Gatmaytan vs. Misibis Land, Inc.

An action for reconveyance based on a void or inexistent contract is imprescriptible, and a complaint containing alternative causes of action cannot be dismissed where at least one alternative states a sufficient cause of action against the defendant. The nature of the prescriptive period applicable to an action for reconveyance is determined by whether the action is founded on an implied or constructive trust (prescriptible in ten years) or on a void contract (imprescriptible).

Petitioners Mercedes S. Gatmaytan and Erlinda V. Valdellon purchased a 6.4868-hectare parcel of land in Misibis, Cagraray Island, Albay from Oscar and Cidra Garcia (Spouses Garcia), covered by Transfer Certificate of Title (TCT) No. T-77703. Respondent Misibis Land, Inc. (MLI) is a real estate corporation that acquired the same lot through a chain of transactions originating from a 1996 sale by Spouses Garcia to DAA Realty Corporation (DAA Realty), and a subsequent 2005 sale from DAA Realty to MLI. The dispute centers on whether petitioners' complaint seeking nullification of the 1996 and 2005 deeds of sale, reconveyance, and quieting of title should proceed to trial or was correctly dismissed on the ground of prescription.

On December 9, 1991, petitioners Mercedes S. Gatmaytan and Erlinda V. Valdellon purchased from Spouses Oscar and Cidra Garcia a 6.4868-hectare parcel of land in Misibis, Cagraray Island, Albay, covered by TCT No. T-77703 issued in the spouses' name, for Php70,000.00. Petitioners paid the taxes arising from the transaction and received the owner's duplicate copy of TCT No. T-77703. On April 6, 1992, petitioners, armed with the original owner's duplicate copy, attempted to register the corresponding Deed of Absolute Sale dated December 9, 1991 (1991 DOAS) with the Register of Deeds of Albay. They succeeded in having the 1991 DOAS annotated on TCT No. T-77703 under Entry No. 4145, but could not cause the transfer of the Torrens title to their names because they lacked the Department of Agrarian Reform (DAR) clearance then required for such transfer.

In 2010, when petitioners resumed processing the transfer of title, they discovered that the disputed lot had been consolidated by Misibis Land, Inc. (MLI) with adjoining lots and subdivided into smaller lots covered by several new Torrens titles. Further investigation revealed that TCT No. T-77703 had been stamped "cancelled" and replaced by subsequent titles issued on the basis of two transactions: a Deed of Absolute Sale dated February 21, 1996 (1996 DOAS) executed by Spouses Garcia as sellers and DAA Realty Corporation as buyer, resulting in TCT No. T-97059 issued on February 22, 1996; and a Deed of Absolute Sale dated April 21, 2005 (2005 DOAS) executed by DAA Realty as seller and MLI as buyer, resulting in TCT No. T-138212. The disputed lot had also been mortgaged by MLI to Philippine National Bank (PNB).

Upon this discovery, petitioners caused the annotation of their Affidavit of Adverse Claim on MLI's Torrens titles on September 1, 2010. On December 10, 2014, petitioners filed a complaint before the RTC of Tabaco City, Branch 15, against Spouses Garcia, DAA Realty, MLI, and PNB. The complaint alleged multiple causes of action: declaration of ownership and nullity of the 1996 DOAS, the 2005 DOAS, and the MLI-PNB mortgage; nullity based on double sale; quieting of title; accounting and remittance of income; and claims for exemplary damages, moral damages, and attorney's fees. Petitioners alleged that the 1996 DOAS was void because Spouses Garcia no longer owned the lot at the time of its execution, the signature of Cidra Garcia appeared forged, DAA Realty was not yet incorporated when it purportedly purchased the property, and both DAA Realty and MLI were charged with constructive notice of the 1991 DOAS annotation on TCT No. T-77703.

MLI filed a Motion for Preliminary Hearing on Affirmative Defenses invoking prescription and lack of jurisdiction, arguing that the action for reconveyance based on an implied constructive trust had prescribed because more than ten years had lapsed since the issuance of DAA Realty's title in 1996. MLI also claimed to be an innocent purchaser for value. DAA Realty did not file any pleading. The RTC issued an Order dated October 22, 2015 dismissing the complaint on the ground of prescription and failure to pay the correct docket fees, treating the action solely as one for reconveyance based on an implied constructive trust. Petitioners' motion for reconsideration was denied through the Order dated December 28, 2015.

