Leyson vs. Bontuyan

A counterclaim seeking the nullification of a certificate of title constitutes a direct attack on the title, not a collateral attack, because a counterclaim stands on the same footing as an independent action; and an action for reconveyance based on fraud is imprescriptible when the plaintiff is in actual possession of the property, since the right to seek reconveyance accrues only from the time possession is disturbed or title is attacked.

Calixto Gabud owned a parcel of land in Barangay Adlawon, Cebu City, declared for taxation under T.D. No. 03276-R in 1945. The construction of a provincial road divided the property into two parcels, later identified as Lot No. 17150 and Lot No. 13272 of the Cebu Cadastre. The property passed through a chain of sales: from Gabud to Protacio Tabal (married to Leodegaria Bontuyan), then to Simeon Noval (married to Vivencia Bontuyan, daughter of Gregorio Bontuyan), and finally to Lourdes V. Leyson on May 22, 1968. Gregorio Bontuyan, despite knowing that his son-in-law and daughter had sold the property to Lourdes Leyson, filed an application for a free patent over Lot No. 17150 on December 4, 1968, falsely alleging that the property was unoccupied public land and that he had cultivated it since 1918. The free patent and corresponding OCT were issued in his name, and he subsequently transferred the property to his son Naciansino Bontuyan. The dispute arose when the Bontuyan spouses, after returning from abroad, discovered tenants installed by the Leyson heirs on the property and filed a complaint for quieting of title.

Calixto Gabud owned a parcel of land in Barangay Adlawon, Mabolo, Cebu City, declared for taxation under T.D. No. 03276-R in 1945. The construction of a provincial road divided the property into two parcels covered by T.D. No. 03276-R and T.D. No. 01979-R. On February 14, 1948, Gabud executed a Deed of Absolute Sale over both parcels in favor of Protacio Tabal, married to Leodegaria Bontuyan. On January 5, 1959, Tabal sold the property covered by T.D. No. 13615-R to Simeon Noval, married to Vivencia Bontuyan — daughter of Gregorio Bontuyan — for ₱800.00. Gregorio Bontuyan received a copy of the tax declaration on behalf of the spouses Noval, which bore an annotation of the transfer to Simeon Noval.

On May 22, 1968, the spouses Noval executed a Deed of Absolute Sale over the two lots in favor of Lourdes V. Leyson for ₱4,000.00. Lourdes Leyson took possession of the property and had it fenced, and she paid the realty taxes thereon. Despite the sale, the tax declarations continued to be issued in the names of the spouses Noval. The property was surveyed in 1964 and identified as Lot No. 17150 (formerly under T.D. No. 03276-R) and Lot No. 13272 (formerly under T.D. No. 01979-R) of Cebu Cadastre No. 12.

Despite knowing that the property had been purchased by his son-in-law and daughter, Gregorio Bontuyan, then 91 years old, filed an application for a free patent over Lot No. 17150 with the Bureau of Lands on December 4, 1968. He falsely alleged therein that the property was public land, neither claimed nor occupied by any person, and that he first entered upon and began cultivating it in 1918. He also stated that the property was located in Sirao, Cebu City, when in fact it was in Adlawon — two different barangays not even adjacent to each other. Lourdes Leyson was not notified of the application and did not file any opposition. Free Patent No. 510463 was issued over Lot No. 17150 in his favor on November 19, 1971, and OCT No. 0-1619 was issued on March 21, 1974, indicating the property's location as "Sirao, Cebu City."

On February 20, 1976, Gregorio Bontuyan executed a Deed of Absolute Sale over Lot No. 17150 in favor of his son, Naciansino Bontuyan. On April 28, 1980, then 103 years old, he executed another Deed of Absolute Sale over both Lot Nos. 13272 and 17150 in favor of Naciansino Bontuyan for ₱3,000.00. On the basis of the latter deed, OCT No. 0-1619 was cancelled by TCT No. 1392 in the name of Naciansino Bontuyan on December 2, 1980. Gregorio Bontuyan died intestate on April 12, 1981. On March 30, 1981, the spouses Bontuyan executed a real estate mortgage over Lot No. 17150 in favor of DBP as security for a loan of ₱11,200.00. Naciansino Bontuyan had earlier executed an affidavit that the property was not tenanted. The spouses Bontuyan then left for the United States.

