Under Article 1456 of the Civil Code, "[i]f 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 law thus creates the obligation of the trustee to reconvey the property and its title in favor of the true owner. An action for reconveyance of property based on an implied constructive trust prescribes in ten (10) years, in accordance with Article 1144(2) of the Civil Code, which states that that an action involving an obligation created by law must be brought within ten (10) years from the time the right of action accrues.
However, in cases where fraud is specifically alleged to have been attendant in the trustee's registration of the subject property in his/her own name, the prescriptive period is ten (10) years counted from the true owner's discovery of the fraud.
When is the fraud deemed discovered in the context of registered property? Adille v. Court of Appeals (Adille) lends guidance:
It is true that registration under the Torrens system is constructive notice of title, but it has likewise been our holding that the Torrens title does not furnish a shield for fraud.
x x x x
x x x Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the petitioner's act of defraudation. x x x
The Court's ruling in Adille, reiterated in Samonte v. Court of Appeals and Government Service Insurance System v. Santiago, is in congruence with Section 53 of PD 1529, which states that in all cases of registration procured by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud and that registration procured by the presentation of a forged deed or other instrument shall be null and void.
Among the allegations hypothetically admitted by MLI are those concerning DAA Realty's failure to present Spouses Garcia's owner's duplicate copy of TCT No. T-77703 upon issuance of TCT No. T-97059 in its name, as required by Section 53 of PD 1529.
In Levin v. Bass (Levin) the Court en banc unanimously held that failure to comply with the registration requirements of the Torrens system averts the registration process, and prevents the underlying transaction from affecting the land subject of the registration, hence:
x x x Under the Torrens system the act of registration is the operative act to convey and affect the land. [Does] the entry in the day book of a deed of sale which was presented and filed together with the owner's duplicate certificate of title with the office of the Registrar of Deeds and full payment of registration fees constitute a complete act of registration which operates to convey and affect the land? In voluntary registration, such as a sale, mortgage, lease and the like, if the owner's duplicate certificate be not surrendered and presented or if no payment of registration fees be made within [fifteen (15)] days, entry in the day book of the deed of sale does not operate to convey and affect the land sold. x x x70 (Emphasis and underscoring supplied)
Levin thus teaches that a Torrens title issued without prior presentation and cancellation of the existing owner's duplicate title does not bind the property to which it pertains. The title so issued does not produce the effects of a Torrens title contemplated under PD 1529, including the effects of constructive notice. It is literally a scrap of paper.
On this basis, coupled with the fact that they were always in possession of the owner's duplicate copy of TCT No. T-77703, Petitioners cannot be deemed to have been constructively notified of the issuance of DAA Realty's TCT No. T-97059. The ten (10)-year prescriptive period thus referred to in Article 1144(2) of the Civil Code must be reckoned not from the issuance of DAA Realty's Torrens title, but rather, from Petitioners' actual discovery of the fraud in 2010. The Complaint, having been filed barely four (4) years after, or on December 10, 2014, was therefore timely filed.
(Gatmaytan, et. al. vs. Misibis Island, Inc. G.R. No. 222166, June 10, 2020)
