Philippine Economic Zone Authority v. Fernandez

Petition for Relief from Judgment; v. Action for Reconveyance

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Case DigestWeek 3–4 — The Registries of Deeds and Original Registration

Philippine Economic Zone Authority v. Fernandez

G.R. No. 138971 · June 6, 2001 · Supreme Court — Third Division

Petition for Relief from Judgment; v. Action for Reconveyance

Gist

The relationship of the case of Philippine Economic Zone Authority v. Fernandez, G.R. No. 138971, June 6, 2001, to the assigned topic of Section 32 of Presidential Decree No. 1529 (Review of Decree; Action for Reconveyance) is DIRECT. The triggering controversy arose when the Heirs of the Deceased Spouses Juan Cuizon and Florentina Rapaya filed a Complaint for Nullity of Documents, Redemption and Damages (Civil Case No. 4534-L) to recover Lot No. 4673 of the Opon Cadastre, asserting that the executing heirs fraudulently excluded the other heirs from the Extrajudicial Partition of the estate of the deceased parents, which fraudulent partition resulted in the eventual expropriation of the property by the Export Processing Zone Authority (predecessor of the Philippine Economic Zone Authority) and the subsequent issuance of Transfer Certificate of Title No. 12788. The Supreme Court of the Philippines Third Division granted the Petition for Review on Certiorari filed by the Philippine Economic Zone Authority, reversed the Decision of the Court of Appeals, and ordered the dismissal of Civil Case No. 4534-L as against the petitioner. The Supreme Court of the Philippines ruled that while Section 32 of Presidential Decree No.

Core Doctrine

The Constructive Notice Rule of Partition: The registration of an extrajudicial partition under the Torrens system constitutes constructive notice to the entire world, and any action by an excluded heir to contest the partition and seek the settlement of the estate is barred after the lapse of two (2) years from the date of such registration under Section 4 of Rule 74 of the Rules of Court, except when the property remains in the hands of the fraudulent heirs or the bad-faith transferees of the fraudulent heirs.

Facts

Lot No. 4673 of the Opon Cadastre, about 11,345 square metres, stood registered under OCT No. RO-2537 in the names of sixteen co-owners — among them Florentina Rapaya, the Cuizons, the Lozanos, the Ybañezes and the Patalinghugs.
On May 15, 1982 Jorgea Igot-Soroño, Frisca Booc and Felix Cuizon executed an Extrajudicial Partition falsely declaring themselves the only surviving heirs. On July 8, 1982, on its registration, TCT No. 12467 issued in their names.
Expropriation proceedings were then pending (Civil Case No. 510-L, RTC Lapu-Lapu City, Branch XVI), the Export Processing Zone Authority seeking to condemn the lot for an export processing zone. On August 11, 1982 the court rendered a partial decision approving a Compromise Agreement between EPZA and the three registered co-owners, EPZA paying ₱68,070.00 as just compensation. On October 13, 1982 TCT No. 12788 issued in EPZA's name.
On July 29, 1996 — nearly fourteen years later — the Heirs of Spouses Juan Cuizon and Florentina Rapaya sued for nullity of documents, redemption and damages (Civil Case No. 4534-L, RTC Lapu-Lapu City, Branch 54), alleging the co-heirs fraudulently excluded them and seeking cancellation of TCT No. 12788.
On February 17, 1997 the Philippine Economic Zone Authority, EPZA's successor, moved to dismiss on prescription; the RTC denied it on January 12, 1998 and denied reconsideration on March 31, 1998. On June 8, 1999 the CA dismissed PEZA's certiorari petition (CA-G.R. SP No. 47575), holding an action on an implied trust among co-heirs imprescriptible. The Third Division decided on June 6, 2001.

Arguments of the Parties

Petitioner. PEZA argued the claim was barred under Section 4 of Rule 74, the two-year period running from the inscription of the partition on July 8, 1982, so objections were due by July 8, 1984; that even as reconveyance the action had lapsed — four years from discovery of fraud, deemed to occur on registration of the title on October 13, 1982, and ten years on an implied trust under Article 1456 with Article 1144 — both long spent by 1996; and that the land can no longer be recovered, having passed to the government as an innocent purchaser for value, acquired in good faith through a judicially approved Compromise Agreement with just compensation paid.

Respondents. The excluded heirs argued the fraudulent partition raised a constructive trust in their favour, and a co-heir's action to recover his inheritance from co-heirs who fraudulently registered the property is imprescriptible; that constructive notice by registration cannot bar recovery where the purpose is to compel a trustee to convey to the cestui que trust; and that the partition and sale being void and simulated, an action to declare their nullity does not prescribe under Article 1410.

Common Ground / Stipulations (if any). None recorded beyond the shared facts that the partition was registered July 8, 1982, that EPZA took title on October 13, 1982 after paying just compensation, and that the complaint came in 1996.

Issue

MAIN ISSUE (Prescription-centered). Whether the heirs' action for reconveyance of Lot No. 4673 had prescribed under Section 32 read with Section 4 of Rule 74, Article 1456 and Article 1144.

SECONDARY ISSUES. Whether reconveyance may prosper against a government agency that took the registered land in good faith and for value through judicially approved expropriation proceedings.

ANCILLARY / INCIDENTAL ISSUES (if any). None separately resolved.

