when the true owner is in actual possession of the property, as undisturbed possession gives the possessor a continuing right to seek the aid of a court of equity to vindicate title, and the prescriptive period commences only from the time the possessor's title is attacked or disturbed.

Andres Adona was married to Leoncia Abad, with whom he had five children, including Carmen Adona, who married Filomeno Malay and begot Cristito, Nora, and Dionisio Malay (private respondents). After Leoncia Abad died in 1923, Andres Adona cohabited with Maria Espiritu, a widow, without the benefit of marriage; they had two children, Esperanza (represented by the David heirs) and Vicente Adona. Maria Espiritu also had a child from a previous marriage, Fulgencio Lemque (represented by the Lemque heirs). During his lifetime, Andres Adona applied for a homestead patent over 22.5776 hectares of agricultural land in Dirita, Iba, Zambales, but died before the patent was issued. The dispute centers on whether the homestead property rightfully belongs to the estate of Andres Adona (claimed by his legitimate descendants, the Malay respondents) or to the heirs of Maria Espiritu (the David and Lemque petitioners), who obtained title in her name.

Andres Adona, during his lifetime, applied for a homestead patent over a parcel of agricultural land measuring 22.5776 hectares located in Dirita, Iba, Zambales. He had been married to Leoncia Abad, with whom he had five children, including Carmen Adona. Carmen married Filomeno Malay and had three children — Cristito, Nora, and Dionisio Malay, who are among the private respondents. After Leoncia Abad died in 1923, Andres Adona cohabited with Maria Espiritu, herself a widow, without the benefit of marriage. From this union were born Esperanza (represented by the David heirs) and Vicente Adona. Maria Espiritu also had a child from her previous marriage, Fulgencio Lemque, represented by the Lemque heirs. Andres Adona appears to have perfected his homestead application prior to his death, but the patent was not issued during his lifetime.

After Andres Adona died, Maria Espiritu succeeded in obtaining Original Certificate of Title No. 398 over the land in her own name, issued on 04 December 1933. She accomplished this by executing an affidavit on 21 September 1928, filed with the Director of Lands, in which she falsely represented herself as the widow of Andres Adona, fraudulently concealing the existence of Adona's first marriage to Leoncia Abad. After Maria Espiritu died in 1945, the children and descendants of Andres Adona by his marriage to Leoncia Abad — the private respondents and their predecessors-in-interest — continued in peaceful and quiet possession of the subject land.

Sometime in 1989, the petitioners (the heirs of Maria Espiritu) executed a deed of "Extrajudicial Settlement with Sale" over the subject property in favor of Mrs. Venancia Ungson. Private respondents protested the sale, claiming they were the true owners. The sale to Ungson was eventually rescinded due to her failure to pay the full consideration. Subsequently, on 15 December 1990, petitioners executed another deed of Extrajudicial Settlement with Sale, dividing the land equally among themselves and selling their respective shares to their co-petitioners Antonio de Ubago, Jr., Milagros de Ubago-Umali, Felisa Guballa de Ubago, Vanessa de Ubago-Umali, Marietta de Ubago-Tan, and Joseph Guballa de Ubago, who were admittedly relatives of Mrs. Venancia Ungson. On 27 November 1992, Transfer Certificate of Title No. T-42320 was issued in favor of the de Ubagos. The title contained an entry by the Register of Deeds subjecting the property to the provisions of Section 4, Rule 74 of the Rules of Court for a period of two years in favor of any possible heir or creditor deprived of lawful participation in the estate.

Less than a month later, on 07 December 1992, private respondents filed a complaint docketed as Civil Case No. RTC-905-1 for "Annulment of Sale with Restraining Order Injunction and Damages" against petitioners before Branch 71 of the Regional Trial Court of Zambales. They alleged that the disputed land was the subject of a homestead application by their great-grandfather Andres Adona, but that OCT No. 398 was fraudulently issued to Maria Espiritu upon her false representation that she was his widow. The trial court found that the de Ubagos had inspected the land and that the respondents were in visible possession at the time of purchase. The Court of Appeals found that the de Ubagos were not buyers in good faith, noting the title annotation, the prior aborted sale to Ungson which had been intervened upon by respondent Cristito Malay, and the respondents' visible possession of the land.

