SECOND DIVISION

[G.R. No. 127608. September 30, 1999.]

GUADALUPE S. REYES, petitioner, vs. COURT OF APPEALS and

JUANITA L. RAYMUNDO, respondents.

Natividad T. Perez for petitioner.

Pamaran Ramos & Partners for private respondent.

SYNOPSIS

Petitioner sold to respondent on June 21, 1967 one-half of a 300-square

meter lot located at No. 4-F Calderon Street, Project 4, Quezon City,
denominated as Lot 8-B for P10,000.00. Consequently, a new title, TCT No.
119205 was issued for the whole lot in the name of the respondent and herein
petitioner in equal shares. The house erected in said lot which was rented by
Palacios was not included in the sale and remains in possession of the
petitioner. On September 24, 1969, petitioner sold her remaining interest in the
property to respondent for P15,000.00 as evidenced by a deed of absolute sale
and TCT No. 149036 was issued in the name of respondent in lieu of TCT No.
119205. On August 23, 1987, petitioner filed a complaint against respondent
before the Regional Trial Court of Quezon City for cancellation of TCT No.
149036 and reconveyance with damages. Petitioner alleged that the sale of 24
September 1969 was simulated since she was merely constrained to execute
the deed without any material consideration pursuant to an agreement with
respondent that they would construct an apartment on the property through
the proceeds of an additional loan respondent would secure from the GSIS with
the entire 300-square meter property as collateral. Their true agreement was
embodied in a private writing dated 10 January 1970. After trial on the merits,
the lower court found that the second deed of sale was indeed simulated as it
held that since the date of its execution respondent allowed petitioner to
exercise ownership over the property by collecting rentals from the lessees until
December 1986. Thus, the trial court cancelled and declared null and void TCT
No. 149036 as well as the second deed of sale. On appeal, the appellate court
ruled that as between a notarized deed of sale earlier executed and the
agreement of 10 January 1970 contained in a private writing, the former
prevailed. Moreover, it ruled that petitioner's cause of action to recover title to
real property had prescribed. Aggrieved by the decision, petitioner filed the
petition. aDcTHE

The petition was impressed with merit. The action for reconveyance filed
by petitioner based on the circumstance obtaining herein and contrary to the
finding of respondent court has not prescribed. What is applicable is not Art.
1144(1) of the Civil Code, but Art. 1410 of the same Code, which explicitly
states that the action or defense for the declaration of the inexistence of a
contract, such as the second deed of sale, does not prescribe. Moreover, the
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 fact that the respondent was able to secure a title in her name does not
operate to vest ownership upon her to the property because the Torrens system
does not create or vest title. Furthermore, as between a public document and a
private document, the former prevails. Although the notarization of the deed of
sale in question vests in its favor the presumption of regularity, it is not the
intention nor the function of the notary public to validate and make binding an
instrument that did not intend to have any binding legal effect upon the parties
thereto. The intention of the parties still is and always will be the primary
consideration in determining the true nature of a contract which in the present
case was contained in the agreement of 10 January 1970.

SYLLABUS

1. CIVIL LAW; CIVIL CODE; PROPERTY; POSSESSION; AND ACTION FOR

RECONVEYANCE OF A PARCEL OF LAND BASED ON IMPLIED OR CONSTRUCTIVE
TRUST PRESCRIBES IN TEN YEARS; EXCEPTION THEREOF. — In Heirs of Jose
Olviga v. Court of Appeals we restated the rule that an action for reconveyance
of a parcel of land based on implied or constructive trust prescribes in ten (10)
years, the point of reference being the date of registration of the deed or the
date of the issuance of the certificate of title over the property. However, we
emphasized that this rule applies only when the plaintiff or the person enforcing
the trust is not in possession of the property since if a person claiming to be
owner thereof is in actual possession of the property the right to seek
reconveyance, which in effect seeks to quiet title to the property, does not
prescribe. The reason is that the one who is in actual possession of a piece of
land claiming to be the owner thereof may wait until his possession is disturbed
or his title is attacked before taking steps to vindicate his right. His undisturbed
possession gives him a continuing right to seek the aid of a court of equity to
ascertain and determine the nature of the adverse claim of a third party and its
effect on his own title, which right can be claimed only by one who is in
possession. CASTDI