Ruling

On the MAIN ISSUE: YES, the action has prescribed. Under Section 4 of Rule 74 an excluded heir has two years from registration of the extrajudicial partition to demand a proper settlement, registration being constructive notice to the entire world; the partition being registered July 8, 1982, objections were due by July 8, 1984, so the 1996 complaint was belated. Reconveyance on fraud must come within four years of discovery, deemed to occur on registration of the title on October 13, 1982; and reconveyance on an implied or constructive trust prescribes in ten years from issuance of the certificate under Article 1144, a period that expired October 13, 1992. The heirs never possessed the land, so the exception of imprescriptibility does not reach them. On the government: NO — reconveyance is an equitable remedy limited by the rights of an innocent purchaser for value. The government took Lot No. 4673 in good faith under a judicially approved Compromise Agreement in proper expropriation proceedings and paid just compensation, so even granting the co-heirs' fraud, its rights must be respected to preserve the stability and integrity of the Torrens system. The dispositive portion reads verbatim: "WHEREFORE, the Petition is hereby GRANTED and the assailed Decision of the Court of Appeals REVERSED. The Orders of the Regional Trial Court of Lapu-Lapu City (Branch 54) in Civil Case No. 4534-L, dated January 12, 1998 and March 31, 1998, are SET ASIDE and the said Civil Case, as against petitioner, is DISMISSED. No costs."

Ratio

Registration converts an ex parte partition into notice to the world. Annotating the contingent liability on the new certificate starts the two-year clock, after which third persons are barred — except where the title still stands with the fraudulent heirs or their bad-faith transferees.
Discovery of fraud is fixed by the register, not by the claimant's awareness. Because registration is constructive notice under Section 52, the four-year period runs from the issuance of the certificate.
A constructive trust creates an obligation imposed by law, so Article 1144's ten years governs, measured from the same event.
The possession exception is the only one, and it belongs to a plaintiff actually holding the land — which these heirs never did.
The trust was openly repudiated. Executing a Compromise Agreement and conveying the land to the government is an act of absolute ownership, which set the period running even on trust principles.
Private grievance yields to the security of the register. Where the land has reached an innocent purchaser for value, neither review under Section 32 nor reconveyance is available — public confidence in the Torrens system requires it.

Doctrine

Doctrines / Rules / Principles Laid Down.

Registration of an extrajudicial partition is constructive notice to the world, and an excluded heir's action is barred two years after it under Section 4 of Rule 74, save where the property remains with the fraudulent heirs or their bad-faith transferees.
Reconveyance on an implied or constructive trust prescribes in ten years from issuance of the certificate, unless the plaintiff is in actual physical possession, when it is an imprescriptible suit to quiet title.
And reconveyance is unavailable once the land has passed to an innocent purchaser for value, whose rights must be protected to preserve the finality of land disputes.

Distinctions / Limitations / Qualifications.

The possession exception requires actual, open, continuous and adverse possession — absent here, so the ten-year bar operated in full. And where reconveyance is no longer feasible because an innocent purchaser has intervened, the owner's sole remedy is an ordinary action for damages against those who perpetrated the fraud, itself to be brought within ten years from issuance of the title.

Topic/Subtopic Integration (Mandatory).

DIRECT: the Court set the procedural and substantive limits of reconveyance against indefeasibility — the equitable remedy is bounded by the Civil Code's prescriptive periods and cannot be turned against an innocent purchaser for value, here the government in expropriation. Enforcing both keeps the register a reliable mirror of ownership rather than an opening for indefinite disputes.

Separate Opinions

None. The Third Division decided unanimously through Justice Artemio V. Panganiban, with Justices Melo, Vitug, Gonzaga-Reyes and Sandoval-Gutierrez concurring.

Full Digest — Recitation Format

Facts

Prior to May 15, 1982: Lot No. 4673 of the Opon Cadastre, containing an area of 11,345 square meters, more or less, was registered under Original Certificate of Title No. RO-2537 in the names of Florentina Rapaya, Victorino Cuizon, Isidro Cuizon, Ursula Cuizon, Benito Lozano, Isabel Lozano, Pelagia Lozano, Augusto Lozano, Valeriano Ybañez, Jesus Ybañez, Numeriano Ybañez, Martino Ybañez, Eutiquio Patalinghug, Celedonio Patalinghug, Santiago Patalinghug, and Silvino Patalinghug.
On May 15, 1982: Jorgea Igot-Soroño, Frisca Booc, and Felix Cuizon executed an Extrajudicial Partition, falsely declaring the executing heirs as the only surviving heirs of the registered owners of Lot No. 4673.
On July 8, 1982: TCT No. 12467 was issued by the Register of Deeds of Lapu-Lapu City in the names of Jorgea Igot-Soroño, Frisca Booc, and Felix Cuizon, following the registration of the Extrajudicial Partition.
Prior to August 11, 1982: Expropriation proceedings docketed as Civil Case No. 510-L were pending before Branch XVI of the Regional Trial Court of Lapu-Lapu City, with the Export Processing Zone Authority seeking to condemn Lot No. 4673 for the establishment of an export processing zone.
On August 11, 1982: Branch XVI of the Regional Trial Court of Lapu-Lapu City rendered a partial Decision in Civil Case No. 510-L, approving the Compromise Agreement entered into between the Export Processing Zone Authority and the registered co-owners Jorgea Igot-Soroño, Frisca Booc, and Felix Cuizon, under which the Export Processing Zone Authority paid Sixty-Eight Thousand Seventy Pesos (₱68,070.00) as just compensation.
On October 13, 1982: Transfer Certificate of Title No. 12788 was officially issued by the Register of Deeds of Lapu-Lapu City in the name of the Export Processing Zone Authority, as a consequence of the judicially approved Compromise Agreement and the payment of just compensation.
On July 29, 1996: The Heirs of the Deceased Spouses Juan Cuizon and Florentina Rapaya (Private Respondents) filed a Complaint for Nullity of Documents, Redemption and Damages before the Regional Trial Court of Lapu-Lapu City, Branch 54, docketed as Civil Case No. 4534-L, alleging that the co-heirs fraudulently excluded the other heirs from the partition and seeking the cancellation of TCT No. 12788.
On February 17, 1997: The Philippine Economic Zone Authority (successor-in-interest of the Export Processing Zone Authority) filed a Motion to Dismiss the Complaint on the ground of prescription.
On January 12, 1998: The Regional Trial Court of Lapu-Lapu City, Branch 54, issued an Order denying the Motion to Dismiss filed by the Philippine Economic Zone Authority.
On March 31, 1998: The Regional Trial Court of Lapu-Lapu City, Branch 54, issued an Order denying the Motion for Reconsideration filed by the Philippine Economic Zone Authority.
On April 30, 1998: The Philippine Economic Zone Authority elevated the matter to the Court of Appeals via a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 47575.
On June 8, 1999: The Court of Appeals rendered a Decision dismissing the petition of the Philippine Economic Zone Authority, holding that the action for reconveyance based on an implied or constructive trust among co-heirs is imprescriptible.
Sometime thereafter: The Philippine Economic Zone Authority elevated the case to the Supreme Court of the Philippines via a Petition for Review on Certiorari under Rule 45 of the Rules of Court.
On June 6, 2001: The Supreme Court of the Philippines Third Division rendered the Decision reversing the Court of Appeals, setting aside the trial court's orders, and dismissing Civil Case No. 4534-L as against the petitioner.

