G.R. No. 211425, November 19, 2018 - HEIRS OF TOMAS ARAO, REPRESENTED BY PROCESO ARAO, EULALIA ARAO-MAGGAY, GABRIEL ARAO AND FELIPA A. DELELIS, Petitioners, v. HEIRS OF PEDRO ECLIPSE, REPRESENTED BY BASILIO ECLIPSE; HEIRS OF EUFEMIA ECLIPSE­PAGULAYAN, REPRESENTED BY BASILIA P. CUARESMA; HEIRS OF HONORATO ECLIPSE, REPRESENTED BY VICENTE ECLIPSE, JUANITA E. AGAMATA AND JIMMY ECLIPSE; AND HEIRS OF MARIA ECLIPSE-DAYAG, REPRESENTED BY OSMUNDO E. DAYAG, Respondents.

Before Us is a Petition for Review on Certiorari¹ filed under Rule 45 of the Rules of Court assailing the Decision² dated June 7, 2013 and the Resolution³ dated January 30, 2014 of the Court of Appeals (CA), in CA-G.R. CV No. 93660, which reversed and set aside the Decision⁴ dated April 23, 2009 of the Regional Trial Court (RTC) of Tuguegarao City, Cagayan, Branch 5, in Civil Case No. 5892, for Declaration of Nullity of a Deed of Absolute Sale and Reconveyance of Lot No. 1667, Recovery of Ownership and Possession with Damages.

The Facts

Subject of the controversy is a 5,587-square-meter land, known as Lot No. 1667 situated in Ugac Sur, Tuguegarao City, Cagayan, originally owned by Policarpio Eclipse (Policarpio), married to Cecilia Errera (spouses Eclipse), and covered by Original Certificate of Title (OCT) No. 1546.⁵

In 1994, respondents (spouses Eclipse's successors-in-interest) discovered that the land in question had been subject of a Deed of Absolute Sale dated September 5, 1969⁶ by which the registered owner, Policarpio, with the consent of his wife Cecilia, sold the land in question to Tomas Arao (Tomas), married to Tomasa Balubal.⁷ They averred that the sale was registered, resulting in the cancellation of OCT No. 1546, which was replaced by Transfer Certificate of Title (TCT) No. T-13798⁸ in the name of Tomas, married to Terasa Balubal.⁹ On June 30, 1977, Tomas executed a Deed of Absolute Sale¹⁰ of the subject land in favor of his children Eulalia, Proceso and Felipa Arao, whose heirs are herein petitioners. Eventually, Eulalia and Felipa registered the land in their names as TCT No. T-39071.

Respondents maintained that the said Deed of Sale dated September 5, 1969 was a forgery because at the time of its execution, Policarpio and Cecilia were already dead. Policarpio died on November 21, 1936, while Cecilia died on June 3, 1925. Respondents thus argued that on the basis of the said forged deed, the subsequent transfer from Tomas to Eulalia and Felipa was likewise void. Hence, they filed the present action for Nullity of a Deed of Absolute Sale and Reconveyance of Lot No. 1667, Recovery of Ownership and Possession with Damages¹¹ against herein petitioners, the heirs of Tomas.

Petitioners moved for the dismissal of the complaint on the ground of prescription, arguing that actions for annulment of title and reconveyance prescribe in 10 years.¹² Their motion was denied in a Resolution¹³ dated June 7, 2002.

Thus, in their Answer with Counterclaim,¹⁴ petitiOners countered respondents' allegation by stating that the children of spouses Eclipse, namely, Pedro, Eufemia, Honorato and Maria Eclipse sold the subject land to Paulino Arao (Paulino), married to Balbina Cancino, per Deed of Sale¹⁵ dated June 25, 1940. Paulino and Balbina died intestate and without an heir except Paulino's brother, Tomas.¹⁶ On June 30, 1977, Tomas sold it to his children Eulalia, Proceso and Felipa, and the latter registered the land in their names as TCT No. T-39071.¹⁷ During trial, petitioners also presented a Deed of Sale dated November 14, 1949 executed by a certain Gavino Arao (Gavino), who was later identified as the son of Paulino, in favor of Tomas.

