EN BANC

[G.R. No. 109289. October 3, 1994.]

RUFINO R. TAN, petitioner, vs. RAMON R. DEL

ROSARIO, JR., as SECRETARY OF FINANCE &
JOSE U. ONG, as COMMISSIONER OF INTERNAL
REVENUE, respondents.

[G.R. No. 109446. October 3, 1994.]

CARAG, CABALLES, JAMORA AND SOMERA LAW

OFFICES, CARLO A. CARAG, MANUELITO O.
CABALLES, ELPIDIO C. JAMORA, JR. and
BENJAMIN A. SOMERA,
JR., petitioners, vs. RAMON R. DEL ROSARIO, in
his capacity as SECRETARY OF FINANCE and
JOSE U. ONG, in his capacity as COMMISSIONER
OF INTERNAL REVENUE, respondents.

DECISION

VITUG, J p:
These two consolidated special civil actions for
prohibition challenge, in G.R. No. 109289, the
constitutionality of Republic Act No. 7496, also commonly
known as the Simplified Net Income Taxation Scheme
("SNIT"), amending certain provisions of the National
Internal Revenue Regulations No. 2-93, promulgated by
public respondents pursuant to said law.
Petitioners claim to be taxpayers adversely affected
by the continued implementation of the amendatory
legislation.
 In G.R. No. 109289, it is asserted that the enactment
of Republic Act No. 7496 violates the following provisions
of the Constitution:
"Article VI, Section 26 (1) Every bill passed
by the Congress shall embrace only one subject
which shall be expressed in the title thereof."
"Article VI, Section 28 (1) The rule of the
taxation shall be uniform and equitable. The
Congress shall evolve a progressive system of
taxation."
"Article III, Section 1 No person shall be
deprived of . . . property without due process of
law, nor shall any person be denied the equal
protection of the laws."
In G.R. No. 109446, petitioners, assailing Section 6 of
Revenue Regulations No. 2-93, argue that public
respondents have exceeded their rule-making authority
in applying SNIT to general professional partnerships.
The Solicitor General espouses the position taken by
public respondents.
The Court has given due course to both petitions.
The parties, in compliance with the Court's directive,
have filed their respective memoranda.
G.R. No. 109289
Petitioner contends that the title of House Bill No.
34314, progenitor of Republic Act No. 7496, is a
misnomer or, at least, deficient for being merely entitled,
"Simplified Net Income Taxation Scheme for the Self-
Employed and Professionals Engaged in the Practice of
their Profession" (Petition in G.R. No. 109289).
The full text of the title actually reads:
"An Act Adopting the Simplified Net Income
Taxation Scheme For The Self-Employed and
 Professionals Engaged In The Practice of Their
Profession, Amending Sections 21 and 29 of the
National Internal Revenue Code, as Amended."
The pertinent provisions of Sections 21 and 29, so
referred to, of the National Internal Revenue Code, as
now amended, provide:
"Section 21. Tax on citizens or residents.
xxx xxx xxx
"(f) Simplified Net Income Tax for the Self-
Employed and/or Professionals Engaged in the
Practice of Profession. A tax is hereby imposed
upon the taxable net income as determined in
Section 27 received during each taxable year
from all sources, other than income covered by
paragraphs (b), (c), (d) and (e) of this section by
every individual whether a citizen of the
Philippines or an alien residing in the Philippines
who is self-employed or practices his profession
herein, determined in accordance with the
following schedule:
"Not over P10,000 3%
Over P10,000 but not over P30,000 P300 +
9% of excess over P10,000
Over P30,000 but not over P120,000 P2,100
+ 15% of excess over P30,000
Over P120,000 but not
over P350,000 P15,600 + P20% of
excess over P120,000
Over P350,000 P61,600 + 30% of excess
over P350,000"
"SECTION 29. Deductions from gross income.
In computing taxable income subject to tax
under Sections 21(a), 24(a), (b) and (c); and 25
(a) (1), there shall be allowed as deductions the
 items specified in paragraphs (a) to (i) of this
section: Provided, however, That in computing
taxable income subject to tax under Section 21 (f)
in the case of individuals engaged in business or
practice of profession, only the following direct
costs shall be allowed as deductions:
"(a) Raw materials, supplies and direct labor;
"(b) Salaries of employees directly engaged in
activities in the course of or pursuant to the
business or practice of their profession;
"(c) Telecommunications, electricity, fuel,
light and water;
"(d) Business rentals;
"(e) Depreciation;
"(f) Contributions made to the Government
and accredited relief organizations for the
rehabilitation of calamity stricken areas declared
by the President; and
"(g) Interest paid or accrued within a taxable
year on loans contracted from accredited financial
institutions which must be proven to have been
incurred in connection with the conduct of a
taxpayer's profession, trade or business.
"For individuals whose cost of goods sold and
direct costs are difficult to determine, a maximum
of forty per cent (40%) of their gross receipts shall
be allowed as deductions to answer for business
