BUS-ORG: TRUST

FULL TEXT
I. INTRODUCTION
B. ESSENCE OF TRUST
CASES:
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 148788

November 23, 2007

SOLEDAD CAEZO, substituted by WILLIAM CAEZO and VICTORIANO CAEZO

Petitioners,
vs.
CONCEPCION ROJAS, Respondent.
DECISION
NACHURA, J.:
This is a petition for review on certiorari from the Decision1 of the Court of Appeals, dated
September 7, 2000, in CA-G.R. SP No. 53236, and Resolution dated May 9, 2001.
On January 29, 1997, petitioner Soledad Caezo filed a Complaint2 for the recovery of real
property plus damages with the Municipal Trial Court (MTC) of Naval, Biliran, against her
fathers second wife, respondent Concepcion Rojas. The subject property is an unregistered
land with an area of 4,169 square meters, situated at Higatangan, Naval, Biliran. Caezo
attached to the complaint a Joint Affidavit3 executed on May 10, 1979 by Isidro Catandijan and
Maximina Caezo attesting to her acquisition of the property.
In her complaint, the petitioner alleged that she bought the parcel of land in 1939 from
Crisogono Limpiado, although the transaction was not reduced into writing. Thereafter, she
immediately took possession of the property. When she and her husband left for Mindanao in
1948, she entrusted the said land to her father, Crispulo4 Rojas, who took possession of, and
cultivated, the property. In 1980, she found out that the respondent, her stepmother, was in
possession of the property and was cultivating the same. She also discovered that the tax
declaration over the property was already in the name of Crispulo Rojas.5
In her Answer, the respondent asserted that, contrary to the petitioners claim, it was her
husband, Crispulo Rojas, who bought the property from Crisogono Limpiado in 1948, which
accounts for the tax declaration being in Crispulos name. From then on, until his death in 1978,
Crispulo possessed and cultivated the property. Upon his death, the property was included in

his estate, which was administered by a special administrator, Bienvenido Ricafort. The
petitioner, as heir, even received her share in the produce of the estate. The respondent further
contended that the petitioner ought to have impleaded all of the heirs as defendants. She also
argued that the fact that petitioner filed the complaint only in 1997 means that she had already
abandoned her right over the property.6
On July 3, 1998, after hearing, the MTC rendered a Decision in favor of the petitioner, thus:
WHEREFORE, premises considered, the Court finds a preponderance of evidence in favor of
plaintiff Soledad Caezo and against defendant Concepcion Rojas by declaring plaintiff the true
and lawful owner of the land more particularly described under paragraph 5 of the complaint and
hereby orders defendant Concepcion Rojas:
a) To vacate and surrender possession of the land to plaintiff;
b) To pay plaintiff the sum of P34,000.00 actual damages, P10,000.00 for attorneys fees
and litigation expenses; and
c) To pay the costs.
SO ORDERED.7
Despite the respondents objection that the verbal sale cannot be proven without infringing the
Statute of Frauds, the MTC gave credence to the testimony of the petitioners two witnesses
attesting to the fact that Crisogono Limpiado sold the property to the petitioner in 1939. The
MTC also found no evidence to show that Crispulo Rojas bought the property from Crisogono
Limpiado in 1948. It held that the 1948 tax declaration in Crispulos name had little significance
on respondents claim, considering that in 1948, the "country was then rehabilitating itself from
the ravages of the Second World War" and "the government was more interested in the
increase in tax collection than the observance of the niceties of law."8
The respondent appealed the case to the Regional Trial Court (RTC) of Naval, Biliran. On
October 12, 1998, the RTC reversed the MTC decision on the ground that the action had
already prescribed and acquisitive prescription had set in. The dispositive portion of the
Decision reads:
WHEREFORE, premises considered, the decision of the Municipal Trial Court of Naval, Biliran
awarding ownership of the disputed land to the plaintiff and further allowing recovery of
damages is hereby REVERSED in toto. There is no award of damages.
The said property remains as the legitime of the defendant Concepcion Rojas and her children.
SO ORDERED.9
However, acting on petitioners motion for reconsideration, the RTC amended its original
decision on December 14, 1998.10 This time, it held that the action had not yet prescribed
considering that the petitioner merely entrusted the property to her father. The ten-year
prescriptive period for the recovery of a property held in trust would commence to run only from
the time the trustee repudiates the trust. The RTC found no evidence on record showing that

Crispulo Rojas ever ousted the petitioner from the property. The dispositive portion of the
amended decision reads as follows:
WHEREFORE, in view of the foregoing considerations, the decision of this Court dated October
12, 1998 is hereby set aside and another is hereby entered modifying the decision of the Court
a quo and declaring Soledad Rojas Vda. De Caezo as the true and lawful owner of a parcel of
land, more particularly described and bounded as follows:
A parcel of land situated at Higatangan, Naval, Biliran, bounded on the North by Policarpio
Limpiado; on the South by Fidel Limpiado; on the East by Seashore; and on the West by
Crispolo (sic) Limpiado with an approximate area of 4,169 square meters per Tax Declaration
No. 2258, later under Tax Declaration No. 4073 in the name of Crispolo Rojas and later in the
name of the Heirs of Crispolo Rojas.
Further, ordering defendant-appellant Concepcion Rojas and all persons claiming rights or
interest under her to vacate and surrender possession of the land aforecited to the plaintiff or
any of her authorized representatives, Ordering the Provincial and/or Municipal Assessors
Office to cancel the present existing Tax Declaration in the name of Heirs of Crispolo Rojas
referring to the above-described property in favor of the name of Soledad Rojas Vda. De
Caezo, Ordering the defendant-appellant Concepcion Rojas to pay the plaintiff-appellee the
sum of P34,000.00 in actual damages, and to pay for the loss of her share in money value of
the products of the coconuts of said land from 1979 to 1997 and to pay further until the case is
terminated at the rate of P200.00 per quarter based on the regular remittances of the late
Crispolo Rojas to the plaintiff-appellee, and to pay the costs.
SO ORDERED.11
The respondent filed a motion to reconsider the Amended Decision but the RTC denied the
same in an Order dated April 25, 1999.
She then filed a petition for review with the Court of Appeals (CA), which reversed the Amended
Decision of the RTC on September 7, 2000, thus:
WHEREFORE, the amended decision dated December 14, 1998 rendered in Civil Case No. B1041 is hereby REVERSED and SET ASIDE. The complaint filed by Soledad Caezo before the
Municipal Trial Court of Naval, Biliran is hereby DISMISSED on grounds of laches and
prescription and for lack of merit.
SO ORDERED.12
The CA held that the petitioners inaction for several years casts a serious doubt on her claim of
ownership over the parcel of land. It noted that 17 years lapsed since she discovered that
respondent was in adverse possession of the property before she instituted an action to recover
the same. And during the probate proceedings, the petitioner did not even contest the inclusion
of the property in the estate of Crispulo Rojas. 13
The CA was convinced that Crispulo Rojas owned the property, having bought the same from
Crisogono Limpiado in 1948. Supporting this conclusion, the appellate court cited the following
circumstances: (1) the property was declared for taxation purposes in Crispulos name and he
had been paying the taxes thereon from 1948 until his death in 1978; (2) Crispulo adversely

possessed the same property from 1948 until his death in 1978; and (3) upon his death in 1978,
the property was included in his estate, the proceeds of which were distributed among his
heirs.14
The CA further held that, assuming that there was an implied trust between the petitioner and
her father over the property, her right of action to recover the same would still be barred by
prescription since 49 years had already lapsed since Crispulo adversely possessed the
contested property in 1948.15
On May 9, 2001, the CA denied the petitioners motion for reconsideration for lack of merit.16
In this petition for review, the petitioner, substituted by her heirs, assigns the following errors:
That the Court of Appeals committed grave abuse of discretion in setting aside petitioners
contention that the Petition for Review filed by respondent CONCEPCION ROJAS before the
Court of Appeals was FILED OUT OF TIME;
That the Court of Appeals erred and committed grave abuse of discretion amounting to lack or
excess of jurisdiction when it decided that the filing of the case by SOLEDAD CAEZO for
Recovery of Real Property was already barred by PRESCRIPTION AND LACHES.17
The petitioner insists that the respondents petition for review before the CA was filed out of
time. The petitioner posits that the CA may not grant an additional extension of time to file the
petition except for the most compelling reason. She contends that the fact that respondents
counsel needed additional time to secure the certified copy of his annexes cannot be
considered as a compelling reason that would justify an additional period of
extension. She admits, though, that this issue was raised for the first time in their motion for
reconsideration, but insists that it can be raised at any time since it concerns the jurisdiction of
the CA over the petition.
The petitioner further posits that prescription and laches are unavailing because there was an
express trust relationship between the petitioner and Crispulo Rojas and his heirs, and express
trusts do not prescribe. Even assuming that it was not an express trust, there was a resulting
trust which generally does not prescribe unless there is repudiation by the trustee.
For her part, the respondent argues that the petitioners are now estopped from questioning the
CA Resolution granting her second motion for extension to file the petition for review. She notes
that the petitioner did not raise this issue in the comment that she filed in the CA. In any case,
the grant of the second extension of time was warranted considering that the certified true copy
of the assailed RTC orders did not arrive at the office of respondents counsel in Cebu City in
time for the filing of the petition.
On the merits, the respondent asserts that the complaint is barred by prescription, laches and
estoppel. From 1948 until his death in 1978, Crispulo cultivated the property and was in
adverse, peaceful and continuous possession thereof in the concept of owner. It took the
petitioner 49 years from 1948 before she filed the complaint for recovery of the property in 1997.
Granting that it was only in 1980 that she found out that the respondent adversely possessed
the property, still petitioner allowed 17 years to elapse before she asserted her alleged right
over the property.

Finally, the respondent maintains that the other co-owners are indispensable parties to the
case; and because they were not impleaded, the case should be dismissed.
The petition has no merit.
On the procedural issue raised by the petitioner, we find no reversible error in the grant by the
CA of the second motion for extension of time to file the respondents petition. The grant or
denial of a motion for extension of time is addressed to the sound discretion of the court. 18 The
CA obviously considered the difficulty in securing a certified true copy of the assailed decision
because of the distance between the office of respondents counsel and the trial court as a
compelling reason for the request. In the absence of any showing that the CA granted the
motion for extension capriciously, such exercise of discretion will not be disturbed by this Court.
On the second issue, the petitioner insists that her right of action to recover the property cannot
be barred by prescription or laches even with the respondents uninterrupted possession of the
property for 49 years because there existed between her and her father an express trust or a
resulting trust. Indeed, if no trust relations existed, the possession of the property by the
respondent, through her predecessor, which dates back to 1948, would already have given rise
to acquisitive prescription in accordance with Act No. 190 (Code of Civil Procedure).19 Under
Section 40 of Act No. 190, an action for recovery of real property, or of an interest therein, can
be brought only within ten years after the cause of action accrues. This period coincides with the
ten-year period for acquisitive prescription provided under Section 4120 of the same Act.
Thus, the resolution of the second issue hinges on our determination of the existence of a trust
over the property --- express or implied --- between the petitioner and her father.
A trust is the legal relationship between one person having an equitable ownership of 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.21 Trusts are either express or implied.22 Express trusts are those which are created by the
direct and positive acts of the parties, by some writing or deed, or will, or by words evincing an
intention to create a trust.23 Implied trusts are those which, without being expressed, are
deducible from the nature of the transaction as matters of intent or, independently, of the
particular intention of the parties, as being superinduced on the transaction by operation of law
basically by reason of equity.24 An implied trust may either be a resulting trust or a constructive
trust.
It is true that in express trusts and resulting trusts, a trustee cannot acquire by prescription a
property entrusted to him unless he repudiates the trust.25 The following discussion is
instructive:
There is a rule that a trustee cannot acquire by prescription the ownership of property entrusted
to him, or that an action to compel a trustee to convey property registered in his name in trust
for the benefit of the cestui que trust does not prescribe, or that the defense of prescription
cannot be set up in an action to recover property held by a person in trust for the benefit of
another, or that property held in trust can be recovered by the beneficiary regardless of the
lapse of time.
That rule applies squarely to express trusts. The basis of the rule is that the possession of a
trustee is not adverse. Not being adverse, he does not acquire by prescription the property held

in trust. Thus, Section 38 of Act 190 provides that the law of prescription does not apply "in the
case of a continuing and subsisting trust."
The rule of imprescriptibility of the action to recover property held in trust may possibly apply to
resulting trusts as long as the trustee has not repudiated the trust.
xxxx
Acquisitive prescription may bar the action of the beneficiary against the trustee in an express
trust for the recovery of the property held in trust where (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
As a rule, however, 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.27 The presence of the following elements must be proved: (1) a trustor or settlor who
executes the instrument creating the trust; (2) a trustee, who is the person expressly designated
to carry out the trust; (3) the trust res, consisting of duly identified and definite real properties;
and (4) the cestui que trust, or beneficiaries whose identity must be clear.28 Accordingly, it was
incumbent upon petitioner to prove the existence of the trust relationship. And petitioner sadly
failed to discharge that burden.
The existence of express trusts concerning real property may not be established by parol
evidence.29 It must be proven by some writing or deed. In this case, the only evidence to
support the claim that an express trust existed between the petitioner and her father was the
self-serving testimony of the petitioner. Bare allegations do not constitute evidence adequate to
support a conclusion. They are not equivalent to proof under the Rules of Court.30
In one case, the Court allowed oral testimony to prove the existence of a trust, which had been
partially performed. It was stressed therein that what is important is that there should be an
intention to create a trust, thus:
What is crucial is the intention to create a trust. While oftentimes the intention is manifested by
the trustor in express or explicit language, such intention may be manifested by inference from
what the trustor has said or done, from the nature of the transaction, or from the circumstances
surrounding the creation of the purported trust.
However, an inference of the intention to create a trust, made from language, conduct or
circumstances, must be made with reasonable certainty. It cannot rest on vague, uncertain or
indefinite declarations. An inference of intention to create a trust, predicated only on
circumstances, can be made only where they admit of no other interpretation.31
Although no particular words are required for the creation of an express trust, a clear intention to
create a trust must be shown; and the proof of fiduciary relationship must be clear and
convincing. The creation of an express trust must be manifested with reasonable certainty and
cannot be inferred from loose and vague declarations or from ambiguous circumstances
susceptible of other interpretations.32