Lourdes Leyson likewise died intestate. The spouses Bontuyan returned to the Philippines in 1988 to redeem the property from DBP, only to discover tenants living on the property installed by Engineer Gabriel Leyson, one of Lourdes Leyson's children. Despite being informed that the spouses owned the property, the tenants refused to vacate or to deliver the produce. The spouses Bontuyan redeemed the property from DBP on September 22, 1989. On June 24, 1993, Naciansino Bontuyan, through counsel, wrote Engr. Leyson demanding production of documents evidencing ownership over the two lots; the letter was ignored. The spouses Bontuyan thereafter filed a complaint for quieting of title and damages in the RTC of Cebu City. Engr. Leyson, in his answer, averred that the two lots were originally owned by Gabud and sold through a chain of sales culminating in Lourdes Leyson, that Gregorio Bontuyan secured the free patent through fraud, and that the resulting titles were null and void. He interposed a counterclaim praying for the nullification of OCT No. 0-1619 and TCT No. 1392 and for the issuance of new titles in favor of the Leyson heirs. The other children of Lourdes Leyson — Dr. Josefina L. Poblete, Fe Leyson Qua, Caridad V. Leyson, and Esperanza V. Leyson — were allowed to intervene and filed an answer-in-intervention adopting the same counterclaim.

The trial court found that the lots were originally owned by Gabud and sold through a chain of sales to Lourdes Leyson, and that Gregorio Bontuyan applied for a free patent in gross bad faith, falsely declaring the location as Sirao instead of Adlawon and claiming to have cultivated the land since 1918. The trial court also noted as a badge of bad faith that Gregorio sold the property twice to Naciansino, in 1976 and 1980, both deeds notarized by different notaries public. The Court of Appeals affirmed these factual findings and acknowledged the fraud, but ruled that the counterclaim constituted a collateral attack on OCT No. 0-1619 and that the action for reconveyance had prescribed.

• Direct Attack on Title: Petitioners maintained that their counterclaim in the answer to the complaint constituted a direct attack on the validity of OCT No. 0-1619, not a collateral attack, relying on the ruling in Pro Line Sports Center, Inc. vs. Court of Appeals where the counterclaim was held to constitute a direct attack on a certificate of title. They argued that the CA's reliance on Cimafrancia vs. Intermediate Appellate Court was misplaced.
• Liberal Construction: Petitioners pleaded that their answer to the complaint should be liberally construed so as to afford them substantial justice, citing Section 55 of Act No. 496, as amended.
• Prescription: Petitioners contended that the action for reconveyance had not prescribed, arguing that they were in actual possession of the property and that the right to seek reconveyance was imprescriptible under established jurisprudence.
• Attorney's Fees: Petitioners argued that attorney's and appearance fees were properly awarded by the trial court, given the respondents' bad faith in acquiring title over the properties and in filing a baseless suit.

• Public Land Status: Respondents asserted that Lot No. 17150 was still public land when Lourdes Leyson purchased the same from Simeon Noval, and that the property became private land only when Free Patent No. 510463 was issued to Gregorio Bontuyan.
• Correctness of CA Decision: Respondents claimed that the decision of the CA was correct in declaring them owners of Lot No. 17150.
• Laches and Prescription: In their reply to the counterclaim, respondents averred that the counterclaim for nullity of TCT No. 1392 and reconveyance was barred by laches and prescription.