• Primary Characterization of the Action: Petitioners maintained that their complaint should be allowed to proceed because it is primarily an action for declaration of nullity of the 1996 DOAS, which is a void contract whose enforcement is imprescriptible, and not merely an action for reconveyance based on an implied constructive trust.
• Alternative Cause of Action for Quieting of Title: Petitioners argued alternatively that their complaint sufficiently alleged a cause of action for quieting of title, which had not prescribed because it was filed only eighteen years after the cloud on title arose, well within the thirty-year prescriptive period.
• Belated Payment of Docket Fees: Petitioners contended that even if the docket fees paid were deficient, belated payment of the difference should still be permitted, as none of their alternative causes of action had prescribed.
• MLI Not an Innocent Purchaser for Value: Petitioners asserted that MLI could not be considered an innocent purchaser for value because the 1991 DOAS was duly annotated on TCT No. T-77703, and the owner's duplicate copy of that title was never surrendered, such that DAA Realty and MLI were constructively notified of petitioners' prior purchase.

• Prescription: Respondent MLI argued that petitioners' cause of action was already barred by prescription, since an action for reconveyance based on an implied constructive trust arising from fraud prescribes ten years after the issuance of title in favor of the defrauder, and the complaint was filed in 2014, more than ten years after the issuance of DAA Realty's Torrens title in 1996.
• Innocent Purchaser for Value: MLI claimed that it was an innocent purchaser for value because it relied on DAA Realty's TCT No. T-97059, which did not bear any defects on its face.

• Sufficiency of the Complaint: Whether petitioners' complaint, containing alternative causes of action, should be allowed to proceed for trial on the merits, notwithstanding MLI's defenses of prescription and failure to pay the correct docket fees.

• Sufficiency of the Complaint: Yes. The complaint stated a sufficient cause of action for reconveyance based on the nullity of the 1996 DOAS — a void contract whose enforcement is imprescriptible — and alternatively for quieting of title, which had not prescribed. The RTC's outright dismissal was grievous error, amounting to grave abuse of discretion.

• Sufficiency of the Complaint: Section 2, Rule 8 of the Rules of Court permits the assertion of alternative causes of action, and a complaint containing two or more alternative causes of action cannot be dismissed where one of them clearly states a sufficient cause of action. The RTC erroneously characterized the complaint solely as an action for reconveyance based on an implied constructive trust, ignoring the other causes of action pleaded.

An action for reconveyance based on a void or inexistent contract is imprescriptible, pursuant to Article 1410 of the Civil Code. The complaint alleged that the 1996 DOAS was void because: (i) Spouses Garcia no longer owned the disputed lot, having already sold it to petitioners in 1991; (ii) the signature of Cidra Garcia appeared forged; and (iii) DAA Realty was legally inexistent at the time of execution, having been incorporated only in 1999. These allegations, hypothetically admitted by MLI through its Motion for Preliminary Hearing on Affirmative Defenses, sufficiently established the nullity of the underlying transaction. The execution of the 1991 DOAS as a public document constituted constructive delivery under Article 1498 of the Civil Code, making petitioners full owners as early as 1991; consequently, Spouses Garcia could not validly sell the property to DAA Realty in 1996, and MLI purchased nothing from DAA Realty in 2005.

Moreover, the complaint alleged that the owner's duplicate copy of TCT No. T-77703 was in petitioners' possession at all times and was never surrendered to the Register of Deeds, in violation of Section 53 of PD 1529, which requires presentation of the owner's duplicate certificate for registration of voluntary instruments. A Torrens title issued without prior presentation and cancellation of the existing owner's duplicate title does not bind the property and does not produce the effects of a Torrens title, including constructive notice. MLI could not be considered an innocent purchaser for value because the 1991 DOAS was annotated on TCT No. T-77703, giving constructive notice to subsequent purchasers.

Even assuming arguendo that the action were treated solely as one for reconveyance based on an implied constructive trust, the ten-year prescriptive period under Article 1144(2) should be reckoned not from the issuance of DAA Realty's Torrens title in 1996, but from petitioners' actual discovery of the fraud in 2010, because the Torrens title issued without surrender of the owner's duplicate did not constitute constructive notice. The complaint, filed on December 10, 2014, was therefore timely.

As for the alternative cause of action for quieting of title, the two requisites were met: petitioners claimed equitable title based on the annotated 1991 DOAS, and the 1996 DOAS and subsequent transactions cast a cloud on such title. An action for quieting of title involving property not in the plaintiff's possession prescribes thirty years after accrual, which occurred on February 22, 1996; the complaint was filed only eighteen years later, well within the period.

