This case clarifies the prescriptive period for reconveyance of fraudulently registered property and the determination of good faith in property possession. The Supreme Court ruled that actions to reconvey property based on a void contract are imprescriptible and clarified that possession in good faith ceases upon service of summons, affecting liability for fruits of the land.

Land Grab: When Does Good Faith End in Disputed Property?

The case revolves around a parcel of land originally owned by Maxima Divison. Maxima sold a portion of this land to Rogelia and Adelino Daclag (petitioners), which included a one-half northern portion owned by Elino, Adela, and Conrado Macahilig, Lorenza Haber, and Benita Del Rosario (respondents). The respondents filed a complaint for reconveyance of the land, claiming that the sale was fraudulent. While the land was registered under Rogelia’s name in 1984, the complaint was filed in 1991, within ten years. The petitioners argued that the action should have been filed within four years from the discovery of the fraud. This is where the Supreme Court steps in to clarify the timeline of real property claims.

The Supreme Court first addressed the issue of prescription. While the petitioners argued for a four-year prescriptive period based on fraud, the Court reiterated the established rule that “the prescriptive period for the reconveyance of fraudulently registered real property is 10 years reckoned from the date of the issuance of the certificate of title.” However, the Court further clarified that because the deed of sale between Maxima and the Daclags was void (since Maxima did not own the land she sold), the action for reconveyance was not even subject to prescription. This is because Article 1410 of the Civil Code states that an action to declare the inexistence of a void contract does not prescribe.

Article 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.

Building on this principle, the Court stated that when there is proof of illegality in the property registration, the registered property is deemed held in trust for the real owner. Therefore, the real owner has the right to sue for the reconveyance of the property, and such action, based on a void contract, is imprescriptible. This underscores the importance of due diligence in verifying land ownership before purchase. Moreover, since the title to the property remained in Rogelia’s name, the trial court’s order for reconveyance was deemed correct, demonstrating that an action in personam can be used to force the return of property to its rightful owner when registered under the wrong party.

The petitioners also claimed they were possessors in good faith and therefore should not be liable for damages, or at least that their liability should be limited to the period after 1991. The Court partially agreed with this argument. According to Article 528 of the Civil Code, possession acquired in good faith only loses that character when facts exist showing the possessor is aware they possess the thing improperly or wrongfully. The Court explained that knowledge of defects in the title, whether by extraneous evidence or by a suit for recovery by the true owner, signifies bad faith. Thus, the legal interruption of good faith begins upon service of summons.

Article 528. Possession acquired in good faith does not lose this character except in the case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully.

In this case, the petitioners received the summons and complaint on August 5, 1991. Therefore, their good faith ceased on that date. The Court modified the Court of Appeals’ decision, specifying that the petitioners were only liable to pay the respondents ten cavans of palay per annum from August 5, 1991, instead of from 1984. This demonstrates how the timing of legal notification directly affects the liabilities and rights of property possessors.

Finally, the Court refused to consider the petitioners’ argument that Maxima Divison or her estate should be held liable for damages. The Court noted that this issue was not raised in the appellants’ brief before the Court of Appeals or in their initial petition for review before the Supreme Court. Therefore, raising it in the motion for reconsideration was deemed unfair, especially because Maxima was not substituted by her heirs after the Regional Trial Court’s decision. This emphasizes the importance of consistently raising issues throughout the legal process to ensure they are considered by the higher courts.

FAQs

What was the key issue in this case?	The key issue was determining the prescriptive period for an action to reconvey property and the point at which a possessor loses their status as being in “good faith.”
What did the Supreme Court rule regarding the prescriptive period?	The Court ruled that if the action for reconveyance is based on a void contract, it is imprescriptible; otherwise, the prescriptive period is 10 years from the issuance of the certificate of title.
When does a possessor lose the status of being in “good faith”?	A possessor loses good faith from the moment they become aware of defects in their title, typically upon receiving a summons and complaint in a legal action.
What is the significance of Article 1410 of the Civil Code?	Article 1410 states that an action to declare the inexistence of a contract does not prescribe, meaning such actions can be brought at any time.
How did the Court modify the award of damages?	The Court modified the award of damages to reflect that the petitioners were only liable for the fruits of the land (10 cavans of palay per annum) from August 5, 1991, when they received the summons, rather than from 1984.
Why couldn’t the petitioners raise the issue of Maxima Divison’s liability in their motion for reconsideration?	The Court found that the petitioners could not raise this issue because they did not raise it in their initial appeal or petition for review, violating due process and rules of fair play.
What is an action in personam?	An action in personam is a legal action directed against a specific person, which in this case compels the registered owner to reconvey the property to the real owner.
Why was the deed of sale from Maxima to the Daclags considered void?	The deed of sale was void because Maxima Divison sold land that she did not fully own, specifically the one-half northern portion that belonged to the respondents.

In conclusion, this case underscores the complexities of property rights and the importance of establishing clear ownership. The Supreme Court’s resolution offers significant guidance on prescriptive periods, good faith, and the liabilities associated with land disputes. Understanding these principles is crucial for anyone involved in real estate transactions and litigation in the Philippines.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Daclag v. Macahilig, G.R. No. 159578, February 18, 2009