Guaranteed Homes, Inc. vs. Heirs of Maria P. Valdez

A purchaser of registered land who relies on a clean certificate of title of its immediate transferor, without any circumstance suggesting a cloud or vice in ownership, is an innocent purchaser for value against whom no action for reconveyance will lie, and an action for reconveyance based on implied or constructive trust prescribes in ten years from the date of registration of the deed or issuance of the certificate of title.

Pablo Pascua owned a 23.7229-hectare parcel of land in Cabitaugan, Subic, Zambales, covered by OCT No. 404. Pablo died intestate in June 1945, survived by four children, one of whom was Cipriano Pascua, Sr. The respondents in this case are the heirs of Pablo's other children, while the heirs of Cipriano were impleaded as co-defendants below. The property had been the subject of multiple transfers under the Torrens system, culminating in the issuance of TCT No. T-10863 in the name of petitioner Guaranteed Homes, Inc. in 1969. The dispute centers on whether Cipriano's extrajudicial settlement claiming to be the sole heir — and the subsequent chain of transfers rooted in that document — can be challenged by the other heirs of Pablo more than twenty-eight years after petitioner's title was issued.

Pablo Pascua owned a 23.7229-hectare parcel of land in Cabitaugan, Subic, Zambales, covered by Original Certificate of Title (OCT) No. 404. Pablo died intestate sometime in June 1945 and was survived by four children, one of whom was Cipriano Pascua, Sr. The respondents in this case are the heirs of Pablo's other children.

On February 13, 1967, Cipriano executed a document denominated "Extrajudicial Settlement of a Sole Heir and Confirmation of Sales," in which he declared himself as the only heir of Pablo and confirmed the sales made by the decedent during his lifetime, including an alleged sale of the disputed property to spouses Albino and Fabia Rodolfo. The Register of Deeds of Zambales certified that the extrajudicial settlement was recorded on February 14, 1967, per Entry No. 18590. On that same day, TCT No. T-8241 was issued in the name of Cipriano — though it was not signed by the Register of Deeds — and TCT No. T-8242 was issued in the name of the spouses Rodolfo, with TCT No. T-8241 thereby cancelled. The memorandum of encumbrances on OCT No. 404 showed that the property had already been sold by Pablo during his lifetime to Alejandria Marquinez and Restituto Morales.

On October 31, 1969, the spouses Rodolfo sold the disputed property to petitioner Guaranteed Homes, Inc. by virtue of a Deed of Sale with Mortgage. Consequently, on November 5, 1969, TCT No. T-8242 was cancelled and TCT No. T-10863 was issued in petitioner's name. Thereafter, on January 24, 1997, Jorge Pascua, Sr., son of Cipriano, filed a petition before the RTC of Olongapo City, Branch 75, for the issuance of a new owner's duplicate of OCT No. 404, docketed as Other Case No. 04-0-97. The RTC denied the petition, holding that petitioner was already the owner of the land and that the failure to annotate the subsequent transfer on OCT No. 404 did not affect its title.

On November 21, 1997, respondents filed a complaint for reconveyance of the property, or in the alternative for damages, against petitioner, the heirs of Cipriano, the Register of Deeds, and the National Treasurer. Respondents alleged that Cipriano's extrajudicial settlement was executed without the knowledge of the other heirs and that neither petitioner nor the spouses Rodolfo ever had possession of the disputed property, claiming that a number of the Pascua heirs had been in actual, continuous, and adverse possession thereof. Petitioner moved to dismiss on the grounds that the action was barred by prescription, more than twenty-eight years having elapsed from the issuance of TCT No. T-10863, and that the complaint stated no cause of action as petitioner was an innocent purchaser for value having relied on the clean title of the spouses Rodolfo. The heirs of Cipriano filed an answer denying knowledge of the extrajudicial settlement and averring that Cipriano had not executed any document transferring ownership during his lifetime. The Office of the Solicitor General, for the Register of Deeds and the National Treasurer, asserted that the claim against the Assurance Fund had prescribed under Section 102 of P.D. No. 1529. The RTC conducted a hearing on the motion to dismiss, at which the parties presented documentary evidence including the annexes of the complaint.

• Prescription: Petitioner argued that the action was barred by the Statute of Limitations, more than twenty-eight years having elapsed from the issuance of TCT No. T-10863 in 1969 up to the filing of the complaint in 1997, exceeding the ten-year prescriptive period for reconveyance based on implied or constructive trust.
• No Cause of Action — Innocent Purchaser for Value: Petitioner maintained that the complaint stated no cause of action because it was an innocent purchaser for value, having relied on the clean title of the spouses Rodolfo (TCT No. T-8242) without any circumstance that would have impelled further inquiry into the title.

