G.R. No. 51921 . March 29, 1984.
PATROCINIA OBAÑANA and EMILIO OBAÑANA, Petitioners, vs. THE HONORABLE ALEJANDRO R. BONCAROS, District Judge, Court of First Instance, Branch V, of Negros Oriental and ZOILO LANTAO, Respondents.

FACTS

Petitioners Patrocinia and Emilio Obañana and respondent Zoilo Lantao are grandchildren of Celestino Lantao, who died possessing an unregistered parcel of land. Petitioners claimed possession of the western portion, while respondent occupied the eastern part. In 1968, they discovered a discrepancy in tax declarations and agreed to partition the lot. Patrocinia executed a Deed of Quitclaim, and they agreed to exchange portions, with a sketch outlining the division. However, when petitioners attempted to harvest from the eastern portion per their agreement, respondent stopped them. Petitioners later discovered that respondent had surreptitiously applied for and obtained a homestead patent and Original Certificate of Title No. FV-9121 over the entire lot in July 1969. They filed a complaint for reconveyance of the eastern portion, alleging fraud and breach of constructive trust.
Respondent Judge dismissed the complaint for lack of cause of action, ruling that petitioners failed to exhaust administrative remedies. The court held that the Director of Lands had exclusive authority over the homestead grant and that ordering reconveyance would constitute an improper collateral attack on a certificate of title. The court suggested that any remedy must be pursued with the conformity of the Director of Lands under the Public Land Act.

ISSUE

Whether the trial court correctly dismissed the complaint for reconveyance on the ground of failure to exhaust administrative remedies.

RULING

No. The Supreme Court reversed the dismissal. The legal logic is that the doctrine of exhaustion of administrative remedies applies only to public lands. Once a free patent is granted and a corresponding certificate of title is issued, the land ceases to be part of the public domain and becomes private property. Consequently, the Director of Lands loses control and jurisdiction over it. The land assumes the character of registered property under the Land Registration Act.
The proper remedy for a party aggrieved by fraudulent registration is an action for reconveyance, which is judicial in nature. Petitioners’ cause of action is based on Article 1456 of the Civil Code, which establishes a constructive trust when property is acquired through mistake or fraud. The respondent, having allegedly obtained title through fraud in breach of the partition agreement, is considered a trustee for the benefit of the petitioners. This cause of action for enforcing a constructive trust is incapable of administrative resolution and falls within the jurisdiction of the courts. The Supreme Court cited precedent, including Miguel v. Court of Appeals, holding that a person who obtains title through fraud in breach of a fiduciary duty can be compelled to reconvey the property. The case was remanded to the trial court for further proceedings.