RUFINO BUENO, FILOMENA B. GUERRERO, LUIS B. GUERRERO, BENJAMIN B. GUERRERO, VIOLETA B. REYES-SAMONTE, FELICIDAD B. REYES-FONACIER, MERCEDES B. REYES, HONESTA B. REYES-SARMIENTO,…

Bueno versus Reyes

The Case

This is an action for reconveyance of a registered parcel of land, brought by the heirs of Jorge Bueno against the surviving registered owners and the estate of the man they had entrusted to secure the title for them. The plaintiffs claim that Francisco Reyes, husband of one of the Bueno daughters, was authorized by the heirs to file the cadastral answer and obtain the title in their behalf, but instead had the land registered in his own name and in the names of his two brothers. The case matters because it fixes two rules every reviewee must carry into the examination room: that a trust arising from mistake or fraud in registration is a constructive trust, not an express one, and that an action to enforce such a trust prescribes, but only from the discovery of the mistake or fraud.

Procedural History

The plaintiffs filed their complaint for reconveyance in the Court of First Instance of Ilocos Norte. The defendants Juan and Mateo Reyes answered, raising laches, the imprescriptibility of their title, and prescription of the action. The defendants then moved to dismiss on the ground of prescription, and the trial court granted the motion in an order dated July 29, 1963, dismissing the complaint. The plaintiffs appealed directly to the Supreme Court, assigning as errors the dismissal of the complaint on the ground of prescription and the dismissal even as to the plaintiffs surnamed Reyes, who are the children of Francisco Reyes.

Facts

On January 7, 1936, Francisco H. Reyes filed an answer in the cadastral case for the Laoag Cadastre, claiming lot number 2357 as property belonging to himself and his two brothers, Juan and Mateo. The case was heard without opposition, and on March 27, 1939, the lot was adjudicated in favor of the claimants. Original certificate of title number 19074 was issued in their names on July 7 of that same year.

According to the complaint, the lot originally belonged to Jorge Bueno, who died leaving three children: Brigida Bueno, Eugenia Bueno, and Rufino Bueno. Brigida and Eugenia later died, leaving children who are now the plaintiffs, together with Rufino. Francisco Reyes was Eugenia's husband and the father of the plaintiffs surnamed Reyes. By agreement among the heirs of Jorge Bueno, Francisco was entrusted with filing the answer in the cadastral proceedings and obtaining the title for and in behalf of all the heirs. Instead, the complaint alleges, he declared the land in his own name and in the names of his brothers, either in bad faith or by mistake, and the brothers connived and consented, knowing the land was never theirs.

The plaintiffs allege that the registration in the names of the Reyes brothers was discovered only in 1962, when Juan and Mateo filed a petition for a writ of possession against the wrong person, and the plaintiffs, who had been in possession as owners, demanded reconveyance and were refused. Francisco Reyes had died in 1956. The trial court dismissed the complaint on prescription, treating the action as one upon an implied trust prescribing in ten years.

Issues

• Whether or not the trust alleged in the complaint is an express trust rather than an implied or constructive trust.
• Whether or not an action for reconveyance based on a constructive trust is imprescriptible.
• Whether or not, assuming the action prescribes, the prescriptive period should be counted from the registration of the title or only from the discovery of the mistake or fraud.

Applicable Provisions

Article 1456 of the Civil Code provides:

If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

This is the provision on which the Court rests its characterization of the trust as constructive, arising by operation of law and not from the intention of the parties.

Ruling

On the first issue, the Court held that no express trust can be deduced from the complaint. What was designed to be an express trust, whereby Francisco Reyes would file the cadastral answer and obtain title for all the heirs, failed to materialize, because the very next paragraph of the complaint charges him with bad faith or mistake in registering the land in his own name and in the names of his brothers. If any trust can be deduced at all, it is an implied one, arising by operation of law to satisfy the demands of justice and equity and as a protection against unfair dealing or downright fraud. The Court applied Article 1456 and held that registration of property by one person in his name, whether by mistake or fraud, the real owner being another, impresses upon the title so acquired the character of a constructive trust for the real owner, which justifies an action for reconveyance.

On the second issue, the Court rejected the claim of imprescriptibility. While some decisions hold that an action upon a trust is imprescriptible without distinguishing between express and implied trusts, the better rule is that prescription does supervene where the trust is merely an implied one. The reason, drawn from the ruling in the Tuason case, is that the continuing or subsisting trusts considered imprescriptible referred only to express unrepudiated trusts, and did not include constructive trusts imposed by law, where no fiduciary relation exists and the trustee does not recognize the trust at all.

On the third issue, the Court held that the ten-year period must be counted from the discovery of the bad faith or mistake. The cause of action accrued only upon the discovery by the appellants that Francisco Reyes, in violation of their agreement, had obtained registration in his own name and in the names of his brothers. The cadastral proceeding, though in the nature of a proceeding in rem, was not constructive notice to the appellants, because as far as they were concerned the answer they had authorized was not adverse to them, and neither Francisco nor the appellees may invoke the constructive notice rule on the basis of their own breach of the authority given. Moreover, it was the appellants, not the appellees, who were in possession of the property as owners continuously up to 1962, when the appellees first appeared and tried to take possession, thereby revealing the mistaken or fraudulent registration.

The Court stressed that these are not facts established by evidence but allegations in the complaint, deemed hypothetically admitted for purposes of the motion to dismiss. The contradictory allegations in the answer are matters of defense to be substantiated at trial. At the very least, the grounds for dismissal did not appear indubitable, and it would be more in keeping with justice to afford both parties the opportunity to lay their claims and defenses before the Court in a full-blown litigation. Having reached this view, the Court found it unnecessary to resolve the second assigned error.

Doctrine

First, registration of property by one person in his name, whether by mistake or fraud, the real owner being another, creates a constructive trust under Article 1456 of the Civil Code in favor of the real owner, who may bring an action for reconveyance. Second, an action upon an implied or constructive trust prescribes; the rule of imprescriptibility applies only to express, unrepudiated trusts. Third, the prescriptive period for reconveyance based on a constructive trust runs not from the registration of the title but from the discovery of the mistake or fraud, and the registration in a proceeding in rem is not constructive notice to the beneficiary where the registrant acted in breach of the authority given by that very beneficiary.

Disposition

The order of dismissal was set aside and the case was remanded to the trial court for further proceedings, with no costs.

Remember This

The single line to memorize: a constructive trust arising from mistake or fraud in registration is subject to prescription, but the period counts only from discovery of the mistake or fraud. Examiners use this case to test the distinction between express and constructive trusts and the starting point of the prescriptive period in an action for reconveyance.