SECOND DIVISION

The amended complaint essentially alleged the following: [10]

PERFECTO MACABABBAD, JR.,*DECEASED, SUBSTITUTED

BY HIS HEIRS SOPHIA MACABABBAD, GLENN M.
MACABABBAD, PERFECTO VENER M. MACABABBAD III
AND MARY GRACE MACABABBAD, and SPS. CHUA SENG
LIN AND SAY UN AY, Petitioners,
-

versus

FERNANDO G. MASIRAG, FAUSTINA G. MASIRAG,

CORAZON G. MASIRAG, LEONOR G. MASIRAG, and
LEONCIO M. GOYAGOY,
Respondents.

FRANCISCA MASIRAG BACCAY, PURA MASIRAG FERRERMELAD,and SANTIAGO MASIRAG, IntervenorsRespondents.

Promulgated: January 14, 2009
x -------------------------------------------------------------------------------------------------x
DECISION
BRION, J.:
Before us is the Petition for Review on Certiorari filed by Perfecto Macababbad,
Jr.[1] (Macababbad) and the spouses Chua Seng Lin (Chua) and Say Un Ay (Say)
(collectively called the petitioners), praying that we nullify the Decision [2] of the Court of
Appeals (CA) and the Resolution [3] denying the motion for reconsideration that
followed. The assailed decision reversed the dismissal Order [4] of the Regional Trial Court
(RTC), Branch 4, Tuguegarao City, Cagayan, remanding the case for further trial.
BACKGROUND
On April 28, 1999, respondents Fernando Masirag (Fernando), Faustina Masirag
(Faustina), Corazon Masirag (Corazon), Leonor Masirag (Leonor) and Leoncio Masirag
Goyagoy (Leoncio) (collectively called the respondents), filed with the RTC a
complaint[5] against Macababbad, Chua and Say. [6] On May 10, 1999, they amended their
complaint to allege new matters. [7] The respondents alleged that their complaint is an
action for:
quieting of title, nullity of titles, reconveyance, damages and
attorneys fees[8] against the defendants [petitioners here] x x
x who cabal themselves in mala fides of badges of fraud dishonesty,
deceit, misrepresentations, bad faith, under the guise of purported
instrument, nomenclature EXTRA-JUDICIAL SETTLEMENT WITH
SIMULTANEOUS SALE OF PORTION OF REGISTERED LAND (Lot 4144),
dated December 3, 1967, a falsification defined and penalized under
Art. 172 in relation to Art. 171, Revised Penal Code, by causing it to
appear that persons (the plaintiffs herein [the respondents in this
case]) have participated in any act or proceeding when they (the
plaintiffs herein [the respondents in this case]) did not in fact so
participate
in
the
EXTRA-JUDICIAL
SETTLEMENT
WITH
SIMULTANEOUS SALE OF PORTION OF REGISTERED LAND (Lot 4144
[9]
covered by Original Certificate of Title No. 1946) [sic].

The deceased spouses Pedro Masirag (Pedro) and Pantaleona Tulauan (Pantaleona)
were the original registered owners of Lot No. 4144 of the Cadastral Survey of Tuguegarao
(Lot No. 4144), as evidenced by Original Certificate of Title (OCT) No. 1946. [11] Lot No.
4144 contained an area of 6,423 square meters.
Pedro and Pantaleona had eight (8) children, namely, Valeriano,
Domingo, Pablo, Victoria, Vicenta, Inicio, Maxima and Maria. Respondents Fernando,
Faustina, Corazon and Leonor Masirag are the children of Valeriano and Alfora Goyagoy,
while Leoncio is the son of Vicenta and Braulio Goyagoy. The respondents allegedly did
not know of the demise of their respective parents; they only learned of the inheritance
due from their parents in the first week of March 1999 when their relative, Pilar Quinto,
informed respondent Fernando and his wife Barbara Balisi about it. They immediately
hired a lawyer to investigate the matter.
The investigation disclosed that the petitioners falsified a document entitled
Extra-judicial Settlement with Simultaneous Sale of Portion of Registered Land (Lot 4144)
dated December 3, 1967[12] (hereinafter referred to as the extrajudicial settlement of
estate and sale) so that the respondents were deprived of their shares in Lot No.
4144. The document purportedly bore the respondents signatures, making them appear
to have participated in the execution of the document when they did not; they did not
even know the petitioners. The document ostensibly conveyed the subject property to
Macababbad for the sum of P1,800.00.[13] Subsequently, OCT No. 1946 was cancelled
and LotNo. 4144 was registered in the names of its new owners under Transfer Certificate
of Title (TCT) No. 13408,[14] presumably after the death of Pedro and Pantaleona. However,
despite the supposed sale to Macababbad, his name did not appear on the face of TCT No.
13408.[15] Despite his exclusion from TCT No. 13408, his Petition for another owners
duplicate copy of TCT No. 13408, filed in the Court of First Instance of Cagayan, was
granted on July 27, 1982.[16]
Subsequently, Macababbad registered portions of Lot No. 4144 in his name and
sold other portions to third parties. [17]
On May 18, 1972, Chua filed a petition for the cancellation of TCT No. T-13408 and
the issuance of a title evidencing his ownership over a subdivided portion of Lot No. 4144
covering 803.50 square meters. On May 23, 1972, TCT No. T-18403 was issued in his
name.[18]
Based on these allegations, the respondents asked: (1) that the extrajudicial
settlement of estate and sale be declared null and void ab initio and without force and
effect, and that Chua be ordered and directed to execute the necessary deed of
reconveyance of the land; if they refuse, that the Clerk of Court be required to do so; (2)
the issuance of a new TCT in respondents name and the cancellation of Macababbads
and Chuas certificates of title; and (3) that the petitioners be ordered to pay damages and
attorneys fees.
Macababbad filed a motion to dismiss the amended complaint on July 14, 1999,
while Chua and Say filed an Appearance with Motion to Dismiss on September 28, 1999.
On December 14, 1999, the RTC granted the motion of Francisca Masirag Baccay,
Pura Masirag Ferrer-Melad, and Santiago Masirag for leave to intervene and to admit their
complaint-in-intervention. The motion alleged that they have common inheritance rights
with the respondents over the disputed property.
THE RTC RULING
The RTC, after initially denying the motion to dismiss, reconsidered its ruling
and dismissed the complaint in its Order[19] dated May 29, 2000 on the grounds that:
1) the action, which was filed 32 years after the property was partitioned and
Trust - SJBPrior | 1

after a portion was sold to Macababbad, had already prescribed; and 2) there
was failure to implead indispensable parties, namely, the other heirs of Pedro
and Pantaleona and the persons who have already acquired title to portions of
the subject property in good faith. [20]
The respondents appealed the RTCs order dated May 29, 2000 to the CA on the
following grounds:
I.
THE COURT A QUO ERRED IN DISMISSING THE
CASE
II.

A. THE HONORABLE COURT OF APPEALS DID NOT HAVE

JURISDICTION TO PASS UPON AND RULE ON THE APPEAL
TAKEN BY THE RESPONDENTS IN CA-GR CV NO. 68541.
[27]

In the alternative, ex abundanti cautela, the petitioners alleged other reversible errors
summarized as follows: [28]
l
The RTC dismissal on the ground that indispensable parties were not impleaded
has already become final and executory because the CA did not pass upon this
ground;[29]
l

The respondents' argument that there was no failure to implead indispensable

parties since the other heirs of Pedro and Pantaleona who were not impleaded
were not indispensable parties in light of the respondents' admission that the
extra-judicial settlement is valid with respect to the other heirs who sold their
shares to Perfecto Macababbad is erroneous because innocent purchasers for
value of portions of Lot 4144 who are also indispensable parties were not
impleaded; [30]

The CA erred in reconciling Civil Code provisions Article 1456 and Article 1410,
in relation to Article 1409;[31]

The CA erred in saying that the Extra-judicial Partition was an inexistent and
void contract because it could not be said that none of the heirs intended to be
bound by the contract. [32]

THE COURT A QUO ERRED IN INTERPRETING THE

NATURE OF APPELLANTS CAUSE OF ACTION AS
THAT DESIGNATED IN THE COMPLAINTS TITLE
AND NOT IN (SIC) THE ALLEGATIONS IN THE
COMPLAINT[21]
The petitioners moved to dismiss the appeal primarily on the ground that the errors
the respondents raised involved pure questions of law that should be brought before the
Supreme Court via a petition for review on certiorari under Rule 45 of the Rules of Court.
The respondents insisted that their appeal involved mixed questions of fact and law and
thus fell within the purview of the CAs appellate jurisdiction.
THE CA DECISION[22]

The respondents argued in their Comment that: [33]

The CA ignored[23] the jurisdictional issue raised by the petitioners in their motion to
dismiss, took cognizance of the appeal, and focused on the following issues: 1)whether
the complaint stated a cause of action; and 2) whether the cause of action had
been waived, abandoned or extinguished.

The appeal was brought on mixed questions of fact and law involving
prescription, laches and indispensable parties;

The non-inclusion of indispensable parties is not a ground to dismiss the claim;

The appellate court reversed and set aside the RTCs dismissal of the
complaint. On the first issue, it ruled that the complaint carve(d) out a sufficient and
adequate cause of action xxx. One can read through the verbosity of the initiatory
pleading to discern that a fraud was committed by the defendants on certain heirs of the
original owners of the property and that, as a result, the plaintiffs were deprived of
interests that should have gone to them as successors-in-interest of these parties. A
positive deception has been alleged to violate legal rights. This is the ultimate essential
fact that remains after all the clutter is removed from the pleading. Directed against the
defendants, there is enough to support a definitive adjudication. [24]

The respondents action is not for reconveyance. Rather, it is an action to

declare the sale of their respective shares null and void;

An action for the nullity of an instrument prescribes in four (4) years from
discovery of the fraud. Discovery was made in 1999, while the complaint was
also lodged in 1999. Hence, the action had not yet been barred by prescription;

Laches had not set in because the action was immediately filed after discovery
of the fraud.

On the second issue, the CA applied the Civil Code provision on implied
trust, i.e., that a person who acquires a piece of property through fraud is considered a
trustee of an implied trust for the benefit of the person from whom the property
came. Reconciling this legal provision with Article 1409 (which defines void contracts) and
Article 1410 (which provides that an action to declare a contract null and void is
imprescriptible), the CA ruled that the respondents cause of action had not prescribed,
because in assailing the extrajudicial partition as void, the [respondents] have the right
to bring the action unfettered by a prescriptive period.[25]
THE PETITION FOR REVIEW ON CERTIORARI
The Third Division of this Court initially denied [26] the petition for review
on certiorari for the petitioners failure to show any reversible error committed by the CA.
However, it subsequently reinstated the petition. In their motion for reconsideration, the
petitioners clarified the grounds for their petition, as follows:

OUR RULING
We find the petition devoid of merit.
Questions of Fact v. Questions of Law
A question of law arises when there is doubt as to what the law is on a certain
state of facts while there is a question of fact when the doubt arises as to the truth or
falsity of the alleged facts. [34] A question of law may be resolved by the court without
reviewing or evaluating the evidence. [35] No examination of the probative value of the
evidence would be necessary to resolve a question of law. [36] The opposite is true with
respect to questions of fact, which necessitate a calibration of the evidence. [37]
The nature of the issues to be raised on appeal can be gleaned from the
appellants notice of appeal filed in the trial court and in his or her brief as appellant in the
appellate court.[38] In their Notice of Appeal, the respondents manifested their intention to
appeal the assailed RTC order on legal grounds and on the basis of the environmental
Trust - SJBPrior | 2

facts.[39] Further, in their Brief, the petitioners argued that the RTC erred in ruling that
their cause of action had prescribed and that they had slept on their rights. [40] All these
indicate that questions of facts were involved, or were at least raised, in the respondents
appeal with the CA.
In Crisostomo v. Garcia,[41] this Court ruled that prescription may either be a
question of law or fact; it is a question of fact when the doubt or difference arises as to the
truth or falsity of an allegation of fact; it is a question of law when there is doubt or
controversy as to what the law is on a given state of facts. The test of whether a question
is one of law or fact is not the appellation given to the question by the party raising the
issue; the test is whether the appellate court can determine the issue raised without
reviewing or evaluating the evidence. Prescription, evidently, is a question of fact where
there is a need to determine the veracity of factual matters such as the date when the
period to bring the action commenced to run.[42]
Ingjug-Tiro v. Casals [43] instructively tells us too that a summary or outright
dismissal of an action is not proper where there are factual matters in dispute which
require presentation and appreciation of evidence. In this cited case whose fact situation
is similar to the present case, albeit with a very slight and minor variation, we considered
the improvident dismissal of a complaint based on prescription and laches to be improper
because the following must still be proven by the complaining parties:
first, that they were the co-heirs and co-owners of the inherited
property; second, that their co-heirs-co-owners sold their hereditary
rights thereto without their knowledge and consent; third, that
forgery, fraud and deceit were committed in the execution of
the Deed of Extrajudicial Settlement and Confirmation of Sale since
Francisco Ingjug who allegedly executed the deed in 1967 actually
died in 1963, hence, the thumbprint found in the document could not
be his; fourth, that Eufemio Ingjug who signed the deed of sale is not
the son of Mamerto Ingjug, and, therefore, not an heir entitled to
participate in the disposition of the inheritance; fifth, that
respondents have not paid the taxes since the execution of the sale in
1965 until the present date and the land in question is still declared
for taxation purposes in the name of Mamerto Ingjug, the original
registered owner, as of 1998; sixth, that respondents had not taken
possession of the land subject of the complaint nor introduced any
improvement thereon; and seventh, that respondents are not
innocent purchasers for value.
As in Ingjug-Tiro, the present case involves factual issues that require trial on
the merits. This situation rules out a summary dismissal of the complaint.
Proper Mode of Appeal
Since the appeal raised mixed questions of fact and law, no error can be
imputed on the respondents for invoking the appellate jurisdiction of the CA through an
ordinary appeal. Rule 41, Sec. 2 of the Rules of Court provides:
Modes of appeal.
(a) Ordinary appeal - The appeal to the Court of Appeals in
cases decided by the Regional Trial Court in the exercise of its original
jurisdiction shall be taken by filing a notice of appeal with the court
which rendered the judgment or final order appealed from and serving
a copy thereof upon the adverse party.
In Murillo v. Consul,[44] this Court had the occasion to clarify the three (3)
modes of appeal from decisions of the RTC, namely: (1) ordinary appeal or appeal by writ
of error, where judgment was rendered in a civil or criminal action by the RTC in the
exercise of original jurisdiction, covered by Rule 41; (2) petition for review, where

judgment was rendered by the RTC in the exercise of appellate jurisdiction, covered by
Rule 42; and (3) petition for review to the Supreme Court under Rule 45 of the Rules of
Court. The first mode of appeal is taken to the CA on questions of fact or mixed questions
of fact and law. The second mode of appeal is brought to the CA on questions of fact, of
law, or mixed questions of fact and law. The third mode of appeal is elevated to the
Supreme Court only on questions of law.
Prescription
A ruling on prescription necessarily requires an analysis of the plaintiffs cause
of action based on the allegations of the complaint and the documents attached as its
integral parts. A motion to dismiss based on prescription hypothetically admits the
allegations relevant and material to the resolution of this issue, but not the other facts of
the case.[45]
Unfortunately, both the respondents complaint and amended complaint are
poorly worded, verbose, and prone to misunderstanding. In addition, therefore, to the
complaint, we deem it appropriate to consider the clarifications made in their appeal brief
by the petitioners relating to the intent of their complaint. We deem this step appropriate
since there were no matters raised for the first time on appeal and their restatement was
aptly supported by the allegations of the RTC complaint. The respondents argue in their
Appellants Brief that:
x x x Although reconveyance was mentioned in the title,
reconveyance of which connotes that there was a mistake in titling
the land in question in the name of the registered owner indicated
therein, but in the allegations in the body of the allegations in the
body of the instant complaint, it clearly appears that the nature of the
cause of action of appellants, [sic] they wanted to get back their
respective shares in the subject inheritance because they did not sell
said shares to appellee Perfecto Macababbad as the signatures
purported to be theirs which appeared in the Extrajudicial Settlement
with Simultaneo[u]s Sale of Portion of Registered Land (Lot 4144)
were forged.
As appellants represented 2 of the 8 children of the
deceased original owners of the land in question who were Pedro
Masirag and Pantaleona Talauan, the sale is perfectly valid with
respect to the other 6 children, and void ab initio with respect to the
appellants.[46]
The respondents likewise argue that their action is one for the annulment of
the extrajudicial settlement of estate and sale bearing their forged signatures. They
contend that their action had not yet prescribed because an action to declare an
instrument null and void is imprescriptible. In their Comment to the petition for review,
however, the respondents modified their position and argued that the sale to the
petitioners pursuant to the extrajudicial settlement of estate and sale was void because it
was carried out through fraud; thus, the appropriate prescription period is four (4) years
from the discovery of fraud. Under this argument, respondents posit that their cause of
action had not yet prescribed because they only learned of the extrajudicial settlement of
estate and sale in March 1999; they filed their complaint the following month.
The petitioners, on the other hand, argue that the relevant prescriptive period
here is ten (10) years from the date of the registration of title, this being an action for
reconveyance based on an implied or constructive trust.
We believe and so hold that the respondents amended complaint sufficiently
pleaded a cause to declare the nullity of the extrajudicial settlement of estate and sale,
as they claimed in their amended complaint. Without prejudging the issue of the merits of
the respondents claim and on the assumption that the petitioners already hypothetically
Trust - SJBPrior | 3