Arguments of the Parties

Petitioner (Philippine Economic Zone Authority).

The Claim under Rule 74 is Barred: The petitioner argues that the claim of the Private Respondents had already prescribed under Section 4 of Rule 74 of the Rules of Court. The two-year period within which an excluded heir may contest an extrajudicial settlement commenced from July 8, 1982, the date the Extrajudicial Partition was inscribed on OCT No. 2537. The Private Respondents had only until July 8, 1984, to file the objections of the Private Respondents.
The Action for Reconveyance Has Prescribed: The petitioner contends that even if the case is treated as an action for reconveyance based on fraud or constructive trust, the action has prescribed. An action for reconveyance based on fraud must be filed within four (4) years from the discovery of the fraud, which discovery is deemed to have taken place upon the registration of the title on October 13, 1982. An action based on an implied or constructive trust under Article 1456 of the Civil Code prescribes in ten (10) years from the issuance of the certificate of title. Since the title was registered in 1982 and the Complaint was filed only in 1996, both prescriptive periods had already lapsed.
Reconveyance Does Not Lie Against an Innocent Purchaser: The petitioner asserts that the property can no longer be recovered because the property has passed to the government as an innocent purchaser for value. The government acquired the land in good faith through a Compromise Agreement judicially approved in proper expropriation proceedings and paid just compensation to the registered titleholders.

Private Respondents (Heirs of Juan Cuizon and Florentina Rapaya).

Implied Trust is Imprescriptible: The Private Respondents argue that the fraudulent partition executed by the co-heirs created a constructive trust under Article 1456 of the Civil Code in favor of the excluded heirs. As co-heirs, the action of the Private Respondents to recover the inheritance from the co-heirs who fraudulently registered the property under the names of the co-heirs is imprescriptible.
The Inapplicability of the Constructive Notice Rule: The Private Respondents contend that the rule of constructive notice through registration cannot be applied to bar the recovery of property when the purpose of the action is to compel a trustee to convey the property registered in the name of the trustee for the benefit of the cestui que trust.
Extrinisic Fraud Nullifies Contracts: The Private Respondents assert that since the contract of sale and the partition agreement were void and simulated, the action to declare the nullity of the void documents does not prescribe pursuant to Article 1410 of the Civil Code.

Issue

MAIN ISSUE.

Whether the action for reconveyance filed by the Private Respondents to recover Lot No. 4673 has already prescribed under the rules governing Section 32 of Presidential Decree No. 1529, in relation to Section 4 of Rule 74 of the Rules of Court, Article 1456 of the Civil Code, and Article 1144 of the Civil Code.

SECONDARY ISSUES.

Whether an action for reconveyance can prosper against the petitioner, as a successor-in-interest of a government agency that acquired the registered property in good faith and for value through judicially approved expropriation proceedings under Section 32 of Presidential Decree No. 1529.

Ruling

Ruling on the MAIN ISSUE. YES. The Supreme Court of the Philippines ruled that the action for reconveyance filed by the Private Respondents had already prescribed. The Court held that under Section 4 of Rule 74 of the Rules of Court, an excluded heir has a period of two (2) years from the registration of the extrajudicial partition to demand the appropriate settlement of the estate, because the registration of the transaction operates as a constructive notice to the entire world. Since the extrajudicial partition was registered on July 8, 1982, the Private Respondents had until July 8, 1984, to file the objections of the Private Respondents, making the 1996 Complaint belated. Furthermore, the Court ruled that an action for reconveyance based on fraud must be filed within four (4) years from the discovery of the fraud, which discovery is deemed to have taken place upon the registration of the title on October 13, 1982. Likewise, an action for reconveyance based on an implied or constructive trust under Article 1456 of the Civil Code prescribes in ten (10) years from the date of the issuance of the certificate of title under Article 1144 of the Civil Code, which ten-year period expired on October 13, 1992. Since the Private Respondents were not in possession of the disputed property, the exception of imprescriptibility does not apply, and the statute of limitations barred the action.

Ruling on the SECONDARY ISSUE. NO. The Supreme Court of the Philippines ruled that an action for reconveyance cannot prosper against the government because the government is an innocent purchaser for value. The Court explained that an action for reconveyance is an equitable remedy that is subject to the limitation that the property has not yet passed into the hands of an innocent purchaser for value. In this case, the government acquired Lot No. 4673 in good faith through a Compromise Agreement judicially approved in proper expropriation proceedings and paid just compensation to the registered co-owners. Therefore, even if fraud was committed by the co-heirs, the rights of the government as a purchaser in good faith and for value must be respected and protected to preserve the stability and integrity of the Torrens system of land registration.

Dispositive portion (verbatim). The final dispositive portion of the Supreme Court of the Philippines in G.R. No. 138971, dated June 6, 2001, is quoted verbatim as follows:

"WHEREFORE, the Petition is hereby GRANTED and the assailed Decision of the Court of Appeals REVERSED. The Orders of the Regional Trial Court of Lapu-Lapu City (Branch 54) in Civil Case No. 4534-L, dated January 12, 1998 and March 31, 1998, are SET ASIDE and the said Civil Case, as against petitioner, is DISMISSED. No costs."

