MINERVA C. GUERRERO, ET AL., PETITIONERS, VS. COURT OF APPEALS AND NORTHERN THEATRICAL ENTERPRISES, INC., RESPONDENTS.

This is a petition for review on certiorari of the respondent
Court of Appeals’ decision affirming the decision of the Court of First
Instance of Ilocos Norte, Second Judicial District which dismissed the
petitioners’ complaint for reconveyance of real property and/or damages.

Plaintiff Pablo D. Castro filed against the Northern Theatrical
Enterprises, Inc., Civil Case No. 3602-III alleging the fraudulent registration
of the land in question in the name of La Sociedad Filantropica Progresiva de
Laoag and that because the respondent corporation and its predecessors-in-interests
obtained their respective titles over the controverted land by means of fraud, they held title to said land
in trust for the petitioners.

In its answer, Northern Theatrical Enterprises, Inc., alleged
inter alia that – (1) the
plaintiffs had long absolutely lost any right to the land in question because
of their failure to file their cor­responding claim when the lot was brought
under the operation of the Cadastral Law; (2) defendant Northern Theatrical
Enterprises, Inc., is an innocent pur­chaser for value; and (3) it had acquired
the same by prescription.

The parties submitted to the court below the following
stipulation of facts, to wit:

“1.    That the land in suit is Lot 9316 of
Cadastral Case No. 51, LRC, Cad. Record No. 1212, of the Court of First
Instance of Ilocos Norte, and, as des­cribed in the Amended Complaint, has an
area of 910 square meters, and is assessed at P4,720.00 as per Tax Nos. 050572
and 59720;

“2.    That in the aforementioned Cadastral Case, a
certain Ignacio Flores, as ‘Presidente de la Sociedad Filantropica Progresiva’,
filed on November 17, 1933 an answer copy of which is hereto attached as Annex
‘I’, of this stipulation, in behalf of said association;

“3.    That, as the lot in question was an
uncontested lot, the Justice of the Peace Court — acted in the hearing of the
same and adjudicated said Lot
No. 9316 to the ‘La Sociedad Filantropica Progresiva de Laoag’ in a decision
rend­ered in June, 1934, copy of which is attached as Annex II hereof; on the
basis of Decree No. 610127, Original Certifi­cate of Title No. 7019, copy of
which is attached as Annex II-A hereof, was issued in the name of ‘La Sociedad
Filan­tropica Progresiva de Laoag’ on November 28, 1936;

“4.    That subsequently the afore-named ‘Sociedad’
was judicially dis­solved in Civil Case No. 3939 of the Court of First Instance
of Ilocos Norte; and in the order declaring the society insolvent, Froilan E.
Samonte was ap­pointed receiver-liquidator, who, in effect, took custody of the
assets and effected the liquidation of the same;

“5.    That Lot No. 9316, which was then covered by
OCT No. 7019, was sold to a
certain Baltazara Pre for the amount of P5,500.00, and as a con­sequence,
Transfer Certificate of Title No. 600 in the name of said Baltazara Pre was
issued on March 7, 1936; subsequently, the defendant Northern Theatrical
Enterprises took possession of the entire lot, acquiring it by ‘purchase’ from
the aforenamed Baltazara Pre, and obtained in its name on April 16, 1938,
Transfer Certificate of Title No. 606;

“6.    That in the year 1939, the defendant
corporation constructed on the lot in question a concrete three-storey
building; since the construction of the building, which occupies the entire
lot, the defendant had been occupying it, leasing the spaces thereof, except
that used by the Life Theater, to different entities, among which are the
Concepcion Drug Store, the Ilocos Hardware, the People’s Bazar, the Fonacier
Engineering and Electrical Office, the Corporate Offices of the People’s Mutual
Fund Branch, the DZJC Radio Station, at one time or another, and using the rear
portion as ice bodega of the Laoag Electric Company; that, as alleged in
Paragraph 24 of the Amended Complaint, the defendant entity has been in ‘the
exclusive possession and enjoyment of the rents of the lot in question… since
May, 1939, up to the present;

“7.    That the parties herein agree as to the
personal circumstances of the plaintiffs as set forth in the Amended Complaint,
as well as on the relationship of said plaintiffs to the late ANDRES CASTRO who
married twice; his wife in the first marriage, which was dissolved by her
death, was Alejandra Madamba, while his wife in the second marriage was Modesta
Dancel: all the heirs of the late Andres Castro and Alejandra
Madamba as well as of Modesta Dancel, who had interest in the lot did not file
any answer to the lot in question; the
plaintiff Pablo D. Castro, the only original plaintiff in this case, was absent
from Ilocos Norte, his absence
dating as early as 1908, up to the later part of 1957, and that he obtained the
age of majority on January 15, 1912, he having been born on January 15, 1891;

“8.    That the parties are at liberty to present
as their documentary evidence copies of such titles and documents as are
referred to in the preceding paragraphs of this stipula­tion of facts, save
those which are already attached; and, further, to adduce evidence on such
issues as are not covered by this agreed statement of facts.”