admitted the allegations of the complaint when they filed a motion to dismiss based on
prescription, the transfer may be null and void if indeed it is established that respondents
had not given their consent and that the deed is a forgery or is absolutely fictitious. As
the nullity of the extrajudicial settlement of estate and sale has been raised and is the
primary issue, the action to secure this result will not prescribe pursuant to Article 1410 of
the Civil Code.
Based on this conclusion, the necessary question that next arises is: What then is
the effect of the issuance of TCTs in the name of petitioners? In other words, does the
issuance of the certificates of titles convert the action to one of reconveyance of titled
land which, under settled jurisprudence, prescribes in ten (10) years?
Precedents say it does not; the action remains imprescriptible, the issuance of the
certificates of titles notwithstanding. Ingjug-Tiro is again instructive on this point:
Article 1458 of the New Civil Code provides: "By the
contract of sale one of the contracting parties obligates himself
of transfer the ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent." It
is essential that the vendors be the owners of the property sold
otherwise they cannot dispose that which does not belong to them. As
the Romans put it: "Nemo dat quod non habet." No one can give
more than what he has. The sale of the realty to respondents
is null and void insofar as it prejudiced petitioners' interests
and participation therein. At best, only the ownership of the
shares of Luisa, Maria and Guillerma in the disputed property
could have been transferred to respondents.
Consequently, respondents could not have acquired
ownership over the land to the extent of the shares of
petitioners. The issuance of a certificate of title in their favor
could not vest upon them ownership of the entire property;
neither could it validate the purchase thereof which is null
and void. Registration does not vest title; it is merely the
evidence of such title. Our land registration laws do not give
the holder any better title than what he actually has. Being
null and void, the sale to respondents of the petitioners'
shares produced no legal effects whatsoever.
Similarly, the claim that Francisco Ingjug died in 1963 but
appeared to be a party to the Extrajudicial Settlement and
Confirmation of Sale executed in 1967 would be fatal to the validity of
the contract, if proved by clear and convincing evidence. Contracting
parties must be juristic entities at the time of the consummation of
the contract. Stated otherwise, to form a valid and legal agreement it
is necessary that there be a party capable of contracting and party
capable of being contracted with. Hence, 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. The death of a
person terminates contractual capacity.
In
actions
for
reconveyance
of
the
property predicated on the fact that the conveyance
complained of was null and void ab initio, a claim of
prescription of action would be unavailing. "The action or
defense for the declaration of the inexistence of a contract
does not prescribe." Neither could laches be invoked in the case at
bar. 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 preempt 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.[47]
We have a similar ruling in Heirs of Rosa Dumaliang v. Serban. [48]
The respondents action is therefore imprescriptible and the CA committed no
reversible error in so ruling.
Laches
Dismissal based on laches cannot also apply in this case, as it has never reached
the presentation of evidence stage and what the RTC had for its consideration were merely
the parties pleadings. Laches is evidentiary in nature and cannot be established by mere
allegations in the pleadings. [49] Without solid evidentiary basis, laches cannot be a valid
ground to dismiss the respondents complaint.
Non-joinder of Indispensable parties is not a
Ground for a Motion to Dismiss
The RTC dismissed the respondents amended complaint because indispensable
parties were not impleaded. The respondents argue that since the extrajudicial settlement
of estate and sale was valid with respect to the other heirs who executed it, those heirs
are not indispensable parties in this case. Innocent purchasers for value to whom title has
passed from Macababbad and the spouses Chua and Say are likewise not indispensable
parties since the titles sought to be recovered here are still under the name of the
petitioners.
We also find the RTC dismissal Order on this ground erroneous.
Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor
nonjoinder of parties is a ground for the dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties.
Neither misjoinder nor non-joinder of parties is
ground for dismissal of an action. Parties may be
dropped or added by order of the court on motion
of any party or on its own initiative at any stage
of the action and on such terms as are just. Any
claim against a misjoined party may be severed
and proceeded with separately.
In Domingo v. Scheer,[50] this Court held that the proper remedy when a party is
left out is to implead the indispensable party at any stage of the action. The court,
eithermotu proprio or upon the motion of a party, may order the inclusion of the
indispensable party or give the plaintiff opportunity to amend his complaint in order to
include indispensable parties. If the plaintiff to whom the order to include the
indispensable party is directed refuses to comply with the order of the court, the complaint
may be dismissed upon motion of the defendant or upon the court's own motion. [51] Only
upon unjustified failure or refusal to obey the order to include or to amend is the action
dismissed.[52]
Trust - SJBPrior | 4

Rule 3, Sec. 7 of the Rules of Court defines indispensable parties as those who
are parties in interest without whom no final determination can be had of an action.
[53]
They are those parties who possess such an interest in the controversy that a final
decree would necessarily affect their rights so that the courts cannot proceed without their
presence.[54] A party is indispensable if his interest in the subject matter of the suit and in
the relief sought is inextricably intertwined with the other parties interest. [55]
In an action for reconveyance, all the owners of the property sought to be
recovered are indispensable parties. Thus, if reconveyance were the only relief prayed for,
impleading petitioners Macababbad and the spouses Chua and Say would suffice. On the
other hand, under the claim that the action is for the declaration of the nullity
ofextrajudicial settlement of estate and sale, all of the parties who executed the same
should be impleaded for a complete resolution of the case. This case, however, is not
without its twist on the issue of impleading indispensable parties as the RTC never issued
an order directing their inclusion. Under this legal situation, particularly in light of Rule 3,
Section 11 of the Rules of Court, there can be no basis for the immediate dismissal of the
action.
In relation with this conclusion, we see no merit too in the petitioners argument
that the RTC ruling dismissing the complaint on respondents failure to implead
indispensable parties had become final and executory for the CAs failure to rule on the
issue. This argument lacks legal basis as nothing in the Rules of Court states that the
failure of an appellate court to rule on an issue raised in an appeal renders the appealed
order or judgment final and executory with respect to the undiscussed issue. A court need
not rule on each and every issue raised, [56] particularly if the issue will not vary the tenor of
the Courts ultimate ruling. In the present case, the CA ruling that overshadows all the
issues raised is what is stated in the dispositive portion of its decision, i.e., the order of
the lower court dismissing the case is SET ASIDE and the case is remanded for further
proceeding.

whatever improvements he constructed thereon, vacate the premises, and pay actual and
moral damages, litigation expenses, attorney's fees and costs of the suit.
On 2 February 1988, Priscila Morales, one of the daughters of late Rosendo Avelino
and Juana Ricaforte, filed a motion to intervene in Case No. 265. No opposition thereto
having been filed, the motion was granted on 4 March 1988.[2]
On 30 November 1988 Rodolfo Morales passed away. In its order of 9 February
1989[3] the trial court allowed his substitution by his heirs, Roda, Rosalia, Cesar and
Priscila, all surnamed Morales. Thereafter, pre-trial and trial on the merits were had and
the case was submitted for decision on 16 November 1990.
On 26 August 1991 the Trial Court rendered its decision [4] in favor of plaintiffs,
private respondents herein, the dispositive portion of which reads as follows:
WHEREFORE, judgment is hereby rendered in favor of the Plaintiffs and against
Defendants-Intervenor:
1.

Declaring the Plaintiffs the absolute and rightful owners of the premises in question;

2.

Ordering the Defendants-Intervenor to:

a.

vacate from the premises in question;

b.

remove the beauty shop thereat;

c.

jointly and severally, pay the Plaintiffs, a monthly rental of P1,500.00 of

the premises starting from March 1987, and the amounts
of P75,000.00 for moral damages,P5,000.00 for litigation expenses,
and P10,000.00 for Attorneys fees; and

d.

to pay the costs.

In sum, the CA correctly reversed the RTC dismissal of the respondents

complaint.
WHEREFORE, premises considered, we DENY the petition for review for lack of
merit. SO ORDERED.
THIRD DIVISION
[G.R. No. 117228. June 19, 1997]
RODOLFO
MORALES,
represented
by
his
heirs,
and
PRISCILA
MORALES, petitioners, vs. COURT OF APPEALS (Former Seventeenth
Division), RANULFO ORTIZ, JR., and ERLINDA ORTIZ, respondents.
DECISION
DAVIDE, JR., J.:
In this petition for review on certiorari under Rule 45 of the Rules of Court,
petitioners urge this Court to reverse the 20 April 1994 decision of the Court of Appeals
(Seventeenth Division) in CA-G.R. CV No. 34936, [1] which affirmed in toto the 26 August
1991 decision of the Regional Trial Court of Calbayog City in Civil Case No. 265.
Civil Case No. 265 was an action for recovery of possession of land and damages
with a prayer for a writ of preliminary mandatory injunction filed by private respondents
herein, spouses Ranulfo Ortiz, Jr. and Erlinda Ortiz, against Rodolfo Morales. The complaint
prayed that private respondents be declared the lawful owners of a parcel of land and the
two-storey residential building standing thereon, and that Morales be ordered to remove

The injunction issued in this case is hereby made permanent.

SO ORDERED.[5]
The following is trial courts summary of the evidence for the plaintiffs:
The evidence adduced by the Plaintiffs discloses that the Plaintiffs are the absolute and
exclusive owners of the premises in question having purchased the same from Celso
Avelino, evidenced by a Deed of Absolute Sale (Exh. C), a public instrument. They later
caused the transfer of its tax declaration in the name of the female plaintiff (Exh. I) and
paid the realty taxes thereon (Exh. K & series).
Celso Avelino (Plaintiffs predecessor in interest) purchased the land in question consisting
of two adjoining parcels while he was still a bachelor and the City Fiscal of Calbayog City
from Alejandra Mendiola and Celita Bartolome, through a Escritura de Venta (Exh. B).
After the purchase, he caused the transfer of the tax declarations of the two parcels in his
name (Exhs. D & E to G & H) as well as consolidated into one the two tax
declarations in his name (Exh. F). With the knowledge of the Intervenor and the
defendant, (Cross-examination of Morales, t.s.n. pp. 13-14) Celso Avelino caused the
Trust - SJBPrior | 5

survey of the premises in question, in his name, by the Bureau of Lands (Exh. J). He also
built his residential house therein with Marcial Aragon (now dead) as his master carpenter
who was even scolded by him for constructing the ceiling too low.
When the two-storey residential house was finished, he took his parents, Rosendo Avelino
and Juana Ricaforte, and his sister, Aurea, who took care of the couple, to live there until
their deaths. He also declared this residential house in his tax declaration to the premises
in question (Exh. F) and paid the corresponding realty taxes, keeping intact the receipts
which he comes to get or Aurea would go to Cebu to give it to him (t.s.n. Morales, pp. 4-6).
After being the City Fiscal of Calbayog, Celso Avelino became an Immigration Officer and
later as Judge of the Court of First Instance in Cebu with his sister, Aurea, taking care of
the premises in question. While he was already in Cebu, the defendant, without the
knowledge and consent of the former, constructed a small beauty shop in the premises in
question.
Inasmuch as the Plaintiffs are the purchasers of the other real properties of Celso Avelino,
one of which is at Acedillo (now Sen. J.D. Avelino) street, after they were offered by Celso
Avelino to buy the premises in question, they examined the premises in question and
talked with the defendant about that fact, the latter encouraged them to purchase the
premises in question rather than the property going to somebody else they do not know
and that he will vacate the premises as soon as his uncle will notify him to do so. Thus,
they paid the purchase price and Exh. C was executed in their favor.
However, despite due notice from his uncle to vacate the premises in question (Exh. N),
the defendant refused to vacate or demolish the beauty shop unless he is
reimbursed P35,000.00 for it although it was valued at less than P5,000.00. So, the
Plaintiffs demanded, orally and in writing (Exhs. L & M) to vacate the premises. The
defendant refused.
As the plaintiffs were about to undertake urgent repairs on the dilapidated residential
building, the defendant had already occupied the same, taking in paying boarders and
claiming already ownership of the premises in question, thus they filed this case.
Plaintiffs, being the neighbors of Celso Avelino, of their own knowledge are certain that the
premises in question is indeed owned by their predecessor-in-interest because the male
plaintiff used to play in the premises when he was still in his teens while the female
plaintiff resided with the late Judge Avelino. Besides, their inquiries and documentary
evidence shown to them by Celso Avelino confirm this fact. Likewise, the defendant and
Intervenor did not reside in the premises in question because they reside respectively in
Brgy. Tarobucan and Brgy. Trinidad (Sabang), both of Calbayog City with their own
residential houses there.
Due to the damages they sustained as a result of the filing of this case, the plaintiffs are
claiming P50,000.00 for mental anguish; monthly rental of the premises in question
of P1,500.00 starting from March 1987; litigation expenses of P5,000.00 and P10,000.00
for Attorney's fees.[6]
The trial courts summary of the evidence for the defendants and intervenor is as
follows:
Defendants-Intervenors testimonial evidence tend to show that the premises is question
(land and two-storey building) is originally owned by the spouses, Rosendo Avelino and
Juana Ricaforte, who, through their son, Celso Avelino, through an Escritura de Venta (Exh.

2) bought it from the Mendiolas on July 8, 1948. After the purchase the couple occupied
it as owners until they died. Juana died on May 31, 1965 while Rosendo died on June 4,
1980. Upon their demise, their children: Trinidad A. Cruz, Concepcion A. Peralta, Priscila A.
Morales and Aurea Avelino (who died single) succeeded as owners thereof, except Celso
Avelino who did not reside in the premises because he was out of Calbayog for more than
30 years until his death in Cebu City.
The premises in question was acquired by Celso Avelino who was entrusted by Rosendo
with the money to buy it. Rosendo let Celso buy it being the only son. The property is in
the name of Celso Avelino and Rosendo told his children about it (TSN, Morales, p. 21). In
1950 Rosendo secured gratuitous license (Exh. 1) and constructed the two-storey house,
having retired as Operator of the Bureau of Telecommunications, buying lumber from the
father of Simplicia Darotel and paying the wages of Antonio Nartea as a laborer.
In 1979, defendant Rodolfo Morales constructed beside the two-storey house and beauty
shop for his wife with the consent of Celso and the latters sisters.
Priscila Morales was aware that the premises in question was surveyed in the name of
Celso but she did not make any attempt, not even her father, to change the muniment of
title to Rosendo Avelino. Despite the fact that Intervenor has two sons who are lawyers, no
extra-judicial settlement was filed over the premises in question since the death of
Rosendo Avelino up to the present.
Celso Avelino kept the receipts for the realty tax payments of the premises. Sometimes
Aurea would go to Cebu to deliver these receipts to Celso or the latter will come to get
them. Rodolfo also gave some of the receipts to Celso.
The sale of the subject premises to the Plaintiffs is fraudulent because it included her
(Intervenors) share and the beauty shop of her son, the defendant.
As a result of this case she is worried and suffered moral damages, lost her health, lacks
sleep and appetite and should be compensated for P80,000.00 and the expenses for
litigation in the amount of P30,000.00 until the case is finished.
The Intervenor would not claim ownership of the premises if her son, the defendant is not
being made to vacate therefrom by the Plaintiffs.[7]
The trial court reached the aforementioned disposition on the basis of its findings of
facts and conclusions, which we quote:
During the ocular inspection of the premises in question on April 4, 1988, conducted by
the Court upon motion of the parties, the Court found that the two-storey residential
building urgently needed major general repairs and although the bedrooms seemed
occupied by lodgers, neither the defendant nor the Intervenor informed the Court where or
in which of the rooms they occupied.
Observing the questioned premises from the outside, it is easily deducible that it has not
been inhabited by a true or genuine owner for a long time because the two-story building
itself has been left to deteriorate or ruin steadily, the paint peeling off, the window
shutters to be replaced, the lumber of the eaves about to fall and the hollow-block fence
to be straightened out, a portion along Umbria street (West) cut in the middle with the
other half to the south is tilting while the premises inside the fence farther from the
beauty shop to be cleaned.
Trust - SJBPrior | 6

From the evidence adduced by the parties, the following facts are undisputed:
1.

