G.R. No. 73611 - Penales vs. Intermediate Appellate Court

The dispute involves petitioners Maria Penales and Consorcia Penales (accompanied by her husband, Felipe Lustria) versus respondents Salvacion Lustria (with husband, Alvaro Porras), Madonna Lustria (with husband, Eladio Dasmarinas), and Segundo Lustria, Jr.
The controversy centers on the claim to a one‐half share in Lot No. 6026 of the cadastral survey of Pototan, Iloilo, measuring approximately 3,145 square meters.

On June 8, 1953, the Register of Deeds of Iloilo issued Transfer Certificate of Title (TCT) No. T-14243 in the name of Adalia Penaflorida, registered “in fee simple” subject to an encumbrance.
The encumbrance was inserted under Section 4, Rule 74 of the Rules of Court, indicating that within two years from the issuance of the title (June 8, 1953), any claim regarding the one-half share of the deceased Segundo Lustria could be advanced.
It is noted that the previous title, TCT No. T-14242, had been in the names of spouses Segundo Lustria and the predecessor-in-interest of Adalia (referred to as “Jane Doe”).

On August 25, 1970, Adalia Penaflorida sold “the parcel of land described” in TCT No. T-14243 to the petitioners, thereby conveying what appeared to be the entire property rather than merely a one-half share.
The petitioners were issued a new TCT (No. T-63055) that reiterated the encumbrance as stated in the original title.
On May 15, 1972, the petitioners executed and registered an affidavit titled “Cancellation of Two Years Claim,” effectively cancelling the encumbrance in favor of the claimants under Segundo Lustria.

The case originated in 1977 before the Court of First Instance of Iloilo, where a judgment in favor of the private respondents (the Lustrias) was rendered.
The decision was subsequently affirmed by the then Intermediate Court of Appeals.

The respondents (Lustrias) maintained that at the time of the sale to the petitioners, vendor Adalia owned only one-half of the property, and therefore, they were entitled to seek the cancellation of the petitioner’s title, damages, and reconveyance of the one-half share.
The respondents argued that the petitioners, by completing their transaction according to the terms stated in TCT No. T-14243 and TCT No. T-63055, had set up a title adverse to the Lustrias, allegedly constituting an implied trust pursuant to Article 1456 of the New Civil Code.
The Appellate Tribunal contended that the prescriptive period for the implied trust claim began only on the cancellation date (May 15, 1972), rather than from the original registration (June 8, 1953).

The title issued on June 8, 1953 placed the entire property solely in the name of Adalia, albeit subject to a reservation under Section 4, Rule 74 that allowed any third party to claim one-half share within a two-year period.
Both TCT Nos. T-14243 and T-63055 reflect that the property had originally been registered on March 5, 1932 by Original Certificate of Title (OCT) No. 40766, issued after the death of Segundo Lustria in 1931.
Although the petitioners cancelled the encumbrance on May 15, 1972 through an affidavit, the Court was to determine whether the cancellation date or the original registration date should determine the commencement of the prescriptive period for any claims by the Lustrias.
The Appellate Tribunal’s view that the petitioners “set up a title adverse” to the heirs only upon cancellation, and that the prescriptive period commenced on May 15, 1972, was called into question.

Whether the registration of TCT No. T-14243 on June 8, 1953, which placed the property solely in the name of Adalia Penaflorida, imparted constructive notice of a possible adverse claim by the heirs of Segundo Lustria.
Whether the cancellation of the annotation under Section 4, Rule 74 on May 15, 1972, was the point at which the petitioners set up a title adverse to the heirs, thereby affecting the commencement of the prescriptive period.
Whether the prescriptive period for an implied trust or adverse claim should commence from the original registration date (June 8, 1953) or from the date the encumbrance was cancelled (May 15, 1972).
Whether the erroneous interpretation by the Appellate Tribunal, which implied that the annotation recognized the deceased as a co-owner of an undivided one-half of the property, is sustainable under the provisions of Section 4, Rule 74.