In addition to the above
stipulation of facts, the plaintiffs also adduced the following evidence:

xxx                               xxx                               xxx

“x x x that the lot in question originally belonged to the
late Andres Castro and his deceased first wife Alejandra Madamba; that out of
this marital union two children were born, Esteban and Clara; that after the
death of Alejandra Madamba some­time in 1891, Andres Castro became the sole
owner and possessor of the said land; that sometime afterwards, Andres Castro
married his second wife, with whom he begot six children, namely, Pablo,
Alfredo, Mercedes, Jose, Sabas and Andres, who died earlier; that after the
death of Andres Castro on August 15, 1902, his widow Modesta Dancel initiated
before the Court of First Instance of Ilocos
Norte Sp. Proc. No. 420 to settle the intestate estate of the said
decedent; that one of the incidents of this special proceeding was the project
of partition prepared and submitted to the court below by Modesta Dancel, in
representation as the duly appointed guardian of her minor children, and
Esteban Castro and Clara Castro, children of Andres Castro with his first wife,
who were both of majority age, which project of partition was approved by the
court; that among the properties that the heirs of Andres Castro adjudicated to
themselves was Lot 9316, the land now in dispute; that when Pablo Castro left
Ilocos Norte in 1908, his brothers and sisters, both of the full and half blood
were living in a house adjacent to the lot in question; that at that time a
concrete building was already existing on the said land in dispute which
was being rented by a Chinese; that in 1920, a strong typhoon destroyed the
roof of that building and because the heirs of Andres Castro had no money, the
‘Sociedad Filantropica Progresiva’ volunteered to rehabilitate the building
after which it occupied the same as lessee thereof,
paying rentals to the heirs of Andres Castro; that later on, Esteban Castro
sold his undivided share in the said building consisting of 11/36 of its entire
value to the Sociedad as shown in Exhibit ‘G’; that
Pablo Castro returned to Ilocos Norte in 1957 and in June 1959, he disco­vered
what happened with Lot 9316; and that on account of this, he undertook the
necessary steps to recover his share therein, which culminated in his
commencement of the present court suit.” (Decision, pp. 7-8; Rollo, pp. 46–47)

xxx                               xxx                               xxx

Respondent Northern
Theatrical Enterprises, Inc., accepts the foregoing summary as substantially
correct but adds that:

xxx                               xxx                               xxx

“x x x when plaintiff Pablo Castro left Ilocos Norte in 1908,
a number of his relatives, who lived not far from the site of the land now in dispute, remained in Laoag and
these relatives, particularly his brothers and sisters, could have protected
Pablo’s interest, as well as theirs
if they had any, when the Sociedad Filantropica Progresiva
claimed the lot in question during the cadastral proceeding but not one of the
children or other descendants of Andres Castro appeared in the cadastral court
to claim any interest in the lot in question; that when the defendant acquired
the land in question and constructed the present building existing thereon
nobody opposed against the said construction; that plaintiff Pablo Castro, a
man of varied talents and well traveled, never bothered to know what happened
to the controverted land except in June 1959,” (Decision, p. 9; Rollo, p.
48)

As earlier stated, the lower
court rendered a decision dismissing the
complaint. The dispositive portion of the decision reads:

WHEREFORE, the Court hereby renders judgment dismissing plaintiffs’
complaint, and on the defendant’s counterclaim, and under paragraph 4 of
Article 2208 of the Civil Code, the plaintiffs are ordered to pay to the
defendant, jointly and severally, the sum of P1,000.00 for and as attorney’s fees

“Costs against the plaintiffs.”

In due course, the petitioners appealed to the Court of Appeals
which affirmed in toto the decision of the lower court.

The petitioners now raise the following assignments of errors in
this petition for review:

I

“THE COURT OF
APPEALS ERRED IN CONCLUDING THAT UNDER THE PLEADINGS OF THE PARTIES AND THE
PROVEN FACTS OF THE CASE, PETITIONERS’ ACTION FOR THE RECONVEYANCE OF THE
PROPERTY IN QUESTION IS BARRED BY LACHES ON THE PART OF PETITIONERS. (Note: The question as to
whether or not the conclusion drawn by the Court of Appeals from proven facts
is correct, is a question of law [Cunanan v. Lazatin, 74 Phil 719]),

II

THE COURT OF APPEALS ERRED IN RULING THAT, UNDER THE FACTS FOUND
AND STATED IN ITS DECISION, THE SALE OF THE PROPERTY TO RESPONDENT CORPORATION IS
NOT FRAUDULENT, SIMULATED AND FICTITIOUS.

