The Supreme Court held that continuous possession of a land, when hypothetically admitted in a motion to dismiss, defeats a claim of prescription and calls into question the ‘good faith’ of a buyer. In this case, the high court emphasized that those who purchase property must be wary of the rights of individuals currently possessing the land and must diligently inquire into those rights. This decision protects the rights of landowners who’ve been in long-term possession of their land, even against claims that sales or transfers occurred without their knowledge or consent.

Land Dispute: Can a Claim of Continuous Possession Overturn a Property Sale?

Aqualab Philippines, Inc. sought to reverse the Court of Appeals’ decision which nullified their claim to two lots in Lapu-lapu City, Cebu. These lots, once part of a larger estate owned by the respondents’ great-grandfather, Juan Pagobo, were subject to a homestead application that later became Original Certificate of Title (OCT) RO-2246. While Pagobo’s heirs continuously occupied the property, subsequent sales and transfers eventually led to Aqualab’s acquisition. The heirs of Pagobo, alleging they were dispossessed in 1991, filed a complaint seeking the declaration of nullity of documents, cancellation of titles, reconveyance, partition and damages arguing fraud and violation of homestead restrictions, claiming that these transfers occurred without their knowledge. Aqualab, in response, filed a Motion to Dismiss, claiming prescription, lack of cause of action, and arguing that it was an innocent purchaser for value.

The Regional Trial Court (RTC) initially dismissed the complaint, citing prescription and declaring Aqualab an innocent purchaser. However, the Court of Appeals (CA) reversed the RTC’s decision, nullifying the sale and ordering the cancellation of Aqualab’s titles, asserting that the initial sale to Tarcela de Espina was void, rendering subsequent conveyances ineffective. It further stated Aqualab wasn’t an innocent purchaser. The central question before the Supreme Court was whether the CA erred in reversing the RTC’s dismissal and ruling on the merits without a full trial. The Supreme Court examined whether the respondents’ action was barred by prescription and whether Aqualab could indeed claim the status of an innocent purchaser for value.

Building on the principle that filing a motion to dismiss implies hypothetical admission of the facts alleged in the complaint, the Court scrutinized whether prescription was evident on the complaint’s face. It emphasized that continuous possession of the land by the respondents until 1991, as claimed, suggests that their right to reconveyance or annulment of title hadn’t yet prescribed. Prescription, in the context of real property, refers to the period after which a legal claim can no longer be brought. According to established jurisprudence, an action for annulment of title based on fraud is imprescriptible if the plaintiff remains in possession of the property. This contrasts with cases where the plaintiff isn’t in possession, in which the prescriptive period is 10 years from the title’s issuance.

Moreover, the Court clarified that an innocent purchaser for value is someone who buys property without knowledge of any defect or claim against the seller’s title. The Court emphasized that Aqualab, through its motion to dismiss, hypothetically admitted that its predecessor-in-interest wasn’t in possession of the property, thus undermining its claim of being an innocent purchaser for value. In such cases, a buyer should be wary and investigate the rights of those in possession.

“A buyer of real property that is in the possession of a person other than the seller must be wary, and a buyer who does not investigate the rights of the one in possession can hardly be regarded as a buyer in good faith.”

Therefore, since respondents, hypothetically, were in possession until 1991, and the suit was brought in 1994, the SC stated the suit had not prescribed. Therefore, it remanded the case for full trial where the parties could establish their assertions on the record.

FAQs

What was the key issue in this case?	The central issue was whether Aqualab was an innocent purchaser for value and whether the respondents’ claim was barred by prescription, given their claim of continuous possession of the disputed land.
What is a ‘Motion to Dismiss’ and how did it impact the case?	A ‘Motion to Dismiss’ is a request to a court to dismiss a case because it lacks legal basis. Filing such motion hypothetically admits the facts alleged in the complaint, which influenced the court’s evaluation in this case.
What does it mean to be an ‘innocent purchaser for value’?	An ‘innocent purchaser for value’ buys property without knowing about any defects in the seller’s title or any other claims against the property. However, this status is challenged when the purchaser is aware of other occupants or conflicting claims.
What is prescription in the context of land disputes?	Prescription is the legal concept that a claim or right becomes unenforceable after a certain period of time. In this case, prescription could have barred the respondents’ claim if they had waited too long after the alleged fraudulent transfer to file their complaint.
Why was the respondents’ continuous possession crucial to the Court’s decision?	The Court held that if the respondents were in continuous possession of the land, their action for reconveyance or annulment of title had not yet prescribed. Continuous possession suggests the assertion of ownership and serves as notice to potential buyers.
What did the Court mean by ‘hypothetical admission’?	‘Hypothetical admission’ refers to the legal principle that when filing a motion to dismiss, the movant is essentially admitting the truth of the opposing party’s factual allegations, but only for the sake of arguing the legal issues raised in the motion.
What restriction applies to alienation of homestead land?	Under Commonwealth Act 141, homestead land cannot be alienated or transferred within five years from the grant of the homestead patent. The original sale here seemed to violate this, complicating Aqualab’s claim of good faith.
What was the final order of the Supreme Court?	The Supreme Court partially granted the petition, reinstating the case to the RTC for full trial. This means that both parties must present evidence to support their positions and the court will make a final determination.

Ultimately, the Supreme Court underscored the significance of due diligence when purchasing property, especially concerning the rights of those in possession. This case serves as a warning to buyers and clarifies the interplay between good faith, continuous possession, and the rights of long-standing landholders. It does not settle the case but instead requires evidence. The parties must still make and prove their cases, but, legally, it must take place and be fairly resolved.

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: Aqualab Philippines, Inc. vs. Heirs of Marcelino Pagobo, G.R. No. 182673, October 05, 2009