or professional expenses as the case may be."
On the basis of the above language of the law, it
would be difficult to accept petitioner's view that the
amendatory law should be considered as having now
adopted a gross income, instead of as having still
retained the net income, taxation scheme. The allowance
for deductible items, it is true, may have significantly
been reduced by the questioned law in comparison with
that which has prevailed prior to the amendment;
limiting, however, allowable deductions from gross
income is neither discordant with, nor opposed to, the
net income tax concept. The fact of the matter is still that
various deductions, which are by no means
inconsequential, continue to be well provided under the
new law.
Article VI, Section 26(1), of the Constitution has been
envisioned so as (a) to prevent log-rolling legislation
intended to unite the members of the legislature who
favor any one of unrelated subjects in the support of the
whole act, (b) to avoid surprises or even fruad upon the
legislature , and (c) to fairly apprise the people, through
such publications of its proceedings as are usually made,
of the subjects of legislation. 1 The above objectives of
the fundamental law appear to us to have been
sufficiently met. Anything else would be to require a
virtual compendium of the law which could not have
been the intendment of the constitutional mandate.
Petitioner intimates that Republic Act No.
7496 desecrates the constitutional requirement that
taxation "shall be uniform and equitable" in that the law
would now attempt to tax single proprietorships and
professionals differently from the manner it imposes the
tax on corporations and partnerships. The contention
clearly forgets, however, that such a system of income
taxation has long been the prevailing rule even prior
to Republic Act No. 7496.
Uniformity of taxation, like the kindred concept of
equal protection, merely requires that all subjects or
objects of taxation, similarly situated, are to be treated
alike both in privileges and liabilities (Juan Luna
Subdivision vs. Sarmiento, 91 Phil. 371). Uniformity does
not forfend classification as long as: (1) the standards
that are used therefor are substantial and not arbitrary,
(2) the categorization is germane to achieve the
legislative purpose, (3) the law applies, all things being
equal, to both present and future conditions, and (4) the
classification applies equally well to all those belonging
to the same class (Pepsi Cola vs. City of Butuan, 24 SCRA
3; Basco vs. PAGCOR, 197 SCRA 771).
What may instead be perceived to be apparent from
the amendatory law is the legislative intent to
increasingly shift the income tax system towards the
schedular approach 2 in the income taxation of individual
taxpayers and to maintain, by and large, the present
global treatment 3 on taxable corporations. We certainly
do not view this classification to be arbitrary and
inappropriate.
Petitioner gives a fairly extensive discussion on the
merits of the law, illustrating, in the process, what he
believes to be an imbalance between the tax liabilities of
those covered by the amendatory law and those who are
not. With the legislature primarily lies the discretion to
determine the nature (kind), object (purpose), extent
(rate), coverage (subjects) and situs (place) of taxation.
This court cannot freely delve into those matters which,
by constitutional fiat, rightly rest on legislative judgment.
Of course, where a tax measure becomes so
unconscionable and unjust as to amount to confiscation
of property, courts will not hesitate to strike it down, for,
despite all its plenitude, the power to tax cannot override
constitutional proscriptions. This stage, however, has not
been demonstrated to have been reached within any
appreciable distance in this controversy before us.
Having arrived at this conclusion, the plea of
petitioner to have the law declared unconstitutional for
being violative of due process must perforce fail. The due
process clause may correctly be invoked only when there
is a clear contravention of inherent or constitutional
limitations in the exercise of the tax power. No such
transgression is so evident to us.
G.R No 109446
The several propositions advanced by petitioners
revolve around the question of whether or not public
respondents have exceeded their authority in
promulgating Section 6, Revenue Regulations No. 2-93,
to carry outRepublic Act No. 7496.
The questioned regulation reads:
"Sec. 6 General Professional Partnership
The general professional partnership (GPP) and
the partners comprising the GPP are covered
by R.A. No. 7496. Thus, in determining the net
profit of the partnership, only the direct costs
mentioned in said law are to be deducted from
partnership income. Also, the expenses paid or
incurred by partners in their individual capacities
in the practice of their profession which are not
reimbursed or paid by the partnership but are not
considered as direct cost, are not deductible from
his gross income."