III

THE COURT OF APPEALS ERRED IN RULING THAT, UNDER THE FACTS FOUND
AND STATED IN ITS DECISION, RESPON?
DENT IS A PURCHASER IN GOOD FAITH AND FOR VALUE.

IV

THE COURT OF APPEALS ERRED IN NOT DISREGARDING THE CORPORATE
PERSONALITY OF DEFENDANT CONSIDERING THE FACTS AS STATED IN ITS DECISION.

Relative to the first assignment of error, petitioners argue that
it was only in June 1959 that they discovered for the first time the fraudulent
manner by which the respondent
corporation and its predecessors-in-interests registered and obtained title
over the land in question and that soon after the discovery of the fraudulent
regis­tration Pablo Castro immediately asked the respondent for the
reconveyance of the property and when his demand was refused, the complaint for
reconveyance was filed within a
period of only three years from the discovery of the fraud.

Respondent on the other hand argues that a final judgment in a
cadastral proceeding, a pro­ceeding in rem — is binding and conclusive upon the
whole world, and that public policy and public
order demand not only that litigations must terminate at some definite
period but also that titles over lands under the torrens system should be given
stability for on them greatly depends the stability of the country’s economy;
that being a proceeding in rem, the title issued pursuant thereto, after the
lapse of one year cannot be attacked by a person of age or of absence or
because of his own laches or negligence; and that assuming arguendo that a cons­tructive
trust was created, still the action to enforce the same prescribed, ten years
after the issuance of the title in 1936.

We agree with the respondent.

Petitioners overlook the settled rule that an action to enforce
an implied trust may be barred not only by prescription for ten (10) years but
also by laches. In Perez v. Ong Chua (116 SCRA
732) we held that:

“x x x in a constructive trust, which
is exclusively created by law, laches constitutes the bar to an action to enforce the trust, and repudiation is not
required, unless there is conceal­ment of the facts giving rise to the
trust. Thus, in Mejia de Lucas v.
Gampoña this Court held that while a person may not acquire title to a registered
property through continuing adverse
possession in derogation of the title of the original registered owner,
nevertheless, such owner or his heirs, by their inaction and neglect over a long period of time, may lose the
right to recover the possession of the property and the title thereto from the
defendants.”

In Rafols v. Barba (119 SCRA 146) and Yusingco v. Ong
Hing Lian (42 SCRA 589), this Court spelled out the four elements of the
equitable defense of laches, to wit:

“x x x (1) conduct on the part of the
defendant, or one under whom he claims, giving rise to the situation that led
to the complaint and for which the complaint seeks a remedy; (2) delay in
asserting the complainant’s rights, the
complainant having had knowledge or notice of the defendant’s conduct and
having been afforded an opportunity to institute a suit; (3) lack of know­ledge
or notice on the part of the defendant that the complainant would assert the
right on which he bases his suit; and (4) injury or prejudice to the defendant
in the event relief is accord­ed to the complainant or the suit is not held
barred.”

In the case at bar, these four elements are present. After the lot was adjudicated by the
cadastral court to the La Sociedad Filantropica Progresiva de Laoag in June
1934, which obtained Original Certificate of Title in its name and after the La
Sociedad was dissolved, the property was sold to Baltazara Pre for
P5,500.00. As a con­sequence, Transfer
Certificate of Title No. 600 in the name of Baltazara Pre was issued on March
7, 1936. Subsequently, the respondent
Northern Theatrical Enterprises, Inc. took possession of the entire lot, having
acquired it by purchase from Baltazara Pre for P10,000.00, and obtained
Transfer Certificate of Title No. 608 in its name on April 16, 1938.

The brothers and sisters, both full blood and half blood of Pablo Castro lived in a house
adjacent to the disputed property. The
petitioners allowed twenty-four (24) years from the issuance of Transfer
Certificate of Title No. 608 in the name of the respondent corporation and
twenty-eight years from the cadastral decision to lapse before taking any
remedial action despite knowledge and notice of such sale. They watched while a building was cons­tructed
by the respondent corporation on their supposed lot. They had all the opportunity within that period of time to take
action to set aside or annul the sale in favor of the respondent. The respondent was never appraised of any intention on the part of the
petitioners to annul the sale
until this action was filed. Because of
the heirs’ inaction during this
entire period, and relying on the title
based on the court’s decision, the respondent was made to feel secure in
its belief that there were no flaws in its acquisition of the lot in
question. It was thus induced to spend
time and money in introducing improvements and paying taxes thereon. Finally,
the respondent corporation stands to lose the property in question
if the suit filed against it by the petitioners shall not be deemed barred.