2. ID.; ID.; ID.; ID.; MAY BE EXERCISED IN ONE'S OWN NAME OR IN

NAME OF ANOTHER. — Actual possession of land consists in the manifestation
of acts of dominion over it of such a nature as those a party would naturally
exercise over his own property. It is not necessary that the owner of a parcel of
land should himself occupy the property as someone in his name may perform
the act. In other words, the owner of real estate has possession, either when he
himself is physically in occupation of the property, or when another person who
recognizes his rights as owner is in such occupancy. This declaration is
conformably with Art. 524 of the Civil Code providing that possession may be
exercised in one's own name or in the name of another.
3. ID.; ID.; ID.; LACHES; NOT APPLICABLE IN CASE AT BAR. — To be
sure, there is no absolute rule as to what constitutes staleness of demand; each
case is to be determined according to its particular circumstances. The
question of laches is addressed to the sound discretion of the court and since
laches is an equitable doctrine, its application is controlled by equitable
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 considerations. It cannot be applied to defeat justice or to perpetrate fraud. In
the case under consideration, it would be the height of injustice and inequity to
apply laches against petitioner and vest ownership over a valuable piece of real
property in favor of respondent by virtue of an absolutely simulated deed of
sale never intended to convey any right over the subject property. It is the
better rule that courts, under the principle of equity, be not guided or bound
strictly by the doctrine of laches when to do so, manifest wrong or injustice
would result.
4. ID.; ID.; ID.; IT IS NOT THE INTENTION NOR THE FUNCTION OF
NOTARY PUBLIC TO VALIDATE AND MAKE BINDING AN INSTRUMENT THAT DID
NOT INTEND TO HAVE ANY BINDING LEGAL EFFECT UPON THE PARTIES
THERETO; CASE AT BAR. — True it is that as between a public document and a
private document, the former prevails. But Santiago went further. We said
therein that although the notarization of the deed of sale in question vests in its
favor the presumption of regularity, it is not the intention nor the function of
the notary public to validate and make binding an instrument that did not
intend to have any binding legal effect upon the parties thereto. The intention
of the parties still is and always will be the primary consideration in determining
the true nature of a contract which in the present case was contained in the
agreement of 10 January 1970.

5. ID.; LAND TITLES; TORRENS TITLE; TORRENS SYSTEM DOES NOT

CREATE OR VEST TITLE. — Moreover, the fact that respondent was able to
secure a title in her name did not operate to vest ownership upon her of the
property. Santiago cannot be any less unequivocal — . . . That act has never
been recognized as a mode of acquiring ownership. As a matter of fact, even
the original registration of immovable property does not vest title thereto. The
Torrens system does not create or vest title. It only confirms and records title
already existing and vested. It does not protect a usurper from the true owner.
It cannot be a shield for the commission of fraud. It does not permit one to
enrich himself at the expense of another. Where one does not have any rightful
claim over a real property, the Torrens system of registration can confirm or
record nothing. IECAaD

DECISION

BELLOSILLO, J : p

Petitioner Guadalupe S. Reyes sold to respondent Juanita L. Raymundo on

21 June 1967 one-half (1/2) of a 300-square meter lot located at No. 4-F
Calderon St., Project 4, Quezon City, denominated as Lot 8-B, for P10,000.00.
Consequently, a new title, TCT No. 119205, was issued for the whole lot in the
name of original owner Guadalupe S. Reyes and vendee Juanita L. Raymundo in
equal shares. cdasia

Thereafter respondent was granted a P17,000.00 loan by the Government

Service Insurance System (GSIS), where she was employed as records
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 processor, with her one-half (1/2) share of the property as collateral. On 24
September 1969 petitioner sold her remaining interest in the property to
respondent for P15,000.00 as evidenced by a deed of absolute sale, Exh. "E," 1
and TCT No. 149036 was issued in the name of respondent in lieu of TCT No.
119205.

