A.M. No. P-137 - De Dios vs. Alejo

Case Digest (A.M. No. P-137)
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Facts:

Parties and Property Background

Petitioners: Spouses Virgilio de Guzman, Jr. (substituted by his wife Lydia S. de Guzman) and their children.
Respondent: Lamberto Bajao, heir of Spouses Leoncio and Anastacia Bajao.
Property: A 480‑square meter lot that formed part of Lot No. 532, located in North Poblacion, Medina, Misamis Oriental, originally part of a larger 25,178‑square meter piece of land acquired through Free Patent No. 400087 issued on May 28, 1968 by Leoncio Bajao.

Transaction and Acquisition Details

Petitioners acquired the property through two separate transactions from Spouses Bajao:

On May 24, 1969, a purchase of 200 square meters for ₱1,000 evidenced by a Deed of Absolute Sale.
On June 18, 1970, an acquisition of 280 square meters for ₱1,400, also evidenced by a separate Deed of Absolute Sale.

There was an alleged promise by the sellers to segregate the lot and deliver a separate title, which was not fulfilled.
To protect their interest despite the unfulfilled promise, petitioner Lydia S. de Guzman executed an Affidavit of Adverse Claim on April 21, 1980; the annotation was made on OCT No. P-6903 on April 25, 1980.

Survey and Possession

On May 29, 1980, petitioners initiated a survey to segregate the property from Lot No. 532, resulting in the delineation of Lot 2-A (Psd-10-002692).
Petitioners subsequently took possession by fencing the area, introducing improvements, and planting fruit-bearing trees.

Extrajudicial Settlement and Title Issues

On or after September 26, 1980, following the death of Leoncio Bajao, respondent and Anastacia Bajao executed an Extrajudicial Settlement that subdivided Lot No. 532 into three parts, allotting the property in question to a specific subdivision (Lot No. 532-C) adjudicated in favor of the respondent.
The Settlement was registered on December 10, 1980.
On December 16, 1980, respondent cancelled the adverse claim annotation and later secured TCT No. T-7133 (registered in February and October 1981).
Petitioners repeatedly requested the delivery of TCT No. T-7133 for annotation purposes, but respondent refused.

Litigation History

On January 21, 2000, petitioners filed a Complaint for Reconveyance with a Writ of Preliminary Mandatory Injunction and Damages, asserting:

They were innocent purchasers for value who took possession and paid real property taxes.
Respondent acted in bad faith by including the property in his TCT despite being aware of the prior sale and survey.

Respondent, through his Answer, raised defenses:

The action was time-barred due to the lapse of more than 10 years from the registration of the Extrajudicial Settlement and TCT No. T-7133.
There was no fraud or mistake in including the property in his title, citing his rights from the Extrajudicial Settlement.

The Regional Trial Court (RTC) ruled on October 22, 2004 in favor of petitioners, ordering:

Reconveyance of the 480‑square meter lot to petitioners in accordance with an approved survey plan.
Payment of ₱25,000 as moral damages and costs.
Recognition of the deeds of sale as effecting delivery of the property despite lack of registration.

The Court of Appeals (CA) reversed the RTC decision, dismissing the complaint based on:

Prescription of an implied trust action in 10 years from registration of title (expired since TCT was issued in 1981).
Petitioners’ failure to prove actual possession of the property and allegations of laches.

Petitioners filed a Motion for Reconsideration before the CA, arguing:

Prescription and laches should not apply because of respondent’s bad faith and their alleged continuous possession.
Their action for reconveyance was essentially a suit to quiet title, which is imprescriptible.

The CA denied the Motion for Reconsideration in its Resolution dated November 19, 2008.
The Supreme Court, in its decision dated March 02, 2016, ultimately denied the petition for review, affirming the CA’s ruling.

Issues:

Prescription and Timeliness

Whether the action for reconveyance based on an implied trust is barred by the 10‑year prescription period starting from the issuance/registration of TCT No. T-7133 in 1981.
Whether the alleged continuous or actual possession by petitioners could trigger the imprescriptibility of a suit to quiet title.

Validity of the Deeds and Public Land Act Provisions

Whether the Deeds of Absolute Sale executed in 1969 and 1970 are valid given that they were executed within the five‑year prohibition period under Section 118 of the Public Land Act.
Whether the violation of Section 118 (and corresponding Section 124) automatically renders the sale null and void, causing reversion of the property.

Existence of an Implied Trust

Whether an implied trust was created at the time of the Extrajudicial Settlement under Article 1456 of the Civil Code, with respondent acting as the trustee for the benefit of petitioners.
Whether the creation of such an implied trust could override the defects in the conveyance and the prescription period.

Actual Possession and Laches

Whether petitioners established actual possession of the property by the acts of fencing, planting, and paying real property taxes.
Whether petitioners’ delay in asserting their rights constitutes laches or estoppel, thereby baring them from recovering reconveyance.

Ruling:

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Ratio:

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Doctrine:

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Case Digest (A.M. No. P-137)
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