The Supreme Court held that the principle of indefeasibility of a Torrens title does not prevent the enforcement of trust agreements. Even with a registered title, an action for reconveyance can still be pursued to ensure the rightful owner benefits from the property. This decision reinforces the importance of honoring trust arrangements and protects the equitable rights of beneficiaries, even against the claims of registered owners.

Brothers’ Agreement: Can a Promise Override a Land Title?

The case of Heirs of Maximo Labanon v. Heirs of Constancio Labanon, G.R. No. 160711, decided on August 14, 2007, revolves around a land dispute between the heirs of two brothers, Maximo and Constancio Labanon. Constancio settled on public agricultural land and asked his brother, Maximo, who was more educated, to file the land application with the agreement to divide the land once feasible. Maximo obtained Homestead Patent No. 67512, resulting in Original Certificate of Title (OCT) No. P-14320 in his name. Later, Maximo executed an “Assignment of Rights and Ownership” and a sworn statement affirming Constancio’s ownership of a portion of the land.

After Constancio’s death, his heirs sought to enforce the agreement, but Maximo’s heirs resisted, claiming indefeasibility of the title. The central legal question is whether the trust agreement between the brothers can be enforced despite the principle of indefeasibility of a Torrens title. This case highlights the tension between registered land ownership and equitable claims arising from trust agreements.

The petitioners argued that Original Certificate of Title No. 41320 issued in the name of Maximo Labanon should be considered indefeasible and conclusive. They invoked the principle of indefeasibility of a Transfer Certificate of Title (TCT), arguing that respondents can no longer question Maximo Labanon’s ownership of the land after its registration. However, the Supreme Court clarified that the principle of indefeasibility does not totally deprive a party of any remedy to recover property fraudulently registered in another’s name.

Section 32 of Presidential Decree No. (PD) 1529, amending the Land Registration Act, was central to the discussion. This section generally makes a decree of registration incontrovertible after one year. However, the Court emphasized that this provision does not foreclose other remedies for the reconveyance of property to its rightful owner, especially in cases of fraud. As stated in Heirs of Clemente Ermac v. Heirs of Vicente Ermac:

While it is true that Section 32 of PD 1529 provides that the decree of registration becomes incontrovertible after a year, it does not altogether deprive an aggrieved party of a remedy in law. The acceptability of the Torrens System would be impaired, if it is utilized to perpetuate fraud against the real owners.

The Court further cited Vda. De Recinto v. Inciong, clarifying that:

The mere possession of a certificate of title under the Torrens system does not necessarily make the possessor a true owner of all the property described therein for he does not by virtue of said certificate alone become the owner of the land illegally included. It is evident from the records that the petitioner owns the portion in question and therefore the area should be conveyed to her. The remedy of the land owner whose property has been wrongfully or erroneously registered in another’s name is, after one year from the date of the decree, not to set aside the decree, but, respecting the decree as incontrovertible and no longer open to review, to bring an ordinary action in the ordinary court of justice for reconveyance or, if the property has passed into the hands of an innocent purchaser for value, for damages.

Given this context, the Court found that the respondents were not precluded from recovering the eastern portion of Original Certificate of Title (OCT) No. P-14320, which was the subject of the “Assignment of Rights and Ownership” previously owned by their father, Constancio Labanon. The action for Recovery of Ownership before the RTC was deemed the appropriate remedy.

Turning to the issue of the trust agreement, the Court discussed the nature of trusts under the Civil Code. A trust is defined as a legal relationship where one person has equitable ownership of property, and another person holds legal title, with the former entitled to certain duties and powers from the latter. This is distinct from other fiduciary relationships like deposit or agency because the trustee holds legal title.

Trusts are classified as express or implied, which affects the prescriptive period for enforcement. Article 1444 of the New Civil Code states that “[n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.” In this case, the intention to create an express trust between Maximo Labanon as trustee and Constancio Labanon as trustor was evidenced by the “Assignment of Rights and Ownership” and Maximo Labanon’s April 25, 1962 Sworn Statement. Maximo acknowledged Constancio’s ownership and possession of the eastern portion of the property.

