G.R. No. 202632 , July 8, 2015
ROBERTO STA. ANA DY, JOSE ALAINEO DY, and ALTEZA A. DY for themselves and as heirs/substitutes of deceased-petitioner CHLOE ALINDOGAN DY, Petitioners, vs. BONIFACIO A. YU, SUSANA A. TAN, and SOLEDAD ARQUILLA substituting deceased-respondent ROSARIO ARQUILLA, Respondents.

FACTS

The case involves a dispute over ownership of Lot No. 1519-A, a subdivided portion of Lot 1519 in Naga City. The original owner, Adriano Dy Chiao, gave Lot 1519 to his wife Manuela Sta. Ana and their children (Carlos, Lilia, and petitioner Roberto Dy) in 1936. After the parents’ deaths, the children executed an Extrajudicial Settlement with Sale in 1982, whereby Carlos and Lilia sold their shares to Roberto. Roberto subsequently obtained Original Certificate of Title (OCT) No. 511 for Lot 1519 in 1987 through land registration proceedings.
Respondent Rosario Arquilla (substituted by her children Bonifacio Yu, Susana Tan, and Soledad Arquilla) claimed ownership of Lot 1519-A. She alleged that Dy Chiao donated the portion to her in 1938, and she had been in open, continuous possession as owner for over 50 years, even declaring it for tax purposes. Roberto filed a complaint for recovery of possession (Civil Case No. RTC ’89-1782) against Susana Tan. The RTC initially dismissed Roberto’s complaint and declared Rosario the lawful owner, finding she acquired ownership by acquisitive prescription. However, the Court of Appeals reversed this, ruling that Rosario’s attack on OCT No. 511 was a prohibited collateral attack. The Supreme Court upheld the CA’s decision, affirming the validity of OCT No. 511.
Subsequently, Rosario filed a complaint for reconveyance with damages (Civil Case No. RTC ’98-4073), which the RTC dismissed on grounds of litis pendentia and forum shopping. Meanwhile, Roberto and his wife Chloe donated Lot 1519 (covered by OCT No. 511, now including the disputed portion) to their children petitioners Jose and Alteza Dy in 1994, resulting in the issuance of TCT No. 26227 in their names. Upon discovering this, Rosario filed a complaint for annulment/rescission of the deed of donation (Civil Case No. RTC ’98-4100). The RTC initially dismissed it but later reinstated it. The RTC eventually ruled in favor of Rosario, declaring her and her heirs the absolute owners of Lot 1519-A and ordering the cancellation of TCT No. 26227 and reconveyance. The CA affirmed this decision.

ISSUE

Whether the Court of Appeals erred in affirming the Regional Trial Court’s decision which declared respondents as the absolute owners of Lot No. 1519-A and ordered the cancellation of TCT No. 26227 and reconveyance.

RULING

The Supreme Court DENIED the petition and AFFIRMED the CA decision. The Court held that while the prior final ruling in the recovery case (G.R. No. 138561) upheld the validity of OCT No. 511, it did not constitute res judicata on the issue of ownership of Lot 1519-A in the subsequent annulment case. The causes of action were different: the recovery case was for possession based on Torrens title, while the annulment case was for annulment of donation, reconveyance, and quieting of title based on implied trust. The Court found that Roberto Dy committed fraud in his application for land registration by failing to disclose Rosario’s adverse possession of Lot 1519-A. This fraud created an implied trust in favor of Rosario under Article 1456 of the Civil Code. As a trustee, Roberto and his successors-in-interest (the donees Jose and Alteza) held the title for the benefit of the true owner, Rosario. Therefore, respondents, as Rosario’s heirs, were entitled to reconveyance of Lot 1519-A. The Court also ruled that the action for reconveyance, based on an implied trust, does not prescribe.