• Possession and Quieting of Title: Respondents argued that the complaint made out a case for quieting of title which had not prescribed, as possession over the property was sufficiently alleged in the complaint stating that neither petitioner nor the spouses Rodolfo ever had possession, while a number of the Pascua heirs had been in actual, continuous, and adverse possession.
• Laches: Respondents contended that laches had not set in, the Court of Appeals having found that possession was sufficiently alleged and hypothetically admitted in the motion to dismiss.
• Invalidity of Transfer: Respondents claimed that the Extrajudicial Settlement of a Sole Heir was not registered and that OCT No. 404 was not cancelled by the Register of Deeds, and that TCT No. T-8241 was invalid because it was not signed by the Register of Deeds.

• Propriety of Dismissal: Whether the RTC correctly granted petitioner's motion to dismiss and, conversely, whether the Court of Appeals erred in reversing that order.
• Cause of Action — Innocent Purchaser for Value: Whether the complaint states a cause of action against petitioner, given its status as a purchaser relying on the Torrens title of its predecessor-in-interest.
• Quieting of Title: Whether respondents can maintain an action for quieting of title despite the cancellation of OCT No. 404 and the absence of a clear allegation of possession.
• Prescription of Reconveyance: Whether the action for reconveyance based on implied trust had prescribed.
• Assurance Fund Claim: Whether the claim against the Assurance Fund is barred by prescription and by the statutory exclusion for breach of trust.

• Propriety of Dismissal: Yes. The RTC correctly granted the motion to dismiss; the Court of Appeals erred in reversing it. The complaint, considered in tandem with its documentary annexes and the evidence presented at the hearing, failed to state a cause of action.
• Cause of Action — Innocent Purchaser for Value: No cause of action lies. Petitioner is an innocent purchaser for value, having relied on TCT No. T-8242 in the name of the spouses Rodolfo, which contained no indication of any cloud or vice in ownership.
• Quieting of Title: No. Respondents cannot maintain an action for quieting of title because OCT No. 404 had already been cancelled, leaving them with no title to anchor their complaint on, and the complaint did not sufficiently allege that respondents themselves were in possession.
• Prescription of Reconveyance: Yes, prescribed. The action for reconveyance based on implied or constructive trust prescribes in ten years from the date of registration or issuance of the certificate of title; more than twenty-eight years had elapsed.
• Assurance Fund Claim: No. The claim is barred both by prescription (six years under Section 102 of P.D. No. 1529, reckoned from 1967) and by Section 101 of P.D. No. 1529, which excludes liability for losses caused by breach of trust, whether express, implied, or constructive.

• Propriety of Dismissal: In resolving a motion to dismiss for failure to state a cause of action, the court must hypothetically admit the truth of all material and relevant facts well pleaded in the complaint. However, this admission is limited: it does not extend to inferences or conclusions drawn from facts not stated, conclusions of law, matters of evidence, or surplusage. Moreover, where the motion to dismiss was heard with the submission of evidence, documentary evidence may be considered, and facts appearing by record or document included in the pleadings to be unfounded need not be admitted. Here, the RTC conducted a hearing at which the parties presented documentary evidence, including the annexes of the complaint. Considering the factual allegations alongside the documents attached — OCT No. 404 with its annotations showing prior sales by Pablo, the extrajudicial settlement, and the chain of transfer certificates of title — the complaint failed to state a cause of action against petitioner.

• Cause of Action — Innocent Purchaser for Value: The complaint alleged no defect in TCT No. T-8242 in the name of the spouses Rodolfo, petitioner's predecessors-in-interest, nor any circumstance from which it could be inferred that petitioner had actual knowledge of facts impelling further inquiry. A person dealing with registered property need not go beyond the title of the predecessor-in-interest; where nothing in the certificate of title indicates any cloud or vice in ownership, the purchaser is not required to explore farther than what the Torrens title indicates on its face. The alleged non-signature of the Register of Deeds on TCT No. T-8241 does not affect its validity, there being a presumption of regularity in the performance of official duty, bolstered by the fact that the same Register of Deeds signed TCT No. T-8242 and issued both titles on the same day. Petitioner was bound only by the certificate of title of the person from whom it purchased, not by the original certificate. Even assuming arguendo that the extrajudicial settlement was a forgery, petitioner's title must still be upheld: where a certificate of title has been transferred from the true owner to the forger, and while it remained in the forger's name the land was sold to an innocent purchaser, the vendee had the right to rely on what appeared in the certificate. The extrajudicial settlement was registered on February 14, 1967, per Entry No. 18590, in compliance with Section 56 of Act No. 496, and registration in the public registry is constructive notice to the whole world.