Ruling of the RTC

On April 23, 2009, the RTC rendered a Decision dismissing the complaint and counterclaim on the ground of laches. The RTC ruled that the Deed of Sale dated September 5, 1969 in favor of Tomas was a forgery. Since the said Deed was a forgery, it conferred no right in favor of Tomas' heirs. But despite the findings of nullity, the RTC still dismissed the complaint as laches had set in. The RTC ruled:
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When Tomas registered the fake deed of sale (Exhibit "B") and Transfer Certificate of Title No. T-13793¹⁸ (Exhibit "3") was issued to him on 09 September 1969, the situation was significantly altered. As of that date, 09 September 1969, the plaintiffs were deemed to have constructive notice of the cancellation of Original Certificate of Title No. 1546 (Exhibit "A") and the issuance to Tomas Arao of Transfer Certificate of Title No. 13793 (Exhibit "3")¹⁹ in his name. Consequently, the plaintiffs' cause of action to have Tomas' title be annulled and to recover ownership and possession of the land in question arose as of 09 September 1969. Plaintiffs filed their complaint only on 12 October 2001. In short, they slept on their rights for 32 years, 1 month and 4 days.²⁰

Respondents moved for reconsideration, but the said Motion was denied by the RTC in its Order²¹ dated May 18, 2009. Thus, respondents filed an appeal with the CA.

Ruling of the Court of Appeals

On June 7, 2013, the CA issued the now appealed Decision²² finding that the doctrine of laches is not applicable since respondents' cause of action is imprescriptible pursuant to Article 1410 of the Civil Code. But nonetheless, the CA upheld the RTC 's findings that there was forgery and irregularities in the execution of the deed to Tomas, such that it conveys no title either to Tomas or to his children. The dispositive portion of the CA Decision reads as follows:
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WHEREFORE, the instant appeal is hereby GRANTED. The April 23, 2009 Decision of the Regional Trial Court, Branch 5, Tuguegarao City, Cagayan is REVERSED and judgment is rendered:
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1. Declaring null and void the Deed of Absolute Sale dated September 5, 1969 being fictitious and inexistent and without any legal force and effect; and
   
   
2. Ordering the Heirs of Tomas Arao, particularly Eulalia Arao­Maggay and Felipa Arao-Delelis, to surrender possession of and reconvey to the Heirs of Pedro Eclipse title to Lot No. 1667.²³
   

Petitioners filed a Motion for Reconsideration²⁴ of the aforesaid June 7, 2013 CA Decision. The said Motion was, however, denied by the CA in a Resolution²⁵ dated January 30, 2014.

Aggrieved, petitioners, on April 15, 2014, filed the instant petition with this Court.

In their appeal, petitioners argued that respondents are barred by laches from pursuing their cause of action against the petitioners given their inaction for more than 30 years, despite being fully aware of the petitioners' adverse possession and claim over the subject property. They also averred that their claim of ownership is not based on the forged Deed of Sale allegedly executed on September 5, 1969, but on the Deed of Sale entered into between the heirs of Policarpio and Paulino on June 25, 1940. However, assuming that the title of Tomas was fraudulent, petitioners maintained that they nevertheless acquired a valid right and legal title thereon being buyers in good faith and for value, pursuant to the settled rule that a forged deed of sale may be a valid source of legal rights. Finally, petitioners averred that respondents are not entitled to the reconveyance of the subject property since they failed to prove that they are the owners of the lot in litigation and that petitioners' registration of the property is erroneous, fraudulent and wrongful. They argued that even assuming that reconveyance is proper, the 10-year prescriptive period to institute the same had long prescribed.

The Issues

From the arguments set forth by petitioners, three essential Issues were raised:
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1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN FINDING THAT LACHES IS NOT APPLICABLE IN THIS CASE.
   
   
2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN DISREGARDING THE DEED OF SALE DATED JUNE 25, 1940 ENTERED INTO BETWEEN THE HEIRS OF POLICARPIO ECLIPSE AND PAULINO ARAO.
   