• Sanctity of the Torrens System: Petitioner contended that to allow private respondents to question Original Certificate of Title No. 398 fifty-nine years after its issuance would undermine the Torrens system and the sanctity of the certificate of title.

• Ownership of the Estate of Andres Adona: Respondents maintained that the property indubitably belongs to the estate of Andres Adona, whose incontestable right to it is derived from the perfected homestead application two years prior to his death, as admitted by Maria Espiritu herself in her affidavit submitted to the Director of Lands.

• Nature of the Action: Whether the complaint, though denominated as one for "Annulment of Sale with Damages," is properly treated as an action for reconveyance.
• Prescription: Whether the action for reconveyance has prescribed, given that OCT No. 398 was issued in 1933 and the complaint was filed in 1992.
• Innocent Purchaser for Value: Whether the de Ubagos may be considered innocent purchasers for value entitled to the protection of the Torrens system.

• Nature of the Action: Yes. The nature of an action is determined by the body of the pleading or complaint rather than its title or heading; since the ultimate relief sought was reconveyance of the property to the estate of Andres Adona, the Court of Appeals correctly treated the action as one for reconveyance.
• Prescription: No. The ten-year prescriptive period for reconveyance based on implied trust applies only when the plaintiff is not in possession; where the true owner is in actual possession, the right to seek reconveyance does not prescribe, and the prescriptive period commences only from the time the possessor's title is attacked or disturbed.
• Innocent Purchaser for Value: No. The de Ubagos cannot be considered innocent purchasers for value because their title bore an annotation under Section 4, Rule 74 of the Rules of Court, the prior aborted sale had been intervened upon by respondent Cristito Malay, and the respondents were in visible adverse possession of the land at the time of purchase, all of which should have prompted a reasonably cautious buyer to inquire further.

• Nature of the Action: The caption of the case before the trial court, while denominated as one for "Annulment of Sale with Damages," is in reality an action for reconveyance, since the ultimate relief sought by private respondents would be for the property covered by OCT No. 398 to be reconveyed to the estate of Andres Adona. In this jurisdiction, the nature of an action is determined more importantly by the body of the pleading or complaint itself than by its title or heading. The Court of Appeals did not err in treating the action as one for reconveyance — that is, one that seeks the transfer of property wrongfully registered by another to its rightful and legal owner.

• Prescription: An action for reconveyance of a parcel of land based on an implied trust ordinarily prescribes in ten years, the point of reference being the date of registration of the deed or the date of issuance of the certificate of title over the property. This rule, however, applies only when the plaintiff or the person enforcing the trust is not in possession of the property. If a person claiming to be the owner is in actual possession, the right to seek reconveyance does not prescribe, because one in actual possession claiming ownership may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right. Undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain the nature of the adverse claim of a third party and its effect on his title. In this case, the respondents and their predecessors-in-interest remained in peaceful and quiet possession of the subject land after Maria Espiritu's death in 1945. It was the petitioners' act of executing the "Extrajudicial Settlement of Estate with Sale" that constituted the express act of repudiation of the constructive trust, giving rise to the respondents' cause of action. The prescriptive period commenced only from that point. Furthermore, Maria Espiritu's fraudulent concealment of material facts in obtaining OCT No. 398 created an implied or constructive trust under Article 1456 of the Civil Code in favor of the excluded co-heirs and actual possessors of the subject land. Although a decree of registration becomes incontrovertible after one year, the aggrieved party is not without remedy; an action for reconveyance remains available as long as the property has not passed to an innocent purchaser for value.