It is well-settled that the negligence or omission to assert a
right within a reasonable time warrants not only a presumption that the party
entitled to assert it either had abandoned it or declined to assert it (Heirs
of Pedro Guminpin v. Court of
Appeals, 120 SCRA 687)
but also casts doubt on the validity of the claim of ownership (Masagandanga v. Argamora, 109
SCRA 53). Such neglect to assert a
right taken in conjunction with the lapse of time, more or less great, and
other circumstances causing prejudice to the adverse party, operates as a bar
in a court of equity. (Heirs of Pedro Guminpin v. Court of
Appeals, supra).

Furthermore, an action for reconveyance of real property
resulting from fraud may be barred by the statute of limitations, which
requires that the action shall be filed within four (4) years from the
discovery of the fraud (Balbin v. Medalla,
108 SCRA 666; Alarcon v. Bidin, 120 SCRA 390). Under the circumstances of this case, such discovery must be
deemed to have taken place when the respondent was issued Transfer Certificate
of Title No. 608 on April 16, 1938 because the registration of the deed of sale
is considered a constructive notice to the whole world of its contents, and all
interests, legal and equitable, included therein. (Ramos v. Court of Appeals, 112 SCRA 542). The petitioners waited more than twenty-four
(24) years from the date of the issuance
of the transfer certificate of title.

As will be pointed out later, the petitioners failed to sustain
their allegations that Northern Theatrical Enterprises, Inc. perpetuated fraud
in having the title registered in its name. But granting arguendo that fraud was committed and an implied trust was
created, the petitioners’ action for the reconveyance of the land would still
have prescribed. It is settled that an
action for the reconveyance of land based on implied trust prescribes within
ten (10) years.

In Amansec v. Melendez (98 SCRA 639), quoting Gerona v.
De Guzman (11 SCRA 153), and Dela Cerna v. Dela Cerna, (72 SCRA
514), this Court held that:

“It is idle to bother as to whether the action here is one
founded exclusively on fraud which prescribes in four (4) years or one based on
constructive trust which is barred after ten years, there being no question
that the appellees secured their title more than twenty years before the filing
of the complaint, and it is from the date of the issuance of such title that
the ef­fective assertion of adverse title for purposes of the statute of limi­tations
is counted. (Gerona v. De Guzman, 11
SCRA 153). (De la Cerna v. De la Cerna,
72 SCRA 514, 518.)”

In their second and third assignments of errors, the petitioners
argue that the respondent corporation acquired the property in bad faith and
without true and valuable consideration.

The petitioners argue that the sale of the lot by the sociedad to
Baltazara Pre, an elder half-blood sister of one of the biggest sociedad
stockholders was a clear badge of fraud. The petitioners point out that Pre, who
purchased the lot for P5,500.00 was able to sell it to the respondent
corporation for P10,000.00 worth of stocks only over one month later. We agree with the trial court and the
appellate court that there is nothing unusual in these transactions. The sociedad had been judicially dissolved
and a receiver-liquidator was appointed by the court to liquidate its
assets. Pre had faith in the respondent
corporation and wanted to be a stockholder therein. The payment in shares of stocks does not make the sale fictitious
or simulated. The deed of sale from Pre
to the respondent corporation is a notarized document wherein the vendee
solemnly acknowledged that she received P10,000.00 as consideration for the
sale of the lot. The courts cannot
disregard, much less contradict, this recital on the basis of the petitioners’
speculative assertions.

Relative to the fourth assignment of error, the petitioners argue
that since the members and stock­holders of the “Sociedad” were
practically and substantially the same individuals as the incorporators and
stockholders of the respondent corporation, the Court of Appeals erred in
refusing to “pierce the veil of corporate fiction” which shielded the
respondent corporation from the effects of the fraud committed upon
petitioners.

The Sociedad was judicially dissolved in Civil Case No. 3939. Justice of the Peace Froilan Samonte was
appointed to take custody of the society’s assets and to effect their
liquidation. The sale of the lot to Pre
was pursuant to orders of the court. Some of the members of the Sociedad decided to group together in a new
corporation. The corporation bought the
lot from Pre. The petitioners fail to
show how, under such circumstances, the veil of corporate fiction must be
pierced to show fraud in the sale of the lot by the registered owner to Pre and
by Pre to the respondent corporation.

It is true that the privilege of being treated as an entity
distinct and separate from the stock­holders is confined to legitimate purposes
and is subject to certain limitations to prevent its being used for fraudulent
purposes. The prepon­derance of
evidence in this case, however, shows that the respondent corporation and its
predecessors-in-­interest did not commit any
fraud or act in bad faith in the acquisition of the disputed land. Therefore, there is no legal ground to
pierce the veil of respondent corporation’s personality.

WHEREFORE, the instant petition is DISMISSED for lack of
merit. The decision of the Court of
Appeals is AFFIRMED with costs
against the petitioners.

SO ORDERED.

Teehankee, (Chairman), Melencio-Herrera, Plana, and Relova, JJ., concur.