Since 1967 the house standing on the property subject of the second sale
was being leased by the spouses Mario Palacios and Zenaida Palacios from
petitioner. In December 1984 petitioner allegedly refused to receive the rentals
thus prompting the Palacios spouses to file on 13 March 1985 a petition for
consignation before the Metropolitan Trial Court of Quezon City. Later, the
parties entered into a compromise agreement principally stating that the
Palacios spouses would pay to petitioner the accrued rentals and that the
leased period would be extended to 24 November 1986. On 28 May 1985 the
compromise agreement was approved and judgment was rendered in
accordance therewith.

It appears however that the Palacios spouses were subsequently ejected

from the premises but managed somehow to return. When a contempt case
was filed by petitioner against her lessees, respondent intervened and claimed
ownership of the entire 300-square meter property as well as the existence of a
lease contract between her and the Palacios spouses supposedly dated 17
March 1987 but retroactive to 1 January 1987. On 12 August 1987 the trial
court dismissed the case and from then on, the Palacioses paid rentals to
respondent. LLpr

On 23 August 1987 petitioner filed a complaint against respondent before

the Regional Trial Court of Quezon City for cancellation of TCT No. 149036 and
reconveyance with damages. Petitioner alleged that the sale of 24 September
1969 was simulated since she was merely constrained to execute the deed
without any material consideration pursuant to an agreement with respondent
that they would construct an apartment on the property through the proceeds
of an additional loan respondent would secure from the GSIS with the entire
300-square meter property as collateral. But should the loan fail to materialize,
respondent would reconvey the property subject of the second sale to
petitioner. After petitioner learned that the loan was disapproved she
repeatedly asked respondent for reconveyance but to no avail. Their true
agreement was embodied in a private writing dated 10 January 1970. 2

The trial court found that the second deed of sale was indeed simulated
as it held that since the date of its execution respondent allowed petitioner to
exercise ownership over the property by collecting rentals from the lessees until
December 1986. It was only in 1987 when respondent intervened in the
contempt case that she asserted ownership thereof. Likewise, the trial court
sustained petitioner's claim that she was only prevailed upon to transfer the
title to the whole lot to respondent in order to obtain a loan from the GSIS
which, after all, did not materialize. Thus, on 29 May 1992 the trial court
cancelled and declared null and void TCT No. 149036 as well as the second
deed of sale. It ordered respondent to reconvey subject property to petitioner
and to pay P25,000.00 as actual and exemplary damages, P10,000.00 as
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 attorney's fees, and to pay the costs. 3

Respondent Court of Appeals however held otherwise. It ruled that as

between a notarized deed of sale earlier executed and the agreement of 10
January 1970 contained in a private writing, the former prevailed. It also found
that petitioner's cause of action had prescribed since the complaint should
have been filed either within ten (10) years from 1969 as an action to recover
title to real property, or within ten (10) years from 1970 as an action based on
a written contract. The appellate court further found that petitioner's cause of
action was barred by laches having allowed respondent to stay in possession of
the lot in question for eighteen (18) years after the execution of the second
deed of sale. On 19 July 1996 the Court of Appeals set aside the ruling of the
trial court and dismissed petitioner's complaint. 4 On 22 October 1996 it denied
the motion to reconsider its decision. 5 cdrep

Petitioner posits that it was only in 1987 — when respondent intervened

in the contempt case alleging to be the owner and lessor — did her cause of
action accrue; hence, her complaint filed on 23 August 1987 has not yet
prescribed. Petitioner asserts that the 10 January 1970 agreement is more
credible and probable than the second deed of sale because such document
contains their real intention.

I n Heirs of Jose Olviga v. Court of Appeals 6 we restated the rule that an

action for reconveyance of a parcel of land based on implied or constructive
trust prescribes in ten (10) years, the point of reference being the date of
registration of the deed or the date of the issuance of the certificate of title
over the property. However, we emphasized that this rule applies only when the
plaintiff or the person enforcing the trust is not in possession of the property
since if a person claiming to be the owner thereof is in actual possession of the
property the right to seek reconveyance, which in effect seeks to quiet title to
the property, does not prescribe . The reason is that the one who is in actual
possession of a piece of land claiming to be the owner thereof may wait until
his possession is disturbed or his title is attacked before taking steps to
vindicate his right. His undisturbed possession gives him a continuing right to
seek the aid of a court of equity to ascertain and determine the nature of the
adverse claim of a third party and its effect on his own title, which right can be
claimed only by one who is in possession.