In the case at bench, an intention to create a trust cannot be inferred from the petitioners
testimony and the attendant facts and circumstances. The petitioner testified only to the effect
that her agreement with her father was that she will be given a share in the produce of the
property, thus:
Q: What was your agreement with your father Crispulo Rojas when you left this property
to him?
A: Every time that they will make copra, they will give a share.
Q: In what particular part in Mindanao [did] you stay with your husband?
A: Bansalan, Davao del Sur.
Q: And while you were in Bansalan, Davao del Sur, did Crispolo Rojas comply with his
obligation of giving your share the proceeds of the land?
A: When he was still alive, he gave us every three months sometimes P200.00 and
sometimes P300.00.33
This allegation, standing alone as it does, is inadequate to establish the existence of a trust
because profit-sharing per se, does not necessarily translate to a trust relation. It could also be
present in other relations, such as in deposit.
What distinguishes a trust from other relations is the separation of the legal title and equitable
ownership of the property. In a trust relation, legal title is vested in the fiduciary while equitable
ownership is vested in a cestui que trust. Such is not true in this case. The petitioner alleged in
her complaint that the tax declaration of the land was transferred to the name of Crispulo
without her consent. Had it been her intention to create a trust and make Crispulo her trustee,
she would not have made an issue out of this because in a trust agreement, legal title is vested
in the trustee. The trustee would necessarily have the right to transfer the tax declaration in his
name and to pay the taxes on the property. These acts would be treated as beneficial to the
cestui que trust and would not amount to an adverse possession.34
Neither can it be deduced from the circumstances of the case that a resulting trust was
created.1wphi1 A resulting trust is a species of implied trust that is presumed always to have
been contemplated by the parties, the intention as to which can be found in the nature of their
transaction although not expressed in a deed or instrument of conveyance. A resulting trust is
based on the equitable doctrine that it is the more valuable consideration than the legal title that
determines the equitable interest in property.35
While implied trusts may be proved by oral evidence, 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.36 In order to establish an implied trust in real property by parol evidence, the proof
should be as fully convincing as if the acts giving rise to the trust obligation are proven by an
authentic document. An implied trust, in fine, cannot be established upon vague and
inconclusive proof.37 In the present case, there was no evidence of any transaction between the
petitioner and her father from which it can be inferred that a resulting trust was intended.

In light of the disquisitions, we hold that there was no express trust or resulting trust established
between the petitioner and her father. Thus, in the absence of a trust relation, we can only
conclude that Crispulos uninterrupted possession of the subject property for 49 years, coupled
with the performance of acts of ownership, such as payment of real estate taxes, ripened into
ownership. The statutory period of prescription commences when a person who has neither title
nor good faith, secures a tax declaration in his name and may, therefore, be said to have
adversely claimed ownership of the lot.38 While tax declarations and receipts are not conclusive
evidence of ownership and do not prove title to the land, nevertheless, when coupled with actual
possession, they constitute evidence of great weight and can be the basis of a claim of
ownership through prescription.39 Moreover, Section 41 of Act No. 190 allows adverse
possession in any character to ripen into ownership after the lapse of ten years. There could be
prescription under the said section even in the absence of good faith and just title.40
All the foregoing notwithstanding, even if we sustain petitioners claim that she was the owner of
the property and that she constituted a trust over the property with her father as the trustee,
such a finding still would not advance her case.
Assuming that such a relation existed, it terminated upon Crispulos death in 1978. A trust
terminates upon the death of the trustee where the trust is personal to the trustee in the sense
that the trustor intended no other person to administer it.41 If Crispulo was indeed appointed as
trustee of the property, it cannot be said that such appointment was intended to be conveyed to
the respondent or any of Crispulos other heirs. Hence, after Crispulos death, the respondent
had no right to retain possession of the property. At such point, a constructive trust would be
created over the property by operation of law. Where one mistakenly retains property which
rightfully belongs to another, a constructive trust is the proper remedial device to correct the
situation.42
A constructive trust is one created not by any word or phrase, either expressly or impliedly,
evincing a direct intention to create a trust, but one which arises in order to satisfy the demands
of justice. It does not come about by agreement or intention but in the main by operation of law,
construed 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.43
As previously stated, the rule that a trustee cannot, by prescription, acquire ownership over
property entrusted to him until and unless he repudiates the trust, applies to express trusts and
resulting implied trusts. However, in constructive implied trusts, prescription may supervene
even if the trustee does not repudiate the relationship. Necessarily, repudiation of the said trust
is not a condition precedent to the running of the prescriptive period.44 A constructive trust,
unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an
express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a
constructive trust, there is neither a promise nor any fiduciary relation to speak of and the socalled trustee neither accepts any trust nor intends holding the property for the beneficiary. 45
The relation of trustee and cestui que trust does not in fact exist, and the holding of a
constructive trust is for the trustee himself, and therefore, at all times adverse.
In addition, a number of other factors militate against the petitioners case. First, the petitioner is
estopped from asserting ownership over the subject property by her failure to protest its
inclusion in the estate of Crispulo. The CA, thus, correctly observed that:

Even in the probate proceedings instituted by the heirs of Crispulo Rojas, which included her as
a daughter of the first marriage, Caezo never contested the inclusion of the contested property
in the estate of her father. She even participated in the project of partition of her fathers estate
which was approved by the probate court in 1984. After personally receiving her share in the
proceeds of the estate for 12 years, she suddenly claims ownership of part of her fathers estate
in 1997.
The principle of estoppel in pais applies when -- by ones acts, representations, admissions, or
silence when there is a need to speak out -- one, intentionally or through culpable negligence,
induces another to believe certain facts to exist; and the latter rightfully relies and acts on such
belief, so as to be prejudiced if the former is permitted to deny the existence of those facts. 46
Such a situation obtains in the instant case.
Second, the action is barred by laches. The petitioner allegedly discovered that the property
was being possessed by the respondent in 1980.47 However, it was only in 1997 that she filed
the action to recover the property. Laches is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to it has either abandoned or
declined to assert it.48
Finally, the respondent asserts that the court a quo ought to have dismissed the complaint for
failure to implead the other heirs who are indispensable parties. We agree. We note that the
complaint filed by the petitioner sought to recover ownership, not just possession of the
property; thus, the suit is in the nature of an action for reconveyance. It is axiomatic that owners
of property over which reconveyance is asserted are indispensable parties. Without them being
impleaded, no relief is available, for the court cannot render valid judgment. Being indispensable
parties, their absence in the suit renders all subsequent actions of the trial court null and void for
want of authority to act, not only as to the absent parties but even as to those present. Thus,
when indispensable parties are not before the court, the action should be dismissed.49 At any
rate, a resolution of this issue is now purely academic in light of our finding that the complaint is
already barred by prescription, estoppel and laches.
WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of
Appeals, dated September 7, 2000, and Resolution dated May 9, 2001, are AFFIRMED.
SO ORDERED.
ANTONIO EDUARDO B. NACHURA
Associate Justice

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. L-26699 March 16, 1976
BENITA SALAO, assisted by her husband, GREGORIO MARCELO; ALMARIO ALCURIZA,
ARTURO ALCURIZA, OSCAR ALCURIZA and ANITA ALCURIZA, the latter two being
minors are represented by guardian ad litem, ARTURO ALCURIZA, plaintiffs-appellants,
vs.
JUAN S. SALAO, later substituted by PABLO P. SALAO, Administrator of the Intestate of
JUAN S. SALAO; now MERCEDES P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA
SALAO VDA. DE SANTOS, LUCIANA P. SALAO, ISABEL SALAO DE SANTOS, and
PABLO P. SALAO, as successors-in-interest of the late JUAN S. SALAO, together with
PABLO P. SALAO, Administrator, defendants-appellants.
Eusebio V. Navarro for plaintiffs-appellants.
Nicolas Belmonte & Benjamin T. de Peralta for defendants-appellants.

AQUINO, J.:
This litigation regarding a forty-seven-hectare fishpond located at Sitio Calunuran, Hermosa,
Bataan involves the law of trusts and prescription. The facts are as follows:
The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal begot four
children named Patricio, Alejandra, Juan (Banli) and Ambrosia. Manuel Salao died in 1885. His
eldest son, Patricio, died in 1886 survived by his only child. Valentin Salao.
There is no documentary evidence as to what, properties formed part of Manuel Salao's estate,
if any. His widow died on May 28, 1914. After her death, her estate was administered by her
daughter Ambrosia.
It was partitioned extrajudicially in a deed dated December 29, 1918 but notarized on May 22,
1919 (Exh. 21). The deed was signed by her four legal heirs, namely, her three children,
Alejandra, Juan and Ambrosia, and her grandson, Valentin Salao, in representation of his
deceased father, Patricio.
The lands left by Valentina Ignacio, all located at Barrio Dampalit were as follows:
Nature of Land

(1) One-half interest in a fishpond which she had inherited from her parents, Feliciano Ignacio
and Damiana Mendoza, and the other half of which was owned by her co-owner, Josefa Sta.
Ana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,700
(2) Fishpond inherited from her parents . . . . . . . . . . . . 7,418
(3) Fishpond inherited from her parents . . . . . . . . . . . . . 6,989
(4) Fishpond with a bodega for salt . . . . . . . . . . . . . . . . 50,469
(5) Fishpond with an area of one hectare, 12 ares and 5 centares purchased from Bernabe and
Honorata Ignacio by Valentina Ignacio on November 9, 1895 with a bodega for salt . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,205
(6) Fishpond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000
(7) One-half interest in a fishpond with a total area of 10,424 square meters, the other half was
owned by A. Aguinaldo . . . . . . . . . . . . . . . . . . . . . . . 5,217
(8) Riceland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,454
(9) Riceland purchased by Valentina Ignacio from Eduardo Salao on January 27, 1890 with a
house and two camarins thereon . . . . . . . . . . . . . . . . . . 8,065
(10) Riceland in the name of Ambrosia Salao, with an area of 11,678 square meters, of which
2,173 square meters were sold to Justa Yongco . . . . . . . . . .9,505
TOTAL . . . . . . . . . . . . .. 179,022 square

To each of the legal heirs of Valentina Ignacio was adjudicated a distributive share valued at
P8,135.25. In satisfaction of his distributive share, Valentin Salao (who was then already fortyeight years old) was given the biggest fishpond with an area of 50,469 square meters, a smaller
fishpond with an area of 6,989 square meters and the riceland with a net area of 9,905 square
meters. Those parcels of land had an aggregate appraised value of P13,501 which exceeded
Valentin's distributive share. So in the deed of partition he was directed to pay to his co-heirs
the sum of P5,365.75. That arrangement, which was obviously intended to avoid the
fragmentation of the lands, was beneficial to Valentin.
In that deed of partition (Exh. 21) it was noted that "desde la muerte de Valentina Ignacio y
Mendoza, ha venido administrando sus bienes la referida Ambrosia Salao" "cuya administracion
lo ha sido a satisfaccion de todos los herederos y por designacion los mismos". It was expressly
stipulated that Ambrosia Salao was not obligated to render any accounting of her administration
"en consideracion al resultado satisfactorio de sus gestiones, mejoradas los bienes y pagodas
por ella las contribusiones (pages 2 and 11, Exh. 21).
By virtue of the partition the heirs became "dueos absolutos de sus respectivas propiedadas, y
podran inmediatamente tomar posesion de sus bienes, en la forma como se han distribuido y
llevado a cabo las adjudicaciones" (page 20, Exh. 21).
The documentary evidence proves that in 1911 or prior to the death of Valentina Ignacio her two
children, Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens title, OCT No. 185 of the
Registry of Deeds of Pampanga, in their names for a forty-seven-hectare fishpond located at
Sitio Calunuran, Lubao, Pampanga (Exh. 14). It is also known as Lot No. 540 of the Hermosa
cadastre because that part of Lubao later became a part of Bataan.
The Calunuran fishpond is the bone of contention in this case.
Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had engaged in the fishpond
business. Where they obtained the capital is not shown in any documentary evidence. Plaintiffs'
version is that Valentin Salao and Alejandra Salao were included in that joint venture, that the
funds used were the earnings of the properties supposedly inherited from Manuel Salao, and
that those earnings were used in the acquisition of the Calunuran fishpond. There is no
documentary evidence to support that theory.
On the other hand, the defendants contend that the Calunuran fishpond consisted of lands
purchased by Juan Y. Salao, Sr. and Ambrosia Salao in 1905, 1906, 1907 and 1908 as, shown
in their Exhibits 8, 9, 10 and 13. But this point is disputed by the plaintiffs.
However, there can be no controversy as to the fact that after Juan Y. Salao, Sr. and Ambrosia
Salao secured a Torrens title for the Calunuran fishpond in 1911 they exercised dominical rights
over it to the exclusion of their nephew, Valentin Salao.