Ratio

The Constructive Notice and Limitations under Rule 74: Under Section 4 of Rule 74 of the Rules of Court, a person who has been unduly deprived of a lawful participation in an estate settlement may assert a claim within the two-year period after the settlement and distribution of the estate. While an extrajudicial partition is originally an ex parte proceeding, the registration of the extrajudicial partition under the Torrens system and the annotation of the contingent liability on the new certificate of title operate as constructive notice of the partition to the whole world. Upon the expiration of the two-year period, all third persons are barred from going after the registered property, except where the title remains in the name of the fraudulent heirs or the non-innocent transferees of the fraudulent heirs. Since the title was transferred to the government, the constructive notice barred any claims after July 8, 1984.
The Prescription of Reconveyance Based on Fraud: An action for reconveyance resulting from fraud is subject to prescription and must be filed within four (4) years from the discovery of the fraud. This discovery of fraud is legally deemed to have occurred upon the registration of the instrument in the office of the Register of Deeds, because registration operates as constructive notice to all persons under Section 52 of Presidential Decree No. 1529. Consequently, the four-year prescriptive period is counted from the date of the issuance of the certificate of title.
The Prescription of Reconveyance Based on Implied Trust: An action for reconveyance based on an implied or constructive trust under Article 1456 of the Civil Code is an obligation created by law under Article 1144 of the Civil Code; hence, the action prescribes in ten (10) years from the date of the issuance of the certificate of title over the property. The only instance when prescription cannot be invoked in an action for reconveyance based on an implied or constructive trust is when the plaintiff is in actual physical possession of the land to be reconveyed. In such a case, the action is treated as an imprescriptible suit to quiet the title. Since the Private Respondents were never in possession of Lot No. 4673, the ten-year prescriptive period applied, and the action prescribed on October 13, 1992.
The Repudiation of Trust through Expropriation: An action to compel the conveyance of property registered in the trustee's name does not prescribe unless the trustee openly repudiates the trust. In G.R. No. 138971, the co-heirs who acted as the supposed "trustees" effectively and openly repudiated the trust by directly performing an act of absolute ownership—namely, by executing a Compromise Agreement and conveying the property to the government through judicially approved expropriation proceedings. This open repudiation started the running of the prescriptive period, even under the rules of trust.
The Protection Conferred to Innocent Purchasers for Value: A certificate of title issued under the Torrens system is conclusive evidence of ownership. While the law recognizes the right of a person deprived of property through actual fraud to seek a review of the decree of registration within one year under Section 32 of Presidential Decree No. 1529, or to file an action for reconveyance after the lapse of the one-year period, these remedies cannot be availed of once the property has passed to an innocent purchaser for value. The government, in acquiring Lot No. 4673 through a judicially approved Compromise Agreement in proper expropriation proceedings and paying just compensation, is considered a purchaser in good faith and for value. The private interests of the excluded heirs must yield to the public policy of protecting innocent third-party buyers to maintain public confidence in the Torrens system.

Doctrine

Doctrines / Rules / Principles Laid Down.

The Constructive Notice Rule of Partition: The registration of an extrajudicial partition under the Torrens system constitutes constructive notice to the entire world, and any action by an excluded heir to contest the partition and seek the settlement of the estate is barred after the lapse of two (2) years from the date of such registration under Section 4 of Rule 74 of the Rules of Court, except when the property remains in the hands of the fraudulent heirs or the bad-faith transferees of the fraudulent heirs.
The Prescriptive Rule on Implied Trusts: An action for reconveyance of registered land based on an implied or constructive trust under Article 1456 of the Civil Code prescribes in ten (10) years from the date of the issuance of the certificate of title over the property, unless the plaintiff is in actual physical possession of the land, in which case the action is in the nature of an imprescriptible suit to quiet title.
The Innocent Purchaser Exception: The equitable remedy of an action for reconveyance cannot be availed of by an aggrieved claimant once the registered property has passed into the hands of an innocent purchaser for value and in good faith, whose rights under Section 32 and Section 44 of Presidential Decree No. 1529 must be protected to preserve the finality of land disputes and the stability of the Torrens system.

Distinctions / Limitations / Qualifications.

The Possession Exception: The ten-year prescriptive period for an action for reconveyance based on an implied or constructive trust does not apply if the plaintiff is in actual, open, continuous, and adverse physical possession of the property, because the action is treated as a suit to quiet title, which is completely imprescriptible. Because the Private Respondents were never in possession of Lot No. 4673, the possession exception did not operate in the favor of the Private Respondents.
The Remedy of Damages Limitation: When an action for reconveyance is no longer feasible because the property has already passed into the hands of an innocent purchaser for value, the sole remedy of the aggrieved owner is to bring an ordinary action in the ordinary courts for damages against the persons or co-heirs who have perpetrated the fraud, which action must be filed within ten (10) years from the issuance of the certificate of title under Article 1144 of the Civil Code.

Topic/Subtopic Integration (Mandatory).

Classification of Relationship: DIRECT.
Integration: The case of Philippine Economic Zone Authority v. Fernandez is a leading and definitive authority on Section 32 of Presidential Decree No. 1529 regarding the procedural and substantive limits of an action for reconveyance. The decision establishes that while the right of a defrauded owner to seek reconveyance is an equitable remedy recognized in our jurisdiction, the remedy is strictly subject to the prescriptive periods under the Civil Code and cannot be used to collateral attack or undermine the title of an innocent purchaser for value. By applying the ten-year prescriptive bar for constructive trusts and enforcing the protection given to the government as an innocent buyer in expropriation proceedings, the Supreme Court of the Philippines safeguarded the stability of Torrens titles and ensured that the system of land registration remains a reliable mirror of property ownership, rather than a tool for perpetuating indefinite property disputes.