• Direct vs. Collateral Attack: Whether the counterclaim in the petitioners' answer to the complaint for quieting of title constituted a direct attack on OCT No. 0-1619, or a collateral attack proscribed by law.
• Validity of Title Despite Fraud: Whether the CA erred in modifying the RTC decision by declaring the respondents owners of Lot No. 17150 despite affirming the finding that Gregorio Bontuyan acquired title through fraud.
• Prescription of Reconveyance: Whether the action for reconveyance of Lot No. 17150 covered by OCT No. 0-1619 and TCT No. 1392 had prescribed.
• Attorney's Fees: Whether attorney's and appearance fees were properly awardable to the petitioners.

• Direct vs. Collateral Attack: Yes. The counterclaim constituted a direct attack on OCT No. 0-1619, because a counterclaim is considered a new suit in which the defendant is the plaintiff, standing on the same footing as an independent action.
• Validity of Title Despite Fraud: Yes, the CA erred. OCT No. 0-1619 and TCT No. 1392 were nullified, the titles having been procured through fraud and deceit by Gregorio Bontuyan, who could not feign ignorance of the prior sale to Lourdes Leyson.
• Prescription of Reconveyance: No. The action for reconveyance had not prescribed, because the petitioners and their predecessor were in actual possession of the property, making the right to seek reconveyance imprescriptible.
• Attorney's Fees: Yes. The award of ₱50,000.00 as attorney's fees was affirmed, the respondents' bad faith in acquiring title and filing a baseless suit furnishing sufficient basis.

• Direct vs. Collateral Attack: While Section 47 of Act No. 496 provides that a certificate of title shall not be subject to collateral attack, the rule is that an action is an attack on a title if its object is to nullify the same. The attack is direct when the object is to annul or set aside the proceeding, and collateral when the attack is made as an incident of an action seeking different relief. A counterclaim is considered a new suit in which the defendant is the plaintiff; it stands on the same footing and is tested by the same rules as an independent action. The petitioners, in their answers to the complaint, inserted a counterclaim repleading all material allegations of their affirmative defenses — that Gregorio Bontuyan secured OCT No. 0-1619 through fraud and deceit — and prayed for its nullification. This constituted a direct attack. Moreover, since all essential facts for determining the title's validity were already before the Court, requiring the institution of separate cancellation proceedings would be pointlessly circuitous and against the best interest of justice. The CA's reliance on Cimafrancia vs. Intermediate Appellate Court was misplaced; the controlling ruling was Pro Line Sports Center, Inc. vs. Court of Appeals, where the counterclaim was held to constitute a direct attack on a certificate of title.

• Validity of Title Despite Fraud: The respondents, as plaintiffs in the court a quo, bore the burden of proving that Gregorio Bontuyan was the owner of Lot No. 17150 and that they acquired the property in good faith and for valuable consideration. They failed to discharge this burden. The chain of sales — from Gabud to Tabal (1948), to Noval (1959), to Lourdes Leyson (1968) — was established through notarial documents享有ing the presumption of regularity. No evidence showed that Lourdes Leyson or Simeon Noval ever sold the property to Gregorio Bontuyan. Since Gregorio Bontuyan was not the owner, he could not have validly sold it to Naciansino Bontuyan — nemo dat quod non habet. Gregorio Bontuyan could not feign ignorance of Noval's ownership: Noval was his son-in-law, and Gregorio himself received the owner's copy of the tax declaration covering the property under Noval's name. Gregorio filed his free patent application in gross bad faith, falsely declaring that the property was unoccupied and misstating its location as Sirao instead of Adlawon. Lourdes Leyson was in actual possession of the property, so the respondents could not claim good faith when Gregorio allegedly sold it to them in 1980. The Torrens system does not create or vest title; it only confirms and records title already existing and vested. It does not protect a usurper from the true owner and cannot be a shield for fraud.