The identity of the premises in question which is a parcel of land

together with the two residential building standing thereon, located at
corner Umbria St. (on the West) and Rosales Blvd. (on the North),
Brgy. Central, Calbayog City, with an area of 318 sq. meters, presently
covered by Tax Declaration No. 47606 in the name of the female
Plaintiff and also bounded on the East by lot 03-002 (1946) and on the
South by lot 03-006 (1950);

2.

The Deeds of Conveyance of the questioned premises -- the Escritura de

Venta (Exh. B) from the Mendiolas to Celso Avelino and the Deed of
Sale (Exh. C) from Celso Avelino to the Plaintiffs- are both public
instruments;

3.

The couple, Rosendo and Juana Avelino as well as their daughter, Aurea,
resided and even died in the disputed premises;

4.

The defendant, Rodolfo Morales, constructed the beauty parlor in the

said premises and later occupied the two-storey residential house;

5.

Not one of the children or grandchildren of Rosendo Avelino ever

contested the ownership of Celso Avelino of the disputed premises;

6.

There has no extra-judicial partition effected on the subject property

since the death of Rosendo Avelino although two of the Intervenor's
children are full-pledged lawyers;

7.

Since the premises in question had been acquired by Celso Avelino, it

has been declared in his name for taxation purposes and the receipts
of the realty taxes thereon were kept by him, some were either
delivered to him by Aurea or by defendant; and

8.

Ever since the Plaintiffs acquired the disputed premises, its tax
declaration is now in the name of the female Plaintiff with the current
realty taxes thereon paid by her.

A very careful study and meticulous appraisal of the evidence adduced by both parties
and the applicable laws and jurisprudence show a preponderance of evidence conclusively
in favor of the Plaintiffs, due to the following facts and circumstances, all borne of the
record.
One. While Plaintiff's claim of ownership over the premises in question is duly supported
by documentary evidences, such as the Deed of Conveyance (Exhs. B and C), Tax
declarations and payments of the realty taxes on the disputed property, both as to the
land and the two-storey building (Exhs. D, E, F, G, H, and I and K and series)
and the survey plan of the land (Exh. J), Defendants-Intervenors claim of ownership is
based merely on testimonial evidence which is self-serving and cannot prevail over
documentary evidence because it is a settled rule in this jurisdiction that testimonial
evidence cannot prevail over documentary evidence.

by his brother (p. 16); that the document of conveyance of the land and the building (p.
14) is in the name of her brother; that it was surveyed in her brothers name with her
knowledge (pp. 13-14); that during the lifetime of her father the muniments of title of the
premises was never transferred in her fathers name (pp. 10-11 & 20); that not one of the
heirs of Rosendo Avelino ever contested Celso Avelinos ownership thereof, despite their
knowledge (p.21); that no extra-judicial partition or settlement was instituted by all the
female children of Rosendo Avelino, especially by the Intervenor herself even though two
of her children are full-pledge lawyers (p.15); and the fact that the Intervenor is not even
interested to see the document of the disputed premises (19), very clearly show that her
claim is neither positive nor categorical but is rather unconvincing.
Three.
laches.

The foregoing testimony of the Intervenor also show that she is already in

Four. The present condition of the premises, especially the two-storey building which has
been left to deteriorate or ruin steadily clearly betrays or belies Intervenor's pretense of
ownership of the disputed premises.
Five. If the premises in question is really owned in common by the children of Rosendo
and Juana Avelino, why is it that the surviving sisters of the Intervenor did not join her in
this case and intervene to protect their respective interests?
Six. On the witness chair, Intervenors demeanor and manner of testifying show that she
was evasive and shifty and not direct in her answers to simple questions that she was
admonished by the Court not be evasive and be direct or categorical in her answers; and
which rendered her testimony unworthy of full faith and credit.
Seven.
That Plaintiffs predecessor-in-interest is the true and absolute owner of the
disputed premises having purchased it from the Mendiolas while he was the City Fiscal of
Calbayog and still a bachelor and later became an Immigration Officer and later became a
CFI (now RTC) Judge when the two-storey building was constructed by Marcial Aragon, thus
he declared both the land and the residential building in his name, had it surveyed in his
name and continuously paid the realty taxes thereon, is more in conformity with common
knowledge, experience and belief because it would be unnatural for a man to continuously
pay realty taxes for a property that does not belong to him. Thus, our Supreme Court,
ruled: Tax receipts are not true evidence of ownership, but no person in his right mind
would continue paying taxes for land which he thinks does not belong to him. (Ramos vs.
Court of Appeals, 112 SCRA 543).
Eight.
Intervenors claim of implied trust is untenable because even from the
different cases mentioned in her Memorandum, it is very apparent that in order for implied
trust to exist there must be evidence of an equitable obligation of the trustee to convey,
which circumstance or requisite is absent in this case. What is instead clear from the
evidence is Celso Avelino's absolute ownership of the disputed property, both as to the
land and the residential house (Exh. F) which was sold to the Plaintiffs (Exh. C) while
Intervenors self-serving and unconvincing testimony of co-ownership is not supported by
any piece of credible documentary evidence.
On the contrary, the last part of Art. 1448 of Our New Civil Code bolsters Plaintiffs
ownership over the disputed premises. It expressly provides: x x x . However, if the
person to whom the title is conveyed is a child, legitimate or illegitimate, of the one
paying the price of the sale, no trust is implied by law, it being disputably presumed that
there is a gift in favor of the child.(underscoring supplied)

Two. While Plaintiffs evidence of ownership of the disputed premises is clear, positive,
categorical and credible, Intervenors testimony that the disputed premises was acquired
Trust - SJBPrior | 7

Finally, from the testimony of the Intervenor (p.22) the truth is out in that the Intervenor is
putting up her pretense of ownership over the disputed premises only when the defendant
was being advised to vacate and only to shield him from vacating therefrom. Thus, on
question of the Court, she declared:
Q When your father died, as a co-owner were you not interested to look at
the document so that you can lawfully claim, act as owner of that land?
A

We just claim only when my son, Rodolfo was driven by the Plaintiff.

In other words what you are saying is that if your son was not
dispossessed of the property in question, you would not claim
ownership?

No, sir.

In her Memorandum, Intervenor raises the issue whether or not the plaintiffs are entitled
to the damages being claimed which were duly supported or proven by direct evidence.
On this particular issue, the Plaintiffs evidence has established that before the Plaintiffs
paid the purchase price of the premises in question, they talked with the defendant about
the intended sale and the latter even encouraged them to purchase it and that he will
vacate the premises as soon as the payment is made therefore (TSN, Ortiz, Jr., p. 20, April
4, 1988). Hence, they paid the purchase price and Exh. C was duly executed by the
owner in their favor. The defendant, however, despite his encouragement and notice from
his uncle to vacate the subject premises (Exh. N) reneged on his words and refused to
vacate or demolish his beauty shop inside the premises in question unless he is
paid P35,000.00 for it although it is valued at less than P5,000.00.
With that unreasonable demand of the defendant, the plaintiffs demanded, orally and in
writing (Exhs. L and M) to vacate the premises. The defendant refused.
Later, as the plaintiffs were about to undertake urgent repairs on the dilapidated
residential building and make it as their residence, they found out that the defendant
rather than vacate the premises, had already occupied the said residential building and
admitted lodgers to it (id., p. 24) and claimed ownership thereof, to the damage, prejudice
and injury and mental anguish of the plaintiffs. So, the plaintiffs, as the true and lawful
owners of the premises in question, filed the instant case incurring expenses in the
process as they hired the services of a lawyer to protect their interests from the willful and
wrongful acts or omissions of the defendant. [8]
Dissatisfied with the trial courts decision, defendants heirs of Rodolfo Morales and
intervenor Priscila Morales, petitioners herein, appealed to the Court of Appeals, which
docketed the appeal as CA-G.R. CV No. 34936, and in their Appellants Brief they assigned
the following errors:
1. The RTC erred in ruling that Celso Avelino, appellees predecessor-ininterest, was the true and lawful owner of the house and lot in question.
2. xxx in not ruling that Celso Avelino purchased the house and lot in
question as a mere trustee, under an implied trust, for the benefit of the
trustor, his father, Rosendo Avelino, and the latters heirs.
3. xxx in ruling that the Intervenor is barred by laches from asserting her
status as a beneficiary of the aforesaid implied trust.

4. xxx in ruling that Celso Avelino validly sold the house and lot in question
to appellees without the consent of the other heirs of Rosendo Avelino and
Juana Ricaforte Avelino.
5. xxx in declaring appellees the absolute and rightful owners of the house
and lot in question by virtue of the sale of those properties to them by
Celso Avelino.
6. xxx in not ruling that appellants are rightful co-owners and possessors of
the house and lot in question in their capacities as heirs of Rosendo
Avelino and Juana Ricaforte Avelino, the true owners of those properties.
7. xxx in ordering defendants to remove the beauty shop on the disputed
land instead of declaring Rodolfo Morales a builder in good faith and
providing for the protection of his rights as such.
8. xxx in ordering appellants to vacate the disputed premises and to pay
appellees a monthly rental, moral damages, litigation expenses, and
attorney's fees.
9. xxx in not awarding appellants the damages and costs prayed for in
answer with counterclaim and answer in intervention, considering that
the action to dispossess them of the house and land in question is clearly
without legal foundation. [9]
In its decision of 20 April 1994[10] the Court of Appeals affirmed the decision of the
trial court.
Their motion to reconsider the decision having been denied in the resolution [11] of 14
September 1994 for lack of merit, petitioners filed the instant petition wherein they claim
that:
1. Respondent CA erred in adopting the trial courts reasoning that it would
be unnatural for a man to continuously pay realty taxes for a property that
does not belong to him on the basis of a misreading and misapplication
of Ramos v. Court of Appeals, 112 SCRA 543 (1982). Respondent CA also
erred in concluding that the payment of realty taxes is conclusive
evidence of ownership, which conclusion ignores this Honorable Court's
rulings in Ferrer-Lopez v. Court of Appeals, 150 SCRA 393 (1987), De
Guzman v. Court of Appeals, 148 SCRA 75 (1987), and heirs of Celso
Amarante v. Court of Appeals, 185 SCRA 585 (1990).
2. xxx in relying on Conception Peralta's alleged Confirmation (Exhibit O) in
ruling that Celso Avelino (and later the respondents) had exclusive and
absolute ownership of the disputed property. Exhibit O was not identified
by the purported affiant at the trial, and was therefore plainly
hearsay. Respondent CA erred in admitting Exhibit O in evidence over the
objection of the petitioner's counsel.
3. xxx in inferring and surmising that Celso Avelinos alleged exclusive
ownership of the disputed property was affirmed by the inaction of his
four sisters.
4. xxx in ruling that the petitioners' testimonial evidence could not prevail
over the respondent's evidence for the purpose of establishing the
existence of an implied trust. This ruling ignores this Honorable Court's
decision in De Los Santos v. Reyes, 205 SCRA 437 (1992).
5. xxx in ignoring unrebutted evidence on record that Celso Avelino held title
to the disputed property merely as a trustee for his father, mother, and
siblings. In so doing, respondent CA: (i) ignored decided cases where this
Honorable Court found the existence of trusts on the bases of similar
Trust - SJBPrior | 8

evidence, including the cases of Valdez v. Olorga, 51 SCRA 71 (1973), De

Buencamino,et al. v. De Matias, 16 SCRA 849 (1966), Gayos v. Gayos, 67
SCRA 146 (1975), and Custodio v. Casiano, 9 SCRA 841 (1963); and (ii)
refused to apply the clear language of Article 1448 of the Civil Code.
6. xxx in not ruling that Rodolfo Morales should have at least been regarded
as a builder in good faith who could not be compelled to vacate the
disputed property or to pay a monthly rental unless he was first
indemnified for the cost of what he had built. In so doing, respondent CA:
(i) refused to apply the clear language of Articles 448 and 453 of the Civil
Code; and (ii) ignored this Honorable Court's rulings in Municipality of Oas
v Roa, 7 Phil. 20 (1906) Merchant v. City of Manila, 11 Phil. 116 (1908),
Martinez v. Baganus, 28 Phil. 500 (1914), Grana v. Court of Appeals, 109
Phil. 260 (1960), and Miranda v. Fadullon, 97 Phil. 810 (1955).
7. xxx in affirming the Trial Court's award of damages in favor of the
respondents. In so doing, respondent CA: (i) misapplied Articles 2199,
2208, 2219, and 2220 of the Civil Code; and (ii) ignored this Honorable
Courts ruling in San Miguel Brewery, Inc. v. Magno, 21 SCRA 292 (1967).
8. xxx in refusing to rule that the respondents are liable to petitioners for
moral damages, and attorney's fees and costs of litigation. In so doing,
respondent CA ignored unrebutted evidence on record and Articles 2208,
2217, and 2219 of the Civil Code.
On 13 September 1995, after the filing of private respondents comment on the
petition and petitioners reply thereto, we resolved to deny the petition for failure of
petitioners to sufficiently show that the respondent Court of Appeals committed reversible
error.
Undaunted, petitioners on 17 October 1995 filed a motion for reconsideration of our
resolution of 13 September 1995 based on the following grounds:
1. The Honorable Court erred in not ruling that at the very least, Rodolfo
Morales should have been considered a builder in good faith who could
not be compelled to vacate the disputed property or to pay monthly rental
unless he was first indemnified for the cost of what he had built.
2. xxx in not ruling that the Court of Appeals and the Trial Court gravely
misapplied the law in ruling that there was no implied trust over the
premises.
3. xxx in not ruling that the Court of Appeals and the Trial Court gravely
misapplied the law in awarding damages to the respondents.
We required respondents to comment on the motion for reconsideration; however it
was not until 1 July 1996 and after we required their counsel to show cause why he should
not be disciplinarily dealt with for failure to file comment when said counsel filed the
comment by mail. Upon prior leave of court, petitioners filed a reply to the comment.
On 19 August 1996 we granted petitioners motion for reconsideration and required
the parties to submit their respective memoranda. Petitioners and private respondents
submitted their memoranda on 4 and 28 October 1996, respectively.
The grant of the motion for reconsideration necessarily limits the issues to the three
grounds postulated in the motion for reconsideration, which we restate as follows:
1. Did Celso Avelino purchase the land in question from the Mendiolas on 8
July 1948 as a mere trustee for his parents and siblings or, simply put, is
the property the former acquired a trust property?

3. Was there basis for the award of damages, attorneys fees and litigation
expenses to the private respondents?
We shall discuss these issues in seriatim.
I
A trust is the legal relationship between one person having an equitable ownership
in property and another person owning the legal title to such property, the equitable
ownership of the former entitling him to the performance of certain duties and the
exercise of certain powers by the latter. [12] The characteristics of a trust are:
1. It is a relationship;
2. it is a relationship of fiduciary character;
3. it is a relationship with respect to property, not one involving merely
personal duties;
4. it involves the existence of equitable duties imposed upon the holder of the
title to the property to deal with it for the benefit of another; and
5. it arises as a result of a manifestation of intention to create the
relationship. [13]
Trusts are either express or implied. Express trusts are created by the intention of
the trustor or of the parties, while implied trusts come into being by operation of law,
[14]
either through implication of an intention to create a trust as a matter of law or through
the imposition of the trust irrespective of, and even contrary to, any such intention. [15] In
turn, implied trusts are either resulting or constructive trusts. Resulting trusts are based on
the equitable doctrine that valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have been contemplated by the
parties. They arise from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title but is obligated
in equity to hold his legal title for the benefit of another. On the other hand, constructive
trusts are created by the construction of equity in order to satisfy the demands of justice
and prevent unjust enrichment. They arise contrary to intention against one who, by fraud,
duress or abuse of confidence, obtains or holds the legal right to property which he ought
not, in equity and good conscience, to hold. [16]
A resulting trust is exemplified by Article 1448 of the Civil Code, which reads:
Art. 1448.
There is an implied trust when property is sold, and the legal estate is
granted to one party but the price is paid by another for the purpose of having the
beneficial interest of the property. The former is the trustee, while the latter is the
beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, no trust is implied by law, it being
disputably presumed that there is a gift in favor of the child.
The trust created under the first sentence of Article 1448 is sometimes referred to as
a purchase money resulting trust.[17] The trust is created in order to effectuate what the
law presumes to have been the intention of the parties in the circumstances that the
person to whom the land was conveyed holds it as trustee for the person who supplied the
purchase money.[18]
To give rise to a purchase money resulting trust, it is essential that there be:
1. an actual payment of money, property or services, or an equivalent,
constituting valuable consideration;

2. Was Rodolfo Morales a builder in good faith?

Trust - SJBPrior | 9

2. and such consideration must be furnished by the alleged beneficiary of a

resulting trust.[19]

4.