Actual possession of land consists in the manifestation of acts of dominion

over it of such a nature as those a party would naturally exercise over his own
property. 7 It is not necessary that the owner of a parcel of land should himself
occupy the property as someone in his name may perform the act. In other
words, the owner of real estate has possession, either when he himself is
physically in occupation of the property, or when another person who
recognizes his rights as owner is in such occupancy. 8 This declaration is
conformably with Art. 524 of the Civil Code providing that possession may be
exercised in one's own name or in the name of another. LLphil

An example of actual possession of real property by an owner through

another is a lease agreement whereby the lessor transfers merely the
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 temporary use and enjoyment of the thing leased. 9 The Palacios spouses have
been the lessees of petitioner since 1967 occupying the house erected on the
property subject of the second sale. Petitioner was in actual possession of the
property through the Palacioses and remained so even after the execution of
the second deed of sale. It was only in 1987 — when respondent asserted
ownership over the property and showed a lease contract between her and the
Palacioses dated 17 March 1987 but effective 1 January 1987 — that
petitioner's possession was disturbed. Consequently, the action for
reconveyance filed on 23 August 1987 based on circumstances obtaining
herein and contrary to the finding of respondent court has not prescribed. To be
accurate, the action does not prescribe. Under Art. 1144, par. (1), of the Civil
Code, an action upon a written contract must be brought within ten (10) years
from the time the right of action accrues. And so respondent court also relied
on this provision in ruling that petitioner's cause of action had prescribed. This
is error. What is applicable is Art. 1410 of the same Code which explicitly states
that the action or defense for the declaration of the inexistence of a contract,
such as the second deed of sale, does not prescribe.

Respondent court declared petitioner guilty of laches anchored on the

finding that for eighteen (18) years after the execution of the contract,
respondent was in possession of the lot in question. But this finding is utterly
unsupported by the evidence. On the contrary, the Palacioses alleged in their
petition for consignation filed 13 March 1985 that they were "renting the
apartment of the respondent (petitioner herein) located at No. 4-F Calderon
Street, Project 4, Quezon City, since 1967 up to the present." 10 Even
respondent herself admitted in her lease contract of 17 March 1987 with the
Palacios spouses that "the LESSEES have been staying in the premises since
1967 under a previous lease contract with Guadalupe S. Reyes which, however,
already expired." 11 Having thus corrected the finding of respondent court, our
concern now is to determine whether laches should be appreciated against
petitioner. The essence of laches is the failure or neglect for an unreasonable
and unexplained length of time to do that which, by exercising due diligence,
could or should have been done earlier; it is the negligence or omission to
assert a right within a reasonable time, warranting a presumption that the
party entitled to assert it either has abandoned it or declined to assert it. 12

To be sure, there is no absolute rule as to what constitutes staleness of

demand; each case is to be determined according to its particular
circumstances. The question of laches is addressed to the sound discretion of
the court and since laches is an equitable doctrine, its application is controlled
by equitable considerations. It cannot be applied to defeat justice or to
perpetrate fraud. In the case under consideration, it would be the height of
injustice and inequity to apply laches against petitioner and vest ownership
over a valuable piece of real property in favor of respondent by virtue of an
absolutely simulated deed of sale never intended to convey any right over the
subject property. It is the better rule that courts, under the principle of equity,
be not guided or bound strictly by the doctrine of laches when to do so,
manifest wrong or injustice would result. cdrep