The real objection of petitioners is focused on the

administrative interpretation of public respondents that
would apply SNIT to partners in general professional
partnerships. Petitioners cite the pertinent deliberations
in Congress during its enactment of Republic Act No.
7496, also quoted by the Honorable Hernando B. Perez,
minority floor leader of the House of the Representatives,
in the latter's privilege speech by way of commenting on
the questioned implementing regulation of public
respondents following the effectivity of the law, thusly:
 "'MR. ALBANO, Now Mr. Speaker, I would like
to get the correct impression on this bill. Do
we speak here of individuals who are earning,
I mean, who earn through business
enterprises and therefore, should file an
income tax return?
'MR. PEREZ. That is correct, Mr. Speaker. This
does not apply to corporations. It applies only
to individuals.'
"(See Deliberations on H.B. No. 34314, August 6,
1991, 6:15 P.M.; Emphasis ours)
"'Other deliberations support this position, to
wit:
'MR. ABAYA . . . Now, Mr. Speaker, did I hear
the Gentleman from Batangas say that this
bill is intended to increase collections as far
as individuals are concerned and to make
collection of taxes equitable?
'MR. PEREZ. That is correct, Mr. Speaker.'
"(Id. at 6:40 P.M.; Emphasis ours)
"In fact, in the sponsorship speech of Senator
Mamintal Tamano on the Senate version of the
SNITS, it is categorically stated, thus:
"'This bill, Mr. President, is not applicable to
business corporations or to partnerships; it is
only with respect to individuals and
professionals.' (Emphasis ours)"
The Court, first of all, should like to correct the
apparent misconception that general professional
partnerships are subject to the payment of income tax or
that there is a difference in the tax treatment between
individuals engaged in business or in the practice of their
respective professions and partners in general
professional partnerships. The fact of the matter is that a
general professional partnership, unlike an ordinary
business partnership (which is treated as a corporation
for income tax purposes and so subject to the corporate
income tax), is not itself an income taxpayer. The income
tax is imposed not on the professional partnership, which
is tax exempt, but on the partners themselves in their
individual capacity computed on their distributive shares
of partnership profits. Section 23 of the Tax Code, which
has not been amended at all by Republic Act 7496, is
explicit:
"SECTION 23. Tax liability of members of
general professional partnerships. (a) Persons
exercising a common profession in general
partnership shall be liable for income tax only in
their individual capacity, and the share in the net
profits of the general professional partnership to
which any taxable partner would be entitled
whether distributed or otherwise, shall be
returned for taxation and the tax paid in
accordance with the provisions of this Title.
"(b) In determining his distributive share in
the net income of the partnership, each partner
"(1) Shall take into account separately his
distributive share of the partnership's income,
gain, loss, deduction, or credit to the extend
provided by the pertinent provisions of this Code,
and
"(2) Shall be deemed to have elected the
itemized deductions, unless he declares his
distributive share of the gross income
undiminished by his share of the deductions."
There is, then and now, no distinction in income tax
liability between a person who practices his profession
alone or individually and one who does it through
partnership (whether registered or not) with others in the
exercise of a common profession. Indeed, outside of the
gross compensation income tax and the final tax on
passive investment income, under the present income
tax system all individuals deriving income from any
source whatsoever are treated in almost invariably the
same manner and under a common set of rules.