• Prescription of Reconveyance: An action for reconveyance generally prescribes in ten years, the point of reference being the date of registration or issuance of the certificate of title. However, where the plaintiff is in actual possession of the property, the action for reconveyance based on fraud is imprescriptible. One who is in actual possession claiming ownership may wait until possession is disturbed or title is attacked before vindicating one's right, because undisturbed possession gives a continuing right to seek the aid of a court of equity. In this case, Lourdes Leyson and, after her death, the petitioners had been in actual possession of the property. The right to seek reconveyance accrued only from the time the one in possession was made aware of a claim adverse to his own. The paramount reason for this exception is that registration proceedings could not be used as a shield for fraud, and to hold otherwise would put a premium on land-grabbing and transgress the principle that no person shall unjustly enrich himself at the expense of another.

• Attorney's Fees: The award of attorney's and appearance fees is within the sound discretion of the trial court, and where such discretion is well exercised, it will not be disturbed on appeal. With the findings of both the trial and appellate courts that the respondents were in bad faith, there was sufficient basis to award attorney's fees. Had it not been for the filing of a baseless suit by the respondents, the petitioners would not have engaged the services of counsel.

• Direct vs. Collateral Attack on a Torrens Title — An attack on a certificate of title is direct when the object of the action is to annul or set aside the proceeding pursuant to which the title was decreed, or to enjoin its enforcement; it is collateral when, in an action to obtain a different relief, an attack on the proceeding is made as an incident thereof. A counterclaim seeking nullification of a certificate of title constitutes a direct attack, because a counterclaim is considered a new suit in which the defendant is the plaintiff, standing on the same footing and tested by the same rules as an independent action. The Court applied this doctrine to hold that the petitioners' counterclaim in their answer to the complaint for quieting of title was a direct attack on OCT No. 0-1619, not a collateral attack proscribed by Section 47 of Act No. 496.

• Imprescriptibility of Action for Reconveyance When Plaintiff Is in Possession — An action for reconveyance based on fraud prescribes in ten years when the plaintiff is not in possession of the property. However, when the plaintiff is in actual possession of the property claiming to be the owner, the right to seek reconveyance — which in effect seeks to quiet title — does not prescribe. The possessor's undisturbed possession gives a continuing right to seek the aid of a court of equity, and the statutory period of prescription commences to run only from the time the possessor is made aware of a claim adverse to his own. The Court applied this doctrine because Lourdes Leyson and, after her death, the petitioners had been in actual possession of Lot No. 17150 when they filed their counterclaims for nullification and reconveyance.

• Nemo Dat Quod Non Habet — No one can give what one does not have. A person who is not the owner of property cannot validly transfer ownership thereof. The Court applied this principle to hold that since Gregorio Bontuyan was not the owner of Lot No. 17150 — it having been sold to Lourdes Leyson by the spouses Noval — he could not have validly sold it to Naciansino Bontuyan.

• Torrens System Does Not Shield Fraud — The Torrens system does not create or vest title; it only confirms and records title already existing and vested. It does not protect a usurper from the true owner, cannot be a shield for the commission of fraud, and does not permit one to enrich himself at the expense of another. Where one has no rightful claim over real property, the Torrens system of registration can confirm or record nothing. The Court relied on this doctrine to nullify OCT No. 0-1619 and TCT No. 1392, which were procured through Gregorio Bontuyan's fraudulent free patent application.

• "A counterclaim is considered a new suit in which the defendant is the plaintiff and the plaintiff in the complaint becomes the defendant. It stands on the same footing and is to be tested by the same rules as if it were an independent action." — This passage articulates the ratio decidendi for holding that the petitioners' counterclaim constituted a direct, not collateral, attack on OCT No. 0-1619.

• "[A]n action for reconveyance based on fraud is imprescriptible where the plaintiff is in possession of the property subject of the acts." — This formulation states the controlling exception to the ten-year prescriptive period for actions for reconveyance, and is the doctrinal basis for the Court's ruling that the petitioners' claim had not prescribed.