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 Suntay v. Court of Appeals 13 and Santiago v. Court of Appeals 14 are
binding precedents. In Suntay, Federico Suntay applied as a miller-contractor
with the then National Rice and Corn Corporation but his application was
disapproved due to several unpaid loans. He then told his nephew Rafael to
apply instead. To obtain an approval, Rafael prepared a notarized absolute
deed of sale whereby Federico, for and in consideration of P20,000.00,
conveyed to Rafael a parcel of land with all its existing structures. Federico's
title to the property was thereafter cancelled and another one issued to Rafael.
Subsequently, Federico requested Rafael to reconvey to him the property for he
intended to use it as collateral. Rafael however refused to do so, clinging to the
deed of sale in his favor. We upheld the claim of Federico as we found that the
deed of sale was absolutely simulated and therefore void. We observed that —
Indeed the most protuberant index of simulation is the complete
absence of an attempt in any manner on the part of the late Rafael to
assert his rights of ownership over the land and rice mill in question.
After the sale, he should have entered the land and occupied the
premises thereof. He did not even attempt to. If he stood as owner, he
would have collected rentals from Federico for the use and occupation
of the land and its improvements. All that the late Rafael had was a
title in his name . . . .

. . . . The fact that, notwithstanding the title transfer, Federico

remained in actual possession, cultivation and occupation of the
disputed lot from the time the deed of sale was executed until the
present, is a circumstance which is unmistakably added proof of the
fictitiousness of the said transfer, the same being contrary to the
principle of ownership. cdrep

In Santiago, Paula Arcega executed a deed of absolute sale of her parcel

of land in favor of Josefina Arcega and spouses Regalado Santiago and Rosita
Palabyab for P20,000.00. A new title was issued in the name of the vendees
cancelling that of Paula. Later, a four (4)-bedroom house was built on the
property. The master's bedroom, with toilet and bath, was occupied by Paula
until her death despite the execution of the deed of sale. The three (3) other
bedrooms, smaller than the master's bedroom, were occupied by the vendees.
Then, an heir of Paula filed an action seeking to declare the nullity of the deed
of sale on the ground of absence of consideration and that it was merely
designed as an accommodation for the purpose of obtaining a loan from the
Social Security System. Guided by Suntay, we annulled the deed of sale and the
title of the vendees and ordered reconveyance of the property. We ratiocinated
that —
. . . . while petitioners were able to occupy the property in
question, they were relegated to a small bedroom without bath and
toilet, while Paula Arcega remained virtually in full possession of the
completed house and lot using the big master's bedroom with bath and
toilet up to the time of her death on April 10, 1985. If, indeed, the
transaction entered into by the petitioners and the late Paula Arcega
on July 8, 1971 was a veritable deed of absolute sale, as it was
purported to be, then Mrs. Arcega had no business whatsoever
remaining in the property and, worse, to still occupy the big master's
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 bedroom with all its amenities until her death . . . . Definitely, any
legitimate vendee of real property who paid for the property with good
money will not accede to an arrangement whereby the vendor
continues occupying the most favored room in the house while he or
she, as the new owner, endures the disgrace and absurdity of having to
sleep in a small bedroom without bath and toilet as if he or she is a
guest or a tenant in the house. In any case, if petitioners really stood
as legitimate owners of the property, they would have collected rentals
from Paula Arcega for the use and occupation of the master's bedroom
as she would then be a mere lessee of the property in question.
However, not a single piece of evidence was presented to show that
this was the case. All told, the failure of petitioners to take exclusive
possession of the property allegedly sold to them, or in the alternative,
to collect rentals from the alleged vendee Paula Arcega, is contrary to
the principle of ownership and a clear badge of simulation that renders
the whole transaction void and without force and effect . . . . 15

Squarely with Suntay and Santiago, petitioner remained in actual

possession of subject property through the Palacioses even after the execution
of the second deed of sale in 1969. The lessees paid rentals to petitioner since
1967. We note likewise that petitioner was the defendant in the consignation
case. Respondent disdained to explain that she allowed petitioner to collect the
rentals because she "did not mind" the nominal amount involved. cdasia

We are unconvinced simply because the supposed "unmindfulness"

involved, not a short period, but a span of seventeen (17) years, or from 1969
up to 1986. Besides, it defies logic and borders more on absurdity that
respondent bought the disputed property only to allow petitioner to continue
exercising dominion over it by leasing it to the Palacioses at the same time
benefiting therefrom in the form of rentals collected. The only change effected
by the purported second deed of sale was the transfer of title to respondent.
Respondent's "generosity" is too good to be true, in a manner of speaking.
Rather, we agree with the trial court that the second deed of sale was
simulated. Petitioner was constrained to transfer title over the property to
respondent to enable the latter to mortgage it to the GSIS, the proceeds of
which would be used to construct an apartment on the property.