Separate Opinions

NOT APPLICABLE / NOT IN RECORD. (The Decision was rendered unanimously by the Third Division of the Supreme Court of the Philippines, with Associate Justice Artemio V. Panganiban as the ponente, and with Associate Justices Jose A.R. Melo, Jose C. Vitug, Fidel P. Purisima [erroneously listed in some records but the concurring justices signed are Associate Justices Jose A.R. Melo, Jose C. Vitug, Minerva P. Gonzaga-Reyes, and Angelina Sandoval-Gutierrez], with no separate concurring or dissenting opinions filed).

Cited Laws & Provisions

Every statute, rule, and issuance the decision turns on — the text as written, and the work it does in this case.

Special Law

Section 32, P.D. No. 1529

Review of decree of registration; Innocent purchaser for value

Presidential Decree No. 1529 (Property Registration Decree, 1978)

The decree of registration shall not be reopened or revised by reason of absence, minority, or other disability of any person adversely affected thereby, nor by any proceeding in any court for reversing judgments, subject, however, to the right of any person, including the government and the branches thereof, deprived of land or of any estate or interest therein by such adjudication or confirmation of title obtained by actual fraud, to file in the proper Court of First Instance a petition for reopening and review of the decree of registration not later than one year from and after the date of the entry of such decree of registration, but in no case shall such petition be entertained by the court where an innocent purchaser for value has acquired the land or an interest therein, whose rights may be prejudiced. Whenever the phrase "innocent purchaser for value" or an equivalent phrase occurs in this Decree, it shall be deemed to include an innocent lessee, mortgagee, or other encumbrancer for value.

Upon the expiration of said period of one year, the decree of registration and the certificate of title issued shall become incontrovertible. Any person aggrieved by such decree of registration in any case may pursue his remedy by action for damages against the applicant or any other persons responsible for the fraud.

Why it is cited here

The clause that saved the expropriating agency, and it is the second half of the section.

A decree may be reopened for actual fraud within one year "provided no innocent purchaser for value has acquired the property"; where one has, the decree stands and the aggrieved party's remedy "may be an action for damages against the applicant."

The excluded heirs' complaint sought to recover Lot No. 4673 itself. But the property had passed to the Export Processing Zone Authority by expropriation, and TCT No. 12788 issued in its name.

An expropriating government agency stands in the position of an innocent purchaser for value — it paid just compensation, took through a judicial proceeding, and had no part in the heirs' quarrel over their parents' estate.

So the complaint was dismissed as against PEZA, not because the fraud was doubted, but because the remedy no longer lay against the land. That is the section's bargain applied exactly: the innocent acquirer keeps the property, and the victim's claim converts into a personal one.

Civil Code

Article 1104, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book III (Different Modes of Acquiring Ownership), Title IV (Succession), Chapter 4 (Provisions Common to Testate and Intestate Successions), Subsection 3 (Rescission and Nullity of Partition)

A partition made with preterition of any of the compulsory heirs shall not be rescinded, unless it be proved that there was bad faith or fraud on the part of the other persons interested; but the latter shall be proportionately obliged to pay to the person omitted the share which belongs to him. (1080)

Why it is cited here

What the excluded heirs' claim actually is, and the remedy the Civil Code gives them.

"A partition made with preterition of any of the compulsory heirs shall not be rescinded, unless it be proved that there was bad faith or fraud on the part of the other persons interested; but the latter shall be proportionately obliged to pay to the person omitted the share which belongs to him."

Read the default first, because it is counter-intuitive: leaving an heir out does not undo the partition. The law prefers to keep the division standing and make the participating heirs pay the omitted one his share.

Rescission is available only on proof of bad faith or fraud — which the heirs alleged here, the executing heirs having fraudulently excluded them from the extrajudicial partition.

But rescission operates between the heirs. It cannot reach back through an expropriation to a third party who acquired in good faith, which is why the article's money remedy — against the co-heirs who took her share — is what remained to the excluded heirs.

Civil Code

Article 1456, Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title V (Trusts (N)), Chapter 3 (Implied Trusts)

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.

Why it is cited here

The theory against the executing heirs, and the reason it stops where it does.

"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."

The heirs who executed the partition excluding their co-heirs hold what they took on that trust. That claim is in personam and survives; it is the one the complaint could properly have pursued.

What the trust cannot do is follow the land into the hands of an innocent purchaser for value. Against PEZA the trust is cut off, so the heirs' recovery converts from the thing to its value.

Worth noting a second bar the case raises but does not need. An extrajudicial settlement carries its own two-year period during which an omitted heir may proceed against the distributees under Rule 74 of the Rules of Court — a limit distinct from, and shorter than, the ten years an implied trust ordinarily runs. Which clock applies depends on how the claim is framed, and that choice is often decisive.

Source: Philippine Economic Zone Authority v. Fernandez, G.R. No. 138971, June 6, 2001

Cited laws & provisions

Section 32, P.D. No. 1529

Special Law

Review of decree of registration; Innocent purchaser for value

Presidential Decree No. 1529 (Property Registration Decree, 1978)

Why it is cited here

The clause that saved the expropriating agency, and it is the second half of the section.

Full entry below ↓

Article 1104, Civil Code

Civil Code

Why it is cited here

What the excluded heirs' claim actually is, and the remedy the Civil Code gives them.

Rescission is available only on proof of bad faith or fraud — which the heirs alleged here, the executing heirs having fraudulently excluded them from the extrajudicial partition.

Full entry below ↓

Article 1456, Civil Code

Civil Code

Civil Code of the Philippines (R.A. No. 386), Book IV (Obligations and Contracts), Title V (Trusts (N)), Chapter 3 (Implied Trusts)

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.

Why it is cited here

The theory against the executing heirs, and the reason it stops where it does.

The heirs who executed the partition excluding their co-heirs hold what they took on that trust. That claim is in personam and survives; it is the one the complaint could properly have pursued.