• "The torrens system does not create or vest title. It only confirms and records title already existing and vested. It does not protect a usurper from the true owner. It cannot be a shield for the commission of fraud. It does not permit one to enrich himself at the expense of another." — This passage defines the limits of the Torrens system and is frequently cited in subsequent jurisprudence involving fraudulently obtained titles.

• "No better situation can be conceived at the moment for Us to apply this rule on equity than that of herein petitioners whose ... possession of the litigated property for no less than 30 years and was suddenly confronted with a claim that the land she had been occupying and cultivating all these years, was titled in the name of a third person." — This quotation from David vs. Malay, adopted by the Court, illustrates the equitable rationale for the imprescriptibility rule: a possessor in undisturbed possession acquires a continuing right to vindicate title only upon disturbance.

• Pro Line Sports Center, Inc. vs. Court of Appeals, 281 SCRA 162 (1997) — Followed as controlling authority. The Court held that a counterclaim seeking cancellation of a certificate of title constitutes a direct attack, distinguishing it from the collateral attack proscribed by Section 47 of Act No. 496.
• Cimafrancia vs. Intermediate Appellate Court, 147 SCRA 611 (1987) — Distinguished and rejected as inapplicable. The CA had relied on this case to hold that the counterclaim was a collateral attack; the Supreme Court found the reliance misplaced.
• Vda. de Cabrera vs. Court of Appeals, 267 SCRA 339 (1997) — Followed. The Court adopted its ruling that an action for reconveyance based on fraud is imprescriptible when the plaintiff is in actual possession of the property.
• David vs. Malay, 318 SCRA 711 (1999) — Followed. The Court reiterated its pronouncement that one in actual possession claiming ownership may wait until possession is disturbed before vindicating one's right, and that the prescriptive period commences only when the possessor is made aware of an adverse claim.
• Heirs of Pomposa Saludares vs. Court of Appeals, 420 SCRA 51 (2004) — Followed. Cited for the rule that an action for reconveyance prescribes in ten years, the point of reference being the date of registration or issuance of the certificate of title, and for the principle that registration proceedings cannot be used as a shield for fraud.
• Mallilin, Jr. vs. Castillo, 333 SCRA 628 (2000) — Cited for the definition of direct versus collateral attack on a certificate of title, itself citing Co vs. Court of Appeals, 196 SCRA 705 (1991).
• Mendoza vs. Court of Appeals, 158 SCRA 508 (1988) — Cited for the proposition that requiring a party to institute separate cancellation proceedings when all essential facts are already before the court would be pointlessly circuitous and against the best interest of justice.
• Almarza vs. Arguelles, 156 SCRA 718 (1987) — Cited for the principle that holding otherwise would put a premium on land-grabbing and transgress the broader principle that no person shall unjustly enrich himself at the expense of another.
• Linaza vs. Intermediate Appellate Court, 182 SCRA 855 (1990) — Cited for the proposition that reconveyance is just and proper to put a stop to the anomaly of patentees holding Torrens title for land they never possessed and which has been possessed by another in the concept of owner.
• De Castro vs. Court of Appeals, 384 SCRA 607 (2002) — Cited for the rule that the award of attorney's fees is within the sound discretion of the trial court and will not be disturbed on appeal when well exercised.

• Section 47, Act No. 496 (Land Registration Act) — Provides that a certificate of title shall not be subject to collateral attack. The Court construed this provision to mean that while collateral attacks are proscribed, direct attacks — including those raised via counterclaim — are permitted, because a counterclaim stands on the same footing as an independent action.
• Section 55, Act No. 496 (Land Registration Act) — Cited by the petitioners to buttress their stance that their answer should be liberally construed to afford substantial justice.
• Section 1, Rule 131, Revised Rules of Evidence — Provides the burden of proof. The Court applied this rule to hold that the respondents, as plaintiffs in the court a quo, were burdened to prove their claim of ownership but failed to discharge that burden.

Puno (Chairman), Austria-Martinez, Tinga, and Chico-Nazario, JJ., concurred.