Department of Education vs. Heirs of Banguilan

Laches and prescription do not bar a registered owner from recovering Torrens-titled land where the occupant's possession was by mere tolerance and not adverse in the concept of owner. Because the school knew the land was titled in another's name, failed to prove acquisition, and occupied only by permission, delay could not be counted against the owners and title remained indefeasible and imprescriptible.

The Department of Education operates the Caritan Norte Elementary School in Caritan Norte, Tuguegarao City, Cagayan. Respondents Benigna Gumabay, Filomena Banguilan, Ester Kummer, Aida Banguilan, and Elisa Mallillin claim as heirs of Regino Banguilan by virtue of an Extra-Judicial Settlement and Partition. The disputed parcel is registered under Original Certificate of Title No. 10728 in Regino's name as early as 1929 under the Torrens System.

Regino Banguilan was the original registered owner of a parcel in Caritan Norte, Tuguegarao City covered by Original Certificate of Title No. 10728. Sometime before the Second World War, officials of the Caritan Norte Elementary School sought Regino's permission to build temporary structures on the land for classrooms. Having no immediate need for the land, Regino consented to the construction and to the holding of classes on the premises.

Thereafter the temporary structures were gradually improved into concrete structures until the permanent CNES building was established. According to respondents, after Regino's death in 1961, their predecessors-in-interest demanded that school officials pay reasonable rent and purchase the lot if desired. The officials allegedly assured payment of reasonable rent and eventual purchase, but no purchase or payment was ever made, depriving respondents of use and enjoyment since 1950.

On October 24, 2001, respondents filed a Complaint for recovery of possession, praying that the school's possession be declared illegal, that DepEd vacate and surrender peaceful possession, and that DepEd pay P500.00 per month as reasonable rent since 1950, P30,000.00 litigation expenses, and P50,000.00 attorney's fees. In its Answer, petitioner admitted establishing CNES before the war and building school buildings thereon, but denied respondents' ownership and rent demands, asserting occupation in the concept of owner for more than fifty years until 2001, lack of proof that the claimed lot formed part of the school site, and, alternatively, prescription and laches through adverse, peaceful, continuous possession as owner without question.

The trial court found it undisputed that the property under OCT No. 10728 was owned by Regino and later redounded to his heirs, supported by the title, tax declarations in Regino's name, and a sketch plan of Lot 3950 surveyed in Aida Banguilan's name. It likewise found repeated demands for rentals or purchase, but concluded laches and prescription barred recovery. The Court of Appeals sustained the ownership finding and further found that CNES possession was merely by tolerance, not adverse or in the concept of owner.

• No Cause of Action and Identity of Land: Petitioner argued that the complaint stated no cause of action since there was no proof that the lot claimed formed part of the CNES school site.
• Possession in Concept of Owner: Petitioner maintained that the government, through CNES, had been in possession of the subject property in the concept of an owner since the 1940s, having established the school and constructed buildings thereon.
• Prescription and Laches: Petitioner argued that even assuming a cause of action, it was barred by prescription and laches because petitioner had occupied and used the lot adversely, peacefully, continuously, and in the concept of owner for more than fifty years without question, while respondents were inactive for more than fifty years.
• Alleged Transfer: Petitioner claimed the subject land was sold to the municipality of Tuguegarao by Elena Banguilan, Regino's sister, to support ownership-like possession.

• Ownership by Succession and Torrens Title: Respondents claimed that as heirs by Extra-Judicial Settlement and Partition of Regino, the original registered owner under OCT No. 10728, they are absolute owners, corroborated by tax declarations and a sketch plan of Lot 3950.
• Possession by Mere Tolerance: Respondents argued that before the Second World War Regino merely permitted CNES officials to build temporary classrooms, later improved to permanent structures, and that such tolerated possession never became adverse.
• Timely Assertion and Assurances: Respondents maintained that after Regino's death in 1961 their predecessors demanded reasonable rent or purchase, received assurances of payment and eventual purchase, and sued for recovery once it became clear petitioner would neither pay, purchase, nor vacate.
• Reliefs Sought: Respondents prayed that possession be declared illegal, that petitioner vacate and deliver possession, and that petitioner pay P500.00 monthly rent since 1950, P30,000.00 litigation expenses, and P50,000.00 attorney's fees.

• Laches: Whether the Court of Appeals erred in ruling that respondents' cause of action for recovery of possession against petitioner was not yet barred by laches.

• Laches: No. Laches was not established because CNES possession was by mere tolerance of the registered owners, not adverse in the concept of owner, and laches and prescription do not run against Torrens-registered land.

• Laches: All four elements from Phil-Air Conditioning Center vs. RCJ Lines must concur, yet none of the delay, unawareness, and prejudice requisites were satisfied where tolerance existed. The title under OCT No. 10728 in Regino's name since 1929 was undisputed, giving rise to the presumption that any other occupant's stay was merely tolerated, especially against unsubstantiated self-serving claims of ownership-like possession and an unproven sale by Elena Banguilan. Because permission continued until withdrawn, the owners were not required to act earlier to recover; repeated demands for rent or purchase were in fact made, and suit followed once non-payment and refusal to vacate became clear, negating prolonged inaction. An occupant by tolerance is necessarily bound by an implied promise to vacate upon demand and cannot claim surprise. Moreover, under the Property Registration Decree no title in derogation of the registered owner is acquired by prescription or adverse possession, so the right to eject remains imprescriptible however long tolerated occupation lasted, consistent with Department of Education vs. Tuliao and Department of Education vs. Casibang, et al. Physical possession without intent to possess as owner is not adverse. The proper consequence was application of Article 448, in relation to Article 546, leaving expropriation as petitioner's remedy given the existing school use.