Full entry below ↓

Facts

Lot No. 4673 of the Opon Cadastre, about 11,345 square metres, stood registered under OCT No. RO-2537 in the names of sixteen co-owners — among them Florentina Rapaya, the Cuizons, the Lozanos, the Ybañezes and the Patalinghugs.
On May 15, 1982 Jorgea Igot-Soroño, Frisca Booc and Felix Cuizon executed an Extrajudicial Partition falsely declaring themselves the only surviving heirs. On July 8, 1982, on its registration, TCT No. 12467 issued in their names.
Expropriation proceedings were then pending (Civil Case No. 510-L, RTC Lapu-Lapu City, Branch XVI), the Export Processing Zone Authority seeking to condemn the lot for an export processing zone. On August 11, 1982 the court rendered a partial decision approving a Compromise Agreement between EPZA and the three registered co-owners, EPZA paying ₱68,070.00 as just compensation. On October 13, 1982 TCT No. 12788 issued in EPZA's name.
On July 29, 1996 — nearly fourteen years later — the Heirs of Spouses Juan Cuizon and Florentina Rapaya sued for nullity of documents, redemption and damages (Civil Case No. 4534-L, RTC Lapu-Lapu City, Branch 54), alleging the co-heirs fraudulently excluded them and seeking cancellation of TCT No. 12788.
On February 17, 1997 the Philippine Economic Zone Authority, EPZA's successor, moved to dismiss on prescription; the RTC denied it on January 12, 1998 and denied reconsideration on March 31, 1998. On June 8, 1999 the CA dismissed PEZA's certiorari petition (CA-G.R. SP No. 47575), holding an action on an implied trust among co-heirs imprescriptible. The Third Division decided on June 6, 2001.

Arguments of the Parties

Issue

ANCILLARY / INCIDENTAL ISSUES (if any). None separately resolved.

Ruling

Ratio

Registration converts an ex parte partition into notice to the world. Annotating the contingent liability on the new certificate starts the two-year clock, after which third persons are barred — except where the title still stands with the fraudulent heirs or their bad-faith transferees.
Discovery of fraud is fixed by the register, not by the claimant's awareness. Because registration is constructive notice under Section 52, the four-year period runs from the issuance of the certificate.
A constructive trust creates an obligation imposed by law, so Article 1144's ten years governs, measured from the same event.
The possession exception is the only one, and it belongs to a plaintiff actually holding the land — which these heirs never did.
The trust was openly repudiated. Executing a Compromise Agreement and conveying the land to the government is an act of absolute ownership, which set the period running even on trust principles.
Private grievance yields to the security of the register. Where the land has reached an innocent purchaser for value, neither review under Section 32 nor reconveyance is available — public confidence in the Torrens system requires it.

Doctrine

Doctrines / Rules / Principles Laid Down.

Registration of an extrajudicial partition is constructive notice to the world, and an excluded heir's action is barred two years after it under Section 4 of Rule 74, save where the property remains with the fraudulent heirs or their bad-faith transferees.
Reconveyance on an implied or constructive trust prescribes in ten years from issuance of the certificate, unless the plaintiff is in actual physical possession, when it is an imprescriptible suit to quiet title.
And reconveyance is unavailable once the land has passed to an innocent purchaser for value, whose rights must be protected to preserve the finality of land disputes.

Distinctions / Limitations / Qualifications.

The possession exception requires actual, open, continuous and adverse possession — absent here, so the ten-year bar operated in full. And where reconveyance is no longer feasible because an innocent purchaser has intervened, the owner's sole remedy is an ordinary action for damages against those who perpetrated the fraud, itself to be brought within ten years from issuance of the title.

Topic/Subtopic Integration (Mandatory).

DIRECT: the Court set the procedural and substantive limits of reconveyance against indefeasibility — the equitable remedy is bounded by the Civil Code's prescriptive periods and cannot be turned against an innocent purchaser for value, here the government in expropriation. Enforcing both keeps the register a reliable mirror of ownership rather than an opening for indefinite disputes.

Separate Opinions

None. The Third Division decided unanimously through Justice Artemio V. Panganiban, with Justices Melo, Vitug, Gonzaga-Reyes and Sandoval-Gutierrez concurring.