• Quieting of Title: Under Article 477 of the Civil Code, the plaintiff in an action to quiet title must have legal or equitable title to or interest in the real property. Here, OCT No. 404 had already been cancelled, and respondents had no title to anchor their complaint on. Furthermore, the complaint did not specify that respondents were in possession of the property; it merely alleged that the occupants were "others not defendant Spouses Rodolfo" who could be anybody, and that "a number of the Pascua heirs" were in actual possession — who could be either respondents or the heirs of Cipriano. Such vague allegations constitute mere conclusions and inferences, which the hypothetical admission in a motion to dismiss does not extend to.

• Prescription of Reconveyance: The relationship between Cipriano and the other heirs of Pablo is governed by Article 1456 of the Civil Code, which creates an implied trust when property is acquired through mistake or fraud. The other heirs should have filed an action for reconveyance based on implied or constructive trust within ten years from the date of registration of the deed or the issuance of the certificate of title. TCT No. T-10863 was issued in petitioner's name on November 5, 1969, and the complaint was filed on November 21, 1997 — more than twenty-eight years later. The action had therefore prescribed.

• Assurance Fund Claim: Section 101 of P.D. No. 1529 provides that the Assurance Fund shall not be liable for any loss, damage, or deprivation of any right or interest in land caused by a breach of trust, whether express, implied, or constructive. The implied trust arising from Cipriano's fraudulent procurement of title falls squarely within this exclusion. Even assuming arguendo that respondents were entitled to claim against the Assurance Fund, the claim had prescribed: Section 102 of P.D. No. 1529 requires that any action for compensation against the fund be brought within six years from the time the right to bring such action first occurred, which in this case was 1967.

• Innocent Purchaser for Value under the Torrens System — A purchaser of registered land who takes a certificate of title for value and in good faith holds the same free from all encumbrances except those noted on the certificate and statutory liens. The purchaser need not go beyond the title of the predecessor-in-interest; where nothing on the certificate indicates any cloud or vice in ownership, the purchaser is not required to explore further. Applied here: petitioner examined TCT No. T-8242 in the name of the spouses Rodolfo, which showed no defect, and was therefore an innocent purchaser for value against whom no action for reconveyance would lie.

• Forged or Fraudulent Deed as Root of Valid Title — Although a forged or fraudulent deed is generally a nullity and conveys no title, it may become the root of a valid title where the certificate of title has already been transferred from the true owner to the forger, and while it remained in the forger's name, the land was subsequently sold to an innocent purchaser. Applied here: even assuming the extrajudicial settlement was a forgery, petitioner's title was upheld because the title had already been transferred to Cipriano and then to the spouses Rodolfo before petitioner purchased the property.

• Prescription of Action for Reconveyance Based on Implied Trust — An action for reconveyance of fraudulently registered real property based on implied or constructive trust prescribes in ten years, reckoned from the date of registration of the deed or the date of issuance of the certificate of title. Applied here: more than twenty-eight years had elapsed from the issuance of TCT No. T-10863 on November 5, 1969 to the filing of the complaint on November 21, 1997.

• Hypothetical Admission in Motion to Dismiss — A motion to dismiss hypothetically admits the truth of all material and relevant facts well pleaded in the complaint, but this admission does not extend to inferences, conclusions of law, matters of evidence, surplusage, or facts which appear by record or document included in the pleadings to be unfounded. Applied here: the vague allegations of possession by "others" and "a number of the Pascua heirs" were mere conclusions not covered by the hypothetical admission.

• Constructive Notice via Registration — Registration in the public registry is constructive notice to the whole world. Every conveyance, mortgage, lease, lien, attachment, order, judgment, instrument, or entry affecting registered land, once registered, filed, or entered in the Office of the Register of Deeds, constitutes constructive notice to all persons from the time of such registering, filing, or entering. Applied here: the extrajudicial settlement was recorded on February 14, 1967, per Entry No. 18590, constituting constructive notice to respondents.

• "It is basic that a person dealing with registered property need not go beyond, but only has to rely on, the title of his predecessor-in-interest. Since 'the act of registration is the operative act to convey or affect the land insofar as third persons are concerned,' it follows that where there is nothing in the certificate of title to indicate any cloud or vice in the ownership of the property, or any encumbrance thereon, the purchaser is not required to explore farther than what the Torrens title upon its face indicates in quest for any hidden defect or inchoate right that may subsequently defeat his right thereto." — This passage articulates the core rationale for protecting innocent purchasers for value under the Torrens system and is the ratio decidendi for upholding petitioner's title.