There are recognized exceptions to the establishment of an implied resulting

trust. The first is stated in the last part of Article 1448 itself. Thus, where A pays the
purchase money and title is conveyed by absolute deed to As child or to a person to
whom A stands in loco parentis and who makes no express promise, a trust does not
result, the presumption being that a gift was intended. Another exception is, of course,
that in which an actual contrary intention is proved. Also where the purchase is made in
violation of an existing statute and in evasion of its express provision, no trust can result in
favor of the party who is guilty of the fraud. [20]
As a rule, the burden of proving the existence of a trust is on the party asserting its
existence, and such proof must be clear and satisfactorily show the existence of the trust
and its elements.[21] While implied trusts may be proved by oral evidence, [22] the evidence
must be trustworthy and received by the courts with extreme caution, and should not be
made to rest on loose, equivocal or indefinite declarations. Trustworthy evidence is
required because oral evidence can easily be fabricated. [23]
In the instant case, petitioners theory is that Rosendo Avelino owned the money for
the purchase of the property and he requested Celso, his son, to buy the property
allegedly in trust for the former. The fact remains, however, that title to the property was
conveyed to Celso. Accordingly, the situation is governed by or falls within the exception
under the third sentence of Article 1448, which for convenience we quote:
... However, if the person to whom the title is conveyed is a child, legitimate or
illegitimate, of the one paying the price of the sale, no trust is implied by law, it
being disputably presumed that there is a gift in favor of the child. (Underscoring
supplied).
On this basis alone, the case for petitioners must fall. The preponderance of evidence, as
found by the trial court and affirmed by the Court of Appeals, established positive acts of
Celso Avelino indicating, without doubt, that he considered the property he purchased
from the Mendiolas as his exclusive property. He had its tax declaration transferred in his
name, caused the property surveyed for him by the Bureau of Lands, and faithfully paid
the realty taxes. Finally, he sold the property to private respondents.
The theory of implied trust with Celso Avelino as the trustor and his parents Rosendo
Avelino and Juan Ricaforte as trustees is not even alleged, expressly or impliedly, in the
verified Answer of Rodolfo Morales [24] nor in the Answer in Intervention of Priscila A.
Morales.[25] In the former, Rodolfo alleged that:
A. [T]he lot and the two-storey building in question... which are actually
possessed by Rodolfo Morales, defendant herein, and by his parents -Priscila A. Morales and Cesar Morales -- and consequently, the ones now in
litigation in the above-entitled case, were originally and exclusively owned
and possessed by his grandparents-Rosendo Avelino and Juana Ricaforte;
B. [S]aid lot, together with an old house then thereon, were (sic) acquired by
said couple -- Rosendo Avelino and Juana Ricaforte -- on July 8, 1948,
which they right away possessed exclusively in the concept of owner; [26]
Priscila, on her part, merely reiterated the foregoing allegations in subparagraphs A and B
of paragraph 2 of her Answer in Intervention. [27]
Rodolfo and Priscila likewise even failed to suggest in their respective Special and
Affirmative Defenses that Celso Avelino held the property in trust despite Rodolfos claim
that:

[T]he alleged sale by Celso Avelino alone of the properties in question in

favor of plaintiff Erlinda Ortiz and the alleged TD-47606 in the name of
Erlinda Ortiz, were clandestine, fraudulent, null and void because,
first, said documents cover the entire properties in question of the
late Rosendo Avelino and Juana Ricaforte; second, only Celso Avelino
sold the entire properties, without the knowledge and consent of said
Priscila A. Morales, Trinidad A. Cruz and Concepcion E. Peralta children and heirs of said Rosendo Avelino and Juana Ricaforte; and,
third, said documents were also made without the knowledge and
consent of defendant Rodolfo Morales who has prior and legal
possession over the properties in question and who is a builder in
good faith of the shop building thereon.[28]

Not surprisingly, Priscila merely restated these allegations in paragraph 2 of her Special
and Affirmative Defenses. If truly they were convinced that Celso Avelino acquired the
property in trust for his parents, it would have been far easier for them to explicitly state
such fact.[29]
The separate Answers of Rodolfo and Priscila do not likewise allege that Celso
Avelino committed any breach of the trust by having the property declared in his name
and paying the realty taxes thereon and by having the lot surveyed by the Bureau of
Lands which gave it a lot number: Lot 1949. [30] Even more telling is that in the Pre-Trial
Order[31] of the trial court, petitioners did not claim the existence of an implied trust; the
parties merely agreed that the main issues were:
a.

Who is the owner of the premises in question?

b.

Who is entitled to the possession thereof?

Yet, petitioners now want us to reverse the rulings of the courts below that Celso
Avelino was the absolute and exclusive owner of the property in question, on strength of,
primarily, their implied trust theory. The problem with petitioners is that they entirely
forgot that the trial court and the Court of Appeals did not base their rulings on this
alone. As shown earlier, the trial court pointed out numerous other flaws in petitioners
theory, such as laches. Then, too, the rule is settled that the burden of proving the
existence of a trust is on the party asserting its existence and that such proof must be
clear and satisfactory. [32] As to that, petitioners relied principally on testimonial
evidence. It is, of course, doctrinally entrenched that the evaluation of the testimony of
witnesses by the trial court is received on appeal with the highest respect, because it is
the trial court that has the direct opportunity to observe them on the stand and detect if
they are telling the truth or lying through their teeth. The assessment is accepted as
correct by the appellate court and binds it, absent a clear showing that it was reached
arbitrarily.[33] In this case, petitioners failed to assail, much less overcome, the following
observation of the trial court:
Six. On the witness chair, Intervenors demeanor and manner of testifying show that she
was evasive and shifty and not direct in her answers to simple questions that she was
admonished by the Court not to be evasive and direct and categorical in her answers; and
which rendered her testimony unworthy of full faith and credit. [34]
Likewise fatal to petitioners cause is that Concepcion Peraltas sworn Confirmation
dated 14 May 1987 cannot be considered hearsay evidence due to Concepcions failure to
testify. On the contrary, it is an exception to the hearsay rule under Section 38 of Rule 130
of the Rules of Court, it having been offered as evidence of an act or declaration against
interest. As declarant Concepcion was a daughter of Rosendo Avelino and Juana Ricaforte,
and a sister of Celso Avelino and intervenor Priscila Morales, Concepcion was thus a coTrust - SJBPrior | 10

heir of her siblings, and would have had a share, equal to that of each of her co-heirs, in
the estate of Rosendo and Juana. However, Concepcion explicitly declared therein thus:
That my aforenamed brother [Celso Avelino], during the time when he was City Fiscal of
Calbayog City and still a bachelor, out of his own money, bought the parcels of land
located at corner Umbria Street and Rosales Blvd., Brgy. Central, Calbayog City, from
Culets Mendiola de Bartolome and Alejandra Fua Mendiola by virtue of a Deed of Sale
entered as Doc. No. 37; Page No. 20; Book No. XI; Series of 1948 in the Notarial Book of
Atty. Celedonio Alcazar, Notary Public of Calbayog, Samar; Likewise, out of his own money,
he constructed a residential building on the lot which building is made of strong materials.
If indeed the property was merely held in trust by Celso for his parents, Concepcion would
have been entitled to a proportionate part thereof as co-heir. However, by her
Confirmation, Concepcion made a solemn declaration against interest. Petitioners,
realizing that the Confirmation was admissible, attempted to cushion its impact by offering
in evidence as Exhibit 4 [35]Concepcions affidavit, dated 16 June 1987, wherein
Concepcion stated:
3.
The property in question (particularly the house), however forms part of the state of
our deceased parents, and, therefore, full and complete conveyance of the right, title and
interest in and to such property can only be effected with the agreement of the other
heirs, namely, my sisters Trinidad A. Cruz and Priscila A. Morales, and myself.
Note that Concepcion seemed to be certain that only the house formed part of the estate
of her deceased parents. In light of the equivocal nature of Concepcions later affidavit,
the trial court and the Court of Appeals did not then err in giving more weight to
Concepcions earlier Confirmation.
At bottom, the crux of the matter is whether petitioners discharged their burden to
prove the existence of an implied trust. We rule in the negative. Priscilas justification for
her and her sisters failure to assert co-ownership of the property based on the theory of
implied trust is, to say the least, flimsy. In light of their assertion that Celso Avelino did not
have actual possession of the property because he was away from Calbayog continuously
for more than 30 years until he died on October 31, 1987, [36] and the established fact that
the tax declarations of the property were in Celsos name and the latter paid the realty
taxes thereon, there existed no valid and cogent reason why Priscila and her sisters did
not do anything to have their respective shares in the property conveyed to them after the
death of Rosendo Avelino in 1980. Neither is there any evidence that during his lifetime
Rosendo demanded from Celso that the latter convey the land to the former, which
Rosendo could have done after Juanas death on 31 May 1965. This omission was mute
and eloquent proof of Rosendos recognition that Celso was the real buyer of the property
in 1948 and the absolute and exclusive owner thereof.
II
Was Rodolfo Morales a builder in good faith? Petitioners urge us to so rule and apply
Article 448 of the Civil Code, which provides:
The owner of the land on which anything has been built, sown or planted in good faith,
shall have the right to appropriate as his own the works, sowing or planting, after payment
of the indemnity provided for in articles 546 and 548, or to oblige the one who built or
planted to pay the price of the land, and the one who sowed, the proper rent. However,
the builder or planter cannot be obliged to buy the land if its value is considerably more
than that of the building or trees. In such case, he shall pay reasonable rent, if the owner
of the land does not choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in case of
disagreement, the court shall fix the terms thereof.

Clearly, Article 448 applies only when the builder, planter or sower believes he has
the right to so build, plant or sow because he thinks he owns the land or believes himself
to have a claim of title.[37] In the instant case Rodolfo Morales knew from the very
beginning that he was not the owner of the land. He alleged in his answer that the land
was acquired by his grandparents Rosendo Avelino and Juana Ricaforte and he constructed
the shop building in 1979 upon due permission and financial assistance from his
mother, Priscila A. Morales and from his aunts Trinidad A. Cruz and Concepcion A.
Peralta ..., with the knowledge and consent of his uncle Celso Avelino. [38]
Petitioners, however, contend that:
Even assuming the argument that Rodolfo Morales was a builder in bad faith because he
was aware of Celso Avelinos supposed exclusive ownership of the land, still, however,
theunrebutted evidence shows that Celso Avelino consented to Rodolfo Morales
construction of the beauty shop on the land. TSN, April 4, 1988, p. 40; TSN, April 4, 1988,
p. 40; TSN, October 19, 1990, p. 21. Under Article 453 of the Civil Code, such consent is
considered bad faith on the part of the landowner. In such a case, the rights of the
landowner and the builder shall be considered as though both acted in good faith. [39]
This so-called unrebutted testimony was rejected by the courts below, and with
good reason. First, it was clearly self-serving and inconsistent with petitioners vigorous
insistence that Celso Avelino was away from Calbayog City continuously for more than 30
years until he died on October 31, 1987. [40] The circumstances of when and where
allegedly the consent was given are unclear. Second, only Celso Avelino could have
rebutted it; but the testimony was given after Avelinos death, thus forever sealing his
lips. Reason and fairness demand that the attribution of an act to a dead man must be
viewed with utmost caution. Finally, having insisted with all vigor that the land was
acquired by Rosendo Avelino and Juanita Ricaforte, it would be most unlikely that Rodolfo
would have taken the trouble of securing Celsos consent, who had been continuously
away from Calbayog City for more than 30 years, for the construction of the shop
building.
III
We cannot however give our affirmance to the awards of moral damages, attorneys
fees and litigation expenses.
Pursuant to Article 2217 of the Civil Code, moral damages, which include physical
suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury may be recovered in the cases
enumerated in Article 2219 and 2220 of the same Code. [41] For moral damages to be
recovered, it must be shown that they are the proximate result of the defendant's wrongful
act or omission in the cases provided for in Articles 2219 and 2220, i.e., it must be shown
that an injury was suffered by the claimant and that such injury sprang from any of the
cases stated in Articles 2219 and 2220.[42] Moral damages are emphatically not intended to
enrich a plaintiff at the expense of the defendant. They are awarded only to enable the
injured party to obtain means, diversion, or amusements that will serve to alleviate the
moral sufferings he underwent, by reason of the defendant's culpable action and must,
perforce, be proportionate to the suffering inplicted. [43] In the same vein, moral damages
must be understood to be in concept of grants, not punitive or corrective in nature,
calculated to compensate the claimant for the injury suffered. [44]
In the instant case, the private respondents have not convincingly shown that they
suffered "mental anguish" for certain acts of herein petitioner which fell under any of the
cases enumerated in Articles 2219 and 2220 of the Civil Code. However, the trial court
invoked Articles 19, 20, 21, 2217, 2219, 2220 to support the award for moral
damages. Article 2220 is definitely inapplicable since this is not a case of willful injury to
property or breach of contract.

Trust - SJBPrior | 11

The attendant circumstances in this case also reject the application of Articles 19,
20 and 21 of the Chapter on Human Relations of the Civil Code.
Accordingly, for lack of factual and legal basis, the award of moral damages must be
set aside.
For the same reason the award of attorney's fees and litigation expenses must suffer
the same fate. The award of attorney's fees is the exception rather than the rule and
counsel's fees are not to be awarded every time a party wins a suit. The power of the
court to award attorney's fees under Article 2208 of the Civil Code demands factual, legal
and equitable justification; its basis cannot be left to speculation and conjecture. [45] The
general rule is that attorney's fees cannot be recovered as part of damages because of the
policy that no premium should be placed on the right to litigate. [46]
WHEREFORE, premises considered, except as to the award of moral damages,
attorneys fees and litigation expenses which are hereby DELETED, the judgment of the
respondent Court of Appeals is AFFIRMED.
Costs against petitioners.
SO ORDERED.
SECOND DIVISION
G.R. No. L-49087 April 5, 1982
MINDANAO DEVELOPMENT AUTHORITY, now the SOUTHERN PHILIPPINES
DEVELOPMENT ADMINISTRATION, petitioner,
vs.
THE COURT OF APPEALS and FRANCISCO ANG BANSING, respondents.
CONCEPCION JR., J.:
Petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. No.
48488-R, entitled: "Mindanao Development Authority, etc., plaintiff-appellee, versus
Francisco Ang Bansing defendant-appellant", which reversed the decision of the Court of
First Instance of Davao and dismissed the complaint filed in Civil Case No. 6480 of the said
court.
It is not disputed that the respondent Francisco Ang Bansing was the owner of a big tract
of land with an area of about 300,000 sq.m., situated in Barrio Panacan Davao City. On
February 25, 1939, Ang Bansing sold a portion thereof, with an area of about 5 hectares to
Juan Cruz Yap Chuy The contract provided, among others, the following:
That I hereby agree to work for the titling of the entire area of my land
under my own expenses and the expenses for the titling of the portion
sold to me shall be under the expenses of the said Juan Cruz Yap
Chuy. 1
After the sale, the land of Ang Banging was surveyed and designated as Lot 664-B, Psd1638. Lot 664-B was further subdivided into five (5) lots and the portion sold to Juan Cruz
Yap Chuy shortened to Juan Cruz, was designated as Lot 664B-3, with an area of 61.107
square meters, more or less. 2 On June 15-17 and December 15, 1939, a cadastral survey
was made and Lot 664-B-3 was designated as Lot 1846-C of the Davao Cadastre. On
December 23, 1939, Juan Cruz sold Lot 1846-C to the Commonwealth of the Philippines for