Thus, on December 1, 1911 Ambrosia Salao sold under pacto de retro for P800 the Calunuran
fishpond to Vicente Villongco. The period of redemption was one year. In the deed of sale
(Exh19) Ambrosia confirmed that she and her brother Juan were the dueos proindivisos of the
said pesqueria. On December 7, 1911 Villongco, the vendee a retro, conveyed the same
fishpond to Ambrosia by way of lease for an anual canon of P128 (Exh. 19-a).
After the fishpond was redeemed from Villongco or on June 8, 1914 Ambrosia and Juan sold it
under pacto de retro to Eligio Naval for the sum of P3,360. The period of redemption was also
one year (Exh. 20). The fishpond was later redeemed and Naval reconveyed it to the vendors a
retro in a document dated October 5, 1916 (Exh. 20-a).
The 1930 survey shown in the computation sheets of the Bureau of Lands reveals that the
Calunuran fishpond has an area of 479,205 square meters and that it was claimed by Juan
Salao and Ambrosia Salao, while the Pinanganacan fishpond (subsequently acquired by Juan
and Ambrosia) has an area of 975,952 square meters (Exh. 22).
Likewise, there is no controversy as to the fact that on May 27, 1911 Ambrosia Salao bought for
four thousand pesos from the heirs of Engracio Santiago a parcel of swampland planted to
bacawan and nipa with an area of 96 hectares, 57 ares and 73 centares located at Sitio Lewa,
Barrio Pinanganacan, Lubao, Pampanga (Exh. 17-d).
The record of Civil Case No. 136, General Land Registration Office Record No. 12144, Court of
First Instance of Pampanga shows that Ambrosia Salao and Juan Salao filed an application for
the registration of that land in their names on January 15, 1916. They alleged in their petition
that "han adquirido dicho terreno por partes iguales y por la compra a los herederos del finado,
Don Engracio Santiago" (Exh. 17-a).
At the hearing on October 26, 1916 before Judge Percy M. Moir, Ambrosia testified for the
applicants. On that same day Judge Moir rendered a decision, stating, inter alia, that the heirs of
Engracio Santiago had sold the land to Ambrosia Salao and Juan Salao. Judge Moir "ordena la
adjudicacion y registro del terreno solicitado a nombre de Juan Salao, mayor de edad y de
estado casado y de su esposa Diega Santiago y Ambrosia Salao, de estado soltera y mayor de
edad, en participaciones iguales" (Exh. 17-e).
On November 28, 1916 Judge Moir ordered the issuance of a decree for the said land. The
decree was issued on February 21, 1917. On March 12, 1917 Original Certificate of Title No.
472 of the Registry of Deeds of Pampanga was issued in the names of Juan Salao and
Ambrosia Salao.
That Pinanganacan or Lewa fishpond later became Cadastral Lot No. 544 of the Hermosa
cadastre (Exh. 23). It adjoins the Calunuran fishpond (See sketch, Exh. 1).
Juan Y. Salao, Sr. died on November 3, 1931 at the age of eighty years (Exh. C). His nephew,
Valentin Salao, died on February 9, 1933 at the age of sixty years according to the death
certificate (Exh. A. However, if according to Exhibit 21, he was forty-eight years old in 1918, he
would be sixty-three years old in 1933).
The intestate estate of Valentin Salao was partitioned extrajudicially on December 28, 1934
between his two daughters, Benita Salao-Marcelo and Victorina Salao-Alcuriza (Exh. 32). His

estate consisted of the two fishponds which he had inherited in 1918 from his grandmother,
Valentina Ignacio.
If it were true that he had a one-third interest in the Calunuran and Lewa fishponds with a total
area of 145 hectares registered in 1911 and 1917 in the names of his aunt and uncle, Ambrosia
Salao and Juan Y. Salao, Sr., respectively, it is strange that no mention of such interest was
made in the extrajudicial partition of his estate in 1934.
It is relevant to mention that on April 8, 1940 Ambrosia Salao donated to her grandniece,
plaintiff Benita Salao, three lots located at Barrio Dampalit with a total area of 5,832 square
meters (Exit. L). As donee Benita Salao signed the deed of donation.
On that occasion she could have asked Ambrosia Salao to deliver to her and to the children of
her sister, Victorina, the Calunuran fishpond if it were true that it was held in trust by Ambrosia
as the share of Benita's father in the alleged joint venture.
But she did not make any such demand. It was only after Ambrosia Salao's death that she
thought of filing an action for the reconveyance of the Calunuran fishpond which was allegedly
held in trust and which had become the sole property of Juan Salao y Santiago (Juani).
On September 30, 1944 or during the Japanese occupation and about a year before Ambrosia
Salao's death on September 14, 1945 due to senility (she was allegedly eighty-five years old
when she died), she donated her one-half proindiviso share in the two fishponds in question to
her nephew, Juan S. Salao, Jr. (Juani) At that time she was living with Juani's family. He was
already the owner of the the other half of the said fishponds, having inherited it from his father,
Juan Y. Salao, Sr. (Banli) The deed of denotion included other pieces of real property owned by
Ambrosia. She reserved for herself the usufruct over the said properties during her lifetime (Exh.
2 or M).
The said deed of donation was registered only on April 5, 1950 (page 39, Defendants' Record
on Appeal).
The lawyer of Benita Salao and the Children of Victorina Salao in a letter dated January 26,
1951 informed Juan S. Salao, Jr. that his clients had a one-third share in the two fishponds and
that when Juani took possession thereof in 1945, he refused to give Benita and Victorina's
children their one-third share of the net fruits which allegedly amounted to P200,000 (Exh. K).
Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated that Valentin Salao
did not have any interest in the two fishponds and that the sole owners thereof his father Banli
and his aunt Ambrosia, as shown in the Torrens titles issued in 1911 and 1917, and that he
Juani was the donee of Ambrosia's one-half share (Exh. K-1).
Benita Salao and her nephews and niece filed their original complaint against Juan S. Salao, Jr.
on January 9, 1952 in the Court of First Instance of Bataan (Exh. 36). They amended their
complaint on January 28, 1955. They asked for the annulment of the donation to Juan S. Salao,
Jr. and for the reconveyance to them of the Calunuran fishpond as Valentin Salao's supposed
one-third share in the 145 hectares of fishpond registered in the names of Juan Y. Salao, Sr.
and Ambrosia Salao.

Juan S. Salao, Jr. in his answer pleaded as a defense the indefeasibility of the Torrens title
secured by his father and aunt. He also invoked the Statute of Frauds, prescription and laches.
As counter-claims, he asked for moral damages amounting to P200,000, attorney's fees and
litigation expenses of not less than P22,000 and reimbursement of the premiums which he has
been paying on his bond for the lifting of the receivership Juan S. Salao, Jr. died in 1958 at the
age of seventy-one. He was substituted by his widow, Mercedes Pascual and his six children
and by the administrator of his estate.
In the intestate proceedings for the settlement of his estate the two fishponds in question were
adjudicated to his seven legal heirs in equal shares with the condition that the properties would
remain under administration during the pendency of this case (page 181, Defendants' Record
on Appeal).
After trial the trial court in its decision consisting of one hundred ten printed pages dismissed the
amended complaint and the counter-claim. In sixty-seven printed pages it made a laborious
recital of the testimonies of plaintiffs' fourteen witnesses, Gregorio Marcelo, Norberto
Crisostomo, Leonardo Mangali Fidel de la Cruz, Dionisio Manalili, Ambrosio Manalili, Policarpio
Sapno, Elias Manies Basilio Atienza, Benita Salao, Emilio Cagui Damaso de la Pea, Arturo
Alcuriza and Francisco Buensuceso, and the testimonies of defendants' six witnesses, Marcos
Galicia, Juan Galicia, Tiburcio Lingad, Doctor Wenceslao Pascual, Ciriaco Ramirez and Pablo
P. Salao. (Plaintiffs presented Regino Nicodemus as a fifteenth witness, a rebuttal witness).
The trial court found that there was no community of property among Juan Y. Salao, Sr.,
Ambrosia Salao and Valentin Salao when the Calunuran and Pinanganacan (Lewa) lands were
acquired; that a co-ownership over the real properties of Valentina Ignacio existed among her
heirr after her death in 1914; that the co-ownership was administered by Ambrosia Salao and
that it subsisted up to 1918 when her estate was partitioned among her three children and her
grandson, Valentin Salao.
The trial court surmised that the co-ownership which existed from 1914 to 1918 misled the
plaintiffs and their witnesses and caused them to believe erroneously that there was a coownership in 1905 or thereabouts. The trial court speculated that if valentin had a hand in the
conversion into fishponds of the Calunuran and Lewa lands, he must have done so on a salary
or profit- sharing basis. It conjectured that Valentin's children and grandchildren were given by
Ambrosia Salao a portion of the earnings of the fishponds as a reward for his services or
because of Ambrosia's affection for her grandnieces.
The trial court rationalized that Valentin's omission during his lifetime to assail the Torrens titles
of Juan and Ambrosia signified that "he was not a co-owner" of the fishponds. It did not give
credence to the testimonies of plaintiffs' witnesses because their memories could not be trusted
and because no strong documentary evidence supported the declarations. Moreover, the
parties involved in the alleged trust were already dead.
It also held that the donation was validly executed and that even if it were void Juan S. Salao,
Jr., the donee, would nevertheless be the sole legal heir of the donor, Ambrosia Salao, and
would inherit the properties donated to him.
Both parties appealed. The plaintiffs appealed because their action for reconveyance was
dismissed. The defendants appealed because their counterclaim for damages was dismissed.

The appeals, which deal with factual and legal issues, were made to the Court of Appeals.
However, as the amounts involved exceed two hundred thousand pesos, the Court of Appeals
elevated the case to this Court in its resolution of Octoter 3, 1966 (CA-G.R. No. 30014-R).
Plaintiffs' appeal. An appellant's brief should contain "a subject index index of the matter in
the brief with a digest of the argument and page references" to the contents of the brief (Sec. 16
[a], Rule 46, 1964 Rules of Court; Sec. 17, Rule 48, 1940 Rules of Court).
The plaintiffs in their appellants' brief consisting of 302 pages did not comply with that
requirement. Their statements of the case and the facts do not contain "page references to the
record" as required in section 16[c] and [d] of Rule 46, formerly section 17, Rule 48 of the 1940
Rules of Court.
Lawyers for appellants, when they prepare their briefs, would do well to read and re-read
section 16 of Rule 46. If they comply strictly with the formal requirements prescribed in section
16, they might make a competent and luminous presentation of their clients' case and lighten
the burden of the Court.
What Justice Fisher said in 1918 is still true now: "The pressure of work upon this Court is so
great that we cannot, in justice to other litigants, undertake to make an examination of the
voluminous transcript of the testimony (1,553 pages in this case, twenty-one witnesses having
testified), unless the attorneys who desire us to make such examination have themselves taken
the trouble to read the record and brief it in accordance with our rules" (Palara vs. Baguisi 38
Phil. 177, 181). As noted in an old case, this Court decides hundreds of cases every year and in
addition resolves in minute orders an exceptionally considerable number of petitions, motions
and interlocutory matters (Alzua and Arnalot vs. Johnson, 21 Phil. 308, 395; See In re Almacen,
L-27654, February 18, 1970, 31 SCRA 562, 573).
Plaintiffs' first assignment of error raised a procedural issue. In paragraphs 1 to 14 of their first
cause of action they made certain averments to establish their theory that Valentin Salao had a
one-third interest in the two fishponds which were registrered in the names of Juan Y. Salao, Sr.
(Banli) and Ambrosia Salao.
Juan S. Salao, Jr. (Juani) in his answer "specifically" denied each and all the allegations" in
paragraphs I to 10 and 12 of the first cause of action with the qualification that Original
certificates of Title Nos. 185 and 472 were issued "more than 37 years ago" in the names of
Juan (Banli) and Ambrosia under the circumstances set forth in Juan S. Salao, Jr.'s "positive
defenses" and "not under the circumstances stated in the in the amended complaint".
The plaintiffs contend that the answer of Juan S. Salao, Jr. was in effect tin admission of the
allegations in their first cause of action that there was a co-ownership among Ambrosia, Juan,
AIejandra and Valentin, all surnamed Salao, regarding the Dampalit property as early as 1904
or 1905; that the common funds were invested the acquisition of the two fishponds; that the 47hectare Calunuran fishpond was verbally adjudicated to Valentin Salao in the l919 partition and
that there was a verbal stipulation to to register "said lands in the name only of Juan Y. Salao".
That contention is unfounded. Under section 6, Rule 9 of the 1940 of Rules of Court the answer
should "contain either a specific dinial a statement of matters in accordance of the cause or
causes of action asserted in the complaint". Section 7 of the same rule requires the defendant
to "deal specificaly with each material allegation of fact the truth of wihich he does not admit

and, whenever practicable shall set forth the substance of the matters which he will rely upon to
support his denial". "Material averments in the complaint, other than those as to the amount
damage, shall be deemed admitted when specifically denied" (Sec. 8). "The defendant may set
forth set forth by answer as many affirmative defenses as he may have. All grounds of defenses
as would raise issues of fact not arising upon the preceding pleading must be specifically
pleaded" (Sec. 9).
What defendant Juan S. Salao, Jr. did in his answer was to set forth in his "positive defenses"
the matters in avoidance of plaintiffs' first cause of action which which supported his denials of
paragraphs 4 to 10 and 12 of the first cause of action. Obviously, he did so because he found it
impracticable to state pierceneal his own version as to the acquisition of the two fishponds or to
make a tedious and repetitious recital of the ultimate facts contradicting allegations of the first
cause of action.
We hold that in doing so he substantially complied with Rule 9 of the 1940 Rules of Court. It
may be noted that under the present Rules of Court a "negative defense is the specific denial of
t the material fact or facts alleged in the complaint essential to plaintiff's cause of causes of
action". On the other hand, "an affirmative defense is an allegation of new matter which, while
admitting the material allegations of the complaint, expressly or impliedly, would nevertheless
prevent or bar recovery by the plaintiff." Affirmative defenses include all matters set up "by of
confession and avoidance". (Sec. 5, Rule 6, Rules of Court).
The case of El Hogar Filipino vs. Santos Investments, 74 Phil. 79 and similar cases are
distinguishable from the instant case. In the El Hogar case the defendant filed a laconic answer
containing the statement that it denied "generally ans specifically each and every allegation
contained in each and every paragraph of the complaint". It did not set forth in its answer any
matters by way of confession and avoidance. It did not interpose any matters by way of
confession and avoidance. It did not interpose any affirmative defenses.
Under those circumstances, it was held that defendant's specific denial was really a general
denial which was tantamount to an admission of the allegations of the complaint and which
justified judgment on the pleadings. That is not the situation in this case.
The other nine assignments of error of the plaintiffs may be reduced to the decisive issue of
whether the Calunuran fishpond was held in trust for Valentin Salao by Juan Y. Salao, Sr. and
Ambrosia Salao. That issue is tied up with the question of whether plaintiffs' action for
reconveyance had already prescribed.
The plaintiffs contend that their action is "to enforce a trust which defendant" Juan S. Salao, Jr.
allegedly violated. The existence of a trust was not definitely alleged in plaintiffs' complaint.
They mentioned trust for the first time on page 2 of their appelants' brief.
To determine if the plaintiffs have a cause of action for the enforcement of a trust, it is
necessary to maek some exegesis on the nature of trusts (fideicomosis). Trusts in AngloAmerican jurisprudence were derived from the fideicommissa of the Roman law (Government of
the Philippine Islands vs. Abadilla, 46 Phil. 642, 646).
"In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the
beneficial enjoyment of property, the legal title to which is vested in another, but the word 'trust'

