Heirs of Salvador Hermosilla vs. Spouses Jaime Remoquillo and Luz Remoquillo

A purported transfer of the privilege or preference to purchase public land before the issuance of the Order of Award is void ab initio and transmits no right; estoppel cannot validate such an illegal transfer. Where the plaintiff remains in possession of the property, an action for reconveyance based on implied trust is imprescriptible and partakes of an action to quiet title.

Apolinario Hermosilla occupied land in the San Pedro Tunasan Homesite, a government-acquired estate in Poblacion, San Pedro, Laguna; his grandson, respondent Jaime Remoquillo, and his son, Salvador Hermosilla, from whom petitioners descend, became the key predecessors-in-interest to a 65-square-meter portion of Lot 19. Disposition of the estate was administered by the Land Tenure Administration and later by the Land Authority and the National Housing Authority under rules including Land Authority Administrative Order No. 4 (1967), which restricted transfers of the privilege to purchase before award.

The controversy concerns a 65-square-meter portion of Lot 19, with a total area of 341 square meters, located in Poblacion, San Pedro, Laguna, within the San Pedro Tunasan Homesite that the Republic of the Philippines acquired by purchase on August 31, 1931. Apolinario Hermosilla occupied a lot in the homesite until his death in 1964 and caused it to be subdivided into Lot 12 and Lot 19, each with an area of 341 square meters; the 65-square-meter portion subject of this case forms part of Lot 19.

On April 30, 1962, Apolinario executed a Deed of Assignment transferring possession of Lot 19 to his grandson, respondent Jaime Remoquillo. The Land Tenure Administration later found that Lot 19 remained available for disposition to qualified applicants, and Jaime, as its actual occupant, applied for its acquisition on May 10, 1963. On July 8, 1963, Apolinario conveyed Lot 12 to his son Salvador Hermosilla, Jaime's uncle; Salvador later applied to purchase Lot 12 and was awarded it by the defunct Land Authority on December 16, 1971.

On February 10, 1972, Jaime and Salvador executed a "Kasunduan ng Paglipat Ng Karapatan sa Isang Lagay na Lupang Solar" (Kasunduan), by which Jaime transferred ownership of the 65-square-meter questioned property to Salvador. After Apolinario died, his daughter Angela Hermosilla filed a protest before the Land Authority, later the National Housing Authority, claiming that as an heir she was entitled to Lots 12 and 19; the NHA dismissed the protest on June 10, 1981. The NHA later awarded Lot 19 to Jaime on March 16, 1986, and he and his wife were issued Transfer Certificate of Title No. T-156296 on September 15, 1987.

On May 25, 1992, petitioners—the heirs of Salvador Hermosilla—filed an action for Annulment of Title on the ground of fraud with damages against Jaime and his spouse, together with the Register of Deeds, before the Regional Trial Court of Biñan, Laguna. They alleged that under the 1972 Kasunduan, Jaime had conveyed to Salvador the questioned property, which formed part of Lot 19 covered by TCT No. T-156296 issued in 1987.

The RTC found the Kasunduan to be a perfected contract of sale, with a meeting of the minds upon an identified object and a specific price, and that ownership over the questioned property had already been transferred and delivered to Salvador; it also held that the alleged failure of consideration did not render the contract void but merely allowed an action for specific performance. The Court of Appeals, on the other hand, found that the Kasunduan was void because at the time of its execution in 1972 the Republic of the Philippines still owned Lot 19, that no right was transmitted by Jaime to Salvador or by Salvador through succession to petitioners, and that no evidence of fraud attended Jaime's registration of Lot 19 in his and his wife's name in 1987.

• Prescription: Petitioners argued that applying the law on prescription would perpetrate fraud and spawn injustice, citing Cometa vs. Court of Appeals, and that prescription does not lie against a co-owner.
• Vested Right to Purchase: Petitioners maintained that when the Kasunduan was executed in 1972, Jaime's 1963 application for the award of Lot 19 was still pending; the Kasunduan therefore transferred to Salvador Jaime's vested right to purchase the lot.
• Article 1434 and Estoppel: Petitioners invoked Article 1434 of the Civil Code, arguing that when a non-owner sells or alienates and delivers a thing and later acquires title, the title passes by operation of law to the buyer or grantee.
• Invalidity of the 1962 Deed of Assignment: Petitioners postulated that if the Kasunduan is void, the 1962 Deed of Assignment executed by Apolinario in favor of Jaime is likewise void, thereby depriving Jaime of any legal basis for his occupation and acquisition of Lot 19.
• Fraud: Petitioners sought annulment of title on the ground of fraud, alleging that Jaime had the questioned property registered in his and his wife's name despite the prior Kasunduan.