the amount of P6,347.50. 3 On that same day, Juan Cruz, as vendor, and C.B. Cam and
Miguel N. Lansona as sureties, executed a surety bond in favor of the vendee to guarantee
the vendor's absolute title over the land sold. 4
The cadastral survey plan was approved by the Director of Lands on July 10, 1940, 5 and
on March 7, 1941, Original Certificate of Title No. 26 was issued in the means of Victoriana
Ang Bansing, Orfelina Ang Bansing and Francisco Ang Bansing as claimants of the land,
pursuant to Decree No. 745358 issued on July 29, 1940. On March 31, 1941, OCT No. 26
was cancelled pursuant to a Deed of Adjudication and Transfer Certificate of Title No. 1783
was issued in the name of Francisco Ang Bansing. 6
On that day, March 31, 1941, Ang Banging sold Lot 1846-A to Juan Cruz and TCT No. 1783
was cancelled. TCT No. 1784 was issued in the name of Juan Cruz, for Lot 1846-A and TCT
No. 1785 was issued in the name of Ang Bansing for the remaining Lots 1846-B, 1846-C,
1846-D, and 1846-E. Later, Ang Bansing sold two subdivision lots of Lot 1846-B, namely:
Lot 1846-B-2-C and Lot 1846-B-1 to Vedasto Corcuera for which TCT No. 2551 and TCT No.
2552, respectively, were issued in the name of the said Vedasto Corcuera on August 10,
1946. Thereafter, Lot 1848-A, with an area of 9.6508 hectares, and Lots 1846-B-A and
1848- B-2-D all subdivided portions of Lot 1846-B, were similarly conveyed to Juan Cruz for
which TCT No. 2599 and TCT No. 2600, respectively, were issued in the name of Juan Cruz
on September 26, 1946. TCT No. 2601 was issued in the name of Ang Bansing for the
remainder of the property, including the lot in question. Then, another portion of 1846-B,
designated in the subdivision plan as Lot 1848-B-2-B was sold to Juan Cruz for which TCT
No. 184 was issued in the latter's name. On November 28, 1946, after these conveyances,
there remained in the possession of Ang Bansing under TCT No. 2601, Lot 1846-C, the lot
in question; Lot 1846-D; and Lot 1846-E. However, TCT No. 2601 was again partially
cancelled when Ang Bansing sold Lot 1846-D to Vedasto Corcuera. 7
On February 25, 1965, the President of the Philippines issued Proclamation No. 459,
transferring ownership of certain parcels of land situated in Sasa Davao City, to the
Mindanao Development Authority, now the Southern Philippines Development
Administration, subject to private rights, if any. Lot 1846-C, the disputed parcel of land,
was among the parcels of land transferred to the Mindanao Development Authority in said
proclamation. 8
On March 31, 1969, Atty. Hector L. Bisnar counsel for the Mindanao Development
Authority, wrote Ang Bansing requesting the latter to surrender the Owner's duplicate
copy of TCT No. 2601 so that Lot 1846-C could be formally transferred to his client but Ang
Bansing refused. 9 Consequently, on April 11, 1969, the Mindanao Development Authority
filed a complaint against Francisco Ang Bansing before the Court of First Instance of Davao
City, docketed therein as Civil Case No. 6480, for the reconveyance of the title over Lot
1846-C, alleging, among others, the following:
xxx xxx xxx
9. That the deed of sale, marked as Annex 'A', it was stipulated by the
parties that the defendant would work to secure title of his entire tract
of land of about 30 hectares defraying the expenses for the same and
the expenses for the title of the portion sold by the defendant to Juan
Cruz Yap Chuy shall be borned by the latter;
10. That the defendant as vendor and the one who worked to secure
the title of his entire tract of land which included the portion sold by
him. to Juan Cruz Yap Chuy acted in the capacity of and/or served as
trustee for any and all parties who become successor-in-interest to
Trust - SJBPrior | 12

Juan Cruz Yap Chuy and the defendant was bound and obligated to
give, deliver and reconvey to Juan Cruz Yap Chuy and/or his successorin-interest the title pertaining to the portion of land sold and conveyed
by him to Juan Cruz Yap Chuy by virtue of the deed of sale marked as
Annex 'A' and his affidavit marked as Annex 'C'. 10
In answer, Ang Bansing replied:
xxx xxx xxx
9. That defendant admits that in Annex'A'of the complaint, it was
agreed and stipulated in paragraph 6 thereof that:
That I hereby agree to work for the titling of the
entire area of my land under my own expense
and the expenses for the titling of the portion
sold to me shall be under the expenses of the
said Juan Cruz Yap Chuy.
and defendant in fact secured at his expense his OCT No. 26 for his
entire land; that in the process of defendant's securing his title neither
Juan Cruz Yap Chuy nor the Commonwealth of the Philippines asserted
any right to ownership of the subject property and that was almost 30
years ago until plaintiff filed its complaint, thus plaintiff is forever
barred from claiming any right over the subject property. There was
no real sale made but only the intention to sell a portion of the land as
stated by defendant in Annex 'C' of the complaint.
10. That defendant denies allegations contained in paragraph 10 of
the complaint that he acted as the trustee of Juan Cruz Yap Chuy
Defendant was never such; matter of fact Juan Cruz Yap Chuy for the
last 26 years, that is until he. died in October, 1965, never made any
demand to have the title of the subject property transferred in his
name because he knew all the time that the alleged sale in his favor
was per se null and void he also knew that no sale was ever
consummated. 11
After trial, the Court of First Instance of Davao City found that an express trust had been
established and ordered the reconveyance of the title to Lot 1846-C of the Davao Cadastre
to the plaintiff Mindanao Development Authority. 12
Ang Banging appealed to the Court of Appeals and the said appellate court ruled that no
express trust has been created and, accordingly, reversed the judgment and dismissed the
complaint. 13
Hence, the present recourse.
The petition is without merit. As found by the respondent Court of Appeals, no express
trust had been created between Ang Banging and Juan Cruz over Lot 1846-C of the Davao
Cadastre. "Trusts are either express or implied. Express trusts are created by the intention
of the trustor or of the parties. Implied trusts come into being by operation of law." 14 It is
fundamental in the law of trusts that certain requirements must exist before an express
trust will be recognized. Basically, these elements include a competent trustor and

trustee, an ascertainable trust res, and sufficiently certain beneficiaries. Stilted formalities
are unnecessary, but nevertheless each of the above elements is required to be
established, and, if any one of them is missing, it is fatal to the trusts. Furthermore, there
must be a present and complete disposition of the trust property, notwithstanding that the
enjoyment in the beneficiary will take place in the future. It is essential, too, that the
purpose be an active one to prevent trust from being executed into a legal estate or
interest, and one that is not in contravention of some prohibition of statute or rule of
public policy. There must also be some power of administration other than a mere duty to
perform a contract although the contract is for a third-party beneficiary. A declaration of
terms is essential, and these must be stated with reasonable certainty in order that the
trustee may administer, and that the court, if called upon so to do, may enforce, the
trust." 15
In this case, the herein petitioner relies mainly upon the following stipulation in the deed
of sale executed by Ang Bansing in favor of Juan Cruz to prove that an express trust had
been established with Ang Bansing as the settlor and trustee and Juan Cruz as the cestui
que trust or beneficiary:
That I hereby agree to work for the titling of the entire area of my land
under my own expenses and the expenses for the titling of the portion
sold to me shall be under the expenses of said Juan Cruz Yap Chuy.
The above-quoted stipulation, however, is nothing but a condition that Ang Bansing shall
pay the expenses for the registration of his land and for Juan Cruz to shoulder the
expenses for the registration of the land sold to him. The stipulation does not categorically
create an obligation on the part of Ang Bansing to hold the property in trust for Juan Cruz.
Hence, there is no express trust. It is essential to the creation of an express trust that the
settlor presently and unequivocally make a disposition of property and make himself the
trustee of the property for the benefit of another. 16
In case of a declaration of trust, the declaration must be clear and
unequivocal that the owner holds property in trust for the purposes
named. 17
While Ang Bansing had agreed in the deed of sale that he will work for the titling of "the
entire area of my land under my own expenses," it is not clear therefrom whether said
statement refers to the 30-hectare parcel of land or to that portion left to him after the
sale. A failure on the part of the settlor definitely to describe the subject-matter of the
supposed trust or the beneficiaries or object thereof is strong evidence that he intended
no trust. 18
The intent to create a trust must be definite and particular. It must show a desire to pass
benefits through the medium of a trust, and not through some related or similar device. 19
Clear and unequivocal language is necessary to create a trust and mere precatory
language and statements of ambiguous nature, are not sufficient to establish a trust. As
the Court stated in the case of De Leon vs. Packson, 20a trust must be proven by clear,
satisfactory and convincing evidence; it cannot rest on vague and uncertain evidence or
on loose, equivocal or indefinite declarations. Considering that the trust intent has not
been expressed with such clarity and definiteness, no express trust can be deduced from
the stipulation aforequoted.
Nor will the affidavit executed by Ang Banging on April 23, 1941, 21 be construed as having
established an express trust. As counsel for the herein petitioner has stated, "the only
purpose of the Affidavit was to clarify that the area of the land sold by Ang Bansing to Juan
Trust - SJBPrior | 13

Cruz Yap Chuy is not only 5 hectares but 61,107 square meters or a little over six (6)
hectares."22

Such a constructive trust is not a trust in the technical sense and is prescriptible; it
prescribes in 10 years. 28

That no express trust had been agreed upon by Ang Bansing and Juan Cruz is evident from
the fact that Juan Cruz, the supposed beneficiary of the trust, never made any attempt to
enforce the alleged trust and require the trustee to transfer the title over Lot 1846-C in his
name. Thus, the records show that the deed of sale, covering Lot 1846-C, was executed by
Ang Bansing in favor of Juan Cruz on February 25, 1939. Two years later, or on March 31,
1941, Ang Bansing sold Lot 1846-A to the said Juan Cruz for which TCT No. 1784 was
issued in the name of Juan Cruz. Subsequently thereafter, Lot 1848-A, with an area of
9.6508 hectares, and Lots 1846-A and 1848-B-2-D, all subdivided portions of Lot 1846-B,
were similarly conveyed to the said Juan Cruz for which TCT No. 2599 and TCT No. 2600,
respectively, were issued in the name of Juan Cruz on September 26, 1946. Then, another
portion of 'Lot 1846-B, designated in the subdivision plan as Lot 1848-B-2-13, was sold to
Juan Cruz for which TCT No. 184 was issued in his name on November 28, 1948. Despite
these numerous transfers of portions of the original 30-hectare parcel of land of Ang
Bansing to Juan Cruz and the issuance of certificates of title in the name of Juan Cruz, the
latter never sought the transfer of the title to Lot 1846-C in his name. For sure, if the
parties had agreed that Ang Bansing shall hold the property in trust for Juan Cruz until
after the former shall have obtained a certificate of title to the land, the latter would have
asked for the reconveyance of the title to him in view of the surety bond executed by him
in favor of the Commonwealth Government wherein he warrants his title over the property.
The conduct of Juan Cruz is inconsistent with a trust and may well have probative effect
against a trust.

Here, the 10-year prescriptive period began on March 31, 1941, upon the issuance of
Original Certificate of Title No. 26 in the names of Victoriana Ang Bansing Orfelina Ang
Bansing and Francisco Ang Banging. From that date up to April 11, 1969, when the
complaint for reconveyance was filed, more than 28 years had passed. Clearly, the action
for reconveyance had prescribed.
Besides, the enforcement of the constructive trust that may have been impressed upon
the title of Ang Bansing over Lot 1846-C of the Davao Cadastre is barred by laches. 29 It
appears that the deed of sale in favor of the Commonwealth Government was executed by
Juan Cruz on December 23, 1939, during the cadastral proceedings, and even before the
cadastral survey plan was approved by the Director of Lands on July 10, 1940. But, the
vendee therein did not file an answer, much less an opposition to the answer of Ang
Bansing in the said Cadastral proceedings. The judgment rendered in the said cadastral
proceeding, awarding the lot in question to Ang Bansing is already final. After an
inexcusable delay of more than 28 years and acquiescence to existing conditions, it is now
too late for the petitioner to complain.
WHEREFORE, the petition should be, as it is hereby, DENIED. No costs.
SO ORDERED.

But, even granting, arguendo, that an express trust had been established, as claimed by
the herein petitioner, it would appear that the trustee had repudiated the trust and the
petitioner herein, the alleged beneficiary to the trust, did not take any action therein until
after the lapse of 23 years. Thus, in its Reply to the Defendant's Answer, filed on June 29,
1969, the herein petitioner admitted that "after the last war the City Engineer's Office of
Davao City made repeated demands on the defendants for the delivery and conveyance to
the Commonwealth Government, now the Republic of the Philippines, of the title of land in
question, Lot 1846-C, but the defendant ignored and evaded the same." 23 Considering
that the demand was made in behalf of the Commonwealth Government, it is obvious that
the said demand was made before July 4, 1946, when the Commonwealth Government
was dismantled and the Republic of the Philippines came into being. From 1946 to 1969,
when the action for reconveyance was filed with the Court, 23 years had passed. For sure,
the period for enforcing the rights of the alleged beneficiary over the land in question after
the repudiation of the trust by the trustee, had already prescribed.
Needless to say, only an implied trust may have been impressed upon the title of Ang
Banging over Lot 1846-C of the Davao Cadastre since the land in question was registered
in his name although the land belonged to another. In implied trusts, there is neither
promise nor fiduciary relations, the so-called trustee does not recognize any trust and has
no intent to hold the property for the beneficiary." 24 It does not arise by agreement or
intention, but by operation of law. Thus, if property is acquired through mistake or fraud,
the person obtaining it is, by force of law, considered a trustee of an implied trust for the
benefit of the person from whom the property comes. 25
If a person obtains legal title to property by fraud or concealment, courts of equity will
impress upon the title a so-called constructive trust in favor of the defrauded party. 26
There is also a constructive trust if a person sells a parcel of land and thereafter obtains
title to it through fraudulent misrepresentation. 27

SECOND DIVISION
HEIRS OF TRANQUILINO LABISTE Petitioners,
-

versus

HEIRS OF JOSE LABISTE Respondents.