is frequently employed to indicate duties, relations, and responsibilities which are not strictly
technical trusts" (89 C.J.S. 712).
A person who establishes a trust is called the trustor; one in whom confidence is reposed as
regards property for the benefit of another person is known as the trustee; and the person for
whose benefit the trust has been created is referred to as the beneficiary" (Art. 1440, Civil
Code). There is a fiduciary relation between the trustee and the cestui que trust as regards
certain property, real, personal, money or choses in action (Pacheco vs. Arro, 85 Phil. 505).
"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" (Art. 1441, Civil Code). "No
express trusts concerning an immovable or any interest therein may be proven by parol
evidence. An implied trust may be proven by oral evidence" (Ibid, Arts. 1443 and 1457).
"No particular words are required for the creation of an express trust, it being sufficient that a
trust is clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs.
Dalandan, L-19012, October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which are
created by the 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" (89 C.J.S. 72).
"Implied trusts are those which, without being expressed, are deducible from the nature of the
transaction as matters of intent, or which are superinduced on the transaction by operation of
law as matter of equity, independently of the particular intention of the parties" (89 C.J.S. 724).
They are ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722).
"A resulting trust. is broadly defined as a trust which is raised or created by the act or
construction of law, but in its more restricted sense it is a trust raised by implication of law and
presumed to have been contemplated by the parties, the intention as to which is to be found in
the nature of their transaction, but not expressed in the deed or instrument of conveyance (89
C.J.S. 725). Examples of resulting trusts are found in articles 1448 to 1455 of the Civil Code.
(See Padilla vs. Court of Appeals, L-31569, September 28, 1973, 53 SCRA 168, 179; Martinez
vs. Grao 42 Phil. 35).
On the other hand, a constructive trust is -a trust "raised by construction of law, or arising by
operation of law". In a more restricted sense and as contra-distinguished from a resulting trust, a
constructive trust is "a trust not created by any words, either expressly or impliedly evincing a
direct intension to create a trust, but by the construction of equity in order to satisfy the
demands of justice." It does not arise "by agreement or intention, but by operation of law." (89
C.J.S. 726-727).
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" (Art. 1456, Civil Code).
Or "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". Such a
constructive trust is not a trust in the technical sense. (Gayondato vs. Treasurer of the P. I., 49
Phil. 244).

Not a scintilla of documentary evidence was presented by the plaintiffs to prove that there was
an express trust over the Calunuran fishpond in favor of Valentin Salao. Purely parol evidence
was offered by them to prove the alleged trust. Their claim that in the oral partition in 1919 of the
two fishponds the Calunuran fishpond was assigned to Valentin Salao is legally untenable.
It is legally indefensible because the terms of article 1443 of the Civil Code (already in force
when the action herein was instituted) are peremptory and unmistakable: parol evidence cannot
be used to prove an express trust concerning realty.
Is plaintiffs' massive oral evidence sufficient to prove an implied trust, resulting or constructive,
regarding the two fishponds?
Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust. The trial
court's firm conclusion that there was no community of property during the lifetime of Valentina;
Ignacio or before 1914 is substantiated by defendants' documentary evidence. The existence of
the alleged co-ownership over the lands supposedly inherited from Manuel Salao in 1885 is the
basis of plaintiffs' contention that the Calunuran fishpond was held in trust for Valentin Salao.
But that co-ownership was not proven by any competent evidence. It is quite improbable
because the alleged estate of Manuel Salao was likewise not satisfactorily proven. The plaintiffs
alleged in their original complaint that there was a co-ownership over two hectares of land left
by Manuel Salao. In their amended complaint, they alleged that the co-ownership was over
seven hectares of fishponds located in Barrio Dampalit, Malabon, Rizal. In their brief they
alleged that the fishponds, ricelands and saltbeds owned in common in Barrio Dampalit had an
area of twenty-eight hectares, of which sixteen hectares pertained to Valentina Ignacio and
eleven hectares represented Manuel Salao's estate.
They theorized that the eleven hectares "were, and necessarily, the nucleus, nay the very root,
of the property now in litigation (page 6, plaintiffs-appellants' brief). But the eleven hectares
were not proven by any trustworthy evidence. Benita Salao's testimony that in 1918 or 1919
Juan, Ambrosia, Alejandra and Valentin partitioned twenty-eight hectares of lands located in
Barrio Dampalit is not credible. As noted by the defendants, Manuel Salao was not even
mentioned in plaintiffs' complaints.
The 1919 partition of Valentina Ignacio's estate covered about seventeen hectares of fishponds
and ricelands (Exh. 21). If at the time that partition was made there were eleven hectares of
land in Barrio Dampalit belonging to Manuel Salao, who died in 1885, those eleven hectares
would have been partitioned in writing as in the case of the seventeen hectares belonging to
Valentina Ignacio's estate.
It is incredible that the forty-seven-hectare Calunuran fishpond would be adjudicated to Valentin
Salao mere by by word of mouth. Incredible because for the partition of the seventeen hectares
of land left by Valentina Ignacio an elaborate "Escritura de Particion" consisting of twenty-two
pages had to be executed by the four Salao heirs. Surely, for the partition of one hundred fortyfive hectares of fishponds among three of the same Salao heirs an oral adjudication would not
have sufficed.
The improbability of the alleged oral partition becomes more evident when it is borne in mind
that the two fishponds were registered land and "the act of registration" is "the operative act"
that conveys and affects the land (Sec. 50, Act No. 496). That means that any transaction

affecting the registered land should be evidenced by a registerable deed. The fact that Valentin
Salao and his successors-in-interest, the plaintiffs, never bothered for a period of nearly forty
years to procure any documentary evidence to establish his supposed interest ox participation
in the two fishponds is very suggestive of the absence of such interest.
The matter may be viewed from another angle. As already stated, the deed of partition for
Valentina Ignacio's estate wag notarized in 1919 (Exh. 21). The plaintiffs assert that the two
fishponds were verbally partitioned also in 1919 and that the Calunuran fishpond was assigned
to Valentin Salao as his share.
Now in the partition of Valentina Ignacio's estate, Valentin was obligated to pay P3,355.25 to
Ambrosia Salao. If, according to the plaintiffs, Ambrosia administered the two fishponds and
was the custodian of its earnings, then it could have been easily stipulated in the deed
partitioning Valentina Ignacio's estate that the amount due from Valentin would just be deducted
by Ambrosia from his share of the earnings of the two fishponds. There was no such stipulation.
Not a shred of documentary evidence shows Valentin's participation in the two fishponds.
The plaintiffs utterly failed to measure up to the yardstick that a 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 (De Leon vs. Molo-Peckson, 116 Phil. 1267, 1273).
Trust and trustee; establishment of trust by parol evidence; certainty of proof.
Where a trust is to be established by oral proof, the testimony supporting it must
be sufficiently strong to prove the right of the alleged beneficiary with as much
certainty as if a document proving the trust were shown. A trust cannot be
established, contrary to the recitals of a Torrens title, upon vague and
inconclusive proof. (Syllabus, Suarez vs. Tirambulo, 59 Phil. 303).
Trusts; evidence needed to establish trust on parol testimony. In order to
establish a trust in real property by parol evidence, the proof should be as fully
convincing as if the act giving rise to the trust obligation were proven by an
authentic document. Such a trust cannot be established upon testimony
consisting in large part of insecure surmises based on ancient hearsay.
(Syllabus, Santa Juana vs. Del Rosario 50 Phil. 110).
The foregoing rulings are good under article 1457 of the Civil Code which, as already noted,
allows an implied trust to be proven by oral evidence. Trustworthy oral evidence is required to
prove an implied trust because, oral evidence can be easily fabricated.
On the other hand, a Torrens title is generally a conclusive of the ownership of the land referred
to therein (Sec. 47, Act 496). A strong presumption exists. that Torrens titles were regularly
issued and that they are valid. In order to maintain an action for reconveyance, proof as to the
fiduciary relation of the parties must be clear and convincing (Yumul vs. Rivera and Dizon, 64
Phil. 13, 17-18).
The real purpose of the Torrens system is, to quiet title to land. "Once a title is registered, the
owner may rest secure, without the necessity of waiting in the portals of the court, or sitting in
the mirador de su casa, to avoid the possibility of losing his land" (Legarda and Prieto vs.
Saleeby, 31 Phil. 590, 593).

There was no resulting trust in this case because there never was any intention on the part of
Juan Y. Salao, Sr., Ambrosia Salao and Valentin Salao to create any trust. There was no
constructive trust because the registration of the two fishponds in the names of Juan and
Ambrosia was not vitiated by fraud or mistake. This is not a case where to satisfy the demands
of justice it is necessary to consider the Calunuran fishpond " being held in trust by the heirs of
Juan Y. Salao, Sr. for the heirs of Valentin Salao.
And even assuming that there was an implied trust, plaintiffs' action is clearly barred by
prescription or laches (Ramos vs. Ramos, L-19872, December 3, 1974, 61 SCRA 284; Quiniano
vs. Court of Appeals, L-23024, May 31, 1971, 39 SCRA 221; Varsity Hills, Inc. vs. Navarro, 9,
February 29, 1972, 43 SCRA 503; Alzona vs. Capunitan and Reyes, 114 Phil. 377).
Under Act No. 190, whose statute of limitation would apply if there were an implied trust in this
case, the longest period of extinctive prescription was only ten year (Sec. 40; Diaz vs. Gorricho
and Aguado, 103 Phil. 261, 266).
The Calunuran fishpond was registered in 1911. The written extrajudicial demand for its
reconveyance was made by the plaintiffs in 1951. Their action was filed in 1952 or after the
lapse of more than forty years from the date of registration. The plaintiffs and their predecessorin-interest, Valentin Salao, slept on their rights if they had any rights at all. Vigilanti prospiciunt
jura or the law protects him who is watchful of his rights (92 C.J.S. 1011, citing Esguerra vs.
Tecson, 21 Phil. 518, 521).
"Undue delay in the enforcement of a right is strongly persuasive of a lack of merit in the claim,
since it is human nature for a person to assert his rights most strongly when they are threatened
or invaded". "Laches or unreasonable delay on the part of a plaintiff in seeking to enforce a right
is not only persuasive of a want of merit but may, according to the circumstances, be destructive
of the right itself." (Buenaventura vs. David, 37 Phil. 435, 440-441).
Having reached the conclusion that the plaintiffs are not entitled to the reconveyance of the
Calunuran fishpond, it is no longer n to Pass upon the validity of the donation made by
Ambrosia Salao to Juan S. Salao, Jr. of her one-half share in the two fishponds The plaintiffs
have no right and personality to assil that donation.
Even if the donation were declared void, the plaintiffs would not have any successional rights to
Ambrosia's share. The sole legal heir of Ambrosia was her nephew, Juan, Jr., her nearest
relative within the third degree. Valentin Salao, if living in 1945 when Ambrosia died, would have
been also her legal heir, together with his first cousin, Juan, Jr. (Juani). Benita Salao, the
daughter of Valentin, could not represent him in the succession to the estate of Ambrosia since
in the collateral line, representation takes place only in favor of the children of brothers or sisters
whether they be of the full or half blood is (Art 972, Civil Code). The nephew excludes a
grandniece like Benita Salao or great-gandnephews like the plaintiffs Alcuriza (Pavia vs.
Iturralde 5 Phil. 176).
The trial court did not err in dismissing plaintiffs' complaint.
Defendants' appeal. The defendants dispute the lower court's finding that the plaintiffs filed
their action in good faith. The defendants contend that they are entitled to damages because the
plaintiffs acted maliciously or in bad faith in suing them. They ask for P25,000 attorneys fees
and litigation expenses and, in addition, moral damages.