Full Digest — Recitation Format

Facts

Prior to May 15, 1982: Lot No. 4673 of the Opon Cadastre, containing an area of 11,345 square meters, more or less, was registered under Original Certificate of Title No. RO-2537 in the names of Florentina Rapaya, Victorino Cuizon, Isidro Cuizon, Ursula Cuizon, Benito Lozano, Isabel Lozano, Pelagia Lozano, Augusto Lozano, Valeriano Ybañez, Jesus Ybañez, Numeriano Ybañez, Martino Ybañez, Eutiquio Patalinghug, Celedonio Patalinghug, Santiago Patalinghug, and Silvino Patalinghug.
On May 15, 1982: Jorgea Igot-Soroño, Frisca Booc, and Felix Cuizon executed an Extrajudicial Partition, falsely declaring the executing heirs as the only surviving heirs of the registered owners of Lot No. 4673.
On July 8, 1982: TCT No. 12467 was issued by the Register of Deeds of Lapu-Lapu City in the names of Jorgea Igot-Soroño, Frisca Booc, and Felix Cuizon, following the registration of the Extrajudicial Partition.
Prior to August 11, 1982: Expropriation proceedings docketed as Civil Case No. 510-L were pending before Branch XVI of the Regional Trial Court of Lapu-Lapu City, with the Export Processing Zone Authority seeking to condemn Lot No. 4673 for the establishment of an export processing zone.
On August 11, 1982: Branch XVI of the Regional Trial Court of Lapu-Lapu City rendered a partial Decision in Civil Case No. 510-L, approving the Compromise Agreement entered into between the Export Processing Zone Authority and the registered co-owners Jorgea Igot-Soroño, Frisca Booc, and Felix Cuizon, under which the Export Processing Zone Authority paid Sixty-Eight Thousand Seventy Pesos (₱68,070.00) as just compensation.
On October 13, 1982: Transfer Certificate of Title No. 12788 was officially issued by the Register of Deeds of Lapu-Lapu City in the name of the Export Processing Zone Authority, as a consequence of the judicially approved Compromise Agreement and the payment of just compensation.
On July 29, 1996: The Heirs of the Deceased Spouses Juan Cuizon and Florentina Rapaya (Private Respondents) filed a Complaint for Nullity of Documents, Redemption and Damages before the Regional Trial Court of Lapu-Lapu City, Branch 54, docketed as Civil Case No. 4534-L, alleging that the co-heirs fraudulently excluded the other heirs from the partition and seeking the cancellation of TCT No. 12788.
On February 17, 1997: The Philippine Economic Zone Authority (successor-in-interest of the Export Processing Zone Authority) filed a Motion to Dismiss the Complaint on the ground of prescription.
On January 12, 1998: The Regional Trial Court of Lapu-Lapu City, Branch 54, issued an Order denying the Motion to Dismiss filed by the Philippine Economic Zone Authority.
On March 31, 1998: The Regional Trial Court of Lapu-Lapu City, Branch 54, issued an Order denying the Motion for Reconsideration filed by the Philippine Economic Zone Authority.
On April 30, 1998: The Philippine Economic Zone Authority elevated the matter to the Court of Appeals via a Petition for Certiorari under Rule 65 of the Rules of Court, docketed as CA-G.R. SP No. 47575.
On June 8, 1999: The Court of Appeals rendered a Decision dismissing the petition of the Philippine Economic Zone Authority, holding that the action for reconveyance based on an implied or constructive trust among co-heirs is imprescriptible.
Sometime thereafter: The Philippine Economic Zone Authority elevated the case to the Supreme Court of the Philippines via a Petition for Review on Certiorari under Rule 45 of the Rules of Court.
On June 6, 2001: The Supreme Court of the Philippines Third Division rendered the Decision reversing the Court of Appeals, setting aside the trial court's orders, and dismissing Civil Case No. 4534-L as against the petitioner.

Arguments of the Parties

Petitioner (Philippine Economic Zone Authority).

The Claim under Rule 74 is Barred: The petitioner argues that the claim of the Private Respondents had already prescribed under Section 4 of Rule 74 of the Rules of Court. The two-year period within which an excluded heir may contest an extrajudicial settlement commenced from July 8, 1982, the date the Extrajudicial Partition was inscribed on OCT No. 2537. The Private Respondents had only until July 8, 1984, to file the objections of the Private Respondents.
The Action for Reconveyance Has Prescribed: The petitioner contends that even if the case is treated as an action for reconveyance based on fraud or constructive trust, the action has prescribed. An action for reconveyance based on fraud must be filed within four (4) years from the discovery of the fraud, which discovery is deemed to have taken place upon the registration of the title on October 13, 1982. An action based on an implied or constructive trust under Article 1456 of the Civil Code prescribes in ten (10) years from the issuance of the certificate of title. Since the title was registered in 1982 and the Complaint was filed only in 1996, both prescriptive periods had already lapsed.
Reconveyance Does Not Lie Against an Innocent Purchaser: The petitioner asserts that the property can no longer be recovered because the property has passed to the government as an innocent purchaser for value. The government acquired the land in good faith through a Compromise Agreement judicially approved in proper expropriation proceedings and paid just compensation to the registered titleholders.

Private Respondents (Heirs of Juan Cuizon and Florentina Rapaya).

Implied Trust is Imprescriptible: The Private Respondents argue that the fraudulent partition executed by the co-heirs created a constructive trust under Article 1456 of the Civil Code in favor of the excluded heirs. As co-heirs, the action of the Private Respondents to recover the inheritance from the co-heirs who fraudulently registered the property under the names of the co-heirs is imprescriptible.
The Inapplicability of the Constructive Notice Rule: The Private Respondents contend that the rule of constructive notice through registration cannot be applied to bar the recovery of property when the purpose of the action is to compel a trustee to convey the property registered in the name of the trustee for the benefit of the cestui que trust.
Extrinisic Fraud Nullifies Contracts: The Private Respondents assert that since the contract of sale and the partition agreement were void and simulated, the action to declare the nullity of the void documents does not prescribe pursuant to Article 1410 of the Civil Code.

Issue

MAIN ISSUE.

Whether the action for reconveyance filed by the Private Respondents to recover Lot No. 4673 has already prescribed under the rules governing Section 32 of Presidential Decree No. 1529, in relation to Section 4 of Rule 74 of the Rules of Court, Article 1456 of the Civil Code, and Article 1144 of the Civil Code.

SECONDARY ISSUES.

Whether an action for reconveyance can prosper against the petitioner, as a successor-in-interest of a government agency that acquired the registered property in good faith and for value through judicially approved expropriation proceedings under Section 32 of Presidential Decree No. 1529.

Ruling

Dispositive portion (verbatim). The final dispositive portion of the Supreme Court of the Philippines in G.R. No. 138971, dated June 6, 2001, is quoted verbatim as follows:

"WHEREFORE, the Petition is hereby GRANTED and the assailed Decision of the Court of Appeals REVERSED. The Orders of the Regional Trial Court of Lapu-Lapu City (Branch 54) in Civil Case No. 4534-L, dated January 12, 1998 and March 31, 1998, are SET ASIDE and the said Civil Case, as against petitioner, is DISMISSED. No costs."