   
3. WHETHER OR NOT THE COURT OF APPEALS COMMITTED A REVERSIBLE ERROR IN NOT DECLARING PETITIONERS HEREIN AS BUYERS IN GOOD FAITH AND FOR VALUE.²⁶
   

Before resolving whether laches has set in, it is important to determine first how and by what contract Tomas (petitioners' predecessor-in-interest) acquired the title of the subject lot in his name. This is because if the assailed contract is void ab initio, then laches will not apply.

Article 1410 of the Civil Code states that an "action to declare the inexistence of a void contract does not prescribe." The foregoing provision is echoed by this Court in the case of Fil-Estate Golf and Development, Inc. v. Navarro²⁷ when it held that a complaint for cancellation of title based on the nullity of the deed of conveyance does not prescribe. In other words, an action that is predicated on the fact that the conveyance complained of was null and void ab initio is imprescriptible. And if the action is imprescriptible, it follows then that the defense of laches cannot be invoked. Thus:
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Laches is a doctrine in equity and our courts are basically courts of law and not courts of equity. Equity, which has been aptly described as "justice outside legality," should be applied only in the absence of, and never against, statutory law. Aequetas nunguam contravenit legis. The positive mandate of Art. 1410 of the New Civil Code conferring imprescriptibility to actions for declaration of the inexistence of a contract should pre-empt and prevail over all abstract arguments based only on equity. Certainly, laches cannot be set up to resist the enforcement of an imprescriptible legal right, and petitioners can validly vindicate their inheritance despite the lapse of time.²⁸

Records of the case reveal three different Deeds of Absolute Sale which directly and indirectly conveyed title to Tomas over the property in question.

First. The September 5, 1969 Deed of Absolute Sale purportedly executed by the original owner, Policarpio, in favor of Tomas;

Second. The November 14, 1949 Deed of Sale executed by Gavino, (the son of Tomas' brother, Paulino) in favor of Tomas; and

Third. The June 25, 1940 Deed of Sale executed by the children of Policarpio, namely, Pedro, Eufemia, Honorato and Maria, in favor of Paulino, who, upon his death, transmitted, by operation of law, the subject property to his sole heir and brother, Tomas.

Respondents' present action is based on the nullity of the September 5, 1969 Deed of Absolute Sale.

When this 1969 Deed of Sale was executed, the seller thereof, Policarpio, was already deceased, having died on November 21, 1936. It is settled that the death of a person terminates contractual capacity.²⁹ If any one party to a supposed contract was already dead at the time of its execution, such contract is undoubtedly simulated and false, and, therefore, null and void by reason of its having been made after the death of the party who appears as one of the contracting parties therein.³⁰ There is no doubt, therefore, that this 1969 Deed of Sale is spurious and the signature of the seller appearing thereon is forged. Suffice it to say, a forged deed is a nullity and conveys no title.³¹ As a forged deed is null and void, and conveys no title, all the transactions subsequent to the alleged sale are likewise void.³²

Since the Deed of Absolute Sale dated September 5, 1969 is null and void, it follows then that all the TCTs which were issued by virtue of the said spurious and forged document are also null and void.³³

It was the registration of this forged Deed of Absolute Sale dated September 5, 1969 that caused the cancellation of OCT No. 1546 in the name of Policarpio and the issuance of the new title - TCT No. T-13798 in the name of Tomas, and subsequently, TCT No. T-39071 in the name of Tomas' children, petitioners' predecessors-in-interest. As admitted by petitioners, it was the 1969 Deed of Absolute Sale which they used to facilitate the transfer of the Certificates in the name of Tomas and, thereafter, in the name of their predecessors-in-interest, in order to cut short the circuitous process of registration.