G.R. No. 162033

Promulgated: May 8, 2009

x-------------------------------------------------------------------------------------x
DECISION
TINGA, J.:
This is a petition for review [1] under Rule 45 of the Rules of Court of the Court of
Appeals Decision dated 30 June 2003[2] in CA-G.R. CV No. 65829. reversing the decision of
the Regional Trial Court (RTC) of Cebu City, Branch 9. The appellate court denied
petitioners[3] motion for reconsideration in a Resolution dated 15 January 2004.
The factual antecedents are as follows:

On 29 September 1919, the late Epifanio Labiste (Epifanio), on his own and on
behalf of his brothers and sisters who were the heirs of Jose Labiste (Jose), purchased from
the Bureau of Lands Lot No. 1054 of the Banilad Friar Lands Estate, with an area of 13,308
square meters, located at Guadalupe, Cebu City for P36.00.[4] Subsequently, on 9 June
1924, then Bureau of Lands Director Jorge B. Vargas executed Deed of Conveyance No.
12536 selling and ceding Lot No. 1054 to Epifanio and his brothers and sisters who were
the heirs of Jose.[5]
Trust - SJBPrior | 14

After full payment of the purchase price but prior to the issuance of the deed of
conveyance, Epifanio executed an Affidavit [6] (Affidavit of Epifanio) in Spanish on 10 July
1923 affirming that he, as one of the heirs of Jose, and his uncle and petitioners
predecessor-in-interest, Tranquilino Labiste (Tranquilino), then co-owned Lot No. 1054
because the money that was paid to the government came from the two of them.
Tranquilino
and
the
heirs
of
Jose
continued
to
hold
the
property
jointly.
Sometime in 1928, the Register of Deeds of Cebu City issued Original Certificate
of Title No. 3878 for Lot No. 1054. On 2 May 1928, Engineer Espiritu Bunagan (Engr.
Bunagan), Deputy Public Land Surveyor, subdivided Lot No. 1054 into two lots: Lot No.
1054-A with an area of 6,664 square meters for Tranquilino and Lot No. 1054-B with an
area of 6,664 square meters for Epifanio. The subdivision plan prepared by Engr. Bunagan
was approved by Jose P. Dans, Acting Director of Lands on 28 October 1928.[7]
Subsequently, on 18 October 1939, the heirs of Tranquilino [8] purchased the onehalf (1/2) interest of the heirs of Jose [9] over Lot No. 1054 for P300.00, as evidenced by
the Calig-onan sa Panagpalit [10] executed by the parties in the Visayan dialect. The heirs of
Tranquilino immediately took possession of the entire lot.
When World War II broke out, the heirs of Tranquilino fled Cebu City and when
they came back they found their homes and possessions destroyed. The records in the
Office of the Register of Deeds, Office of the City Assessor and other government offices
were also destroyed during the war. Squatters have practically overrun the entire property,
such that neither petitioners nor respondents possess it.
In October 1993, petitioners learned that one of the respondents, [11] Asuncion
Labiste, had filed on 17 September 1993 a petition for reconstitution of title over Lot No.
1054. Petitioners opposed the petition at first but by a compromise agreement between
the parties dated 25 March 1994, petitioners withdrew their opposition to expedite the
reconstitution process. Under the compromise agreement, petitioners were to be given
time to file a complaint so that the issues could be litigated in an ordinary action and the
reconstituted title was to be deposited with the Clerk of Court for a period of sixty (60)
days to allow petitioners to file an action for reconveyance and to annotate a notice of lis
pendens. The Register of Deeds of Cebu City issued the reconstituted title, TCT No. RT7853,[12] in the name of Epifanio Labiste, married to Tomasa Mabitad, his brothers and
sisters, heirs of Jose Labiste on 14 December 1994. However, respondents did not honor
the compromise agreement.
Petitioners filed a complaint [13] for annulment of title seeking the reconveyance
of property and damages on 13 January 1995, docketed as Civil Case No. CEB-16943, with
the RTC of Cebu City. Respondents claimed that the Affidavit of Epifanio and the Caligonan sa Panagpalit were forgeries and that petitioners action had long prescribed or
barred by laches.[14]
The RTC in a Decision dated 23 August 1999[15] ruled in favor of petitioners. After
evaluating the documents presented by petitioners, the RTC found that they are genuine
and authentic as ancient documents and that they are valid and enforceable. [16] Moreover,
it held that the action had not prescribed as the complaint was filed about a year after the
reconstitution of the title by respondents. The judicial reconstitution was even opposed by
petitioners until a compromise agreement was reached by the parties and approved by
the RTC which ordered the reconstitution. The RTC further held that the reconstituted title
did not give any more right to respondents than what their predecessors-in-interest
actually had as it is limited to the reconstitution of the certificate as it stood at the time of
its loss or destruction.[17]
On appeal, the Court of Appeals, while affirming petitioners right to the
property, nevertheless reversed the RTCs decision on the ground of prescription and
laches. It affirmed the RTCs findings that the Affidavit and the Calig-onan sa
Panagpalit are genuine and authentic, and that the same are valid and enforceable

documents.[18] Citing Article 1144 of the Civil Code, it held that petitioners cause of action
had prescribed for the action must be brought within ten (10) years from the time the right
of action accrues upon the written contract which in this case was when petitioners
predecessors-in-interest lost possession over the property after World War II. Also, the
lapse of time to file the action constitutes neglect on petitioners part so the principle of
laches is applicable. [19]
Hence, the present petition.
The genuineness and authenticity of the Affidavit of Epifanio and the Calig-onan
sa Panagpalit are beyond cavil. As we have ruled in a litany of cases, resort to judicial
review of the decisions of the Court of Appeals under Rule 45 is confined only to errors of
law.[20] The findings of fact by the lower court are conclusive absent any palpable error or
arbitrariness. [21] The Court finds no reason to depart from this principle. Moreover, it is a
long settled doctrine that findings of fact of the trial court, when affirmed by the Court of
Appeals, are binding upon the Court. It is not the function of the Supreme Court to weigh
anew the evidence already passed upon by the Court of Appeals for these are deemed
final and conclusive and may not be reviewed on appeal.[22]
The sole issue that the Court has to resolve is whether or not petitioners cause
of action has prescribed.
The Court of Appeals erred in applying the rules on prescription and the
principle of laches because what is involved in the present case is an express trust.
Trust is the right to the beneficial enjoyment of property, the legal title to which
is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the
property for the benefit of the beneficiary. [23] Trust relations between parties may either be
express or implied. An express trust is created by the intention of the trustor or of the
parties. An implied trust comes into being by operation of law. [24]
Express trusts are created by direct and positive acts of the parties, by some
writing or deed, or will, or by words either expressly or impliedly evincing an intention to
create a trust. [25] Under Article 1444 of the Civil Code, "[n]o particular words are required
for the creation of an express trust, it being sufficient that a trust is clearly intended." The
Affidavit of Epifanio is in the nature of a trust agreement. Epifanio affirmed that the lot
brought in his name was co-owned by him, as one of the heirs of Jose, and his uncle
Tranquilino. And by agreement, each of them has been in possession of half of the
property. Their arrangement was corroborated by the subdivision plan prepared by Engr.
Bunagan and approved by Jose P. Dans, Acting Director of Lands.
As such, prescription and laches will run only from the time the express trust is
repudiated. The Court has held that for acquisitive prescription to bar the action of the
beneficiary against the trustee in an express trust for the recovery of the property held in
trust it must be shown that: (a) the trustee has performed unequivocal acts of repudiation
amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have
been made known to the cestui que trust, and (c) the evidence thereon is clear and
conclusive.[26] Respondents cannot rely on the fact that the Torrens title was issued in the
name of Epifanio and the other heirs of Jose. It has been held that a trustee who obtains
a Torrens title over property held in trust by him for another cannot repudiate the trust by
relying on the registration.[27] The rule requires a clear repudiation of the trust duly
communicated to the beneficiary. The only act that can be construed as repudiation was
when respondents filed the petition for reconstitution in October 1993. And since
petitioners filed their complaint in January 1995, their cause of action has not yet
prescribed, laches cannot be attributed to them.
It is hornbook doctrine that laches is a creation of equity and its application is
controlled by equitable considerations. Laches cannot be used to defeat justice or
perpetrate fraud and injustice. [28] Neither should its application be used to prevent the
Trust - SJBPrior | 15

rightful owners of a property from recovering what has been fraudulently registered in the
name of another.[29] The equitable remedy of laches is, therefore, unavailing in this case.
However, to recover the other half of the property covered by the private Caligonan sa Panagpalit and to have it registered on the title of the property, petitioners should
have filed an action to compel [30] respondents, as heirs of the sellers in the contract, [31] to
execute a public deed of sale. A conveyance of land made in a private document does not
affect its validity. Article 1358,like its forerunner Article 1280 of the Civil Code of Spain,
does not require the accomplishment of the acts or
contracts in a public instrument in order to validate the act or contract but only to insure
its efficacy, [32] so that after the existence of said contract has been admitted, the party
bound may be compelled to execute the proper document. [33] But even assuming that such
action was filed by petitioners, the same had already prescribed.

disallowed in audit the dividends distributed under the Special Loan Program ("SLP") to the
members of the DBP Gratuity Plan.
Antecedent Facts
The DBP is a government financial institution with an original charter, Executive Order No.
81,5 as amended by Republic Act No. 85236 ("DBP Charter"). The COA is a constitutional
body with the mandate to examine and audit all government instrumentalities and
investment of public funds. 7
The COA Decision sets forth the undisputed facts of this case as follows:

It is settled that only laws existing at the time of the execution of a contract are
applicable thereto and not later statutes, unless the latter are specifically intended to have
retroactive effect.[34] Consequently, it is the Old Code of Civil Procedure (Act No. 190)
which applies in this case since the Calig-onan sa Panagpalit was executed on 18 October
1939 while the New Civil Code took effect only on 30 August 1950. And section 43 of Act
No. 190, like its counterpart Article 1144 of the New Civil Code, provides that action upon
a written contract must be filed within ten years. [35]

xxx [O]n February 20, 1980, the Development Bank of the Philippines (DBP) Board of
Governors adopted Resolution No. 794 creating the DBP Gratuity Plan and authorizing the
setting up of a retirement fund to cover the benefits due to DBP retiring officials and
employees under Commonwealth Act No. 186, as amended. The Gratuity Plan was made
effective on June 17, 1967 and covered all employees of the Bank as of May 31, 1977.

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of

Appeals dated 30 June 2003 in CA-G.R. CV No. 65829 is REVERSED andSET ASIDE and
the Decision of the Regional Trial Court of Cebu City, Branch 9 dated 23 August 1999 is

On February 26, 1980, a Trust Indenture was entered into by and between the DBP and the
Board of Trustees of the Gratuity Plan Fund, vesting in the latter the control and
administration of the Fund. The trustee, subsequently, appointed the DBP Trust Services
Department (DBP-TSD) as the investment manager thru an Investment Management
Agreement, with the end in view of making the income and principal of the Fund sufficient
to meet the liabilities of DBP under the Gratuity Plan.

REINSTATED with MODIFICATION in petitioners are hereby DECLARED the absolute

owners of one-half of Lot No. 1054 or Lot No. 1054-A under TCT No. RT-7853.The Register
of Deeds of Cebu City is hereby ORDERED to CANCEL TCT No. RT-7853 in part and issue a
new Transfer Certificate of Title to petitioners, heirs of Tranquilino Labiste, covering Lot No.
1054-A. No costs.
SO ORDERED.

EN BANC
G.R. No. 144516

February 11, 2004

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner

vs.
COMMISSION ON AUDIT, respondent.
DECISION
CARPIO, J.:
The Case
In this special civil action for certiorari,1 the Development Bank of the Philippines ("DBP")
seeks to set aside COA Decision No. 98-4032 dated 6 October 1998 ("COA Decision") and
COA Resolution No. 2000-2123 dated 1 August 2000 issued by the Commission on Audit
("COA"). The COA affirmed Audit Observation Memorandum ("AOM") No. 93-2,4 which

In 1983, the Bank established a Special Loan Program availed thru the facilities of the DBP
Provident Fund and funded by placements from the Gratuity Plan Fund. This Special Loan
Program was adopted as "part of the benefit program of the Bank to provide financial
assistance to qualified members to enhance and protect the value of their gratuity
benefits" because "Philippine retirement laws and the Gratuity Plan do not allow partial
payment of retirement benefits." The program was suspended in 1986 but was revived in
1991 thru DBP Board Resolution No. 066 dated January 5, 1991.
Under the Special Loan Program, a prospective retiree is allowed the option to utilize in the
form of a loan a portion of his "outstanding equity" in the gratuity fund and to invest it in a
profitable investment or undertaking. The earnings of the investment shall then be applied
to pay for the interest due on the gratuity loan which was initially set at 9% per annum
subject to the minimum investment rate resulting from the updated actuarial study. The
excess or balance of the interest earnings shall then be distributed to the investormembers.
Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total
of P11,626,414.25 representing the net earnings of the investments for the years 1991
and 1992. The payments were disallowed by the Auditor under Audit Observation
Memorandum No. 93-2 dated March 1, 1993, on the ground that the distribution of income
of the Gratuity Plan Fund (GPF) to future retirees of DBP is irregular and constituted the
use of public funds for private purposes which is specifically proscribed under Section 4 of
P.D. 1445.8
AOM No. 93-2 did "not question the authority of the Bank to set-up the [Gratuity Plan]
Fund and have it invested in the Trust Services Department of the Bank." 9 Apart from
requiring the recipients of the P11,626,414.25 to refund their dividends, the Auditor
recommended that the DBP record in its books as miscellaneous income the income of the
Gratuity Plan Fund ("Fund"). The Auditor reasoned that "the Fund is still owned by the
Trust - SJBPrior | 16

Bank, the Board of Trustees is a mere administrator of the Fund in the same way that the
Trust Services Department where the fund was invested was a mere investor and neither
can the employees, who have still an inchoate interest [i]n the Fund be considered as
rightful owner of the Fund." 10
In a letter dated 29 July 1996,11 former DBP Chairman Alfredo C. Antonio requested then
COA Chairman Celso D. Gangan to reconsider AOM No. 93-2. Chairman Antonio alleged
that the express trust created for the benefit of qualified DBP employees under the Trust
Agreement12 ("Agreement") dated 26 February 1980 gave the Fund a separate legal
personality. The Agreement transferred legal title over the Fund to the Board of Trustees
and all earnings of the Fund accrue only to the Fund. Thus, Chairman Antonio contended
that the income of the Fund is not the income of DBP.
Chairman Antonio also asked COA to lift the disallowance of the P11,626,414.25
distributed as dividends under the SLP on the ground that the latter was simply a normal
loan transaction. He compared the SLP to loans granted by other gratuity and retirement
funds, like the GSIS, SSS and DBP Provident Fund.
The Ruling of the Commission on Audit
On 6 October 1998, the COA en banc affirmed AOM No. 93-2, as follows:
The Gratuity Plan Fund is supposed to be accorded separate personality under the
administration of the Board of Trustees but that concept has been effectively eliminated
when the Special Loan Program was adopted. xxx
The Special Loan Program earns for the GPF an interest of 9% per annum, subject to
adjustment after actuarial valuation. The investment scheme managed by the TSD
accumulated more than that as evidenced by the payment of P4,568,971.84 in 1991
and P7,057,442,41 in 1992, to the member-borrowers. In effect, the program is grossly
disadvantageous to the government because it deprived the GPF of higher investment
earnings by the unwarranted entanglement of its resources under the loan program in the
guise of giving financial assistance to the availing employees. xxx
Retirement benefits may only be availed of upon retirement. It can only be demanded and
enjoyed when the employee shall have met the last requisite, that is, actual retirement
under the Gratuity Plan. During employment, the prospective retiree shall only have an
inchoate right over the benefits. There can be no partial payment or enjoyment of the
benefits, in whatever guise, before actual retirement. xxx
PREMISES CONSIDERED, the instant request for reconsideration of the disallowance
amounting toP11,626,414.25 has to be, as it is hereby, denied. 13
In its Resolution of 1 August 2000, the COA also denied DBPs second motion for
reconsideration. Citing the Courts ruling in Conte v. COA,14 the COA concluded that the
SLP was actually a supplementary retirement benefit in the guise of "financial assistance,"
thus:

of the gratuity benefits, and this has the same effect as the proscribed supplementary
pension/retirement plan under Section 28 (b) of C(ommonwealth) A(ct) 186.
This Commission may now draw authority from the case of Conte, et al. v. Commission on
Audit (264 SCRA 19 [1996]) where the Supreme Court declared that "financial assistance"
granted to retiring employees constitute supplementary retirement or pension benefits. It
was there stated:
"xxx Said Sec. 28 (b) as amended by R.A. 4968 in no uncertain terms bars the creation of
any insurance or retirement plan other than the GSIS for government officers and
employees, in order to prevent the undue and iniquitous proliferation of such plans. It is
beyond cavil that Res. 56 contravenes the said provision of law and is therefore, invalid,
void and of no effect. To ignore this and rule otherwise would be tantamount to permitting
every other government office or agency to put up its own supplementary retirement
benefit plan under the guise of such "financial assistance."15
Hence, the instant petition filed by DBP.
The Issues
The DBP invokes justice and equity on behalf of its employees because of prevailing
economic conditions. The DBP reiterates that the income of the Fund should be treated
and recorded as separate from the income of DBP itself, and charges that COA committed
grave abuse of discretion:
1. IN CONCLUDING THAT THE ADOPTION OF THE SPECIAL LOAN PROGRAM
CONSTITUTES A CIRCUMVENTION OF PHILIPPINE RETIREMENT LAWS;
2. IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM IS GROSSLY
DISADVANTAGEOUS TO THE GOVERNMENT;
3. IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM CONSTITUTES A
SUPPLEMENTARY RETIREMENT BENEFIT.16
The Office of the Solicitor General ("OSG"), arguing on behalf of the COA, questions the
standing of the DBP to file the instant petition. The OSG claims that the trustees of the
Fund or the DBP employees themselves should pursue this certiorari proceeding since they
would be the ones to return the dividends and not DBP.
The central issues for resolution are: (1) whether DBP has the requisite standing to file the
instant petition forcertiorari; (2) whether the income of the Fund is income of DBP; and (3)
whether the distribution of dividends under the SLP is valid.
The Ruling of the Court
The petition is partly meritorious.