• Innocent Purchaser for Value: While one who deals with property registered under the Torrens system need not go beyond the certificate of title and is charged with notice only of such burdens and claims as are annotated thereon, this principle admits of an exception: when the purchaser has actual knowledge of facts and circumstances that would impel a reasonably cautious person to make inquiry, or when the purchaser has knowledge of a defect or lack of title in the vendor, or of sufficient facts to induce a reasonably prudent person to inquire into the status of the property. The de Ubagos' TCT No. T-42320 contained an entry subjecting the property to the provisions of Section 4, Rule 74 of the Rules of Court for two years in favor of any possible heir or creditor deprived of lawful participation in the estate. The Extrajudicial Settlement was executed on 15 December 1990, and the complaint was filed on 7 December 1992 — within the two-year period. Additionally, the prior aborted sale to Mrs. Venancia Ungson, which had been intervened upon by respondent Cristito Malay, should have put the de Ubagos — who were admittedly relatives of Ungson — on their guard. Finally, the respondents were in visible possession of the land when the de Ubagos inspected it; a buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession, and without such inquiry, the buyer can hardly be regarded as a buyer in good faith.

• Implied or 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. The Court applied this doctrine to find that Maria Espiritu's fraudulent concealment of Andres Adona's first marriage in obtaining OCT No. 398 created an implied trust in favor of the excluded co-heirs and actual possessors of the land.

• Indefeasibility of Torrens Title and Remedy of Reconveyance — After the lapse of one year from the decree of registration, the decree becomes incontrovertible and can no longer be reviewed, even if its issuance was attended with actual fraud. However, the aggrieved party is not without remedy: if the property has not yet passed to an innocent purchaser for value, an action for reconveyance is available, which is an action in personam seeking the transfer of property wrongfully registered in another's name to its rightful owner. If the property has passed to an innocent purchaser for value, the remedy is an action for damages.

• Prescription of Action for Reconveyance Based on Implied Trust — An action for reconveyance based on an implied trust prescribes in ten years, reckoned from the date of registration of the deed or the date of issuance of the certificate of title. This rule applies only when the plaintiff is not in possession of the property. When the true owner is in actual possession claiming ownership, the right to seek reconveyance does not prescribe, because undisturbed possession gives the possessor a continuing right to seek the aid of a court of equity. The prescriptive period commences only from the time the possessor is made aware of a claim adverse to his own — that is, when his possession is disturbed or his title is attacked.

• Innocent Purchaser for Value — Exception to the Rule of Reliance on Torrens Title — A person dealing with registered land has a right to rely on the Torrens certificate of title and need not inquire further, except when the purchaser has actual knowledge of facts and circumstances that would impel a reasonably cautious person to make inquiry, or when the purchaser has knowledge of a defect or lack of title in the vendor, or of sufficient facts to induce a reasonably prudent person to inquire into the status of the property. One who falls within this exception can neither be denominated an innocent purchaser for value nor a purchaser in good faith. A buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession; without such inquiry, the buyer is in bad faith.

• Nature of Action Determined by Pleading's Body, Not Title — The nature of an action is determined more importantly by the body of the pleading or complaint itself than by its title or heading. A complaint denominated as one for "Annulment of Sale with Damages" may be properly treated as an action for reconveyance where the ultimate relief sought is the transfer of property wrongfully registered to its rightful owner.

• "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." — This is the text of Article 1456 of the Civil Code as quoted in the decision, establishing the legal basis for the constructive trust created by Maria Espiritu's fraudulent titling of the homestead property.

• "There is settled jurisprudence that one who is in actual possession of a piece of land claiming to be owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession." — This passage, quoted from Faja vs. Court of Appeals, articulates the controlling doctrine on why prescription does not run against a possessor in actual possession, which is the decisive rationale for the Court's ruling on the prescription issue.

• "A purchaser can not close his eyes to facts which should put a reasonable man on his guard and still claim he acted in good faith." — This formulation, quoted from Sandoval vs. Court of Appeals, defines the exception to the rule that a Torrens title purchaser may rely solely on the certificate of title, and underpins the Court's conclusion that the de Ubagos were not innocent purchasers for value.