Notwithstanding the fact that petitioners have in their favor the said certificates of title in their name, the same is of no beneficial effect on them. Their title cannot be used to validate the forgery or cure the void sale.³⁴ Verily, when the instrument presented is forged, even if accompanied by the owner's duplicate certificate of title, the registered owner does not thereby lose his title, and neither does the assignee in the forged deed acquire any right or title to the property.³⁵ As held:
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Insofar as a person who fraudulently obtained a property is concerned, the registration of the property in said person's name would not be sufficient to vest in him or her the title to the property. A certificate of title merely confirms or records title already existing and vested. The indefeasibility of the Torrens title should not be used as a means to perpetrate fraud against the rightful owner of real property. Good faith must concur with registration because, otherwise, registration would be an exercise in futility. A Torrens title does not furnish a shield for fraud, notwithstanding the long-standing rule that registration is a constructive notice of title binding upon the whole world.³⁶

Needless to state, all subsequent certificates of title, including petitioners' titles, are also void because of the legal truism that the spring cannot rise higher than its source.³⁷

Petitioners' invocation of good faith is likewise unavailing. Petitioners admitted that they knew that the 1969 Deed of Sale was a forgery.³⁸ They justified resort to it (1969 Deed of Sale) not for the purpose of claiming title to the land, but only to cut short the circuitous process of transferring the title of the property from the original registered owner to Tomas, considering that the genuine Deed of Sale was executed as early as 1940 and Tomas is the fourth transferee of the property from the original owner. This candid admission on their part negates their claim of good faith. Good faith consists in the belief of the possessors that the persons from whom they received the thing are its rightful owners who could convey their title.³⁹ Petitioners' claim of good faith is debunked by their knowledge that the registration of the subject land in favor of their predecessor is procured on the basis of a fraudulent deed.

Going back to the preliminary issue of whether laches has set in, the answer is in the negative. To reiterate, laches cannot be set up to resist the enforcement of an imprescriptible right.⁴⁰ With the 1969 Deed of Sale being null and void ab initio, petitioners cannot set up the defense of laches to thwart respondents' imprescriptible action. And with the Court's determination that petitioners' title is null and void, the matter of direct or collateral attack is a foregone conclusion as well.⁴¹ An action to declare the nullity of a void title does not prescribe and is susceptible to direct, as well as to collateral, attack.⁴²

There is no doubt that the September 5, 1969 Deed of Sale conveyed no title whatsoever in favor of Tomas. However, this does not mean the automatic granting of the action for reconveyance in favor of respondents.

By definition, an action for reconveyance is a legal and equitable remedy granted to the rightful landowner, whose land was wrongfully or erroneously registered in the name of another, to compel the registered owner to transfer or reconvey the land to him. The plaintiff must allege and prove his ownership of the land in dispute and the defendant's erroneous, fraudulent or wrongful registration of the property.⁴³ In other words, the plaintiff must allege and prove his ownership of the land in dispute and the defendant's erroneous, fraudulent or wrongful registration of the property.⁴⁴ Clearly, reconveyance is the remedy available only to the rightful owners.

Respondents failed to prove that they are the rightful owners of the lot in question. Respondents did not even controvert by clear and convincing evidence petitioners' claimed ownership of the subject lot on the basis of the June 25, 1940 Deed of Sale, executed by the children of Policarpio in favor of Paulino and then subsequently to Tomas by succession, and the November 14, 1949 Deed of Sale, executed by a certain Gavino in favor of Tomas.

In their attempt to invalidate the June 25, 1940 Deed of Sale, respondents alleged that said Deed of Sale was not registered in the Registry of Deeds, thereby rendering inoperative the provisions of the Property Registration Decree. While it is true that the deed was not registered, it was, however, notarized. It bears to stress that non-registration of a Deed of Sale is not sufficient to nullify the agreement of the parties embodied therein, especially if the same is acknowledged before a Notary Public. Thus:
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Moreso, the above-mentioned deeds of sale, having been acknowledged before notaries public, are public documents as defined under par. (b), Section 19, Rule 132 of the Revised Rules of Court. Thus, [they carry] the evidentiary weight conferred upon them with respect to [their] due execution, and have in their favor the presumption of regularity, in the absence of a clear and convincing evidence to the contrary. They are valid and binding between the parties thereto even if said deeds of sale were not registered with the Register of Deeds, since registration is not a requirement for validity of the contract as between the parties.⁴⁵