At any rate, the Special Loan Program is not just an ordinary and regular transaction of the
Gratuity Plan Fund, as the Bank innocently represents. xxx It is a systematic investment
mix conveniently implemented in a special loan program with the least participation of the
beneficiaries, by merely filing an application and then wait for the distribution of net
earnings. The real objective, of course, is to give financial assistance to augment the value

The standing of DBP to file this petition for certiorari

Trust - SJBPrior | 17

As DBP correctly argued, the COA en banc implicitly recognized DBPs standing when it
ruled on DBPs request for reconsideration from AOM No. 93-2 and motion for
reconsideration from the Decision of 6 October 1998. The supposed lack of standing of the
DBP was not even an issue in the COA Decision or in the Resolution of 1 August 2000.
The OSG nevertheless contends that the DBP cannot question the decisions of the COA en
banc since DBP is a government instrumentality. Citing Section 2, Article IX-D of the
Constitution, 17 the OSG argued that:
Petitioner may ask the lifting of the disallowance by COA, since COA had not yet made a
definitive and final ruling on the matter in issue. But after COA denied with finality the
motion for reconsideration of petitioner, petitioner, being a government instrumentality,
should accept COAs ruling and leave the matter of questioning COAs decision with the
concerned investor-members.18
These arguments do not persuade us.
Section 2, Article IX-D of the Constitution does not bar government instrumentalities from
questioning decisions of the COA. Government agencies and government-owned and
controlled corporations have long resorted to petitions for certiorari to question rulings of
the COA.19 These government entities filed their petitions with this Court pursuant to
Section 7, Article IX of the Constitution, which mandates that aggrieved parties may bring
decisions of the COA to the Court on certiorari.20 Likewise, the Government Auditing Code
expressly provides that a government agency aggrieved by a COA decision, order or ruling
may raise the controversy to the Supreme Court on certiorari "in the manner provided by
law and the Rules of Court."21 Rule 64 of the Rules of Court now embodies this procedure,
to wit:
SEC 2. Mode of review. A judgment or final order or resolution of the Commission on
Elections and the Commission on Audit may be brought by the aggrieved party to the
Supreme Court on certiorari under Rule 65, except as hereinafter provided.
The novel theory advanced by the OSG would necessarily require persons not parties to
the present case the DBP employees who are members of the Plan or the trustees of the
Fund to avail of certiorari under Rule 65. The petition for certiorari under Rule 65,
however, is not available to any person who feels injured by the decision of a tribunal,
board or officer exercising judicial or quasi-judicial functions. The "person aggrieved"
under Section 1 of Rule 65 who can avail of the special civil action of certiorari pertains
only to one who was a party in the proceedings before the court a quo,22 or in this case,
before the COA. To hold otherwise would open the courts to numerous and endless
litigations.23 Since DBP was the sole party in the proceedings before the COA, DBP is the
proper party to avail of the remedy of certiorari.
The real party in interest who stands to benefit or suffer from the judgment in the suit
must prosecute or defend an action. 24 We have held that "interest" means material
interest, an interest in issue that the decision will affect, as distinguished from mere
interest in the question involved, or a mere incidental interest. 25
As a party to the Agreement and a trustor of the Fund, DBP has a material interest in the
implementation of the Agreement, and in the operation of the Gratuity Plan and the Fund
as prescribed in the Agreement. The DBP also possesses a real interest in upholding the
legitimacy of the policies and programs approved by its Board of Directors for the benefit
of DBP employees. This includes the SLP and its implementing rules, which the DBP Board
of Directors confirmed.

The income of the Gratuity Plan Fund

The COA alleges that DBP is the actual owner of the Fund and its income, on the following
grounds: (1) DBP made the contributions to the Fund; (2) the trustees of the Fund are
merely administrators; and (3) DBP employees only have an inchoate right to the Fund.
The DBP counters that the Fund is the subject of a trust, and that the Agreement
transferred legal title over the Fund to the trustees. The income of the Fund does not
accrue to DBP. Thus, such income should not be recorded in DBPs books of account. 26
A trust is a "fiduciary relationship with respect to property which involves the existence of
equitable duties imposed upon the holder of the title to the property to deal with it for the
benefit of another."27 A trust is either express or implied. Express trusts are those which
the direct and positive acts of the parties create, by some writing or deed, or will, or by
words evincing an intention to create a trust.28
In the present case, the DBP Board of Governors (now Board of Directors) Resolution No.
794 and the Agreement executed by former DBP Chairman Rafael Sison and the trustees
of the Plan created an express trust, specifically, an employees trust. An employees trust
is a trust maintained by an employer to provide retirement, pension or other benefits to its
employees.29 It is a separate taxable entity 30 established for the exclusive benefit of the
employees.31
Resolution No. 794 shows that DBP intended to establish a trust fund to cover the
retirement benefits of certain employees under Republic Act No. 161632 ("RA 1616"). The
principal and income of the Fund would be separate and distinct from the funds of DBP. We
quote the salient portions of Resolution No. 794, as follows:
2. Trust Agreement designed for in-house trustees of three (3) to be appointed by the
Board of Governors and vested with control and administration of the funds appropriated
annually by the Board to be invested in selective investments so that the income and
principal of said contributions would be sufficient to meet the required
payments of benefits as officials and employees of the Bank retire under the
Gratuity Plan; xxx
The proposed funding of the gratuity plan has decided advantages on the part of the Bank
over the present procedure, where the Bank provides payment only when an employee
retires or on "pay as you go" basis:
1. It is a definite written program, permanent and continuing whereby the Bank
provides contributions to a separate trust fund, which shall be
exclusively used to meet its liabilities to retiring officials and
employees; and
2. Since the gratuity plan will be tax qualified under the National Internal
Revenue Code and RA 4917, the Banks periodic contributions thereto shall be
deductible for tax purposes and the earnings therefrom tax free.33 (Emphasis
supplied)
In a trust, one person has an equitable ownership in the property while another person
owns the legal title to such property, the equitable ownership of the former entitling him
to the performance of certain duties and the exercise of certain powers by the latter. 34 A
person who establishes a trust is the trustor. One in whom confidence is reposed as
Trust - SJBPrior | 18

regards property for the benefit of another is the trustee. The person for whose benefit the
trust is created is the beneficiary.35
In the present case, DBP, as the trustor, vested in the trustees of the Fund legal title over
the Fund as well as control over the investment of the money and assets of the Fund. The
powers and duties granted to the trustees of the Fund under the Agreement were plainly
more than just administrative, to wit:
1. The BANK hereby vests the control and administration of the Fund in
the TRUSTEES for the accomplishment of the purposes for which said Fund is
intended in defraying the benefits of the PLAN in accordance with its provisions,
and the TRUSTEES hereby accept the trust xxx
2. The TRUSTEES shall receive and hold legal title to the money and/or
property comprising the Fund,and shall hold the same in trust for its
beneficiaries, in accordance with, and for the uses and purposes stated in the
provisions of the PLAN.
3. Without in any sense limiting the general powers of management and
administration given to TRUSTEES by our laws and as supplementary thereto,
the TRUSTEES shall manage, administer, and maintain the Fund with full power
and authority:
xxx
b. To invest and reinvest at any time all or any part of the Fund in any
real estate (situated within the Philippines), housing project, stocks, bonds,
mortgages, notes, other securities or property which the said TRUSTEES may
deem safe and proper, and to collect and receive all income and
profits existing therefrom;
c. To keep and maintain accurate books of account and/or records of the Fund
xxx.
d. To pay all costs, expenses, and charges incurred in connection with the
administration, preservation, maintenance and protection of the Fund xxx to
employ or appoint such agents or employees xxx.
e. To promulgate, from time to time, such rules not inconsistent with the
conditions of this Agreement xxx.
f. To do all acts which, in their judgment, are needful or desirable for
the proper and advantageous control and management of the
Fund xxx.36 (Emphasis supplied)
Clearly, the trustees received and collected any income and profit derived from the Fund,
and they maintained separate books of account for this purpose. The principal and income
of the Fund will not revert to DBP even if the trust is subsequently modified or terminated.
The Agreement states that the principal and income must be used to satisfy all of the
liabilities to the beneficiary officials and employees under the Gratuity Plan, as follows:

5. The BANK reserves the right at any time and from time to time (1) to modify or amend
in whole or in part by written directions to the TRUSTEES, any and all of the provisions of
this Trust Agreement, or (2) to terminate this Trust Agreement upon thirty (30) days prior
notice in writing to the TRUSTEES; provided, however, that no modification or amendment
which affects the rights, duties, or responsibilities of the TRUSTEES may be made without
the TRUSTEES consent; and provided, that such termination, modification, or
amendment prior to the satisfaction of all liabilities with respect to eligible
employees and their beneficiaries, does not permit any part of the corpus or
income of the Fund to be used for, or diverted to, purposes other than for the
exclusive benefit of eligible employees and workers as provided for in the PLAN.
In the event of termination of this Trust Agreement, all cash, securities, and other property
then constituting the Fund less any amounts constituting accrued benefits to the eligible
employees, charges and expenses payable from the Fund, shall be paid over or delivered
by the TRUSTEES to the members in proportion to their accrued benefits. 37 (Emphasis
supplied)
The resumption of the SLP did not eliminate the trust or terminate the transfer of legal title
to the Funds trustees. The records show that the Funds Board of Trustees approved the
SLP upon the request of the DBP Career Officials Association. 38 The DBP Board of Directors
only confirmed the approval of the SLP by the Funds trustees.
The beneficiaries or cestui que trust of the Fund are the DBP officials and employees who
will retire under Commonwealth Act No. 18639 ("CA 186"), as amended by RA 1616. RA
1616 requires the employer agency or government instrumentality to pay for the
retirement gratuity of its employees who rendered service for the required number of
years.40 The Government Service Insurance System Act of 199741 still allows retirement
under RA 1616 for certain employees.
As COA correctly observed, the right of the employees to claim their gratuities from the
Fund is still inchoate. RA 1616 does not allow employees to receive their gratuities until
they retire. However, this does not invalidate the trust created by DBP or the concomitant
transfer of legal title to the trustees. As far back as in Government v. Abadilla,42 the
Court held that "it is not always necessary that the cestui que trust should be named, or
even be in esse at the time the trust is created in his favor." It is enough that the
beneficiaries are sufficiently certain or identifiable. 43
In this case, the GSIS Act of 1997 extended the option to retire under RA 1616 only to
employees who had entered government service before 1 June 1977.44 The DBP
employees who were in the service before this date are easily identifiable. As of the time
DBP filed the instant petition, DBP estimated that 530 of its employees could still retire
under RA 1616. At least 60 DBP employees had already received their gratuities under the
Fund.45
The Agreement indisputably transferred legal title over the income and properties of the
Fund to the Funds trustees. Thus, COAs directive to record the income of the Fund in
DBPs books of account as the miscellaneous income of DBP constitutes grave abuse of
discretion. The income of the Fund does not form part of the revenues or profits of DBP,
and DBP may not use such income for its own benefit. The principal and income of the
Fund together constitute the res or subject matter of the trust. The Agreement established
the Fund precisely so that it would eventually be sufficient to pay for the retirement
benefits of DBP employees under RA 1616 without additional outlay from DBP. COA itself
acknowledged the authority of DBP to set up the Fund. However, COAs subsequent
directive would divest the Fund of income, and defeat the purpose for the Funds creation.
The validity of the Special Loan Program
Trust - SJBPrior | 19

and the disallowance of P11,626,414.25

The primary objective of this proposal therefore is to counteract the unavoidable decrease
in the value of the said retirement benefits through the following scheme:

In disallowing the P11,626,414.25 distributed as dividends under the SLP, the COA relied
primarily on Republic Act No. 4968 ("RA 4968") which took effect on 17 June 1967. RA
4968 added the following paragraph to Section 28 of CA 186, thus:
(b) Hereafter no insurance or retirement plan for officers or employees shall be created by
any employer. All supplementary retirement or pension plans heretofore in force in any
government office, agency, or instrumentality or corporation owned or controlled by the
government, are hereby declared inoperative or abolished: Provided, That the rights of
those who are already eligible to retire thereunder shall not be affected.
Even assuming, however, that the SLP constitutes a supplementary retirement plan, RA
4968 does not apply to the case at bar. The DBP Charter, which took effect on 14 February
1986, expressly authorizes supplementary retirement plans "adopted by and effective in"
DBP, thus:
SEC. 34. Separation Benefits. All those who shall retire from the service or are
separated therefrom on account of the reorganization of the Bank under the provisions of
this Charter shall be entitled to all gratuities and benefits provided for under
existing laws and/or supplementary retirement plans adopted by and effective
in the Bank: Provided, that any separation benefits and incentives which may be granted
by the Bank subsequent to June 1, 1986, which may be in addition to those provided under
existing laws and previous retirement programs of the Bank prior to the said date, for
those personnel referred to in this section shall be funded by the National Government;
Provided, further, that, any supplementary retirement plan adopted by the Bank after the
effectivity of this Chapter shall require the prior approval of the Minister of Finance.
x x x.
SEC. 37. Repealing Clause. All acts, executive orders, administrative orders,
proclamations, rules and regulations or parts thereof inconsistent with any of the
provisions of this charter are hereby repealed or modified accordingly. 46(Emphasis
supplied)
Being a special and later law, the DBP Charter47 prevails over RA 4968. The DBP originally
adopted the SLP in 1983. The Court cannot strike down the SLP now based on RA 4968 in
view of the subsequent DBP Charter authorizing the SLP.
Nevertheless, the Court upholds the COAs disallowance of the P11,626,414.25 in
dividends distributed under the SLP.
According to DBP Board Resolution No. 0036 dated 25 January 1991, the "SLP allows a
prospective retiree to utilize in the form of a loan, a portion of their outstanding equity in
the Gratuity Plan Fund and to invest [the] proceeds in a profitable investment or
undertaking."48 The basis of the loanable amount was an employees gratuity fund
credit,49 that is to say, what an employee would receive if he retired at the time he availed
of the loan.
In his letter dated 26 October 1983 proposing the confirmation of the SLP, then DBP
Chairman Cesar B. Zalamea stated that:

I. To allow a prospective retiree the option to utilize in the form of a loan, a

portion of his standing equity in the Gratuity Fund and to invest it in a profitable
investment or undertaking. The income or appreciation in value will be for his own account
and should provide him the desired hedge against inflation or erosion in the value of the
peso. This is being proposed since Philippine retirement laws and the Gratuity Plan
do not allow partial payment of retirement benefits, even the portion already
earned, ahead of actual retirement.50 (Emphasis supplied)
As Chairman Zalamea himself noted, neither the Gratuity Plan nor our laws on retirement
allow the partial payment of retirement benefits ahead of actual retirement. It appears
that DBP sought to circumvent these restrictions through the SLP, which released a portion
of an employees retirement benefits to him in the form of a loan. Certainly, the DBP did
this for laudable reasons, to address the concerns of DBP employees on the devaluation of
their retirement benefits. The remaining question is whether RA 1616 and the Gratuity
Plan allow this scheme.
We rule that it is not allowed.
The right to retirement benefits accrues only upon certain prerequisites. First, the
conditions imposed by the applicable law in this case, RA 1616 must be
fulfilled.51 Second, there must be actual retirement.52 Retirement means there is "a
bilateral act of the parties, a voluntary agreement between the employer and the
employees whereby the latter after reaching a certain age agrees and/or consents
to severe his employment with the former."53
Severance of employment is a condition sine qua non for the release of retirement
benefits. Retirement benefits are not meant to recompense employees who are still in the
employ of the government. That is the function of salaries and other
emoluments.54 Retirement benefits are in the nature of a reward granted by the State to a
government employee who has given the best years of his life to the service of his
country.55
The Gratuity Plan likewise provides that the gratuity benefit of a qualified DBP employee
shall only be released "upon retirement under th(e) Plan."56 As the COA correctly pointed
out, this means that retirement benefits "can only be demanded and enjoyed when the
employee shall have met the last requisite, that is, actual retirement under the Gratuity
Plan."57
There was thus no basis for the loans granted to DBP employees under the SLP. The
rights of the recipient DBP employees to their retirement gratuities were still inchoate, if
not a mere expectancy, when they availed of the SLP. No portion of their retirement
benefits could be considered as "actually earned" or "outstanding" before retirement. Prior
to retirement, an employee who has served the requisite number of years is only eligible
for, but not yet entitled to, retirement benefits.
The DBP contends that the SLP is merely a normal loan transaction, akin to the loans
granted by the GSIS, SSS and the DBP Provident Fund.
The records show otherwise.