We hold that defemdamts' appeal is not meritorious. The record shows that the plaintiffs
presented fifteen witnesses during the protracted trial of this case which lasted from 1954 to
1959. They fought tenaciously. They obviously incurred considerable expenses in prosecuting
their case. Although their causes of action turned out to be unfounded, yet the pertinacity and
vigor with which they pressed their claim indicate their sincerity and good faith.
There is the further consideration that the parties were descendants of common ancestors, the
spouses Manuel Salao and Valentina Ignacio, and that plaintiffs' action was based on their
honest supposition that the funds used in the acquisition of the lands in litigation were earnings
of the properties allegedly inherited from Manuel Salao.
Considering those circumstances, it cannot be concluded with certitude that plaintiffs' action
was manifestly frivolous or was primarily intended to harass the defendants. An award for
damages to the defendants does not appear to be just and proper.
The worries and anxiety of a defendant in a litigation that was not maliciously instituted are not
the moral damages contemplated in the law (Solis & Yarisantos vs. Salvador, L-17022, August
14, 1965, 14 SCRA 887; Ramos vs. Ramos, supra). The instant case is not among the cases
mentioned in articles 2219 and 2220 of the Civil Code wherein moral damages may be
recovered. Nor can it be regarded as analogous to any of the cases mentioned in those articles.
The adverse result of an action does not per se make the act wrongful and
subject the actor to the payment of moral damages. The law could not have
meant to impose a penalty on the right to litigate; such right is so precious that
moral damages may not be charged on those who may exercise it erroneously.
(Barreto vs. Arevalo, 99 Phil. 771. 779).
The defendants invoke article 2208 (4) (11) of the Civil Code which provides that attorney's fees
may be recovered "in case of a clearly unfounded civil action or proceeding against the plaintiff"
(defendant is a plaintiff in his counterclaim) or "in any other case where the court deems it just
and equitable" that attorney's fees should he awarded.
But once it is conceded that the plaintiffs acted in good faith in filing their action there would be
no basis for adjudging them liable to the defendants for attorney's fees and litigation expenses
(See Rizal Surety & Insurance Co., Inc. vs. Court of Appeals, L-23729, May 16, 1967, 20 SCRA
61).
It is not sound public policy to set a premium on the right to litigate. An adverse decision does
not ipso facto justify the award of attorney's fees to the winning party (Herrera vs. Luy Kim
Guan, 110 Phil. 1020, 1028; Heirs of Justiva vs. Gustilo, 61 O. G. 6959).
The trial court's judgment is affirmed. No pronouncement as to costs.
SO ORDERED.
Barredo (Chairman), Antonio, Concepcion, Jr. and Martin, JJ., concur.
Fernando (Chairman, Second Division), J., took no part.

Martin, J., was designated to sit in the Second Division.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 161237

January 14, 2009

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
vs.
FERNANDO G. MASIRAG, FAUSTINA G. MASIRAG, CORAZON G. MASIRAG,
LEONOR G. MASIRAG, and LEONCIO M. GOYAGOY, respondent
FRANCISCA MASIRAG BACCAY, PURA MASIRAG FERRER-MELAD, AND SANTIAGO
MASIRAG, Intervenors- Respondents.
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 Decision2 of the Court of Appeals (CA) and the
Resolution3 denying the motion for reconsideration that followed. The assailed decision
reversed the dismissal Order4 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 complaint5 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 fees8 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 covered by Original Certificate of Title No.
1946) [sic].9
The amended complaint essentially alleged the following:10

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,
196712 (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 Lot No. 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 complaintin-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 Order19 dated May 29, 2000 on the grounds that: 1) the action, which
was filed 32 years after the property was partitioned and 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
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 COMPLAINT21
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 DECISION22
The CA ignored23 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 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 successorsin-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
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 denied26 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:
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

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
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 respondents argued in their Comment that:33

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 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.
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 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 coheirs-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 Simultaneous 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 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, either motu 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
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 of extrajudicial 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.
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.
ARTURO D. BRION
Associate Justice

II. EXPRESS TRUST

B. ESSENTIAL CHARACTERISTICS
Republic of the Philippines
SUPREME COURT
Manila
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.

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 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 Attorney's fees; and
d. to pay the costs.
The injunction issued in this case is hereby made permanent.
SO ORDERED. 5
The following is trial court's 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 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-ininterest 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 court's summary of the evidence for the defendants and intervenor is as follows:
Defendants'-Intervenor's 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 latter's 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 (Intervenor's) 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 twostorey residential building urgently needed major general repairs and although
the bedrooms seemed occupied by lodgers, neither the defendant nor the
Intervernor 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.
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 fullpledged 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 Plaintiffs 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-Intervenor's 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.
Two. While Plaintiffs' evidence of ownership of the disputed premises is clear,
positive, categorical and credible, Intervenor's testimony that the disputed
premises was acquired 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 brother's 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 father's name (pp. 10-11 & 20); that not one of the heirs of Rosendo
Avelino ever contested Celso Avelino's 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. The foregoing testimony of the Intervenor also show that she is already in
laches.
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, Intervenor's 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 Plaintiff's 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. Intervenor's 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
Plaintiff's ownership over the disputed premises. It expressly provides: ". . .
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." (emphasis
supplied).
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.
Q 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?
A 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 court's 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 Appellant's Brief they assigned the following
errors:
1. The RTC erred in ruling that Celso Avelino, appellee's predecessor-in-interest,
was the true and lawful owner of the house and lot in question.
2. . . . 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 truster, his father,
Rosendo Avelino, and the latter's heirs.
3. . . . in ruling that the Intervenor is barred by laches from asserting her status as
a beneficiary of the aforesaid implied trust.
4. . . . 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. . . 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. . . . 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. . . . 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. . . . in ordering appellants to vacate the disputed premises and to pay
appellees a monthly rental, moral damages, litigation expenses, and attorney's
fees.
9. . . . 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 court's 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. . . . 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. . . . in inferring and surmising that Celso Avelino's alleged exclusive ownership
of the disputed property was affirmed by the inaction of his four sisters.
4. . . . 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. . . . 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 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. . . . 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. . . . 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 Court's ruling in San Miguel
Brewery, Inc. v. Magno, 21 SCRA 292 (1967).
8. . . . 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 respondent's comment on the petition and
petitioner's 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. . . . 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. . . . 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?
2. Was Rodolfo Morales a builder in good faith?
3. Was there basis for the award of damages, attorney's 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. and such consideration must be furnished by the alleged beneficiary of a
resulting trust. 19
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 A's 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. (Emphasis
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 truster 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]laid 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 Rodolfo's claim that:
4. [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, Intervenor's 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 Peralta's sworn Confirmation dated 14
May 1987 cannot be considered hearsay evidence due to Concepcion's 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 co-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 Concepcion's 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 Concepcion's later affidavit,
the trial court and the Court of Appeals did not then err in giving more weight to
Concepcion's 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. Priscila's 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 Celso's 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 Juana's death on 31 May 1965. This
omission was mute and eloquent proof of Rosendo's 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 Avelino's supposed exclusive ownership of the land, still, however, the
unrebutted 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 Avelino's 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 Celso's 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, attorney's 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.
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, attorney's fees
and litigation expenses which are hereby DELETED, the judgment of the respondent Court of
Appeals is AFFIRMED.

Cost against petitioners.

SO ORDERED.
Narvasa, C.J., Melo and Panganiban, JJ., concur.
Francisco, J., is on leave.

C. ELEMENTS

Republic of the Philippines

SUPREME COURT
Manila
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, Psd-1638.
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, 1846D, and 1846-E. Later, Ang Bansing sold two subdivision lots of Lot 1846-B, namely: Lot 1846-B2-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 Juan Cruz Yap Chuy and the defendant was
bound and obligated to give, deliver and reconvey to Juan Cruz Yap Chuy and/or
his successor-in-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, 20 a 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 Cruz Yap
Chuy is not only 5 hectares but 61,107 square meters or a little over six (6) hectares." 22
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.
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
Such a constructive trust is not a trust in the technical sense and is prescriptible; it prescribes in
10 years. 28
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.
De Castro, Ericta and Escolin, JJ., concur.
Barredo, J. (Chairman), I reserve my vote.

D. ESSENTIALLY CONTRACTUAL
Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 162033

May 8, 2009

HEIRS OF TRANQUILINO LABISTE (also known as Tranquilino Laviste) represented by:

(1) GERARDO LABISTE, representing the Heirs of Gregorio Labiste;
(2) OBDULLIA LABISTE GABUAN, representing the heirs of Juan Labiste;
(3) VICTORIA G. CHIONG, representing the Heirs of Eulalia Labiste;
(4) APOLINARIA LABISTE YLAYA, representing the Heirs of Nicolasa Labiste;
(5) DEMOSTHENES LABISTE, representing the Heirs of Gervacio Labiste;
(6) ALEJANDRA LABISTE; representing the Heirs of SINFROCIO LABISTE, and
(7) CLOTILDE LABISTE CARTA, representing the Heirs of Andres Labiste, Petitioners,
vs.
HEIRS OF JOSE LABISTE, survived by his children,
(1) ZACARIAS LABISTE, deceased and survived by his children, namely: CRESENCIA
LABISTE and EUFRONIO LABISTE;
(2) BERNARDINO LABISTE, deceased and survived by his children, namely:
POLICARPIO LABISTE, BONIFACIO LABISTE, FELIX LABISTE, GABINA LABISTE,
CAYETANA LABISTE and ISABEL LABISTE;
(3) LUCIA LABISTE, deceased and survived by her children, namely: ISAAC LABISTE,
GENARO LABISTE, BRAULIA LABISTE, BRAULIO LABISTE, ASUNCION LABISTE,
ALFONSO LABISTE and CLAUDIA LABISTE;
(4) EPIFANIO LABISTE and CLAUDIA LABISTE; deceased and survived by his children,
namely SILVESTRE LABISTE, PAULA LABISTE and GERARDA LABISTE;
(5) ANA LABISTE, deceased and survived by her children, namely: MAXIMO LABISTE,
MOISES LABISTE, GERVACIO LABISTE, SATURNINA LABISTE and QUIRINO LABISTE;
(6) SEVERO LABISTE, deceased and survived by his children, Namely: FELIX LABISTE,
RUFINA LABISTE, SIMPLICIO LABISTE, VICENTE LABISTE and PATRICIO LABISTE,
Respondents.
DECISION
TINGA, J.:
This is a petition for review1 under Rule 45 of the Rules of Court of the Court of Appeals
Decision dated 30 June 20032 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 petitioners3 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
After full payment of the purchase price but prior to the issuance of the deed of conveyance,
Epifanio executed an Affidavit6 (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 Tranquilino8 purchased the one-half (1/2)
interest of the heirs of Jose9 over Lot No. 1054 for P300.00, as evidenced by the Calig-onan sa
Panagpalit10 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. RT-7853,12 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 complaint13 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 Calig-onan sa Panagpalit were
forgeries and that petitioners action had long prescribed or barred by laches.14
The RTC in a Decision dated 23 August 199915 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
http://sc.judiciary.gov.ph/jurisprudence/2007/november2007/148788.htm - _ftn 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 rightful owners of a property
from
recovering what has been fraudulently registered in the name of
another.http://sc.judiciary.gov.ph/jurisprudence/2006/mar2006/G.R. No. 157954.htm - _ftn29 The
equitable remedy of laches is, therefore, unavailing in this case.
However, to recover the other half of the property covered by the private Calig-onan sa
Panagpalit and to have it registered on the title of the property, petitioners should have filed an
action to compel30 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.1avvphi1
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
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 and SET ASIDE and the Decision
of the Regional Trial Court of Cebu City, Branch 9 dated 23 August 1999 is
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.
DANTE O. TINGA
Associate Justice

E. RULES OF ENFORCEABILITY
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 178645

January 30, 2009

LINA PEALBER, Petitioner,

vs.
QUIRINO RAMOS, LETICIA PEALBER, and BARTEX INC., Respondents.
DECISION
CHICO-NAZARIO, J.:
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the
Decision1 dated 15 December 2006 of the Court of Appeals in CA-G.R. CV No. 69731. Said
Decision reversed and set aside the Decision2 dated 19 January 2000 of the Regional Trial
Court (RTC) of Tuguegarao City, Branch 2, in Civil Case No. 3672, which declared petitioner
Lina Pealber the owner of the Bonifacio property subject of this case and ordered respondent
spouses Quirino Ramos and Leticia Pealber to reconvey the same to petitioner.
The factual and procedural antecedents of the case are set forth hereunder.
Petitioner is the mother of respondent Leticia and the mother-in-law of respondent Quirino,
husband of Leticia. Respondent Bartex, Inc., on the other hand, is a domestic corporation which
bought from respondent spouses Ramos one of the two properties involved in this case.
On 18 February 1987, petitioner filed before the RTC a Complaint for Declaration of Nullity of
Deeds and Titles, Reconveyance, Damages, [with] Application for a Writ of Preliminary
Prohibitory Injunction against the respondents.3 It was docketed as Civil Case No. 3672.
First Cause of Action
Firstly, petitioner alleged in her Complaint that she was the owner of a parcel of land situated in
Ugac Norte, Tuguegarao, Cagayan, with an area of 1,457 sq.m. and covered by Transfer
Certificate of Title (TCT) No. T-433734 of the Register of Deeds for the Province of Cagayan,
registered in petitioners name. A residential house and a warehouse were constructed on the
said parcel of land which petitioner also claimed to own (the land and the improvements thereon
shall be hereinafter referred to as the Ugac properties). Petitioner averred that in the middle
part of 1986, she discovered that TCT No. T-43373 was cancelled on 13 May 1983 and TCT
No. T-580435 was issued in its stead in the name of respondent spouses Ramos. Upon
verification, petitioner learned that the basis for the cancellation of her title was a Deed of
Donation of a Registered Land, Residential House and Camarin,6 which petitioner purportedly
executed in favor of respondent spouses Ramos on 27 April 1983. Petitioner insisted that her
signature on the said Deed of Donation was a forgery as she did not donate any property to