Indeed, registration is not a requirement for validity of the contract as between the parties, for the effect of registration serves chiefly to bind third persons.⁴⁶ The principal purpose of registration is merely to notify other persons not parties to a contract that a transaction involving the property has been entered into. Thus, it has been held that "registration in a public registry creates constructive notice to the whole world."⁴⁷ Hence, if the conveyance is not registered, it is not valid against any person. But there are recognized exceptions. The conveyance is still valid as to (1) the grantor; (2) the grantor's heirs and devisees; and (3) third persons having actual notice or knowledge thereof.⁴⁸ No doubt, respondents are the grantors' heirs. Petitioners, on the other hand, are third persons within the contemplation of the registration rule. Apart from them being the heirs of Tomas, they have actual notice/knowledge of the conveyance. Hence, registration is not required to bind respondents and petitioners.⁴⁹

As to the November 14, 1949 Deed of Sale, we cannot determine for sure the objectives of the parties in executing the said document. The RTC even suspected the genuineness and due execution of the said Deed of Sale when it observed:
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The deed does not state by what authority he [Gavino] was selling a property titled in the name of Policarpio Arao. No document was presented as evidence to show the authority of Gavino to sell the said land.⁵⁰

Moreover, as the RTC added, it cannot be known if indeed Gavino exists, especially in the light of the avennents in petitioners' Answer that Tomas' brother, Paulino, died without issue.⁵¹

If it turned out that Paulino had an heir (in the person of Gavino), then the November 14, 1949 Deed of Sale, which the latter executed in favor of Tomas, would merely strengthen the intent of the parties to transfer the title of the subject property to Tomas. As it was not fully established in this case whether Gavino was indeed Paulino's heir, then the said November 14, 1949 Deed of Sale would serve no other purpose, but a mere superfluity. With or without the said 1949 Deed of Sale, the title has already been passed in favor of Tomas by virtue of the June 25, 1940 Deed of Sale which we declared as valid.

The intent to transfer the ownership over the subject land has been established and effected by the execution of the 1940 Deed of Sale by the heirs of the registered owner, as well as the delivery thereof to petitioners.⁵² What is needed is merely the issuance of the corresponding Certificate of Title on the basis of the said 1940 Deed of Sale.  To make this possible, certain documents (pertaining to estate settlements, as well as registrable Deeds of Conveyance) are needed to facilitate the transfer of the title of the lot from the heirs of the original owners to herein petitioners, not to mention payment of corresponding taxes. Hence, this Court directs the parties herein to execute all necessary documents as required by law to effect the smooth issuance of the new Certificate of Title based on the 1940 Deed of Sale. This is not the first time this Court made such directive even if not prayed for by the winning parties in their pleadings. The case of Spouses Aguinaldo v. Torres, Jr.⁵³ is instructive:
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To be sure, the directive to execute a registrable deed of conveyance in respondent's favor - albeit not specifically prayed for in respondent's Answer with Counterclaim - is but a necessary consequence of the judgment upholding the validity of the sale to him, and an essential measure to put in proper place the title to and ownership of the subject properties and to preclude further contentions thereon. As aptly explained by the CA, "to leave the 1991 deed of sale as a private one would not necessarily serve the intent of the country's land registration laws, and resorting to another action merely to compel the petitioners to execute a registrable deed of sale would unnecessarily prolong the resolution of this case, especially when the end goal would be the same." In this relation, case law states that a judgment should be complete by itself; hence, the courts are to dispose finally of the litigation so as to preclude further litigation between the parties on the same subject matter, thereby avoiding a multiplicity of suits between the parties and their privies and successors-in-interests.⁵⁴ (Emphasis supplied)

WHEREFORE, the petition is PARTLY GRANTED. The assailed Decision dated June 7, 2013 of the Court of Appeals, in CA-G.R. CV No. 93660, is AFFIRMED with MODIFICATION, to read as follows:
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1. Declaring as NULL and VOID the Deed of Absolute Sale dated September 5, 1969 for being fictitious, inexistent and without any legal force and effect.
   
   
2. Consequently, Transfer Certificates of Title No. T-13798 and T-39071 are likewise declared NULL and VOID for being issued based on the aforesaid forged and fictitious Deed of Sale dated September 5, 1969.
   