• Prescription: Whether petitioners' action for annulment of title/reconveyance was barred by the statute of limitations.
• Validity and Effect of the Kasunduan: Whether the 1972 Kasunduan transferred to Salvador any ownership or right over the 65-square-meter portion of Lot 19 when Lot 19 was still owned by the Republic.
• Article 1434 and Estoppel: Whether Article 1434 of the Civil Code and the principle of estoppel validated the Kasunduan or transferred Jaime's pending privilege to purchase to Salvador.
• Effect on the 1962 Deed of Assignment: Whether the invalidity of the Kasunduan rendered the 1962 Deed of Assignment void and deprived Jaime of any legal basis to acquire Lot 19.
• Personality and Proof of Fraud: Whether petitioners had personality to impute fraud in the registration of Lot 19 and whether they proved fraud by clear and convincing evidence to warrant reconveyance.

• Prescription: No. Although the Court of Appeals held the action prescribed, the action was not barred because petitioners remained in possession, making it a suit for quieting of title, which is imprescriptible.
• Validity and Effect of the Kasunduan: No. The Kasunduan was void ab initio; at its execution in 1972, Lot 19 was still owned by the Republic, and Land Authority Administrative Order No. 4 prohibited the transfer of the privilege to purchase before award.
• Article 1434 and Estoppel: No. Article 1434 did not apply, and estoppel could not validate the Kasunduan because estoppel cannot be predicated on an illegal act or a contract prohibited by law or public policy.
• Effect on the 1962 Deed of Assignment: No. The invalidity of the Kasunduan did not invalidate the 1962 Deed of Assignment or deprive Jaime of a legal basis because Jaime acquired Lot 19 in his own right, independently of that deed.
• Personality and Proof of Fraud: No. Petitioners had no personality to impute fraud against the State over public land, and they failed to prove fraud by clear and convincing evidence.

• Prescription: The Court disagreed with the Court of Appeals' prescription ruling. An action for reconveyance based on implied trust prescribes in ten years from the issuance of the certificate of title if the plaintiff is not in possession; if the plaintiff remains in possession as the real owner, the prescriptive period does not run, and the action is in the nature of a suit for quieting of title, which is imprescriptible. It was undisputed that petitioners' houses occupied the questioned property and that respondents had not been in possession. Since there was no actual need to reconvey the property as petitioners remained in possession, the action took the nature of a suit for quieting of title, filed to enforce an alleged implied trust after Jaime refused to segregate title over Lot 19. One in actual possession claiming ownership may wait until possession is disturbed or title is attacked before vindicating his right. Thus, the action was not barred by prescription. Petitioners' contention that prescription does not lie against a co-owner failed because only the title covering the questioned property, which petitioners claim to solely own, was being assailed.
• Validity and Effect of the Kasunduan: The Kasunduan was executed on February 10, 1972 by Jaime in favor of Salvador. At that time, Lot 19, including the questioned property, was still owned by the Republic. Under nemo dat quod non habet, nobody can give what he does not possess; Jaime could not have transferred anything to Salvador via the Kasunduan. Land Authority Administrative Order No. 4 (1967), Section 6, provided that from the date of acquisition of the estate by the Government and before issuance of the Order of Award, no tenant or bona fide occupant in whose favor the land may be sold shall transfer or encumber the privilege or preference to purchase the land, and any transfer or encumbrance made in violation thereof shall be null and void; the privilege may be waived or forfeited only in favor of the Land Authority. The Kasunduan violated this rule and was void ab initio; no rights were created. Petitioners' insistence on any right to the property under the Kasunduan thus failed.
• Article 1434 and Estoppel: Petitioners' reliance on Article 1434 of the Civil Code did not lie. The principles of estoppel apply only insofar as they are not in conflict with the Civil Code, the Code of Commerce, the Rules of Court, and special laws. Land Authority Administrative Order No. 4 has the force of law and prohibits the transfer of the privilege to purchase before award. Estoppel cannot be predicated on an illegal act; validity cannot be given by estoppel to a contract if it is prohibited by law or against public policy. Thus, Article 1434 could not validate the Kasunduan.
• Effect on the 1962 Deed of Assignment: Petitioners argued that if the Kasunduan is void, the 1962 Deed of Assignment executed by Apolinario in favor of Jaime is likewise void, thereby depriving Jaime of any legal basis for his occupation and acquisition of Lot 19. This position failed. Jaime acquired Lot 19 in his own right, independently of the Deed of Assignment. The NHA awarded Lot 19 to Jaime on March 16, 1986, and he and his wife were issued TCT No. T-156296 on September 15, 1987. The invalidity of the Kasunduan did not affect Jaime's independent acquisition of Lot 19.
• Personality and Proof of Fraud: Since the property was previously public land, petitioners had no personality to impute fraud or misrepresentation against the State or violation of the law. If the title was fraudulently obtained, it is the State which should file the suit to recover the property through the Office of the Solicitor General. The title originated from a grant by the government; its cancellation is a matter between the grantor and the grantee. Moreover, for an action for reconveyance based on fraud to prosper, the plaintiff must prove by clear and convincing evidence not only his title to the property but also the fact of fraud. Fraud is never presumed. Intentional acts to deceive and deprive another of his right, or in some manner injure him, must be specifically alleged and proved by the plaintiff by clear and convincing evidence. Petitioners failed to discharge this burden.