• Laches or stale demands — Defined as failure or neglect for an unreasonable and unexplained length of time to do what due diligence could or should have done earlier, grounded on public policy and equity to avoid clearly unfair recognition of a right. Its determination is addressed to sound judicial discretion according to the circumstances, cannot defeat justice or perpetrate fraud, and courts are not strictly bound by limitations or laches where manifest wrong would result. The four requisites are defendant's conduct giving rise to the complaint, complainant's delay despite knowledge and opportunity to sue, defendant's lack of knowledge that the right would be asserted, and injury or prejudice to defendant if relief is granted. Applied here, tolerance defeated delay, notice, and prejudice, so laches failed.
• Tolerance vs. adverse possession — Possession by one other than the Torrens registered owner is presumed merely tolerated, and mere material possession is not adverse against the owner nor sufficient to vest title unless accompanied by intent to possess as owner. Open, continuous, exclusive, notorious possession must be coupled with such intent to be adverse in the concept of owner. Applied here, CNES knowledge of Regino's 1929 title and absence of competent proof of acquisition meant occupation since the 1940s remained permissive despite length and improvements.
• Torrens indefeasibility and imprescriptibility — A certificate of title is evidence of indefeasible and incontrovertible title and the best proof of ownership, entitling the registered owner to possession and to eject illegal occupants at any time while possession was unauthorized or merely tolerated. Under the Property Registration Decree, no title to registered land in derogation of the registered owner is acquired by prescription or adverse possession; the owner's action to recover is imprescriptible and never barred by laches. Applied here to uphold the heirs against the school's fifty-year occupation.
• Builder in good faith; Article 448, in relation to Article 546, New Civil Code — The owner of land built upon in good faith may either appropriate the works after paying indemnity under Articles 546 and 548 or oblige the builder to pay the price of the land; the builder cannot be forced to buy if land value considerably exceeds building value, in which case reasonable rent under agreed or court-fixed lease terms applies, with necessary expenses refundable and useful expenses refundable to a good-faith possessor with retention. Applied here to give respondents the option to appropriate CNES structures upon indemnity or compel purchase at current market value including improvements, failing which a forced lease, plus P500.00 monthly compensation from filing until delivery or purchase.

• "The principle of laches or 'stale demands' is the failure or neglect, for an unreasonable and unexplained length of time, to do that which by exercising due diligence could or should have been done earlier." — States the controlling definition of laches used to test the four elements and to reject delay where possession was tolerated.
• "It is based on the grounds of public policy in order to maintain peace in the society and equity in order to avoid recognizing a right when to do so would result in a clearly unfair situation." — Explains the equitable policy basis for laches and why it cannot be applied to defeat justice on registered land held by tolerance.
• "mere material possession of the land was not adverse as against the owner and was insufficient to vest title, unless such possession was accompanied by the intent to possess as an owner." — Supplies the adverse-possession test that defeated DepEd's claim of ownership-like possession since the 1940s.

• Department of Education vs. Tuliao, 735 Phil. 703 (2014) — Followed as controlling on laches and tolerance; mere tolerated use as passageway or school site is deemed admitted if unrefuted and is not adverse, with Article 448 and expropriation as remedies.
• Department of Education vs. Casibang, et al., 779 Phil. 472 (2016) — Followed; registered owner tolerating school construction need not act until permission is withdrawn, right to recover is imprescriptible, and occupant is bound by implied promise to vacate upon demand.
• Phil-Air Conditioning Center vs. RCJ Lines, 773 Phil. 352 (2015) — Applied for the four elements of laches that petitioner failed to establish.
• Heirs of Jose Maligaso vs. Spouses Encinas, 688 Phil. 516 (2012) — Applied for the presumption that possession by a non-owner is by mere tolerance and that Torrens title prevails over unsubstantiated self-serving claims.

• Article 448, New Civil Code — Grants the landowner where building was done in good faith the option to appropriate improvements after indemnity or to oblige the builder to pay the price of the land, with forced lease if land value considerably exceeds improvement value; applied to structure respondents' election, valuation, and lease fallback.
• Article 546, New Civil Code — Provides refund of necessary expenses to every possessor and of useful expenses to a good-faith possessor with retention until reimbursement; applied to require indemnity for CNES structures and to condition compensation until reimbursement or purchase.
• Property Registration Decree — Provides that no title to registered land in derogation of the registered owner shall be acquired by prescription or adverse possession; applied to hold respondents' recovery action imprescriptible despite decades of school occupation.

Carpio, Senior Associate Justice (Chairperson), Peralta, Perlas-Bernabe, and Caguioa, JJ., concur.