respondent spouses Ramos. When petitioner confronted the respondent spouses Ramos about
the false donation, the latter pleaded that they would just pay for the Ugac properties in the
amount of P1 Million. Petitioner agreed to the proposition of the respondent spouses Ramos.
Subsequently, around 10 January 1987,7 petitioner found out that the respondent spouses
Ramos were selling the Ugac properties to respondent Bartex, Inc. Petitioner then sent her son,
Johnson Paredes (Johnson),8 to caution respondent Bartex, Inc. that respondent spouses
Ramos were not the lawful owners of the said properties. Johnson was allegedly able to convey
petitioners caveat to a representative of respondent Bartex, Inc. Petitioner also warned
respondent spouses Ramos not to sell the Ugac properties anymore, otherwise, she would file
the necessary action against them. The respondent spouses Ramos then assured her that they
would do no such thing. As a precaution, petitioner executed an Affidavit of Adverse Claim over
the Ugac Properties on 19 January 1987 and caused the same to be annotated on TCT No. T58043 on the same day. Despite petitioners warnings, respondent spouses Ramos still
executed in favor of respondent Bartex, Inc. a Deed of Absolute Sale9 over the Ugac properties
on 12 January 1987 for a total price of P150,000.00. As a result, TCT No. T-58043 in the name
of respondent spouses Ramos was cancelled and TCT No. T-6882510 in the name of
respondent Bartex, Inc. was issued on 20 January 1987.
Petitioner contended that the Deed of Absolute Sale executed by respondent spouses Ramos in
favor of respondent Bartex, Inc. did not convey any valid title, not only because respondent
Bartex, Inc. was a buyer in bad faith, but also because respondent spouses Ramos did not own
the Ugac properties. Thus, petitioner prayed for the declaration of nullity of (1) the Deed of
Donation of a Registered Land, Residential House and Camarin purportedly executed by
petitioner in favor respondent spouses Ramos; (2) TCT No. T-58043, issued in the name of
respondent spouses Ramos; (3) the Deed of Absolute Sale executed by the respondent
spouses Ramos in favor of respondent Bartex, Inc.; and (4) TCT No. T-68825, issued in the
name of respondent Bartex, Inc. Should petitioners prayer not be granted, petitioner sought in
the alternative that respondent spouses Ramos be ordered to pay the assessed value of the
Ugac properties, which was about P1.5 Million. Petitioner further prayed that TCT No. T-43373,
in her name, be declared valid and active.
Second Cause of Action
Secondly, petitioner claimed that for many years prior to 1984, she operated a hardware store in
a building she owned along Bonifacio St., Tuguegarao, Cagayan. However, the commercial lot
(Bonifacio property) upon which the building stood is owned by and registered in the name of
Maria Mendoza (Mendoza), from whom petitioner rented the same.
On 22 March 1982, petitioner allowed respondent spouses Ramos to manage the hardware
store. Thereafter, in 1984, Mendoza put the Bonifacio property up for sale. As petitioner did not
have available cash to buy the property, she allegedly entered into a verbal agreement with
respondent spouses Ramos with the following terms:
[1.] The lot would be bought [by herein respondent spouses Ramos] for and in behalf of
[herein petitioner];
[2.] The consideration of P80,000.00 for said lot would be paid by [respondent spouses
Ramos] from the accumulated earnings of the store;

[3.] Since [respondent spouses Ramos] have the better credit standing, they would be
made to appear in the Deed of Sale as the vendees so that the title to be issued in their
names could be used by [them] to secure a loan with which to build a bigger building and
expand the business of [petitioner].
In accordance with the above agreement, respondent spouses Ramos allegedly entered into a
contract of sale11 with Mendoza over the Bonifacio property,12 and on 24 October 1984, TCT
No. T-6276913 covering said property was issued in the names of respondent spouses Ramos.
On 20 September 1984, respondent spouses Ramos returned the management of the hardware
store to petitioner. On the bases of receipts and disbursements, petitioner asserted that the
Bonifacio property was fully paid out of the funds of the store and if respondent spouses Ramos
had given any amount for the purchase price of the said property, they had already sufficiently
reimbursed themselves from the funds of the store. Consequently, petitioner demanded from
respondent spouses Ramos the reconveyance of the title to the Bonifacio property to her but the
latter unjustifiably refused.
Petitioner insisted that respondent spouses Ramos were, in reality, mere trustees of the
Bonifacio property, thus, they were under a moral and legal obligation to reconvey title over the
said property to her. Petitioner, therefore, prayed that she be declared the owner of the
Bonifacio property; TCT No. T-62769, in the name of respondent spouses, be declared null and
void; and the Register of Deeds for the Province of Cagayan be directed to issue another title in
her name.
On 2 March 1987, respondent spouses Ramos accordingly filed before the RTC their Answer14
to petitioners Complaint. As regards the first cause of action, respondent spouses Ramos
alleged that petitioner, together with her son, Johnson, and the latters wife, Maria Teresa
Paredes, mortgaged the Ugac properties to the Development Bank of the Philippines (DBP) on
19 August 1990 for the amount of P150,000.00. When the mortgage was about to be foreclosed
because of the failure of petitioner to pay the mortgage debt, petitioner asked respondent
spouses Ramos to redeem the mortgaged property or pay her mortgage debt to DBP. In return,
petitioner promised to cede, convey and transfer full ownership of the Ugac properties to them.
Respondent spouses Ramos paid the mortgage debt and, in compliance with her promise,
petitioner voluntarily transferred the Ugac properties to the former by way of a Deed of Donation
dated 27 April 1983. After accepting the donation and having the Deed of Donation registered,
TCT No. T- 58043 was issued to respondent spouses Ramos and they then took actual and
physical possession of the Ugac properties. Respondent spouses Ramos asserted that
petitioner had always been aware of their intention to sell the Ugac properties as they posted
placards thereon stating that the said properties were for sale. Respondent spouses Ramos
further averred that petitioner also knew that they finally sold the Ugac properties to respondent
Bartex, Inc. for P150,000.00. Thus, respondent spouses Ramos maintained that petitioner was
not entitled to any reimbursement for the Ugac properties.
With regard to petitioners second cause of action involving the Bonifacio property, respondent
spouses Ramos contended that they were given not only the management, but also the full
ownership of the hardware store by the petitioner, on the condition that the stocks and
merchandise of the store will be inventoried, and out of the proceeds of the sales thereof,
respondent spouses Ramos shall pay petitioners outstanding obligations and liabilities. After
settling and paying the obligations and liabilities of petitioner, respondent spouses Ramos
bought the Bonifacio property from Mendoza out of their own funds.

Lastly, even if petitioner and respondent spouses Ramos belonged to the same family, the
spouses Ramos faulted petitioner for failing to exert efforts to arrive at an amicable settlement of
their dispute. Hence, respondent spouses Ramos sought, by way of a counterclaim against
petitioner, moral and exemplary damages and attorneys fees, for allegedly filing a false, flimsy
and frivolous complaint.
On 27 April 1987, respondent Bartex, Inc. filed before the RTC its own Answer to petitioners
Complaint, alleging, inter alia, that when a representative of the corporation inquired about the
Ugac properties for sale, respondent spouses Ramos presented their owners duplicate copy of
TCT No. T-58043, together with the tax declarations covering the parcel of land and the
buildings thereon. Respondent Bartex, Inc. even verified the title and tax declarations covering
the Ugac properties with the Register of Deeds and the Office of the Municipal Assessor as to
any cloud, encumbrance or lien on the properties, but none were found. Respondent spouses
Ramos were then actually occupying the Ugac properties and they only vacated the same after
the consummation of the sale to respondent Bartex, Inc. Respondent Bartex, Inc. claimed that
the sale of the Ugac properties by respondent spouses Ramos to the corporation was already
consummated on 12 January 1987, and the documents conveying the said properties were by
then being processed for registration, when petitioner caused the annotation of an adverse
claim at the back of TCT No. T-58043 on 19 January 1987. As respondent Bartex, Inc. was
never aware of any imperfection in the title of respondent spouses Ramos over the Ugac
properties, it claimed that it was an innocent purchaser in good faith.
Trial of the case thereafter ensued.
On 19 January 2000, the RTC promulgated its decision, ruling on petitioners first cause of
action in this wise:
On the first cause of action, the Court finds the testimony of [herein petitioner] Lina Penalber
(sic) denying her execution of the deed of donation over the Ugac property in favor of [herein
respondent spouses] Quirino Ramos and Leticia Penalber-Ramos (sic) insufficient to support
the said cause of action. A notarial document is, by law, entitled to full faith and credit upon its
face (Arrieta v. Llosa, 282 SCRA 248) and a high degree of proof is needed to overthrow the
presumption of truth in the recitals contained in a public document executed with all legal
formalities (People vs. Fabro, 277 SCRA 19). Hence, in order to contradict the facts contained
in a notarial document and the presumption of regularity in its favor, these (sic) must be
evidence that is clear, convincing and more than merely preponderant (Calahat vs. Intermediate
Appellate Court, 241 SCRA 356). In the case at bench, [petitioner] claims that she did not
execute the deed of donation over the Ugac property in favor of [respondent spouses Ramos].
Such denial, by itself, is not sufficient to overcome the presumption of regularity of the notarial
deed of donation and its entitlement to full faith and credit. While it is true that, generally, the
party who asserts the affirmative side of a proposition has the burden of proof, which in this
instance is (sic) the [respondent spouses Ramos] who are asserting the validity of the deed of
donation, [respondent spouses Ramos] can merely rely on the above-stated presumption given
to notarial documents and need not present any evidence to support their claim of validity and
due execution of the notarized deed of donation. On the other hand, [petitioner], in addition to
her allegation that she did not execute any such deed of donation in favor of [respondent
spouses Ramos] should have had her allegedly falsified signature on the deed of donation
examined by qualified handwriting experts to prove that, indeed, she did not execute the same.
Her failure to do so results in the failure of her cause.15 (Emphasis ours.)

With respect to petitioners second cause of action, the RTC adjudged that:
On the second cause of action, the Court finds the evidence preponderantly in favor of the
[herein petitioner]. The evidence on record shows that when [petitioner] allowed [herein
respondent spouses Ramos] full management of the hardware store located on the Bonifacio
property in March, 1982 (sic) an inventory of the stocks in trade in the said store was made
showing stocks worth P226,951.05* and when she got back the store from [respondent spouses
Ramos] on September 1984, another inventory was made [on] the stocks in trade in the said
store showing, stocks worth P110,005.88* or a difference of P116,946.17.* The only reason for
an inventory having been made when the hardware store was turned over to [respondent
spouses Ramos] was, to the mind of the Court, for the latter to account for the sales of such
stocks. And to arrive at the net amount due to [petitioner], all that is needed to be done is to
deduct the value of the stocks present at the store when management was returned to
[petitioner] in September 1984 from the value of the stocks found in the hardware store when
said management was given to [respondent spouses Ramos] in 1982. [Petitioner] claims that
the purchase price for the Bonifacio property was to be taken from the proceeds of sales from
the hardware store which, as the evidence on record stands[,] shows a balance in her favor of
more than P116,000.00. [Respondent spouses Ramos] contend that said amount was
expended to pay off [petitioners] obligations to her suppliers. The record, however, is totally
silent on how much and when [respondent spouses Ramos] paid said alleged obligations of
[petitioner] or even who were the said suppliers thus paid. That [petitioner] and [respondent
spouses Ramos] agreed that the amount due [petitioner] from the proceeds of the sales of her
stocks in the hardware store would be applied to the purchase price of the Bonifacio property is
supported by the fact that [petitioner] did not ever ask for an accounting of said proceeds,
despite the fact that as early as September, 1984 (sic) she already knew that her stocks left by
her in March, 1982 (sic) was already sold by [respondent spouses Ramos] and that there was a
difference of P116,000.00 plus which was due to her.16 (Emphasis ours.)
Thus, the RTC decreed:
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
1. Finding the evidence on record insufficient to prove the [herein petitioners] first cause
of action, and, hence, dismissing the same;
2. On the second cause of action, in favor of the [petitioner] and against the [herein
respondent spouses Ramos];
2.1 Declaring the [petitioner] the owner of Lot 2-B of subdivision plan PST-2-01019316 (sic) with an area of 195 square meters situated along Bonifacio Street,
Tuguegarao, Cagayan; and
2.2 Ordering the [respondent spouses Ramos] to reconvey to the [petitioner] the
said property (Bonifacio property).
With costs de oficio.17 (Emphasis ours.)
On 22 February 2000, respondent spouses Ramos filed with the RTC a Motion for
Reconsideration18 of the afore-mentioned decision, assailing the ruling of the RTC on
petitioners second cause of action on the ground that the alleged express trust created

between them and petitioner involving the Bonifacio property could not be proven by parol
evidence. In an Order19 dated 17 July 2000, the RTC denied respondent spouses Ramos
Motion for Reconsideration for lack of merit, ratiocinating that respondent spouses Ramos failed
to interpose timely objections when petitioner testified on their alleged verbal agreement
regarding the purchase of the Bonifacio property. As such, respondent spouses Ramos were
deemed to have waived such objections, which cannot be raised anymore in their Motion for
Reconsideration. The RTC then reiterated its finding that petitioners evidence clearly
established her second cause of action. Additionally, the RTC held that the requirement that the
parties exert earnest efforts towards an amicable settlement of the dispute had likewise been
waived by the respondents as they filed no motion regarding the same before the trial.
On 24 July 2000, respondent spouses Ramos elevated their case to the Court of Appeals,
insofar as the ruling of the RTC on petitioners second cause of action was concerned.20 The
appeal was docketed as CA-G.R. CV No. 69731.
On 15 December 2006, the Court of Appeals rendered the assailed Decision in favor of
respondent spouses Ramos.
Finding merit in the appeal, the appellate court observed that the second cause of action
involved not only the petitioner and her daughter, but also her son-in-law, who was not covered
by the term "family relations" under Article 15021 of the Family Code. Therefore, Article 15122 of
the Family Code, requiring the exertion of earnest efforts toward a compromise, did not apply as
the impediment arising from the said provision was limited only to suits between members of the
same family or those encompassed in the term "family relations" under Article 150.
The Court of Appeals also declared that petitioner failed to prove her claim with the required
quantum of evidence. According to the Court of Appeals:
It appears that before management of the store was transferred to [herein respondent spouses
Ramos], a beginning inventory of the stocks of the hardware store was made by [herein
petitioners] other children showing stocks amounting to Php226,951.05. After management of
the hardware store was returned to [petitioner], a second inventory was made with stocks
amounting to Php110,004.88 showing a difference of Php116,946.15. Contrary, however, to the
finding of the trial court, We find that said inventory showing such difference is not conclusive
proof to show that the said amount was used to pay the purchase price of the subject lot. In fact,
as testified by Johnson Paredes, son of [petitioner] who made the computation on the alleged
inventories, it is not known if the goods, representing the amount of Php116,946.17, were
actually sold or not. It may have been taken without actually being sold.
It is a basic rule of evidence that bare allegations, unsubstantiated by evidence, are not
equivalent to proof. As between [petitioners] bare allegation of a verbal trust agreement, and
the deed of absolute sale between Maria Mendoza and [respondent spouses Ramos], the latter
should prevail.
Although oral testimony is allowed to prove that a trust exists, contrary to the contention of
[respondent spouses Ramos], and the court may rely on parol evidence to arrive at a conclusion
that an express trust exists, what is crucial is the intention to create a trust. While oftentimes the
intention is manifested by the trustor in express or explicit language, such intention may be
manifested by inference from what the trustor has said or done, from the nature of the
transaction, or from the circumstances surrounding the creation of the purported trust.