Trust - SJBPrior | 20

In a loan transaction or mutuum, the borrower or debtor acquires ownership of the amount
borrowed.58 As the owner, the debtor is then free to dispose of or to utilize the sum he
loaned,59 subject to the condition that he should later return the amount with the
stipulated interest to the creditor.60
In contrast, the amount borrowed by a qualified employee under the SLP was not even
released to him. The implementing rules of the SLP state that:
The loan shall be available strictly for the purpose of investment in the following
investment instruments:
a. 182 or 364-day term Time deposits with DBP
b. 182 or 364-day T-bills /CB Bills
c. 182 or 364-day term DBP Blue Chip Fund
The investment shall be registered in the name of DBP-TSD in trust for availeeinvestor for his sole risk and account. Choice of eligible terms shall be at the option of
availee-investor. Investments shall be commingled by TSD and Participation
Certificates shall be issued to each availee-investor.

Simply put, the amount ostensibly loaned from the Fund stayed in the Fund, and remained
under the control and custody of the DBP-TSD. The debtor-employee never had any control
or custody over the amount he supposedly borrowed. However, DBP-TSD listed new or
existing investments of the Fund corresponding to the "loan" in the name of the debtoremployee, so that the latter could collect the interest earned from the investments.
In sum, the SLP enabled certain DBP employees to utilize and even earn from their
retirement gratuities even before they retired. This constitutes a partial release of their
retirement benefits, which is contrary to RA 1616 and the Gratuity Plan. As we have
discussed, the latter authorizes the release of gratuities from the earnings and principal of
the Fund only upon retirement.
The Gratuity Plan will lose its tax-exempt status if the retirement benefits are released
prior to the retirement of the employees. The trust funds of employees other than those of
private employers are qualified for certain tax exemptions pursuant to Section 60(B)
formerly Section 53(b) of the National Internal Revenue Code.62 Section 60(B) provides:
Section 60. Imposition of Tax.
(A) Application of Tax. The tax imposed by this Title upon individuals shall apply to the
income of estates or of any kind of property held in trust, including:
xxx

xxx
IV. LOANABLE TERMS
xxx
e. Allowable Investment Instruments Time Deposit DBP T-Bills/CB Bills and DBP Blue
Chip Fund. TSD shall purchase new securities and/or allocate existing securities
portfolio of GPF depending on liquidity position of the Fund xxx.
xxx
g. Security The loan shall be secured by GS, Certificate of Time Deposit and/or BCF
Certificate of Participation which shall be registered in the name of DBP-TSD in trust for
name of availee-investor and shall be surrendered to the TSD for safekeeping. 61 (Emphasis
supplied)
In the present case, the Fund allowed the debtor-employee to "borrow" a portion of his
gratuity fund credit solely for the purpose of investing it in certain instruments specified
by DBP. The debtor-employee could not dispose of or utilize the loan in any other way.
These instruments were, incidentally, some of the same securities where the Fund placed
its investments. At the same time the Fund obligated the debtor-employee to assign
immediately his loan to DBP-TSD so that the amount could be commingled with the loans
of other employees. The DBP-TSD the same department which handled and had custody
of the Funds accounts then purchased or re-allocated existing securities in the
portfolio of the Fund to correspond to the employees loans.

(B) Exception. The tax imposed by this Title shall not apply to employees trust which
forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit
of some or all of his employees (1) if contributions are made to the trust by such
employer, or employees, or both for the purpose of distributing to such employees
the earnings and principal of the fund accumulated by the trust in accordance
with such plan, and (2) if under the trust instrument it is impossible, at any time prior to
the satisfaction of all liabilities with respect to employees under the trust, for any part of
the corpus or income to be (within the taxable year or thereafter) used for, or diverted to,
purposes other than for the exclusive benefit of his employees: xxx (Emphasis supplied)
The Gratuity Plan provides that the gratuity benefits of a qualified DBP employee shall be
released only "upon retirement under th(e) Plan." If the earnings and principal of the Fund
are distributed to DBP employees prior to their retirement, the Gratuity Plan will no longer
qualify for exemption under Section 60(B). To recall, DBP Resolution No. 794 creating the
Gratuity Plan expressly provides that "since the gratuity plan will be tax qualified under
the National Internal Revenue Code xxx, the Banks periodic contributions thereto shall be
deductible for tax purposes and the earnings therefrom tax free." If DBP insists that its
employees may receive the P11,626,414.25 dividends, the necessary consequence will be
the non-qualification of the Gratuity Plan as a tax-exempt plan.
Finally, DBP invokes justice and equity on behalf of its affected employees. Equity cannot
supplant or contravene the law.63 Further, as evidenced by the letter of former DBP
Chairman Zalamea, the DBP Board of Directors was well aware of the proscription against
the partial release of retirement benefits when it confirmed the SLP. If DBP wants "to
enhance and protect the value of xxx (the) gratuity benefits" of its employees, DBP must
do so by investing the money of the Fund in the proper and sound investments, and not by
circumventing restrictions imposed by law and the Gratuity Plan itself.
We nevertheless urge the DBP and COA to provide equitable terms and a sufficient period
within which the affected DBP employees may refund the dividends they received under
Trust - SJBPrior | 21

the SLP. Since most of the DBP employees were eligible to retire within a few years when
they availed of the SLP, the refunds may be deducted from their retirement benefits, at
least for those who have not received their retirement benefits.
WHEREFORE, COA Decision No. 98-403 dated 6 October 1998 and COA Resolution No.
2000-212 dated 1 August 2000 are AFFIRMED with MODIFICATION. The income of the
Gratuity Plan Fund, held in trust for the benefit of DBP employees eligible to retire under
RA 1616, should not be recorded in the books of account of DBP as the income of the
latter.
SO ORDERED.

EN BANC
G.R. No. L-24597

August 25, 1926

ROSARIO GAYONDATO, plaintiff-appellant,

vs.
THE TREASURER OF THE PHILIPPINE ISLANDS, ET AL., defendants-appellant.
Arroyo and Evangelista for appellant.
Office of the Solicitor-General Reyes for the Treasurer of the Philippine Islands.
No appearance for the other appellees.

The complaint in the present case was filed on August 18, 1922, Adela Gasataya, Domingo
Cuachon, Francisco Rodriguez and the Insular Treasurer being made parties defendant.
Upon the facts above stated the trial court rendered judgment in favor of the plaintiff
Rosario Gayondato, ordering the defendants Adela Gasataya and Domingo Cuachon jointly
and severally to indemnify the said plaintiff in the sum of P35,000 and to pay the costs.
The Insular Treasurer and Francisco Rodriguez were absolved from the complaint. From this
judgment the plaintiff appealed.
The sum and substance of the assignments of error is the court erred in absolving the
Insular Treasurer from the complaint, and in this we agree with the appellant. The court
below appears to have been under the impression that the liability of the assurance fund
is confined to cases where the erroneous registration is due to omission, mistake or
malfeasance of the part of the employees of the registration court. That this view is
erroneous, is evident from the language of section 101 and 102 of the Land Registration
Act, which read as follows:
SEC. 101. Any person who without negligence on his part sustains loss or
damage through any omission, mistake, or misfeasance of the clerk, or register
of deeds, or of any examiner of titles, or of any deputy or clerk of the register of
deeds in the performance of their respective duties under the provisions of this
Act, and any person who is wrongfully deprived of any land or any interest
therein, without negligence on his part, through the bringing of the same under
the provisions of this Act or by the registration of any other person as owner of
such land, or by any mistake, omission or misdescription in any certificate or
owner's duplicate, or in any entry or memorandum in the register or other
official book or by any cancellation, and who by the provisions of this Act is
barred or in any way precluded from bringing an action for the recovery of such
land or interest therein, or claim upon the same, may bring in any court of
competent jurisdiction an action against the Treasurer of the Philippine
Archipelago for the recovery of damages to be paid, out of the assurance fund.

OSTRAND, J.:
This action is brought to recover damages in the sum of P30,000 for the erroneous
registration in the name of the defendant Gasataya of three parcels of land situated in the
municipality of Isabela, Province of Occidental Negros, and of which the plaintiff was the
owner at the time of the registration.
There is practically no dispute as to the facts. The three parcels of land were formerly
owned by one Domingo Gayondato, who inherited them from his mother, Ramona
Granada, in 1896. In 1899 Domingo married the defendant Adela Gasataya, with whom he
had a child, the herein plaintiff, born in October 1900. Upon the death of Domingo in the
year 1902, Gabino Gasataya, the father of Adela, took charge of the three parcels of land
in question. In 1908 Adela married the defendant Domingo Cuachon, and Gabino Gasataya
thereupon turned over to them the possession of the land.
The three parcels were included in cadastral case No. 11 of the Court of First Instance of
Occidental Negros as lots Nos. 70, 364 and 375, and when that case came on for hearing
in August, 1916, the defendant Domingo Cuachon appeared on behalf of his wife and
stepdaughter and filed claims for the aforesaid lots by way of answers in which he stated
that the lots were the property of "his with Adela Gasataya and of her daughter, fifteen
years of age." Notwithstanding this statement, the Court of First Instance erroneously
decreed the registration of the aforesaid lots in the name of Adela Gasataya alone.
Subsequently Adela, with the consent of her husband, mortgaged the property to the
National Bank and finally in the year 1920 sold it to the defendant Rodriguez for the sum
of P13,000, the purchaser, in addition thereto, assuming the liability for a mortgage of
P8,000 to the National Bank and for certain other debts amounting to over P4,000.

SEC. 102. If such action be for recovery for loss or damage arising only through
any omission mistake, or misfeasance of the clerk or of the register of deeds, or
of any examiner of titles, or of any deputy or clerk of the register of deeds in the
performance of their respective duties under the provisions of this Act, then the
Treasurer of the Philippine Archipelago shall be the sole defendant to such
action. But if such action be brought for loss or damage arising only through the
fraud or willful act of some person or persons other than the clerk, the register
of deeds, the examiners of titles, deputies and clerks, or arising jointly through
the fraud or wrongful act of such other person or persons and the omission,
mistake, or misfeasance of the clerk, the register of deeds, the examiners of
titles, deputies, or clerks, then such action shall be brought against both the
Treasurer of the Philippine Archipelago and such person or persons aforesaid. In
all such actions where there are defendants other than the Treasurer of the
Philippine Archipelago and damages shall have been recovered, no final
judgment shall be entered against the Treasurer of the Philippine Archipelago
until execution against the other defendants shall be returned unsatisfied in
whole or in part, and the officer returning the execution ]shall certify that the
amount still due upon the execution cannot be collected except by application
to the assurance fund. Thereupon the court having jurisdiction of the action,
being satisfied as to the truth of such return, may, upon proper showing, order
the amount of the execution and costs or so much thereof as remains unpaid, to
be paid by the Treasurer of the Philippine Archipelago out of the assurance fund.
If shall be the duty of the Attorney- General in person or by deputy to appear
and defend all such duties with the aid of the fiscal of the province in which the
land lies or the city attorney of the City of Manila as the case may be: Provided,
however, That nothing in this Act shall be construed to deprive the plaintiff of
any action which he may have against any person for such loss or damage or
Trust - SJBPrior | 22

deprivation of land or of any estate or interest therein without joining the

Treasurer of the Philippine Archipelago as a defendant therein.
As the plaintiff-appellant was a minor at the time of the registration of the land and
consequently no negligence can be imputed to her, it is clear from the sections quoted
that in the absence of special circumstances to the contrary the assurance fund is
secondarily liable for the damages suffered by her through the wrongful registration.
But the Attorney-General in his brief for the Insular Treasurer raises the point that
Domingo Cuachon and Adela Gasataya prior to the registration must be considered to
have held the property in trust and for the benefit of the plaintiff; that the relation of
trustee and cestui que trust was thus created; and that the case therefore falls under
section 106 of the Land Registration Act, which provides that "the assurance fund shall not
be liable to pay for any loss or damage or deprivation occasioned by a breach of trust,
whether express, implied, or constructive, by any registered owner who is a trustee, or by
the improper exercise of any sale in mortgage-foreclosure proceedings."
At first blush the Attorney-General's contention seems quite plausible. For want of better
terms the words "trust" and "trustee" are frequently used in a broad and popular sense so
as to embrace a large variety of relations. Thus if a person obtains legal title to property
by fraud or concealment, courts of equity will impress upon the title a so-called
constructive trust in favor of the defrauded party. The use of the word "trust" in this sense
is not technically accurate: as Perry says, such trusts "are not trusts at all in the strict and
proper signification of the word "trust"; but as courts are agreed in administering the same
remedy in a certain class of frauds as are administered in fraudulent breaches of trusts,
and as courts and the profession have concurred in calling such frauds constructive trusts,
there can be no misapprehension in continuing the same phraseology, while a change
might lead to confusion and misunderstanding." (Perry on Trusts, 5th ed., sec. 166.)
If this is the kind of constructive trust referred to in section 106, supra, it must be
conceded that the plaintiff cannot recover damages from the assurance fund. But that
such is not the case, becomes quite apparent upon an examination of sections 101 and
102, above quoted, in which the right of recovery from the assurance fund in cases of
registration through fraud or wrongful acts is expressly recognized and which, in our
opinion, clearly show that the term trust as used in section 106 must be taken in its
technical and more restricted sense. Indeed, if it were to be regarded in its broadest
sense, the assurance fund would, under the conditions here prevailing, be of little or no
value.

wrongdoer who becomes possessed of property under such circumstances has

been styled a "trustee;" but this is for want of a better term, and because he has
no title to property, and really holds it for the true owner. It might as well be said
that, where two persons conspire to possess themselves of the personal
property of another when he brings trover for its recovery, they should be styled
"trustees," instead of "fort feasors," and should be permitted to claim the
benefit of a lien for care or for provender.
From what has been said it follows that the judgment absolving the Insular Treasurer from
the complaint must be reversed. We also note from the record that Adela Gasataya died
March 1, 1923, before the trial of the case and that an administrator of her estate was
appointed. It was therefore error to render judgment against her personally. It may further
be noted that the measure of damages applied by the court below, i. e. the full value of
the land, is not strictly accurate. The property was subject to a life estate of one-third in
favor of Adela Gasataya as the widow of Domingo Gayondato, the value of which must be
deducted from the total value of the fee simple. It may also be observed that the amount
demanded in the complaint is only P30,000 and that the land was solid to Francisco
Rodriguez for but little more than P25,000. We are therefore of the opinion that the
damages awarded should be reduced to P25,000.
The judgment appealed from is reversed, and it is hereby ordered that the defendants
Domingo Cuachon and the estate of Adela Gasataya jointly and severally pay to the
plaintiff the sum of P25,000, with interest at the rate of 6 per cent per annum from August
18, 1922, the date of the filing of the complaint, with the costs. It is further ordered that if
the execution of this judgment is returned unsatisfied in whole or in part and the officer
returning the execution certifies that the amount upon the execution cannot be collected
except by application to the assurance fund and the court having jurisdiction over the
action shall be satisfied as to the truth of such return, said court shall order the amount of
the execution and costs, or so much thereof as remains unpaid, to be paid by the
Treasurer of the Philippine Archipelago out of the assurance fund. The complaint will stand
dismissed as to Francisco Rodriguez. No costs will be allowed. So ordered.

Bouvier defines a trust in its technical sense as "a right of property, real or personal, held
by one party for the benefit of another." In the present case we have this situation: The
plaintiff was a minor at the time of the registration of the land and had no legal guardian.
It is true that her mother in whose name the land was registered was the natural guardian
of her person, but that guardianship did not extend to the property of the minor and
conferred no right to the administration of the same (Palet vs. Aldecoa and Co., 15 Phil.,
232; Ibaez de Aldecoa vs. Hongkong and Shanghai Banking Corporation, 30 Phil., 228)
and the plaintiff, being a minor and under disability, could not create a technical trust of
any kind. Applying Bouvier's definition to this estate of facts, it is clear that there was no
trust in its technical signification. The mother had no right of property or administration in
her daughter's estate and was nothing but a mere trespasser. The language of the New
Jersey Court of Chancery in the case of Henniger vs.Heald (30 Atlantic, 809), is therefore
particularly apposite in the present case.
In the case before us the title was acquired by Heald tortuously, or in violation of
every well-settled principle of law. It never was trust property. Strictly speaking,
he was not a trustee, any more than a trespasser or other wrongdoer. The
Trust - SJBPrior | 23