We can well appreciate the concern taken by
petitioners if perhaps we were to consider Republic Act
No. 7496 as an entirely independent, not merely as an
amendatory, piece of legislation. The view can easily
become myopic, however, when the law is understood,
as it should be, as only forming part of, and subject to,
the whole income tax concept and precepts long
obtaining under the National Internal Revenue Code. To
elaborate a little, the phrase "income taxpayers" is an all
embracing term used in the Tax Code, and it practically
covers all persons who derive taxable income. The law, in
levying the tax, adopts the most comprehensive
tax situs of nationality and residence of the taxpayer
(that renders citizens, regardless of residence, and
resident aliens subject to income tax liability on their
income from all sources) and of the generally accepted
and internationally recognized income taxable base (that
can subject non-resident aliens and foreign corporations
to income tax on their income from Philippine sources). In
the process, the Code classifies taxpayers into four main
groups, namely: (1) Individuals, (2) Corporations, (3)
Estates under Judicial Settlement and (4) Irrevocable
Trusts (irrevocable both as to corpus and as to income).
Partnerships are, under the Code, either "taxable
partnerships" or "exempt partnerships." Ordinarily,
partnerships, no matter how created or organized, are
subject to income tax (and thus alluded to as "taxable
partnerships") which, for purposes of the above
categorization, are by law assimilated to be within the
context of, and so legally contemplated as, corporations.
Except for few variances, such as in the application of the
"constructive receipt rule" in the derivation of income,
the income tax approach is alike to both juridical
persons. Obviously, SNIT is not intended or envisioned,
as so correctly pointed out in the discussions in Congress
during its deliberations on Republic Act 7496,
aforequoted, to cover corporations and partnerships
which are independently subject to the payment of
income tax.
"Exempt partnerships," upon the other hand, are not
similarly identified as corporations nor even considered
as independent taxable entities for income tax purposes.
A general professional partnership is such an
example. 4Here, the partners themselves, not the
partnership (although it is still obligated to file an income
tax return [mainly for administration and data]), are
liable for the payment of income tax in their individual,
capacity computed their respective and distributive
shares of profits. In the determination of the tax liability,
a partner does so as anindividual, and there is no choice
on the matter. In fine, under the Tax Code on income
taxation, the general professional partnership is deemed
to be no more than a mere mechanism or a flow-through
entity in the generation of income by, and the ultimate
distribution of such income to, respectively, each of the
individual partners.
Section 6 of Revenue Regulation No. 2-93 did not
alter, but merely confirmed, the above standing rule as
now so modified by Republic Act No. 7496 on basically
the extent of allowable deductions applicable
to all individual income taxpayers on their non-
compensation income. There is no evident intention of
the law, either before or after the amendatory legislation,
to place in an unequal footing or in significant variance
 the income tax treatment of professionals who practice
their respective professions individually and of those who
do it through a general professional partnership.
WHEREFORE, the petitions are DISMISSED. No special
pronouncement on costs.
SO ORDERED.
||| (Tan v. Del Rosario, Jr., G.R. No. 109289, 109446, [October
3, 1994])

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-22611 May 27, 1968

COMMISSIONER OF INTERNAL REVENUE, petitioner,

vs.
VISAYAN ELECTRIC COMPANY and THE COURT OF TAX
APPEALS, respondents.