However, an inference of the intention to create a trust, made from language, conduct or
circumstances, must be made with reasonable certainty. It cannot rest on vague, uncertain or
indefinite declarations. An inference of intention to create a trust, predicated only on
circumstances, can be made only where they admit of no other interpretation. Here, [petitioner]
failed to establish with reasonable certainty her claim that the purchase of the subject lot was
pursuant to a verbal trust agreement with [respondent spouses Ramos].23 (Emphasis ours.)
Thus, the Court of Appeals disposed of the case as follows:
WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED and the
Decision dated 19 January 2000 of the Regional Trial Court (RTC) of Tuguegarao City, Branch
2, with respect to the second cause of action or the Bonifacio Property in Civil Case No. 3672 is
hereby REVERSED and SET ASIDE and a new one entered DISMISSING the second cause of
action of [herein petitioners] complaint.24
On 12 January 2007, petitioner sought reconsideration25 of the foregoing Decision, but it was
denied by the appellate court in a Resolution26 dated 31 May 2007.
To have the ruling of the Court of Appeals overturned, petitioner brought her case before us
through the instant Petition, raising the following issues: (1) whether the existence of a trust
agreement between her and respondent spouses Ramos was clearly established, and (2)
whether such trust agreement was valid and enforceable.
At the outset, it is apparent that petitioner is raising questions of fact in the instant Petition. Be it
noted that in a petition for review under Rule 45 of the Rules of Court, only questions of law
must be entertained. 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.27 When the doubt or difference arises as to the truth or falsehood of
alleged facts or when the query necessarily solicits calibration of the whole evidence
considering mostly the credibility of witnesses, existence and relevancy of specific surrounding
circumstances, their relation to each other and to the whole and probabilities of the situation,
questions or errors of fact are raised.28 The rule that only questions of law may be raised in a
petition for review under Rule 45, however, admits of certain exceptions,29 among which is when
the findings of the trial court are grounded entirely on speculation, surmise and conjecture. As
will be discussed further, we find the afore-mentioned exception to be applicable in the present
Petition, thus, warranting a departure from the general rule.
In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the
beneficial enjoyment of property, the legal title to which is vested in another, but the word "trust"
is frequently employed to indicate duties, relations, and responsibilities which are not strictly
technical trusts.30 A person who establishes a trust is called the trustor; one in whom confidence
is reposed is known as the trustee; and the person for whose benefit the trust has been created
is referred to as the beneficiary.31 There is a fiduciary relation between the trustee and the
beneficiary (cestui que trust) as regards certain property, real, personal, money or choses in
action.32
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.33 Express trusts are those
which are created by the 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.34 No particular

words are required for the creation of an express trust, it being sufficient that a trust is clearly
intended.35 However, in accordance with Article 1443 of the Civil Code, when an express trust
concerns an immovable property or any interest therein, the same may not be proved by parol
or oral evidence.36
In the instant case, petitioner maintains that she was able to prove the existence of a trust
agreement between her and respondent spouses Ramos. She calls attention to the fact that
respondent spouses Ramos could not account for the P116,946.15 difference in the beginning
inventory and the second inventory of the stocks of the hardware store, and they failed to
present proof to support their allegation that the amount was used to pay the other obligations of
petitioner. As respondent spouses Ramos never denied the existence of the P116,946.15
difference, petitioner contends that they have the burden of proving where this amount had
gone, if indeed they did not use the same to buy the Bonifacio property. Petitioner asserts that
given the respondent spouses Ramos failure to discharge such burden, the only conclusion
would be that they did use the amount to purchase the Bonifacio property.
Petitioner further alleges that based on the verbal agreement between her and respondent
spouses Ramos, a trust agreement was created and that the same is valid and enforceable.
Petitioner claims that she is the trustor for it was she who entrusted the Bonifacio property to
respondent spouses Ramos as the trustees, with the condition that the same be used to secure
a loan, the proceeds of which would be used to build a bigger building to expand petitioners
business. Petitioner maintains that a trust agreement was clearly intended by the parties when
petitioner left the management of the hardware store to respondent spouses Ramos, with the
agreement that the proceeds from the sales from said store be used to buy the lot upon which
the store stands. The respondent spouses Ramos assumption of the management of the
hardware store and their eventual purchase of the Bonifacio property indubitably shows that
respondent spouses Ramos honored their obligation under the verbal agreement. Such being
the case, it behooved for the respondent spouses Ramos to hold the Bonifacio property for
petitioners benefit.
Petitioners arguments fail to persuade.
It bears stressing that petitioner has the burden of proving her cause of action in the instant
case and she may not rely on the weakness of the defense of respondent spouses Ramos.
Burden of proof is the duty of any party to present evidence to establish his claim or defense by
the amount of evidence required by law, which is preponderance of evidence in civil cases.
Preponderance of evidence37 is the weight, credit, and value of the aggregate evidence on
either side and is usually considered to be synonymous with the term "greater weight of the
evidence" or "greater weight of the credible evidence. It is evidence which is more convincing to
the court as worthy of belief than that which is offered in opposition thereto.38 Therefore, the
party, whether plaintiff or defendant, who asserts the affirmative of the issue has the burden of
proof to obtain a favorable judgment. For the plaintiff, the burden of proof never parts.39 For the
defendant, an affirmative defense is one which is not a denial of an essential ingredient in the
plaintiffs cause of action, but one which, if established, will be a good defense i.e., an
avoidance of the claim.40
From the allegations of the petitioners Complaint in Civil Case No. 3672, the alleged verbal
trust agreement between petitioner and respondent spouses Ramos is in the nature of an
express trust as petitioner explicitly agreed therein to allow the respondent spouses Ramos to
acquire title to the Bonifacio property in their names, but to hold the same property for

petitioners benefit. Given that the alleged trust concerns an immovable property, however,
respondent spouses Ramos counter that the same is unenforceable since the agreement was
made verbally and no parol evidence may be admitted to prove the existence of an express
trust concerning an immovable property or any interest therein.
On this score, we subscribe to the ruling of the RTC in its Order dated 17 July 2000 that said
spouses were deemed to have waived their objection to the parol evidence as they failed to
timely object when petitioner testified on the said verbal agreement. The requirement in Article
1443 that the express trust concerning an immovable or an interest therein be in writing is
merely for purposes of proof, not for the validity of the trust agreement. Therefore, the said
article is in the nature of a statute of frauds. The term statute of frauds is descriptive of statutes
which require certain classes of contracts to be in writing. The statute does not deprive the
parties of the right to contract with respect to the matters therein involved, but merely regulates
the formalities of the contract necessary to render it enforceable.41 The effect of non-compliance
is simply that no action can be proved unless the requirement is complied with. Oral evidence of
the contract will be excluded upon timely objection. But if the parties to the action, during the
trial, make no objection to the admissibility of the oral evidence to support the contract covered
by the statute, and thereby permit such contract to be proved orally, it will be just as binding
upon the parties as if it had been reduced to writing.42
Per petitioners testimony,43 the Bonifacio property was offered for sale by its owner Mendoza.
Petitioner told respondent spouses Ramos that she was going to buy the lot, but the title to the
same will be in the latters names. The money from the hardware store managed by respondent
spouses Ramos shall be used to buy the Bonifacio property, which shall then be mortgaged by
the respondent spouses Ramos so that they could obtain a loan for building a bigger store. The
purchase price of P80,000.00 was paid for the Bonifacio property. On 20 September 1984, the
respondent spouses Ramos returned the management of the store to petitioner. Thereafter,
petitioner allowed her son Johnson to inventory the stocks of the store. Johnson found out that
the purchase price of P80,000.00 for the Bonifacio property was already fully paid. When
petitioner told the respondent spouses Ramos to transfer the title to the Bonifacio property in
her name, the respondent spouses Ramos refused, thus, prompting petitioner to file a complaint
against them.
Similarly, Johnson testified44 that on 22 March 1982, petitioner turned over the management of
the hardware store to respondent spouses Ramos. During that time, an inventory45 of the stocks
of the store was made and the total value of the said stocks were determined to be
P226,951.05. When respondent spouses Ramos returned the management of the store to
petitioner on 20 September 1984, another inventory46 of the stocks was made, with the total
value of the stocks falling to P110,004.88. The difference of P116,946.16 was attributed to the
purchase of the Bonifacio property by the respondent spouses Ramos using the profits from the
sales of the store.
A careful perusal of the records of the case reveals that respondent spouses Ramos did indeed
fail to interpose their objections regarding the admissibility of the afore-mentioned testimonies
when the same were offered to prove the alleged verbal trust agreement between them and
petitioner. Consequently, these testimonies were rendered admissible in evidence.
Nevertheless, while admissibility of evidence is an affair of logic and law, determined as
it is by its relevance and competence, the weight to be given to such evidence, once
admitted, still depends on judicial evaluation.47 Thus, despite the admissibility of the said

testimonies, the Court holds that the same carried little weight in proving the alleged verbal trust
agreement between petitioner and respondent spouses.
Petitioners allegations as to the existence of an express trust agreement with respondent
spouses Ramos, supported only by her own and her son Johnsons testimonies, do not hold
water. As correctly ruled by the Court of Appeals, a resulting difference of P116,946.15 in the
beginning inventory of the stocks of the hardware store (before management was transferred to
respondent spouses Ramos) and the second inventory thereof (after management was returned
to petitioner), by itself, is not conclusive proof that the said amount was used to pay the
purchase price of the Bonifacio property, such as would make it the property of petitioner held
merely in trust by respondent spouses Ramos. Such a conclusion adopted by the RTC is purely
speculative and non sequitur. The resulting difference in the two inventories might have been
caused by other factors and the same is capable of other interpretations (e. g., that the amount
thereof may have been written off as business losses due to a bad economic condition, or that
the stocks of the store might have been damaged or otherwise their purchase prices have
increased dramatically, etc.), the exclusion of which rested upon the shoulders of petitioner
alone who has the burden of proof in the instant case. This petitioner miserably failed to do. The
fact that respondent spouses Ramos never denied the P116,946.15 difference, or that they
failed to present proof that they indeed used the said amount to pay the other obligations and
liabilities of petitioner is not sufficient to discharge petitioners burden to prove the existence of
the alleged express trust agreement.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari under Rule 45
of the Rules of Court is hereby DENIED. The assailed Decision of the Court of Appeals in CAG.R. CV No. 69731 dated 15 December 2006 is hereby AFFIRMED. Costs against petitioner.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice

G. KINDS OF EXPRESS TRUST

Republic of the Philippines

SUPREME COURT
Manila
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 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:
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.
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 (DBPTSD) 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.
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 investor-members.
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 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 to P11,626,414.25 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:
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 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 for certiorari; (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.
The standing of DBP to file this petition for certiorari
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 investormembers.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 entity30 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 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
and the disallowance of P11,626,414.25
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:
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:
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.
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 availee-investor 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.
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.
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 debtor-employee, 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
(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 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.
Davide, Jr., C.J., Puno, Vitug, Panganiban, Quisumbing, Ynares-Santiago, Sandoval-Gutierrez,
Austria-Martinez, Corona, Carpio-Morales, Callejo, Sr., Azcuna, and Tinga, JJ., concur.

H. CAPACITIES, RIGHTS, DUTIES AND OBLIGATIONS OF THE PARTIES

i. TRUSTOR
Republic of the Philippines
SUPREME COURT
Manila
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.
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.