• Nemo dat quod non habet — No one can give what he does not possess. At the time the Kasunduan was executed in 1972, Lot 19, including the questioned 65-square-meter portion, was still owned by the Republic of the Philippines. Jaime Remoquillo therefore could not transfer ownership or any right over the property to Salvador Hermosilla through the Kasunduan.
• Intransferability of the privilege to purchase public land before award — Under Land Authority Administrative Order No. 4 (1967), Section 6, from the date of the Government's acquisition of the estate and before the issuance of the Order of Award, no tenant or bona fide occupant in whose favor the land may be sold may transfer or encumber the privilege or preference to purchase the land; any transfer or encumbrance made in violation thereof is null and void, and the privilege may be waived or forfeited only in favor of the Land Authority. The Kasunduan violated this rule and was void ab initio.
• Estoppel cannot be predicated on an illegal act — Estoppel cannot validate a contract that is prohibited by law or against public policy. Article 1434 of the Civil Code, which petitioners invoked, did not apply because the transfer of the privilege to purchase before award was illegal under Land Authority Administrative Order No. 4.
• Reconveyance based on implied trust; prescriptive period and possession — An action for reconveyance based on an implied trust prescribes in ten years from the issuance of the certificate of title if the plaintiff is not in possession; if the plaintiff remains in possession as the real owner, the prescriptive period does not run, and the action is in the nature of a suit for quieting of title, which is imprescriptible. Because petitioners' houses occupied the questioned property and respondents were not in possession, the action was not barred by prescription.
• State as the proper party to recover fraudulently obtained public land — Where the property was previously public land and the title originated from a grant by the government, the cancellation of the title is a matter between the grantor and the grantee. If the title was fraudulently obtained, the State, through the Office of the Solicitor General, should file the suit to recover the property; private petitioners have no personality to impute fraud or misrepresentation against the State.
• Fraud must be proved by clear and convincing evidence — Fraud is never presumed. For an action for reconveyance based on fraud to prosper, the plaintiff must prove by clear and convincing evidence not only his title to the property but also the fact of fraud; intentional acts to deceive and deprive another of his right, or to injure him, must be specifically alleged and proved. Petitioners failed to discharge this burden.

• "Nemo dat quod non habet. Nobody can give what he does not possess. Jaime could not thus have transferred anything to Salvador via the Kasunduan." — This states the ratio for rejecting the Kasunduan: because the Republic still owned Lot 19 when the Kasunduan was executed, Jaime could convey no right to Salvador.
• "An action for reconveyance based on an implied trust prescribes in ten years. The ten-year prescriptive period applies only if there is an actual need to reconvey the property as when the plaintiff is not in possession of the property. However, if the plaintiff, as the real owner of the property also remains in possession of the property, the prescriptive period to recover the title and possession of the property does not run against him. In such a case, an action for reconveyance, if nonetheless filed, would be in the nature of a suit for quieting of title, an action that is imprescriptible." — This defines the prescriptive rule applied to hold that petitioners' action was not barred because they remained in possession.
• "Estoppel, as postulated by petitioner, will not apply for it cannot be predicated on an illegal act. It is generally considered that as between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy." — This rejects petitioners' reliance on Article 1434 and estoppel to validate the Kasunduan.
• "At all events, for an action for reconveyance based on fraud to prosper, the plaintiff must prove by clear and convincing evidence not only his title to the property but also the fact of fraud. Fraud is never presumed. Intentional acts to deceive and deprive another of his right, or in some manner injure him must be specifically alleged and proved by the plaintiff by clear and convincing evidence." — This states the evidentiary standard for fraud and explains why petitioners' fraud claim failed.