• "Even assuming arguendo that the extrajudicial settlement was a forgery, the Court still has to uphold the title of petitioner. The case law is that although generally a forged or fraudulent deed is a nullity and conveys no title, there are instances when such a fraudulent document may become the root of a valid title." — This passage states the exception to the nullity rule for forged deeds, a doctrine frequently cited in Torrens system jurisprudence.

• "The other heirs of Pablo should have filed an action for reconveyance based on implied or constructive trust within ten (10) years from the date of registration of the deed or the date of the issuance of the certificate of title over the property." — This passage defines the prescriptive period for reconveyance based on implied trust, a key rule for bar review.

• "Section 101 of P.D. No. 1529 clearly provides that the Assurance Fund shall not be liable for any loss, damage or deprivation of any right or interest in land which may have been caused by a breach of trust, whether express, implied or constructive." — This passage identifies the statutory exclusion that bars claims against the Assurance Fund where the loss stems from a breach of trust.

• Azur vs. Provincial Board, 27 SCRA 50 (1969) — Cited for the test of sufficiency of a cause of action in a motion to dismiss: whether, admitting the facts alleged, the court could render a valid judgment in accordance with the prayer of the complaint.
• Director of Lands vs. Addison, 49 Phil. 19 (1926) — Cited for the doctrine that a forged or fraudulent deed, though generally a nullity, may in certain instances become the root of a valid title.
• Inquimboy vs. Vda. de Cruz, G.R. No. L-13953 (1960) — Cited for the rule that where a certificate of title has been transferred from the true owner to the forger, and while it remained in the forger's name the land was sold to an innocent purchaser, the vendee had the right to rely on what appeared in the certificate.
• Fule and Aragon vs. De Legare and CA, 117 Phil. 367 (1963) — Cited for the principle that a purchaser of registered land is not required to go beyond the face of the Torrens title in quest of hidden defects.
• Co vs. Court of Appeals, 196 SCRA 705 (1991) — Cited for the rule that a purchaser is bound only by the certificate of title of the person from whom it purchased the property, not by the original certificate.
• Vergel De Dios vs. Bristol Laboratories (Phils.), Inc., 154 Phil. 311 (1974) — Cited for the principle that the hypothetical admission in a motion to dismiss does not extend to inferences, conclusions of law, matters of evidence, or surplusage.
• Vda. de Portugal vs. Intermediate Appellate Court, 159 SCRA 178 — Cited for the ten-year prescriptive period for actions for reconveyance based on implied or constructive trust.

• Section 44, P.D. No. 1529 (Property Registration Decree) — Provides that every subsequent purchaser of registered land taking a certificate of title for value and in good faith holds the same free from all encumbrances except those noted on the certificate and certain statutory liens. Applied to uphold petitioner's title as an innocent purchaser for value.
• Section 56, Act No. 496 (Land Registration Act) / Section 56, P.D. No. 1529 — Requires the Register of Deeds to keep a primary entry book in which instruments are entered in the order of their reception, and provides that instruments are regarded as registered from the time so noted. Applied to establish that the extrajudicial settlement was registered on February 14, 1967, per Entry No. 18590.
• Section 52, P.D. No. 1529 — Provides that registration in the public registry is constructive notice to all persons from the time of such registering, filing, or entering. Applied to charge respondents with constructive notice of the extrajudicial settlement.
• Section 101, P.D. No. 1529 — Provides that the Assurance Fund shall not be liable for any loss, damage, or deprivation caused by a breach of trust, whether express, implied, or constructive. Applied to bar respondents' claim against the Assurance Fund.
• Section 102, P.D. No. 1529 — Provides a six-year prescriptive period for actions for compensation against the Assurance Fund, reckoned from the time the right to bring such action first occurred. Applied to hold that respondents' claim had prescribed, the right having occurred in 1967.
• 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 characterize the legal relationship between Cipriano and the other heirs of Pablo, triggering the ten-year prescriptive period for reconveyance.
• Article 477, Civil Code — Provides that the plaintiff in an action to quiet title must have legal or equitable title to or interest in the real property, though need not be in possession. Applied to hold that respondents could not maintain an action for quieting of title because OCT No. 404 had been cancelled and they had no title to anchor their complaint on.

Leonardo A. Quisumbing (Acting Chief Justice, Chairperson), Renato C. Corona, Conchita Carpio Morales, and Arturo D. Brion concurred.