Ratio

The Constructive Notice and Limitations under Rule 74: Under Section 4 of Rule 74 of the Rules of Court, a person who has been unduly deprived of a lawful participation in an estate settlement may assert a claim within the two-year period after the settlement and distribution of the estate. While an extrajudicial partition is originally an ex parte proceeding, the registration of the extrajudicial partition under the Torrens system and the annotation of the contingent liability on the new certificate of title operate as constructive notice of the partition to the whole world. Upon the expiration of the two-year period, all third persons are barred from going after the registered property, except where the title remains in the name of the fraudulent heirs or the non-innocent transferees of the fraudulent heirs. Since the title was transferred to the government, the constructive notice barred any claims after July 8, 1984.
The Prescription of Reconveyance Based on Fraud: An action for reconveyance resulting from fraud is subject to prescription and must be filed within four (4) years from the discovery of the fraud. This discovery of fraud is legally deemed to have occurred upon the registration of the instrument in the office of the Register of Deeds, because registration operates as constructive notice to all persons under Section 52 of Presidential Decree No. 1529. Consequently, the four-year prescriptive period is counted from the date of the issuance of the certificate of title.
The Prescription of Reconveyance Based on Implied Trust: An action for reconveyance based on an implied or constructive trust under Article 1456 of the Civil Code is an obligation created by law under Article 1144 of the Civil Code; hence, the action prescribes in ten (10) years from the date of the issuance of the certificate of title over the property. The only instance when prescription cannot be invoked in an action for reconveyance based on an implied or constructive trust is when the plaintiff is in actual physical possession of the land to be reconveyed. In such a case, the action is treated as an imprescriptible suit to quiet the title. Since the Private Respondents were never in possession of Lot No. 4673, the ten-year prescriptive period applied, and the action prescribed on October 13, 1992.
The Repudiation of Trust through Expropriation: An action to compel the conveyance of property registered in the trustee's name does not prescribe unless the trustee openly repudiates the trust. In G.R. No. 138971, the co-heirs who acted as the supposed "trustees" effectively and openly repudiated the trust by directly performing an act of absolute ownership—namely, by executing a Compromise Agreement and conveying the property to the government through judicially approved expropriation proceedings. This open repudiation started the running of the prescriptive period, even under the rules of trust.
The Protection Conferred to Innocent Purchasers for Value: A certificate of title issued under the Torrens system is conclusive evidence of ownership. While the law recognizes the right of a person deprived of property through actual fraud to seek a review of the decree of registration within one year under Section 32 of Presidential Decree No. 1529, or to file an action for reconveyance after the lapse of the one-year period, these remedies cannot be availed of once the property has passed to an innocent purchaser for value. The government, in acquiring Lot No. 4673 through a judicially approved Compromise Agreement in proper expropriation proceedings and paying just compensation, is considered a purchaser in good faith and for value. The private interests of the excluded heirs must yield to the public policy of protecting innocent third-party buyers to maintain public confidence in the Torrens system.

Doctrine

Doctrines / Rules / Principles Laid Down.

The Constructive Notice Rule of Partition: The registration of an extrajudicial partition under the Torrens system constitutes constructive notice to the entire world, and any action by an excluded heir to contest the partition and seek the settlement of the estate is barred after the lapse of two (2) years from the date of such registration under Section 4 of Rule 74 of the Rules of Court, except when the property remains in the hands of the fraudulent heirs or the bad-faith transferees of the fraudulent heirs.
The Prescriptive Rule on Implied Trusts: An action for reconveyance of registered land based on an implied or constructive trust under Article 1456 of the Civil Code prescribes in ten (10) years from the date of the issuance of the certificate of title over the property, unless the plaintiff is in actual physical possession of the land, in which case the action is in the nature of an imprescriptible suit to quiet title.
The Innocent Purchaser Exception: The equitable remedy of an action for reconveyance cannot be availed of by an aggrieved claimant once the registered property has passed into the hands of an innocent purchaser for value and in good faith, whose rights under Section 32 and Section 44 of Presidential Decree No. 1529 must be protected to preserve the finality of land disputes and the stability of the Torrens system.

Distinctions / Limitations / Qualifications.

The Possession Exception: The ten-year prescriptive period for an action for reconveyance based on an implied or constructive trust does not apply if the plaintiff is in actual, open, continuous, and adverse physical possession of the property, because the action is treated as a suit to quiet title, which is completely imprescriptible. Because the Private Respondents were never in possession of Lot No. 4673, the possession exception did not operate in the favor of the Private Respondents.
The Remedy of Damages Limitation: When an action for reconveyance is no longer feasible because the property has already passed into the hands of an innocent purchaser for value, the sole remedy of the aggrieved owner is to bring an ordinary action in the ordinary courts for damages against the persons or co-heirs who have perpetrated the fraud, which action must be filed within ten (10) years from the issuance of the certificate of title under Article 1144 of the Civil Code.

Topic/Subtopic Integration (Mandatory).

Classification of Relationship: DIRECT.
Integration: The case of Philippine Economic Zone Authority v. Fernandez is a leading and definitive authority on Section 32 of Presidential Decree No. 1529 regarding the procedural and substantive limits of an action for reconveyance. The decision establishes that while the right of a defrauded owner to seek reconveyance is an equitable remedy recognized in our jurisdiction, the remedy is strictly subject to the prescriptive periods under the Civil Code and cannot be used to collateral attack or undermine the title of an innocent purchaser for value. By applying the ten-year prescriptive bar for constructive trusts and enforcing the protection given to the government as an innocent buyer in expropriation proceedings, the Supreme Court of the Philippines safeguarded the stability of Torrens titles and ensured that the system of land registration remains a reliable mirror of property ownership, rather than a tool for perpetuating indefinite property disputes.

Separate Opinions

NOT APPLICABLE / NOT IN RECORD. (The Decision was rendered unanimously by the Third Division of the Supreme Court of the Philippines, with Associate Justice Artemio V. Panganiban as the ponente, and with Associate Justices Jose A.R. Melo, Jose C. Vitug, Fidel P. Purisima [erroneously listed in some records but the concurring justices signed are Associate Justices Jose A.R. Melo, Jose C. Vitug, Minerva P. Gonzaga-Reyes, and Angelina Sandoval-Gutierrez], with no separate concurring or dissenting opinions filed).