Office of the Solicitor General for petitioner.

Jesus P. Garcia for respondents.

SANCHEZ, J.:
The problems cast in legal setting in this petition for review1 of
the judgment of the Court of Tax Appeals are:

Is Visayan Electric Company liable for deficiency income tax on

dividends from the stock investment of its employees' reserve
fund for pensions?

Is it also liable for 25% surcharge on alleged late payment of

franchise tax?

Respondent company is the holder of a legislative franchise,

Act 3499 of the Philippine Legislature, to operate and maintain
an electric light, heat, and power system in the City of Cebu,
certain municipalities in the Province of Cebu, and other
surrounding places.

In a board of directors' meeting held on March 14, 1949,

respondent company established a pension fund, known as the
"Employees' Reserve for Pensions." Said fund is for the benefit
of its "present and future" employees, in the event of
retirement, accident or disability. Every month thereafter an
amount has been set aside for this purpose. It is taken from
the gross operating receipts of the company. This reserve fund
was later invested by the company in stocks of San Miguel
Brewery, Inc., for which dividends have been regularly
received. But these dividends were not declared for tax
purposes.
It was in a letter dated August 9, 1957 that the Auditor
General gave notice that as the company has retained full
control of the fund, therefore, the dividends are not tax
exempt; but that such dividends may be excluded from gross
receipts for franchise tax purposes, provided the same are
declared for income tax purposes.

In pursuance of the above letter, the Provincial Auditor of Cebu

allowed the company the option to declare the dividends
either as part of the company's income for income tax
purposes or as part of its income for franchise tax purposes.
The company elected the latter.2

The Revenue Examiner of Cebu, however, conducted a

separate investigation for the Bureau of Internal Revenue. His
report dated September 17, 1959 likewise revealed that the
"company itself is the custodian or has the complete control of
the fund." That report disagreed with the action of the
Provincial Auditor, instead considered the dividends as subject
to corporate income tax under Section 24 of the National
Internal Revenue Code.

Said report further disclosed that: (a) during the years 1957,
1958 and 1959, some payments of the franchise tax were
made after fifteen days although within twenty days of
the month following the end of each calendar quarter,
allegedly contrary to Section 259 of the Tax Code, which
imposes a 25% surcharge if the franchise faxes "remain
unpaid for fifteen days from and after the date on which they
must be paid"; and (b) from 1954 to 1959, the company had
not paid additional residence tax imposed by Section 2 of Act
465.

With the foregoing report as basis, the Commissioner of

Internal Revenue, in two letters of demand dated September 7
and 15, 1960, assessed the following amounts against the
company: (a) P2,443.30 representing deficiency income tax for
the years 1953 to 1958, plus interest and 50% surcharge; (b)
P3,850.00 as additional residence tax from 1954 to 1959; and
(c) P35,419.05 as 25% surcharge for late payment of franchise
taxes for the years 1957, 1958 and 1959. Reconsideration
having been denied, the company went to the Court of Tax
Appeals on petition for review.

On January 31, 1964, the Court of Tax Appeals sustained the

correctness of the additional residence tax assessments3 but
freed the company from liability for deficiency income tax and
the 25% surcharge for late payment of franchise taxes.

It is now the turn of the Commissioner of Internal Revenue to

appeal to this Court.