Regarding docket fees, even if the payment were deficient, belated payment may still be permitted under the doctrine in Sun Insurance Office, Ltd. vs. Asuncion, provided it is made within the applicable prescriptive period. Since none of the alternative causes of action had prescribed, payment of any deficiency should be allowed.

Finally, discrepancies between the allegations in the complaint and the supporting documents — particularly the absence of Cidra Garcia's signature on the 1991 DOAS — could not be resolved without trial. Resolving them at this stage would constitute a prejudgment of the merits and a violation of due process. Where there is a conflict between the allegations in a complaint and its supporting documents, the complainant must be given the opportunity to reconcile the same. The resolution of the substantive issues required a full-blown trial.

• Alternative Causes of Action — Under Section 2, Rule 8 of the Rules of Court, a party may set forth two or more statements of a claim alternatively. A complaint containing alternative causes of action cannot be dismissed where one of them, if made independently, would be sufficient. The Court applied this by requiring analysis of each alternative cause of action alleged, as the sufficiency of one precludes outright dismissal.

• Imprescriptibility of Reconveyance Based on a Void Contract — An action for reconveyance based on a void or inexistent contract is imprescriptible, pursuant to Article 1410 of the Civil Code. The action does not prescribe because the void contract produces no legal effects whatsoever, and registration does not vest title but is merely evidence thereof. The Court applied this by finding that the complaint alleged the nullity of the 1996 DOAS — the underlying transaction from which MLI derived its title — rendering the action for reconveyance imprescriptible.

• Prescription of Reconveyance Based on Implied or Constructive Trust — An action for reconveyance based on an implied or constructive trust arising from fraud prescribes in ten years, reckoned from the date of issuance of the certificate of title, in accordance with Article 1144(2) of the Civil Code. However, where fraud is specifically alleged, the ten-year period is counted from the true owner's actual discovery of the fraud. An exception exists where the plaintiff is in actual, continuous, and peaceful possession, in which case the action is in the nature of quieting of title and is imprescriptible.

• Requisites of Quieting of Title — For an action for quieting of title to prosper: (i) the plaintiff must have legal or equitable title to or interest in the real property; and (ii) the deed, claim, encumbrance, or proceeding claimed to be casting a cloud on title must be shown to be in fact invalid or inoperative despite its prima facie appearance of validity. As a general rule, the action prescribes thirty years after accrual, but where the plaintiff is in possession, it is imprescriptible.

• Torrens Title Issued Without Surrender of Owner's Duplicate — Under Section 53 of PD 1529, no voluntary instrument shall be registered unless the owner's duplicate certificate is presented. A Torrens title issued without prior presentation and cancellation of the existing owner's duplicate does not bind the property and does not produce the effects of a Torrens title, including constructive notice. It is, in the Court's words, "literally a scrap of paper."

• Hypothetical Admission in Affirmative Defenses — Under Section 5, Rule 6 of the Rules of Court, an affirmative defense hypothetically admits the material allegations in the pleading of the claimant. When a defendant files a motion for preliminary hearing on affirmative defenses, the material allegations of the complaint are deemed admitted for purposes of resolving the motion.

• Belated Payment of Docket Fees — Under the doctrine in Sun Insurance Office, Ltd. vs. Asuncion, where the filing of the initiatory pleading is not accompanied by payment of the prescribed docket fee, the court may allow payment within a reasonable time but in no case beyond the applicable prescriptive or reglementary period.

• "Whether an action for reconveyance prescribes or not is therefore determined by the nature of the action, that is, whether it is founded on a claim of the existence of an implied or constructive trust, or one based on the existence of a void or inexistent contract." — This passage articulates the controlling framework for determining the prescriptive period applicable to actions for reconveyance, distinguishing between those based on fraud (prescriptible) and those based on void contracts (imprescriptible).

• "Levin thus teaches that a Torrens title issued without prior presentation and cancellation of the existing owner's duplicate title does not bind the property to which it pertains. The title so issued does not produce the effects of a Torrens title contemplated under PD 1529, including the effects of constructive notice. It is literally a scrap of paper." — This passage defines the legal effect of a Torrens title issued in violation of Section 53 of PD 1529, establishing that such a title cannot serve as constructive notice to the true owner and cannot start the running of the prescriptive period.

• "A complaint which contains two or more alternative causes of action cannot be dismissed where one of them clearly states a sufficient cause of action against the defendant." — This is the hornbook formulation of the rule on alternative causes of action, applied here to preclude the outright dismissal of the complaint.