• Amerol vs. Bagumbaran, 154 SCRA 396 (1987) — Cited for the propositions that the Torrens system was not designed to shield one who committed fraud, that an action for reconveyance respects the decree of registration as incontrovertible while seeking transfer of the property to its rightful owner, and that the right to seek reconveyance based on implied trust is subject to prescription.

• Javier vs. Court of Appeals, 231 SCRA 498 — Cited for the doctrine that after the lapse of one year, a decree of registration is no longer open to review even if attended with actual fraud, but an action for reconveyance remains available as long as the property has not passed to an innocent purchaser for value; if it has, the remedy is an action for damages.

• Faja vs. Court of Appeals, 75 SCRA 441 — Cited as controlling authority for the rule that one in actual possession of land claiming ownership may wait until his possession is disturbed or his title is attacked before vindicating his right, and that the right to quiet title, seek reconveyance, and annul a certificate of title accrues only from the time the possessor is made aware of an adverse claim.

• Heirs of Jose Olviga vs. Court of Appeals, 227 SCRA 330 — Cited for reiterating the doctrine that the ten-year prescriptive period for reconveyance based on implied trust applies only when the plaintiff is not in possession; when the plaintiff is in actual possession, the right to seek reconveyance does not prescribe.

• Sandoval vs. Court of Appeals, 260 SCRA 283 (1996) — Cited for the definition of an innocent purchaser for value and the exception to the rule that a Torrens title purchaser may rely solely on the certificate of title, including the principle that a purchaser cannot close his eyes to facts that should put a reasonable person on guard.

• Embrado vs. Court of Appeals, 233 SCRA 335 (1994) — Cited for the rule that a buyer of real property in the possession of persons other than the seller must be wary and should investigate the rights of those in possession; without such inquiry, the buyer is in bad faith.

• Vda. de Cabrera vs. Court of Appeals, G.R. 108547, February 3, 1997 — Cited for the proposition that undisturbed possession gives the possessor a continuing right to seek judicial intervention once his claim to ownership is challenged.

• Trinidad vs. Intermediate Appellate Court, 204 SCRA 524 — Cited for the proposition that a certificate of title issued under an administrative proceeding pursuant to a homestead patent is as indefeasible as one issued under judicial registration.

• Ybañez vs. Intermediate Appellate Court, 194 SCRA 743 — Cited for the application of Section 32 of PD 1529 to a patent issued by the Director of Lands, fixing the one-year period for review on the ground of actual fraud.

• Article 1456, Civil Code — Provides that if property is acquired through mistake or fraud, the person obtaining it is considered a trustee of an implied trust for the benefit of the person from whom the property comes. Applied to find that Maria Espiritu's fraudulent concealment of Andres Adona's first marriage in obtaining OCT No. 398 created an implied trust in favor of the excluded co-heirs.

• Section 32, Presidential Decree No. 1529 (Property Registration Decree) — Provides the one-year period after which a decree of registration becomes incontrovertible. The Court applied this provision by analogy to homestead patents, holding that the date of issuance of the patent corresponds to the date of the decree in ordinary registration cases.

• Section 4, Rule 74, Rules of Court — Provides that if within two years after the settlement and distribution of an estate, an heir or other person has been unduly deprived of his lawful participation, such person may compel the settlement of the estate in court. Applied to find that the annotation on TCT No. T-42320 referencing this provision should have put the de Ubagos on notice, and that the complaint filed within two years of the extrajudicial settlement was timely.

• Commonwealth Act No. 141 (Public Land Law) — Governs the disposition of public lands, including homestead patents. The Court noted that a certificate of title issued pursuant to a homestead patent covering disposable public land under this law is as indefeasible as one issued under judicial registration.

Melo, Panganiban, Purisima, and Gonzaga-Reyes, JJ., concurred.