GUADALUPE S. REYES, PETITIONER, VS. COURT OF APPEALS AND JUANITA L. RAYMUNDO, RESPONDENTS.

Reyes versus Raymundo

The Case

This is a petition for review filed by Guadalupe S. Reyes against the Court of Appeals and Juanita L. Raymundo, arising from a complaint for cancellation of a certificate of title and reconveyance with damages. Reyes claims that the second deed of sale she executed over her lot was absolutely simulated, a mere accommodation so that Raymundo could obtain a loan, and that the true agreement of the parties was embodied in a private writing. The case matters because it gathers into one decision the rules on prescription of an action for reconveyance based on constructive trust, the non-prescription of an action to declare a contract inexistent, the equitable doctrine of laches, and the weight of a notarized deed against the parties' real intention.

Procedural History

Reyes filed her complaint before the Regional Trial Court of Quezon City. The trial court ruled in her favor. It found the second deed of sale simulated, cancelled and declared void the certificate of title and the deed, ordered Raymundo to reconvey the property, and awarded damages, attorney's fees, and costs. Raymundo appealed to the Court of Appeals. The appellate court reversed the trial court. It held that the notarized deed of sale prevailed over the private writing, that the action had prescribed, and that laches barred Reyes. The Court of Appeals dismissed the complaint and later denied reconsideration. Reyes then elevated the matter to the Supreme Court by petition for review.

Facts

On 21 June 1967 Guadalupe Reyes sold one half of a 300 square meter lot in Quezon City to Juanita Raymundo for 10,000 pesos. A new title was issued in their names in equal shares. Raymundo later obtained a loan from the Government Service Insurance System using her half as collateral. On 24 September 1969 Reyes sold her remaining interest to Raymundo for 15,000 pesos by a deed of absolute sale, and a new title was issued in Raymundo's name alone.

Since 1967 the house on the property had been leased by the Palacios spouses from Reyes. In December 1984 Reyes allegedly refused to receive rentals, prompting the Palacios spouses to file a petition for consignation in 1985. A compromise agreement was approved, extending the lease to 24 November 1986. The Palacios spouses were later ejected but managed to return. When Reyes filed a contempt case against them, Raymundo intervened, claiming ownership of the entire property and presenting a lease contract with the Palacios spouses dated 17 March 1987 but retroactive to 1 January 1987. From then on the Palacios spouses paid rentals to Raymundo.

On 23 August 1987 Reyes sued for cancellation of the title and reconveyance. She alleged that the 1969 sale was simulated, that she was constrained to execute the deed without material consideration under an agreement that Raymundo would construct an apartment from the proceeds of an additional loan, and that if the loan failed Raymundo would reconvey the property. The true agreement, she said, was in a private writing dated 10 January 1970.

Issues

• Whether or not the action for reconveyance filed on 23 August 1987 had prescribed.
• Whether or not laches barred Reyes from asserting her claim.
• Whether or not the second deed of sale was absolutely simulated and therefore void, despite its notarization.

Applicable Provisions

Article 1410 of the Civil Code provides:

The action or defense for the declaration of the inexistence of a contract does not prescribe.

This is the provision the Court holds applicable, because Reyes seeks a declaration that the second deed of sale is inexistent, an action that never prescribes.

Article 1144 of the Civil Code provides:

The following actions must be brought within ten years from the time the right of action accrues: (1) Upon a written contract; (2) Upon an obligation created by law; (3) Upon a judgment.

The Court rejects the appellate court's reliance on this ten year period, since the action is not one upon a written contract but one to declare a contract inexistent.

Article 524 of the Civil Code provides:

Possession may be exercised in one's own name or in that of another.

This supports the Court's finding that Reyes remained in actual possession through her lessees even after the sale.

Ruling

On the first issue, the Court holds that the action has not prescribed; to be accurate, it does not prescribe. An action for reconveyance based on implied or constructive trust prescribes in ten years, counted from registration of the deed or issuance of the title, but only when the plaintiff is not in possession. If the person claiming ownership is in actual possession, the right to seek reconveyance, which in effect seeks to quiet title, does not prescribe, because he may wait until his possession is disturbed. Actual possession consists in acts of dominion a party would naturally exercise over his own property, and the owner possesses when another who recognizes his rights is in occupancy. The Palacios spouses were Reyes's lessees since 1967 and paid rentals to her even after the 1969 deed. Her possession was disturbed only in 1987, when Raymundo asserted ownership and showed her own lease contract. The Court also rejects the ten year period upon a written contract, because the applicable rule is that the action for the declaration of the inexistence of a contract does not prescribe.

On the second issue, the Court holds that laches does not bar Reyes. The appellate court's finding that Raymundo possessed the lot for eighteen years is unsupported. The Palacios spouses stated in their consignation petition that they had been renting from Reyes since 1967, and Raymundo's own lease contract admitted that the lessees had been staying since 1967 under a previous lease with Reyes. Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do what could or should have been done earlier. It is an equitable doctrine addressed to the sound discretion of the court, and it cannot be applied to defeat justice or to perpetrate fraud. It would be the height of injustice to apply it here and vest ownership in Raymundo by virtue of an absolutely simulated deed.

On the third issue, the Court holds that the second deed of sale was absolutely simulated and void. As between a public document and a private document the former prevails, but notarization does not validate an instrument the parties never intended to have binding legal effect; the intention of the parties is always the primary consideration. Following the Suntay and Santiago precedents, the failure of the alleged vendee to take possession or to collect rentals is a badge of simulation. Raymundo's claim that she did not mind the nominal rentals spans seventeen years and defies logic. The Court also notes the striking similarity between Raymundo's signature on the private agreement and her signatures on other documents. Finally, a Torrens title does not vest ownership; it only confirms and records title already existing and vested, and it cannot shield fraud.

Doctrine

An action for reconveyance based on implied or constructive trust prescribes in ten years from registration of the deed or issuance of the title, but this rule applies only when the plaintiff is not in possession; one in actual possession may wait until his possession is disturbed, and his right to seek reconveyance does not prescribe. An action for the declaration of the inexistence of a contract does not prescribe under Article 1410 of the Civil Code. Laches is an equitable doctrine addressed to the sound discretion of the court and cannot be applied to defeat justice or perpetrate fraud. Notarization of a deed does not make binding an instrument the parties never intended to have legal effect, for the intention of the parties remains the primary consideration. A Torrens certificate of title does not vest ownership; it only confirms and records title already existing and vested.

Disposition

The petition was granted. The Court set aside the Court of Appeals decision and resolution, and reinstated the trial court decision cancelling the second deed of sale and the title, ordering Raymundo to reconvey the property to Reyes, and awarding damages, attorney's fees, and costs.

Remember This

Memorize this line: an action for reconveyance based on constructive trust does not prescribe while the plaintiff is in actual possession, and an action to declare a contract inexistent never prescribes. Examiners use this case to test prescription and laches in reconveyance suits, and the rule that a Torrens title does not vest ownership nor shield a simulated sale.