• Uy vs. Court of Appeals, 769 Phil. 705 (2005) — Followed. This case expounded on the statutory basis of reconveyance under Section 53 of PD 1529 and Article 1456 of the Civil Code, and distinguished between actions for reconveyance based on fraud (prescriptible in ten years) and those based on void contracts (imprescriptible). The Court relied on this framework to characterize petitioners' action.

• Levin vs. Bass, 91 Phil. 419 (1952) — Followed. The Court en banc held that failure to comply with the registration requirements of the Torrens system — specifically, the non-surrender of the owner's duplicate certificate — prevents the underlying transaction from affecting the land. The Court applied this to hold that DAA Realty's title, issued without surrender of the owner's duplicate, did not produce constructive notice.

• Adille vs. Court of Appeals, 241 Phil. 487 (1988) — Followed. This case held that the prescriptive period for reconveyance based on fraud is reckoned from the true owner's actual discovery of the fraud, not from the date of registration. The Court applied this to hold that the ten-year period should be counted from 2010, when petitioners discovered the fraud.

• Sun Insurance Office, Ltd. vs. Asuncion, 252 Phil. 280 (1989) — Followed. This case established that belated payment of docket fees may be permitted within the applicable prescriptive period. The Court applied this to allow payment of any deficiency in docket fees.

• World Wide Insurance & Surety Co., Inc. vs. Manuel, 98 Phil. 46 (1955) — Followed. This case held that where there is a conflict between the allegations in a complaint and its supporting documents, the complainant must be given the opportunity to reconcile the same, rather than dismissing the complaint outright.

• Daclag vs. Macahilig — Followed. The Court cited this case for the proposition that an action for reconveyance based on a void deed of sale is imprescriptible under Article 1410 of the Civil Code.

• Santos vs. Heirs of Dominga Lustre — Followed. The Court cited this case for the doctrine that an action for reconveyance on the ground that the certificate of title was obtained by means of a fictitious deed of sale is virtually an action for the declaration of its nullity, which does not prescribe.

• Section 2, Rule 8, Rules of Court — Permits the assertion of alternative causes of action or defenses. Applied to hold that the complaint, containing multiple alternative causes of action, could not be dismissed where at least one stated a sufficient cause of action.

• Section 5, Rule 6, Rules of Court — Defines affirmative defenses as hypothetically admitting the material allegations in the claimant's pleading. Applied to deem admitted the material allegations of the complaint, including petitioners' possession of the owner's duplicate title and the annotation of the 1991 DOAS.

• Section 53, PD 1529 (Property Registration Decree) — Requires presentation of the owner's duplicate certificate for registration of voluntary instruments and provides that registration procured by fraud or by presentation of a forged deed shall be null and void. Applied to hold that DAA Realty's title, issued without surrender of the owner's duplicate, was void and did not produce constructive notice.

• Article 1456, Civil Code — Provides that property acquired through mistake or fraud creates an implied trust in favor of the person from whom the property comes. Applied as the statutory basis for reconveyance based on an implied constructive trust.

• Article 1144(2), Civil Code — Provides that actions upon an obligation created by law must be brought within ten years. Applied as the prescriptive period for reconveyance based on an implied constructive trust, reckoned from actual discovery of the fraud.

• Article 1410, Civil Code — Provides that an action to declare the inexistence of a void contract does not prescribe. Applied to hold that the action for reconveyance based on the nullity of the 1996 DOAS is imprescriptible.

• Article 1390, Civil Code — Defines voidable contracts as those where consent is vitiated by mistake, violence, intimidation, undue influence, or fraud. Distinguished from void contracts where consent is totally absent.

• Article 1498, Civil Code — Provides that when a sale is made through a public instrument, the execution thereof is equivalent to delivery. Applied to hold that the 1991 DOAS constituted constructive delivery, making petitioners full owners of the property as early as 1991.

• Article 476, Civil Code — Defines the action for quieting of title. Applied to hold that the 1996 DOAS and subsequent transactions cast a cloud on petitioners' equitable title.

• Article 477, Civil Code — Provides that an action for quieting of title may be brought by one who has legal or equitable title to or interest in the real property. Applied to confirm petitioners' standing to sue for quieting of title.

• Article 1141, Civil Code — Provides the thirty-year prescriptive period for real actions. Applied to hold that the action for quieting of title, filed eighteen years after accrual, had not prescribed.

Peralta, C.J. (Chairperson), Reyes, J. Jr., and Lopez, JJ., concurred.

• Lazaro-Javier, J. — A dissenting opinion was indicated in the text, but its substantive content was not provided in the source material.