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AZNAR BROTHERS REALTY COMPANY v. LAURENCIO AYING

FACTS:

The disputed property is Lot No. 4399, located at Dapdap, Lapu-Lapu City, with an area of 34,325 square meters. Crisanta Maloloy-on petitioned for the issuance of a cadastral decree in her favor over the said land, but after her death in 1930, the Cadastral Court directed the issuance of a decree in the name of her eight children. The certificate of title was lost during the war.

The heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with Deed of Absolute Sale in 1964, conveying the subject property to petitioner Aznar Brothers Realty Company. This deed was registered with the Register of Deeds of Lapu-Lapu City, and petitioner had been regularly paying real property taxes on the land.

In 1988, petitioner filed a Petition for Reconstitution of the Original Title, which was granted, and a reconstituted title was issued. Petitioner then sent notices to vacate to the occupants of the property.

Petitioner also filed a complaint for ejectment against the occupants before the Metropolitan Trial Court (MTC), which ordered the occupants to vacate. The case eventually reached the Supreme Court, where a decision was promulgated in favor of petitioner, declaring it as the rightful possessor of the land.

Meanwhile, respondents, claiming to be descendants of the Aying siblings, filed a complaint for cancellation of the Extra-Judicial Partition with Absolute Sale, recovery of ownership, injunction, and damages with the Regional Trial Court (RTC) of Lapu-Lapu City. The complaint was dismissed twice without prejudice and was re-filed as Civil Case No. 2930-L.

In their amended complaint, respondents alleged that they are co-owners of the property, being descendants of the registered owners, that they have been in continuous possession of the land since time immemorial, and that petitioner's claim is based on a fraudulent and void extra-judicial partition.

Petitioner denied respondents' claim and alleged that it has been in actual possession of the land as the owner, by virtue of the extra-judicial partition and deed of absolute sale. Petitioner also raised the defenses of failure to state a cause of action and prescription.

This case involves a dispute over Lot No. 4399 located in Dapdap, Mactan, Lapu-Lapu City. The property was originally owned by the eight Aying siblings, who appear as the registered owners under Original Certificate of Title No. RO-2856.

On March 3, 1964, an Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was executed, purportedly transferring Lot No. 4399 to petitioner Aznar Brothers Realty Company. The deed was registered on March 6, 1964.

The heirs of Emiliano Aying, Simeon Aying, and Roberta Aying, who did not participate in the execution of the deed, filed a complaint seeking to declare the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale null and void. They claimed that it was a simulated or fictitious contract and that they are the rightful owners of the property.

The trial court ruled that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is valid and binding, and that the action of the heirs had prescribed. The court further held that the heirs failed to prove their filiation and their status as heirs of the Aying siblings.

The heirs appealed the decision to the Court of Appeals (CA), which modified the ruling of the trial court. The CA declared the heirs of Emiliano Aying, Simeon Aying, and Roberta Aying as the lawful owners of the property, although their ownership is limited to 3/8 of the property.

Petitioner filed a motion for reconsideration, which was denied by the CA.

Petitioner now seeks review of the CA decision, arguing that the heirs lost their right to recover the property due to laches, that the act of registration of the deed constituted repudiation of the trust, and that Article 1104 of the Civil Code should apply.

Respondents, on the other hand, argue that their action to declare the deed null and void does not prescribe under Article 1410 of the Civil Code and that laches should be applied against petitioner and not against them. They also assert that they have been in possession of the property.

The Supreme Court is now tasked to resolve the issues raised by the parties.

ISSUES:

  1. Whether or not respondents' cause of action is imprescriptible.

  2. If their right to bring action is imprescriptible, may the principle of laches apply.

  3. What is the prescriptive period for bringing an action for reconveyance of property based on implied or constructive trust?

  4. From what date should the prescriptive period be reckoned when the property is already titled under Act No. 496 but the instrument of sale is registered under Act No. 3344?