True it is that as between a public document and a private document, the

former prevails. But Santiago went further. We said therein that although the
notarization of the deed of sale in question vests in its favor the presumption of
regularity, it is not the intention nor the function of the notary public to validate
and make binding an instrument that did not intend to have any binding legal
effect upon the parties thereto. The intention of the parties still is and always
will be the primary consideration in determining the true nature of a contract
which in the present case was contained in the agreement of 10 January 1970.
Then, too, a comparison between respondent's signature on the 10
January 1970 agreement, on one hand, and her signatures on the application
for the reconstitution of TCT No. 149036 16 and the lease contract between her
and the Palacios spouses, 17 on the other hand, discloses a striking similarity.
No amount of denial by respondent will render ineffectual the 10 January 1970
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 agreement. cdasia

Moreover, the fact that respondent was able to secure a title in her name
did not operate to vest ownership upon her of the property. Santiago cannot be
any less unequivocal —
. . . . That act has never been recognized as a mode of acquiring
ownership. As a matter of fact, even the original registration of
immovable property does not vest title thereto. The Torrens system
does not create or vest title. It only confirms and records title already
existing and vested. It does not protect a usurper from the true owner.
It cannot be a shield for the commission of fraud. It does not permit one
to enrich himself at the expense of another. Where one does not have
any rightful claim over a real property, the Torrens system of
registration can confirm or record nothing. 18

WHEREFORE, the petition is GRANTED. The Decision of respondent Court

of Appeals of 19 July 1996 ordering the dismissal of the complaint of petitioner
Guadalupe S. Reyes and the Resolution of 22 October 1996 denying
reconsideration are SET ASIDE. The Decision of the Regional Trial Court of
Quezon City, Branch 106, of 29 May 1992 cancelling and declaring null and void
TCT No. 149036, as well as the second deed of sale dated 24 September 1969
between petitioner and private respondent Juanita L. Raymundo, ordering the
latter to reconvey the property subject of the second deed of sale to petitioner,
and further ordering private respondent to pay petitioner P25,000.00 as actual
and exemplary damages, P10,000.00 as attorney's fees, and to pay the costs,
is REINSTATED and ADOPTED as the Decision in this case. cdasia

SO ORDERED.

Mendoza, Quisumbing and Buena, JJ., concur.

Footnotes
1. Records, p. 100.
2. Exh. "G;" id., p. 102.

3. Decision penned by Judge Jose M. Aguila, RTC Quezon City - Br. 106; Rollo ,
pp. 48-49.

4. Decision penned by the late Justice Maximiano C. Asuncion with the

concurrence of Justices Salome A. Montoya and Godardo A. Jacinto; Rollo , p.
40.
5. Rollo , p. 42.
6. G. R. No. 104813, 21 October 1993, 227 SCRA 330 cited in Vda. de Cabrera
v. Court of Appeals, G. R. No. 108547, 3 February 1997, 267 SCRA 339.
7. Ramos v. Director of Lands, 39 Phil. 175 (1918); Roales Brothers and Cousins
v. Director of Lands, 51 Phil. 302 (1927) cited in Aquino, Ramon C., The Civil
Code of the Philippines, 1990 Ed., p. 560.

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 8. Repide v. Astuar , 2 Phil. 757 (1902).
9. Jovellanos v. Court of Appeals, G. R. No. 100728, 18 June 1992, 210 SCRA
126; Art. 1643, Civil Code.
10. Records, p. 95.
11. Id., p. 104.
12. Santiago v. Court of Appeals , G. R. No. 103959, 21 August 1997, 278 SCRA
98.
13. G.R. No. 114950, 19 December 1995, 251 SCRA 430.
14. See Note 10.

15. Id., p. 107.

16. Records, p. 152.
17. Id., p. 105.
18. See Note 10, pp. 108-109.

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