   
3. Declaring as VALID the Deed of Sale dated June 25, 1940.
   
   
4. Declaring petitioners to be the LAWFUL owners and possessors of the subject Lot No. 1667 by virtue of the valid Deed of Sale dated June 25, 1940.
   
   
5. Directing the parties to EXECUTE pertinent documents required by law to effect the issuance of a new Transfer Certificate of Title in favor of petitioners, heirs of Tomas Arao represented by Proceso Arao, Eulalia Arao-Maggay, Gabriel Arao and Felipa A. Delelis.
   

SO ORDERED.

Peralta, (Chairperson), and Leonen, JJ., concur.
Gesmundo, and Hernando, JJ., on wellness leave.

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NOTICE OF JUDGMENT

Sirs / Mesdames:
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Please take notice that on November 19, 2018 a Decision, copy attached hereto, was rendered by the Supreme Court in the above-entitled case, the original of which was received by this Office on December 12, 2018 at 11:15 a.m.

Very truly yours, (SGD) WILFREDO V. LAPITAN Division Clerk of Court

Endnotes:

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¹Rollo, pp. 10-27.

² Penned by Associate Justice Pedro B. Corales, with Associate Justices Sesinando E. Villon and Florito S. Macalino concurring; id. at 30-39.

³ Id. at 41-43.

⁴ Penned by RTC Judge Jezarene C. Aquino, id. at 44-51.

⁵ Id. at 31.

⁶ Id. at 58.

⁷ Wife of Tomas is referred in the 1969 Deed as Tomasa.

⁸ Id. at 59.

⁹ Wife of Tomas is referred in the TCT as Terasa.

¹⁰ Id. at 75.

¹¹ Id. at 53-56.

¹² Id. at 32.

¹³ Id. at 65-68, issued by RTC Judge Elmo M. Alameda.

¹⁴ Id. at 69-73.

¹⁵ Id. at 74.

¹⁶ Id. at 46.

¹⁷ Id. at 76.

¹⁸ Should be T-13798, as per document, id. at 59.

¹⁹ Id.

²⁰ Id. at 49.

²¹ Id. at 52.

²² Supra note 2.

²³ Id. at 38.

²⁴ Id. at 108-114.

²⁵ Supra note 3.

²⁶Rollo, p. 15.

²⁷ 553 Phil. 48, 56 (2007).

²⁸Heirs of Ingjug-Tiro v. Spouses Casals, 415 Phil. 665, 673-674 (2001).

²⁹ Id. at 673.

³⁰ Id.

³¹Heirs of de Vela v. Tolentino, G.R. No. 200058 (Notice), November 6, 2017.

³²Pabalan v. Santarin, 441 Phil. 462, 471 (2002).

³³ See also Gambito v. Bacena, G.R. No. 225929 (Resolution), January 24, 2018.

³⁴Romero v. Singson, 765 Phil. 515, 532 (2015).

³⁵Dizon v. Beltran, 803 Phil. 608, 627 (2017).

³⁶Spouses Reyes v. Montemayor, 614 Phil. 256, 274-275 (2009).

³⁷Calalang v. Register of Deeds of Quezon City, 301 Phil. 91, 108 (1994).

³⁸ See Petition, rollo, p. 12.

³⁹Spouses Reyes v. Montemayor, supra note 36, at 273-274.

⁴⁰Heirs of Ingjug-Tiro v. Spouses Casals, supra note 28, at 674.

⁴¹Romero v. Singson, supra note 34, at 533.

⁴² Id.

⁴³Chua v. Philippine College of Technological Resources, G.R. No. 164145 (Notice), January 21, 2015.

⁴⁴ Id.

⁴⁵Heirs of de Vela v. Tolentino, supra note 31.

⁴⁶Cuizon v. Remoto, 509 Phil. 258, 268 (2005).

⁴⁷Rotairo v. Alcantara, 744 Phil. 273, 284 (2014).

⁴⁸ Id.

⁴⁹ Id.

⁵⁰ RTC Decision; rollo, p. 47.

⁵¹ Answer with Counterclaim; id. at 71.

⁵² Records show that petitioners are in actual possession of the lot since 1940.

⁵³ G.R. No. 225808, September 11, 2017.

⁵⁴ Id.