  5. Whether the cause of action of the heirs of Roberta Aying is barred by prescription.

  6. Whether the cause of action of the heirs of Emiliano and Simeon Aying is barred by prescription.

  7. Whether the principle of laches can be applied against the heirs of Emiliano and Simeon Aying.

  8. Whether the provision of Article 1104 of the Civil Code, stating that a partition made with preterition of any of the compulsory heirs shall not be rescinded, is applicable in this case.

RULING:

  1. The Court held that respondents' cause of action is imprescriptible. The Court agreed with the trial court and the Court of Appeals that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is valid and binding only as to the heirs who participated in the execution thereof. Since the heirs of Emiliano, Simeon, and Roberta Aying did not participate in the execution, they cannot be bound by said document.

  2. The Court further held that although the cause of action is imprescriptible, the principle of laches may still apply. The Court acknowledged that petitioner acquired the entire parcel of land with the mistaken belief that all the heirs have executed the subject document. However, the Court stated that petitioner cannot be considered as a trustee of an implied trust for the benefit of the person from whom the property comes, as provided under Article 1456 of the Civil Code. The Court explained that constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. In this case, the Court found no basis to apply the principle of laches against petitioner, as respondents had been in actual possession of the subject property while petitioner only brought action to eject them more than 29 years after the alleged execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale.

  3. An action for reconveyance based on an implied or constructive trust must be brought within ten years from the issuance of the Torrens title over the property.

  4. If the property is registered under the Land Registration Act (Act No. 496), and an instrument is registered under Act No. 3344, the sale is not considered registered. The prescriptive period starts from the time the affected parties have actual notice of the instrument of sale.

  5. The cause of action of the heirs of Roberta Aying is barred by prescription as they had until 1977 within which to bring the action, but the amended complaint was filed in 1993.

  6. The cause of action of the heirs of Emiliano and Simeon Aying is not barred by prescription as they initiated their action for reconveyance of property based on an implied or constructive trust well within the ten-year prescriptive period, which was reckoned from 1991 when they were sent a notice to vacate the subject property.

  7. Laches cannot be applied against the heirs of Emiliano and Simeon Aying as they took action to protect their interest well within the period accorded them by law.

  8. The provision of Article 1104 of the Civil Code is not applicable as the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is not being rescinded but upheld as valid only as to the parties who participated in the execution of the same. The law imposes an obligation upon the petitioner to act as a trustee for the benefit of the heirs of Emiliano and Simeon Aying who brought their action within the prescriptive period and are entitled to the reconveyance of their share in the disputed land.

PRINCIPLES:

  • An action for declaration of an inexistent contract does not prescribe under Article 1410 of the Civil Code.

  • The principles of implied and constructive trusts apply in cases where property is acquired through mistake or fraud, and the person obtaining it is considered a trustee of an implied trust for the benefit of the person from whom the property comes, as provided under Article 1456 of the Civil Code.

  • Constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment.

  • Laches may apply even in cases where the cause of action is imprescriptible if there is undue delay or negligence in asserting one's rights, resulting in prejudice to the other party.

  • The rule that a trustee cannot acquire ownership over property entrusted to him until he repudiates the trust applies to express trusts and resulting implied trusts. However, in constructive implied trusts, prescription may occur even without repudiation of the trust.

  • An action for reconveyance based on an implied or constructive trust must be brought within ten years from the issuance of the Torrens title over the property.

  • Registration of instruments must be done in the proper registry under the Land Registration Act to affect and bind the land and operate as constructive notice to the world.

  • The burden of proof lies on the party asserting the affirmative of an issue, and if he fails to establish the facts, the opposing party is entitled to a favorable decision.

  • Prescription is a defense that must be proven by the party invoking it.

  • The prescriptive period for an action for reconveyance of property based on an implied or constructive trust is ten years from the time the right of action accrues.

  • Laches cannot be applied when a party initiates the action within the prescriptive period.

  • Article 1104 of the Civil Code, stating that a partition made with preterition of any of the compulsory heirs shall not be rescinded, applies only to the parties who participated in the execution of the partition.