G.R. No. 185857 -58 & 194314-15, June 29, 2016
TRIFONIA D. GABUTAN, et al., Petitioners, vs. DANTE D. NACALABAN, et al. and CAGAYAN CAPITOL COLLEGE, Respondents. (Consolidated Cases)

FACTS

Godofredo Nacalaban purchased a parcel of land in 1957, with the title issued in his name. Upon his death in 1974, the property passed to his heirs: his wife Baldomera and their children (the Nacalabans). In 1979, Baldomera allowed her mother, Melecia, to build and occupy a house on a portion of the property, which was reflected in a tax declaration. After Baldomera’s death in 1994, her children executed an Extrajudicial Settlement of Estate with Sale in 1996, adjudicating the property to themselves and subsequently selling it to Cagayan Capitol College. A new title was issued in the College’s name.
Upon Melecia’s death, her heirs (the Gabutan group) filed a Complaint for Reconveyance against the Nacalabans and the College. They claimed Melecia was the true beneficial owner, having provided the purchase money, with Godofredo holding the title merely in trust. They argued the College was a buyer in bad faith. The College filed an unlawful detainer case against Melecia’s heirs occupying the house. The trial court ruled in favor of the Gabutan group, declaring a constructive trust and ordering reconveyance of a 400 sqm portion, but also declared the College a buyer in good faith. The Court of Appeals affirmed this decision.

ISSUE

The core issues were: (1) Whether a constructive trust existed in favor of Melecia, warranting reconveyance; and (2) Whether Cagayan Capitol College was a purchaser in good faith.

RULING

The Supreme Court affirmed the CA decision with modification, ruling that a constructive trust existed and the College was not a buyer in good faith. On the first issue, the Court found clear and convincing evidence, including testimonies and the 1979 Certification, that Melecia supplied the purchase money. This established an implied trust under Article 1448 of the Civil Code, where Godofredo held the legal title in trust for Melecia. The Nacalabans, as Godofredo’s heirs, became constructive trustees. The action for reconveyance, based on this trust, was imprescriptible as long as the property remained registered in the trustee’s name. The defense of laches also failed because the Gabutan group filed suit shortly after discovering the sale in 1996.
On the second issue, the Court ruled the College was a buyer in bad faith. A purchaser cannot invoke good faith if the title reveals any cloud or doubt, or if there are circumstances that would prompt a reasonably prudent person to inquire further. The College was aware of the occupants (Melecia’s heirs) and the 1979 Certification authorizing Melecia’s occupation. This constituted a defect or an encumbrance that should have prompted a more thorough investigation beyond the face of the title. Its failure to do so negated any claim of good faith. Consequently, the College acquired the property subject to the existing trust. The Court ordered the Nacalabans and the College to reconvey the property to the Gabutan group.