• Cometa vs. Court of Appeals, G.R. No. 141855, February 6, 2001, 351 SCRA 294 — Cited by petitioners for the argument that applying prescription would perpetrate fraud; the Court distinguished it because it involved a different factual milieu concerning the right of redemption.
• Alfredo vs. Borras, G.R. No. 144225, June 17, 2003, 404 SCRA 145 — Cited for the rule that an action for reconveyance based on an implied trust prescribes in ten years if the plaintiff is not in possession, but is imprescriptible if the plaintiff remains in possession.
• Arlegui vs. Court of Appeals, G.R. No. 126437, March 6, 2002, 378 SCRA 322, 324 — Cited for the rule that one in actual possession of land claiming ownership may wait until possession is disturbed or title is attacked before vindicating his right.
• Cavite Development Bank vs. Lim, G.R. No. 131679, February 1, 2000, 324 SCRA 346, 356 — Cited for the principle of nemo dat quod non habet in a contract of sale at the consummation stage, requiring the seller to be the owner at the time of delivery under Article 1459 of the Civil Code.
• Piscueña vs. Heirs of Petra Unating, G.R. No. 132803, August 31, 1999, 313 SCRA 384, 386 — Cited in relation to Article 1434 of the Civil Code and its application in prior cases.
• Ibay vs. Intermediate Appellate Court, G.R. No. 67279, June 3, 1992, 209 SCRA 510, 515 — Cited for the rule that estoppel cannot be predicated on an illegal act and cannot give validity to a contract prohibited by law or against public policy.
• Domaoal vs. Bea, No. L-30167, August 31, 1984, 131 SCRA 512, 513 — Cited for the rule that private petitioners have no personality to impute fraud or misrepresentation against the State over public land.
• De Ocampo vs. Arlos, G.R. No. 135527, October 19, 2000, 343 SCRA 716, 728 — Cited for the rule that where title originated from a government grant, its cancellation is a matter between the grantor and the grantee.
• Barrera vs. Court of Appeals, G.R. No. 123935, December 14, 2001, 372 SCRA 312, 316-317; Alonso vs. Cebu Country Club, Inc., G.R. No. 130876, December 5, 2003, 417 SCRA 115, 124 — Cited for the rule that fraud is never presumed and must be proved by clear and convincing evidence.

• Article 1434, Civil Code — Provides that when a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee. Petitioners invoked this provision, but the Court held it did not apply because estoppel cannot be predicated on an illegal act and the transfer violated Land Authority Administrative Order No. 4.
• Article 1432, Civil Code — Provides that the principles of estoppel apply insofar as they are not in conflict with the Civil Code, the Code of Commerce, the Rules of Court, and special laws. The Court cited this to reject petitioners' reliance on Article 1434.
• Article 1456, Civil Code — Cited in relation to implied trust and the action for reconveyance; the Court used it to characterize petitioners' action as one based on implied trust and to apply the ten-year prescriptive period or imprescriptibility depending on possession.
• Article 1459, Civil Code — Cited for the requirement that at the time of delivery the seller be the owner of the thing sold, supporting the application of nemo dat quod non habet.
• Land Authority Administrative Order No. 4 (1967), Section 6 — Provides that from the date of acquisition of the estate by the Government and before issuance of the Order of Award, no tenant or bona fide occupant in whose favor the land may be sold shall transfer or encumber the privilege or preference to purchase the land, and any transfer or encumbrance made in violation thereof shall be null and void; the privilege may be waived or forfeited only in favor of the Land Authority. The Kasunduan violated this provision and was void ab initio.

Leonardo A. Quisumbing (Chairperson), Antonio T. Carpio, Dante O. Tinga, and Presbitero J. Velasco, Jr.