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.
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 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 mortgageforeclosure 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.
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 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.
Avancea, C. J., Street, Villamor, Johns and Romualdez, JJ., concur.

ii. BENEFICIARY
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-17809

December 29, 1962

RESURRECCION DE LEON, ET AL., plaintiffs-appellees,

vs.
EMILIANA MOLO-PECKSON, ET AL., respondents-appellants.
Cornelio R. Magsarili for plaintiffs-appellees.
Sycip, Salazar, Luna and Associates for respondents-appellants.
BAUTISTA ANGELO, J.:
Resurreccion De Leon, et al. filed on November 13, 1958 before the Court of First Instance of
Rizal a complaint seeking to compel Emiliana Molo-Peckson, et al. to convey to the former ten
parcel of land located in Pasay City with an area of 1,749 sq. m. upon payment of P1.00 per
parcel upon the plea that said lots were willed or donated in 1948 to the latter by their foster
parents Mariano Molo y Legaspi and Juana Juan with the understanding that they should sell
them to the plaintiffs under the terms above-stated.
Defendants, in their answer, disclaimed any legal obligation on their part to sell the above
properties to the plaintiffs for the nominal consideration of P1.00 per lot alleging that if they
executed the document on which the complaint is predicated it was on the mistaken assumption
that their foster parents had requested them that they executed on August 9, 1956 a document
revoking said donation which was acknowledged before Notary Public Leoncio C. Jimenez.
No testimonial evidence was presented by either party. Instead, both agreed to submit the case
upon the presentation of their respective exhibits which were all admitted by the trial court.
After trial on the merits, the court a quo rendered on September 21, 1960 a decision wherein it
held that, under the facts established by the evidence, trust has been constituted by the late
spouses Mariano Molo and Juana Juan over the ten parcels of land in question in favor plaintiffs
as beneficiaries and, as a consequence concluded:
Considering all the foregoing, the Court orders:
1. The defendants, jointly and severally to free the said ten (10) parcels of land from the
mortgage lien in favor of the Rehabilitation Finance Corporation (now Development Bank
of the Philippines) and Claro Cortez, and thereafter to sign and execute in favor of the
plaintiffs a deed of absolute sale of the said properties for and in consideration of TEN
(P10.00) PESOS already deposited in Court after all conditions imposed in Exhibit A
have been complied with;

2. That in the event the defendants shall refuse to execute and perform the above, they
are ordered, jointly and severally, to pay the plaintiffs the value of said ten (10) parcels of
land in question, the amount to be assessed by the City of Pasay City as the fair market
value of the same, upon orders of the Court to assess said value;
3. The defendants jointly and severally to pay the plaintiffs' Attorney's fees in the amount
of P3,000.00, as defendants acted in gross and evident bad faith in refusing to satisfy
the plaintiffs' plainly valid, just and demandable claim, under Article 2208 sub-paragraph
5 of the New Civil Code;
4. The defendants to render an accounting of the fruits of said ten (10) parcels of land
from the time plaintiffs demanded the conveyance of said parcels of land on August 11,
1956 as per Exhibits B and C, in accordance with the provisions of Article 1164, New
Civil Code which provides that the creditor has a right to the fruit of the thing from the
time the obligation to deliver it arises; and
5. The defendants to pay the costs.
Defendants took the present appeal.
On January 24, 1941, Mariano Molo y Legaspi died leaving a will wherein he bequeathed his
entire estate to his wife, Juana Juan. This will was probated in the Court of First Instance of
Pasay City, Rizal, which was affirmed by the Supreme Court on November 26, 1956 (G.R. No.
L-8774). On May 11, 1948, Juana Juan in turn executed a will naming therein many devisees
and legatees, one of whom is Guillermo San Rafael, mother of the plaintiffs and defendant Pilar
Perez Nable. On June 7, 1948, however, Juana Juan executed a donation inter vivos in favor of
Emiliana Molo-Peckson and Pilar Perez Nable of almost all of her entire property leaving only
about P16,000.00 worth of property for the devisees mentioned in the will. Among the properties
conveyed to the donees are the ten parcels of land subject of the present action. Juana Juan
died on May 28, 1950.
On December 5, 1950, Emiliana Molo-Peckson and Pilar Perez Nable executed a document
which they called "MUTUAL AGREEMENT" the pertinent provisions of which are:
That the above named parties hereby mutually agree by these presents . . . that the
following lots should be sold at ONE (1) PESO each to the following persons and
organization:
xxx

xxx

xxx

TO JUSTA DE LEON and RESURRECCION DE LEON, several parcels of land

located at Calle Tolentino (South of Tenorio and Kapitan Magtibay), Pasay City, share
and share alike or half and half of TEN (10) LOTS described in:
Transfer Certificate of Title No. 28157 and allocated as follows:
(a) To JUSTA DE LEON Five (5) Lots.
(b) To RESURRECCION DE LEON, the remaining Five (5) Lots.

That this agreement is made in conformity with the verbal wish of the late Don Mariano
Molo y Legaspi and the late Dona Juana Francisco Juan y Molo. These obligations were
repeatedly told to Emiliana Molo Peckson, before their death and that same should be
fulfilled after their death.
On August 9, 1956, however, the same defendants, assisted by their husbands, executed
another document in which they revoked the so-called mutual agreement mentioned above, and
another relating to the same subject matter, stating therein that the parties, "after matured and
thorough study, realized that the above-mentioned public instruments . . . do not represent their
true and correct interpretation of the verbal wishes of the late spouses Don Mariano Molo y
Legaspi and Dona Juana Francisco Juan y Molo." But after the execution of this document, that
is, on August 11, 1956, the beneficiary Resurreccion de Leon and Justa de Leon, thru their
counsel demanded the conveyance to them of the ten parcels of land for the consideration of
P1.00 per parcel as stated in the document of December 5, 1950. And having the defendants
refused to do so, said beneficiaries consigned on July 8, 1957 the amount of P10.00 as the
consideration of the ten parcels of land.lawphil.net
In this appeal, appellants assign the following errors:
I
THE LOWER COURT ERRED IN HOLDING THAT THE SPOUSES, MARIANO MOLO
AND JUANA JUAN, CONSTITUTED A TRUST OVER THE PROPERTIES IN
QUESTION PETITION WITH PLAINTIFFS-APPELLEES AS BENEFICIARIES.
II
THE LOWER COURT ERRED IN APPLYING ARTICLE 1440, 1441, 1449, 1453 AND
1457 OF THE NEW CIVIL CODE TO THE CASE AT BAR.
III
THE LOWER COURT ERRED IN HOLDING PLAINTIFFS-APPELLEES' EXHIBIT "A"
TO BE A DECLARATION AGAINST INTEREST AND AN ADMISSION BY
DEFENDANTS-APPELLANTS.
IV
THE LOWER COURT ERRED IN HOLDING THAT DEFENDANTS-APPELLANTS HAD
NO RIGHT TO REVOKE EXHIBIT "A".
V
THE LOWER COURT ERRED, IN ORDERING APPELLANTS TO RENDER AN
ACCOUNTING OF THE FRUIT OF THE PROPERTIES IN QUESTION.
VI

THE LOWER COURT ERRED IN ORDERING APPELLANTS TO FREE THE

PROPERTIES FROM THE MORTGAGE LIENS IN FAVOR OF THE DEVELOPMENT
BANK OF THE PHILIPPINES AND CLARO CORTEZ.
VII
THE LOWER COURT ERRED IN AWARDING ATTORNEY'S FEES TO THE
APPELLEES.
VIII
THE LOWER COURT ERRED IN NOT DISMISSING THE COMPLAINT.
There is no merit in the claim that the document executed on December 5, 1950 does not
represent the true and correct interpretation by appellants of the verbal wish of their foster
parents relative to the conveyance for a nominal consideration to appellees of the ten parcels of
land in question considering the circumstances obtaining in the present case. To begin with, this
document was executed by appellants on December 5, 1950, or about two years and six
months from the time they acquired title to the lands by virtue of the donation inter vivos
executed in their favor by their foster mother Juana Juan and six months after the death of the
donor. There is nobody who could cajole them to execute it, nor is there any force that could
corce them to make the declaration therein expressed, except the constraining mandat of their
conscience to comply with "the obligations repeatedly told to Emiliana Molo Peckson," one of
appellants, before their death, epitomized inthe "verbal wish of the late Don Mariano Molo y
Legaspi and the late Doa Juana Francisco Juan y Molo" to convey after their death said ten
parcelsof land at P1.00 a parcel to appellees. In fact, the acknowledgement appended to the
document they subscribed states that it was "their own free act andvoluntary deed."1awphi1.net
Indeed, it is to be supposed that appellants understood and comprehended the legal import of
said documents when they executed it more so when bothof them had studied in reputable
centers of learning, one being a pharmacist and the other a member of the bar. Moreover, they
have more than ample time the six months intervening betwen the death of the donor and the
execution of the document to ponder not only wish of their predecessors-in-interest but also
on the propriety of putting in writing the mandate they have received. It is, therefore, reasonable
to presume that that document represents the real wish of appellants' predecessors-in-interest
and that the only thing to be determinedis its real import and legal implications.
That the document represents a recognition of pre-existing trust or a declaration of an express
trust impressed on the ten parcels of land in question is evident. A declaration of trust has been
defined as an act by which a person acknowledges that the property, title to which he holds, is
held by him for the use of another (Griffith v. Maxfield, 51 S.W. 832, 66Ark. 513, 521). This is
precisely the nature of the will of the donor: to convey the titles of the lands to appellants with
the duty to hold them intrust for the appellees. Appellants oblingly complied with this duty
byexecuting the document under consideration.
True it is that to establish a trust the proof must be clear, satisfactory and convincing. It cannot
rest on vague, uncertain evidence, or on a loose,equivocal or indefinite declaration (In re
Tuttle's Estate, 200 A. 921, 132 Pa. Super 356); but here the document in question clearly and
unequivocallydeclares the existence of the trust even if the same was executed subsequent to
the death of the trustor, Juana Juan, for it has been held that the right creating or declaring a

trust need not be contemporaneous or inter-parties (Stephenson v. Stephenson, 171 S.W. 2d

265, 351 Mo. 8; In re Corbin's Trust Orhp., 57 York Leg. Rec. 201). It was even held that an
express trust maybe declared by a writing made after the legal estate has been vested in the
trustee (Kurtz v. Robinson, Tex. Civ. App. 256 S.W. 2d 1003). The contention, therefore, of
appellants that the will and the donation executed by their predecessors-in-interest were
absolute for it did not contain a hint that the lots in question will be held in trust by them does not
merit weight because the fact that an express trust was created by a deed which was absolute
on its face may be shown by a writing separate from the deed itself (Mugan v. Wheeler, 145
S.W. 462, 241 Mo. 376).
The fact that the beneficiaries were not notified of the existence of the trust or that the latter
have not been given an opportunity to accept it isof no importance, for it is not essential to the
existence of a valid trustand to the right of the beneficiaries to enforce the same that they had
knowledge thereof the time of its creation (Stoehr v. Miller, 296 F. 414).Neither is it necessary
that the beneficiary should consent to the creation of the trust (Wockwire-Spencer Steel
Corporation v. United Spring Mfg. Co.,142 N.E. 758, 247 Mass. 565). In fact it has been held
that in case of a voluntary trust the assent of the beneficiary is not necessary to render itvalid
because as a general rule acceptance by the beneficiary is presumed (Article 1446, new Civil
Code; Cristobal v. Gomez, 50 Phil. 810).
It is true, as appellants contend, that the alleged declaration of trust was revoked, and having
been revoked it cannot be accepted, but the attempted revocation did not have any legal effect.
The rule is that in the absence of any reservation of the power to revoke a voluntary trust is
irrevocable without the consent of the beneficiary (Allen v. Safe Deposit and Trust Co.of
Baltimore, 7 A. 2d 180, 177 Md. 26). It cannot be revoked by the creatoralone, nor by the
trustee (Fricke v. Weber, C.C.A. Ohio, 145 F. 2d 737;Hughes v. C.I.R., C.C.A. 9, 104 F. 2d 144;
Ewing v. Shannahan, 20 S.W. 1065,113 Mo. 188). Here, there is no such reservation.
Appellants contend that the lower court erred in applying the provisions of the new Civil Code on
trust. This is correct. The express trust was constituted during the lifetime of the predecessor-ininterest of appellants,that is, before the effectivity of the new Civil Code, although the
instrumentrecognizing and declaring such trust was executed on December 5, 1950, afterthe
effectivity of said Code. The Civil Code of 1889 and previous laws andauthorities on the matter,
therefore, should govern the herein trust under the provisions of Article 2253 of the new Civil
code.
But the Civil Code of 1889 contains no specific provisions on trust as doesthe new Civil Code.
Neither does the Code of Civil Procedure of 1901 for thesame merely provides for the
proceeding to be followed relative to trustsand trustees (Chapter XVIII). This silence, however,
does not mean that thejuridical institution of trust was then unknown in this jurisdiction, for
theprinciples relied upon by the Supreme Court before the effectivity of thenew Civil Code were
those embodied in Anglo-American jurisprudence as derivedfrom the Roman and Civil Law
principles (Government v. Abadilla, 46 Phil. 42).And these are the same principles on which we
predicate our ruling heretoforestated and on which we now rely for the validity of trust in
question.
The trial court ordered appellants to render an accounting of the fruits of the properties in
question even if appellees did not expressly ask for it intheir prayer for relief. We, however,
believe that this is covered by the general prayer "for such other relief just and equitable under
the premises."What is important is to know from what what date the accounting should bemade.

The trial court ordered that the accounting be made from the time appellees demanded the
conveyance of the ten parcels of land on August 11, 1956, in accordance with Article 1164 of
the new Civil Code which provides that the creditor has a right to the fruit of the thing from
thetime the obligation to deliver it arises. But this cannot be done without first submitting proof
that the conditions stated in the mutual agreement hadbeen complied with. And this only
happened when the decision of the Supreme Court in G.R. No. L-8774 became final and
executory. The ruling of the trialcourt in this respect should therefore be modified in the sense
that the accounting should be made from the date of the finality of the said decision.
We find no error in the directive of the trial court that appellants shouldfree the lands in question
from the encumbrance that was created thereon by them in favor of the Development Bank of
the Philippines and one Claro cortez, for as trustees it is their duty to deliver the properties to
the cestui que trust free from all liens and encumbrances.
To recapitulate, we hold: (1) that the document executed on December 5, 1950 creates an
express trust in favor of appellees; (2) that appellants had no right to revoke it without the
consent of the cestui que trust; (3) that appellants must render an accounting of the fruits of the
lands from the datethe judgement rendered in G.R. No. L-8774 became final and executory; and
(4)that appellants should free said lands from all liens and encumbrances.
WHEREFORE, with the modification as above indicated with regard to accounting,we hereby
affirm the decision appealed from, without pronouncement as to costs.
Labrador, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.
Padilla and Concepcion, JJ., took no part.