1. Admittedly, the investment of the fund in shares of stocks of

the San Miguel Brewery, Inc. is not a part of respondent
company's business. Neither is it necessary or incidental to its
operation under its franchise. And yet those dividends were
assessed by petitioner as part of the income of respondent
company. The tax court joins petitioner in this, but applied the
following provision in Section 8, Act 3499 the company's
legislative franchise in holding that the dividends are not
subject to income tax, viz.:
SEC. 8. The grantee shall pay the same taxes as are now or
may hereafter be required by law from other persons, on its
real estate, buildings, plant, machinery, and other personal
property, except property declared exempt in this section. In
consideration of the franchise and rights hereby granted, the
grantee shall pay into the municipal treasury of each
municipality in which it is supplying electricity to the public
under this franchise, a tax equal to two per centum of the
gross earnings for electric current sold under this franchise in
each of the respective municipalities. Said percentage shall be
due and payable quarterly and shall be in lieu of all taxes of
any kind levied, established or collected by any authority
whatsoever, now or in the future, on its poles, wires,
insulators, switches, transformers and other structures,
installations, conductors and accessories, placed in and over
the public streets, avenues, roads, thoroughfares, squares,
bridges, and other places and on its franchises, rights,
privileges, receipts, revenues and profits, from which taxes the
grantee is hereby expressly exempted.4

We perceive incorrectness of this approach by the Tax Court.

What is envisioned in the statute granting exemption, so far as
is pertinent to this case, is the last underscored portion thereof
which speaks of its receipts, revenues and profits, "from which
taxes the grantee is hereby expressly exempted." The heavy
accent is on the word its. Plain import of this word, taken in
context, is that the receipts, revenues and profits, which could
be tax-exempt under the statute, must be the company's
not somebody else's. No doubt this provision should not be
broadened so as to include situations which by fail intendment
are excluded therefrom. To do so is to take too loose a view of
the statute.

The disputed income are not receipts, revenues or profits of

the company. They do not go to the general fund of the
company. They are dividends from the San Miguel Brewery,
Inc. investment which form part of and are added to the
reserve pension fund which is solely for the benefit of the
employees,5 "to be distributed among the employees."6

Not escaping notice is that by the resolution of respondent

company's board and the setting aside of monthly amounts
from its gross operating receipts for that fund, said company
was merely acting, with respect to such fund, as trustee for its
employees. For, indeed, the intention to establish a trust in
favor of the employees is clear. A valid express trust has thus
been created.7 And, for tax purposes, the employees' reserve
fund is a separate taxable entity.8 Respondent company then,
while retaining legal title and custody9 over the property,
holds it in trust for the beneficiaries mentioned in the
resolution creating the trust, in the absence of any condition
therein which would, in effect, destroy the intention to create a
trust.10

Given the fact that the dividends are returns of the trust estate
and not of the grantor company, we must say that petitioner
misconceived the import of the law when he assessed said
dividends as part of the income of the company. Similarly, the
tax court should not have considered them at all as the
company's "receipts, revenues and profits" which are exempt
from income tax.
2. As we look back at the resolution creating the employees'
reserve fund and having in mind the company's admission that
it is "solely for the benefit of the employees" and that the
company is holding said fund "merely as trustee of its
employees,"11 we reach the conclusion that the fund may not
be diverted for other purposes, and that the trust so created is
irrevocable. For, really nothing in respondent company's acts
suggests that it reserved the power to revoke that fund or for
that matter appropriate it for itself. The trust binds the
company to its employees. The trust created is not therefore a
revocable trust a provided in Section 59 of the Tax Code.12
Nor is it a trust contemplated in Section 60, the income from
which is for the benefit of the grantor.13

This state of facts calls for inquiry into the applicability of

Section 56 of the Tax Code, which in part reads:

SEC. 56. Imposition of tax (a) Application of tax. The

taxes imposed by this Title upon individuals shall apply to the
income of estate or of any kind of property held in trust,
including

(1) Income accumulated in trust for the benefit of unborn or

unascertained person or persons with contingent interests and
income accumulated or held for future distribution under the
terms of the will or trust;

xxx xxx xxx

(c) Computation and payment

(1) In general. The tax shall be computed upon the net

income of the estate or trust and shall be paid by the fiduciary,
except as provided in Section fifty-nine (relating to revocable
trust) and section sixty (relating to income for the benefit of
the grantor);

xxx xxx x x x14

Of interest here is that an amendment to Section 56

Republic Act 1983,15 approved on June 22, 1957 singles out
employees' trust for tax exemption in the following language:

(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 then for the exclusive benefit of
his employees: Provided, That any amount actually distributed
to any employee or distributee shall be taxable to him in the
year in which so distributed to the extent that it exceeds the
amount contributed by such employee or distributee.16
A dig into the legislative history unearths the fact that this
exemption in Republic Act 1983 was conceived in order to
encourage the formation of pension trust systems for the
benefit of laborers and employees outside the Social Security
Act.17

Understandably, the second requirement in paragraph (b) of

Section 56 of the Tax Code as it was inserted by Republic Act
1983 non-diversion of fund was written into the statute
the better to insure that the trust fund and its income will be
used "for the exclusive benefit" of the employees.

Of importance is the employment of the word plan as it is

applied to pension set forth in the first part of paragraph (b)
aforesaid. Worth mentioning is that a sizeable portion of our
Tax Code has been lifted from the United States Internal
Revenue Code. To be sure, Republic Act 1983 which amends
Section 56 of our Tax Code is substantially similar in terms to
Section 165 of the United States Internal Revenue Code of
1939.18 It is thus permissible for this Court to look into the
interpretations of the American counterpart in an effort to
determine the congressional scheme in exempting employees'
trust from taxation.

In the American jurisdiction, the word plan is emphasized. To

qualify for exemption, the employees' trust must refer to a
definite program, scheme or plan. It must be set up in good
faith. It must be acturially sound. Under such plan, employees
generally are to be extended retirement and pension benefits.
But why? The fund is not thereafter to be controlled or used for
the benefit of the company in any way.19 A trust device used
to disguise added compensation to the shareholders and
officers of a company and thereby avoid present payment of
income tax thereon instead of providing for future security
of the employees in general will not qualify under the
exemption.20 Hubbell vs. Commissioner of Internal Revenue,
150 F. 2d 516, 161 A.L.R. 764, 773, which was decided under
the 1939 version, confirms this view. There, the United States
Circuit Court of Appeals took into account the direction of the
amendments in construing congressional purpose, and held
that the 1942 amendment which added the requirement of
non-discrimination in favor of shareholders, officials, or highly-
compensated employees presents no apparent change in
congressional purpose: "to insure that ... pension ... plans are
operated for the welfare of employees in general, and to
prevent the trust device from being used for the benefit of
shareholders, officials, or highly paid employees...."

This is not to say, of course, that the employees' trust fund

established by private respondent is a device calculated to
unserve its purpose and serve tax evasion. Unquestionably,
the trust fund was created in good faith. It is meant as it was
intended to mean for the employees' welfare.

But wanting are sufficient data which would justify this Court
to make a conclusive statement that the trust qualifies under
Section 56 (b) as it was inserted into the Tax Code by Republic
Act 1963. The only written evidence of record of the creation
of the pension trust is the minutes of the board of directors'
meeting of March 14, 1949, the pertinent portion of which
reads:
3. Upon motion duly seconded, the following resolution was
unanimously passed:

RESOLVED, that the sum of FOUR HUNDRED FIFTEEN

THOUSAND PESOS (P415,000.00) be appropriated from the
surplus of the company arising from prewar operations in
order to cover the payments of backpay and payment of
reasonable compensations to those persons who have
materially aided the Company in its Organization and
Rehabilitation and in the preparation and prosecution of the
Company's claims. This appropriation shall cover a reserve
fund for pensions for all the present and future employees of
the firm in the amount of SIXTY THOUSAND PESOS
(P60,000.00), Reserve Fund for Employees' Welfare to the
amount of FIFTY THOUSAND PESOS (P50,000.00). Reserve
Funds for Medical Hospitalization, etc. to the amount of THIRTY
THOUSAND PESOS (P30,000.00). Reserve Fund for Insurance
and Accident to the amount of TWENTY FOUR THOUSAND
PESOS (P24,000.00) and a Reserve Fund for Bonuses Payable
to the amount of FIFTY THOUSAND PESOS (P50,000.00).

