Facts:
Andres Adona, married to Leoncia Abad, applied for a homestead patent over a parcel of agricultural land. When Leoncia died, he cohabited with Ma. Espiritu without the benefit of marriage. When Andres died Ma. Espiritu succeeded in obtaining title over the land in her name. After Maria Espiritu died, her children as well as descendants of Andres Adona by his marriage with Leoncia Abad, continued to be in peaceful and quiet possession of the subject land. The petitioners executed a deed of extrajudicial settlement with sale over the property to Mrs. Ungson. Respondents protested contending they are the true owners of the land. The sale was however rescinded because Mrs. Ungson failed to pay in full the amount agreed upon. Subsequently, the petitioners executed another deed of Extrajudicial Settlement with Sale
Lower court ruling: dismissed the complaint for lack of cause of action and on ground of prescription. The action, being an annulment of sale based on fraudulent titling of the property constitutes a cause of action of a collateral attack on the Torrens Title. Even if the action was treated as one of conveyance, the suit will still fail because the action for reconveyance could be brought within 10 years from the date of issuance of certificate of title and the action has already prescribed.
Court of Appeals ruling: set aside dismissal of lower court and ordered the cancellation of Transfer Certificate of Title in the name of the Ubagos and reconveyance of the property of the estate of Andres Adona. There was evidence that Ma. Espiritu concealed the existence of Adona’s first marriage to Leoncia from her executed affidavit filed with the Director of Lands. The attending fraud created an implied or constructive trust in favor of the plaintiffs and notwithstanding the irrevocability of the Torrens Title issued in favor of Ma. Espiritu they can still be compelled to reconvey the title of the property to the real owners. The Torrens system was not designed to shield and protect one who had committed fraud or misrepresentation and thus holds title in bad faith.
Issue:
Whether or not the certificate of title of the Ubagos may be collaterally attacked and the property can be reconveyed to the respondents?
Ruling;
The issuance of a certificate of title of disposable public land and certificate of title issued under a judicial registration proceeding is deemed indefeasible. Under the Land Registration Act, a Torrens title becomes indefeasible after 1 year from the date of the decree of registration. The decree becomes incontrovertible and binding on all persons whether notified or not being an in rem proceeding. The OCT of Ma. Espiritu was issued in December 1933 and becomes indefeasible a year after the decree. However, the attendance of fraud created an implied trust in favor of the respondents that gave them the right of action to seek the remedy of reconveyance of a property wrongfully obtained if the property has not yet been passed to an innocent purchaser for value. If the property has been passed into the hands of an innocent purchaser for value, the remedy would be an action for damages. The Court of Appeals did not err to treat the action for annulment of sale with damages as one for reconveyance.
If the person who claims to be the owner of the property is in actual possession thereof, the right to reconvey does not prescribe. An action for reconveyance based on implied trust prescribes in 10 years. However, the person who is in actual possession of a piece of land under claim of ownership may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right. His undisturbed possession gives him continued right to seek the aid of court to ascertain the nature of the adverse claim of a third party on his title. The prescription of 10 years on reconveyance based on implied trust is applied only to persons who are not in actual possession of the property.
The Ubagos are not buyer in good faith. An innocent purchaser for value is one who buys property of another without knowledge that other persons may have right or interest to the property and pays a full consideration of the same before he has notice of the claim or interest of others to the property. He buys the property with the belief that the person from whom he receives the thing was the owner and could convey title to the property. It is true that a person dealing with a registered land has the right to rely on the face of a Torrens title and may dispense with the need to make further inquiry. An exception would be when the party has actual knowledge of facts and circumstances attending to the title that would impel a reasonably prudent man to make an inquiry or he has some knowledge as to the defect on the title or lack of right of the vendor. The court finds out that in the Register of Deeds their Transfer of Certificate of Title has entry that provides that their ownership over the land is subject to prospective claims by any possible heirs and creditors who might have been deprived of their lawful participation in the estate. Rule 74, section 4 of the Rules of Court provides for 2 years after the settlement and distribution of an estate for any person or heirs who may have been unlawfully deprived of their participation in the distribution of an estate to bring action to compel the settlement of the estate in the courts in the manner provided for the purpose of satisfying such lawful participation. The ‘Extrajudicial Settlement of Estate with Sale
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