On the issue of prescription, the Supreme Court emphasized that unrepudiated written express trusts are imprescriptible. The prescriptive period for enforcing an express trust of ten (10) years starts only upon the repudiation of the trust by the trustee. In Bueno v. Reyes, the Court explained:

While there are some decisions which hold that an action upon a trust is imprescriptible, without distinguishing between express and implied trusts, the better rule, as laid down by this Court in other decisions, is that prescription does supervene where the trust is merely an implied one. The reason has been expressed by Justice J.B.L. Reyes in J.M. Tuason and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:

Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real property prescribed in 10 years, excepting only actions based on continuing or subsisting trusts that were considered by section 38 as imprescriptible. As held in the case of Diaz v. Gorricho, L-11229, March 29, 1958, however, the continuing or subsisting trusts contemplated in section 38 of the Code of Civil Procedure referred only to express unrepudiated trusts, and did not include constructive trusts (that are imposed by law) where no fiduciary relation exists and the trustee does not recognize the trust at all.

Since Maximo Labanon never repudiated the express trust, the respondents’ right to enforce the agreement was not prejudiced by prescription. The heirs of Maximo Labanon were bound by the stipulations in the Assignment of Rights and Ownership pursuant to Article 1371 of the Civil Code, which states that contracts take effect between the parties, assigns, and heirs.

In conclusion, the Supreme Court denied the petition, affirming the CA Decision with modifications. The Kidapawan City, Cotabato RTC, Branch 17, was directed to have OCT No. P-14320 segregated and subdivided by the Land Management Bureau based on the terms of the February 11, 1955 Assignment of Rights and Ownership. After approval of the subdivision plan, the Register of Deeds of Kidapawan City, Cotabato, was ordered to cancel OCT No. P-14320 and issue one title each to the petitioners and respondents based on the said subdivision plan. The ruling underscores that while the Torrens system provides for the indefeasibility of titles, it does not shield against the enforcement of legitimate trust agreements, ensuring equitable outcomes in land disputes.

FAQs

What was the key issue in this case?	The primary issue was whether a trust agreement could be enforced despite the principle of indefeasibility of a Torrens title. The court had to determine if the agreement between the brothers, Maximo and Constancio, could override the title registered in Maximo’s name.
What is the principle of indefeasibility of a Torrens title?	The principle of indefeasibility means that once a certificate of title is registered under the Torrens system, it becomes conclusive and cannot be easily challenged. This provides security and stability to land ownership.
What is an express trust?	An express trust is created by the direct and positive acts of the parties, evidenced by some writing or deed, indicating an intention to create a trust. No specific words are required, as long as the intent is clear.
What is the prescriptive period for an express trust?	An express trust is generally imprescriptible unless the trustee repudiates the trust. The prescriptive period of ten years begins from the date of repudiation.
What was the court’s ruling on the trust agreement in this case?	The court ruled that the trust agreement between Maximo and Constancio was valid and enforceable. Maximo never repudiated the trust, so it remained effective, and his heirs were bound by it.
What is the remedy for a landowner whose property is wrongfully registered in another’s name?	After one year from the date of the decree, the landowner can bring an action for reconveyance in an ordinary court of justice. This action respects the decree but seeks to transfer the property to the rightful owner.
How did the court apply Article 1371 of the Civil Code in this case?	Article 1371 states that contracts take effect between the parties, assigns, and heirs. The court held that Maximo’s heirs were bound by the “Assignment of Rights and Ownership” because they stepped into his shoes and were subject to his obligations.
What was the final order of the Supreme Court?	The Supreme Court directed the RTC to have OCT No. P-14320 segregated and subdivided based on the terms of the Assignment of Rights and Ownership. The Register of Deeds was ordered to cancel the original title and issue new titles to the petitioners and respondents according to the subdivision plan.

This case underscores the importance of clearly documenting agreements involving land, especially when relying on the good faith of family members. While the Torrens system aims to provide security in land ownership, it does not negate the enforcement of valid trust agreements. This ensures fairness and protects the rights of those who have equitable claims to property.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: HEIRS OF MAXIMO LABANON, REPRESENTED BY ALICIA LABANON CAÑEDO AND THE PROVINCIAL PETITIONERS, VS. HEIRS OF CONSTANCIO LABA REPRESENTED BY ALBERTO MAKILANG, RESPONDENTS., G.R. NO. 160711, August 14, 2007