4. Upon motion by Mr. Jesus Moraza, duly seconded by Mr. Juan

Coromina, it was resolved further that the committee
consisting of Dr. Mamerto Escano, as Chairman and Messrs. Gil
Garcia and Salvador E. Sala as members be constituted, as it
is hereby constituted, to study the details of all the above
resolutions and give effect thereto. The said committee is
hereby empowered to immediately put into effect the above
resolutions.
We have the admitted fact also that every month thereafter an
amount has been set aside for the fund and the investment
thereof in stocks of San Miguel Brewery, Inc.

And yet, something is amiss. For one, there is the admission

made on page 3 of respondents' brief that:

... It is, of course, admitted by the respondent Company that

the strict requirements of Section 56 (b) of the Tax Code on the
formation of employees' trust funds for pension had not been
strictly complied with, although said funds and their returns
are exclusively for the benefit of respondent Company's
employees.

And then, nothing extant in the record will show a pension plan
actuarially sound. Correctly did the Court of Tax Appeals find
that "[i]t does not appear, however, that said pension trust
was created in accordance with the provision of Section 56 (b)
of the Revenue Code."21

The absence of such plan prevents us from taking a view

which fits the purpose of the statute. Coming into play then is
the specific provision in paragraph (a), Section 56, heretofore
transcribed, which directs that the "taxes imposed by this Title
upon individuals shall apply to the income ... of any kind of
property held in trust." For which reason, the income received
by the employees' trust fund from January 1, 1957 is subject to
the income tax prescribed for individuals under Section 21 of
the Tax Code.
To follow a different construction would run "smack against the
familiar rules that exemption from taxation is not favored,22
and that exemptions in tax statutes are never presumed,"23
and these "are but statements in adherence to the ancient rule
that exemptions from taxation are construed in strictissimi
juris against the taxpayer and liberally in favor of the taxing
authority."24

3. Having reached the conclusion that the assessment made

by petitioner and the ruling of the Court of Tax Appeals on lack
of income tax liability were on a mistaken premise, but that
the trust established by respondent should pay the taxes
imposed upon individuals, we are now faced with the
mechanics of tax collection.

The problem of prescription comes in. By Section 331 of the

Tax Code, internal revenue taxes shall be assessed within five
years after the return is filed. Here, no return was filed upon a
belief in good faith that no tax liability attaches. Add to this
the fact that the Commissioner of Internal Revenue made an
assessment of income tax but upon the mistaken assumption
that the tax payable was upon the basis of a corporate tax and
not individual tax, and the picture is complete. Good faith in
one, and honest mistake in the other. Both petitioner and
respondent company are on the same footing. It is because of
this that we rule that Section 332 (a) of the Tax Code finds
application. It reads:

SEC. 332. Exceptions as to period of limitation of assessment

and collection of taxes. (a) In the case of a false or
fraudulent return with intent to evade tax or of a failure to file
a return, the tax may be assessed, or a proceeding in court for
the collection of such tax may be begun without assessment,
at any time within ten years after the discovery of the falsity,
fraud, or omission.

Assessment should have as starting point the known figures.

From 1953 to 1958, the following amounts were dividends
received on the San Miguel Brewery, Inc. investment:

1953 ................................... P4,430.00

1954 ................................... 4,384.00
1955 ................................... 6,240.00
1956 ................................... 8,000.00
1957 ................................... 8,009.60
1958 ................................... 7,999.20
As far as we could read from the record, on the 1953 to 1956
dividends, payments under protest were made as follows:

1. Deficiency franchise tax .................................. P468.14

2. 25% surcharge .................................................. 117.04
3. Compromise penalty ........................................ 50.00
Total ............................................
P635.18
On the 1957 dividends, the following were paid under protest:

1. Deficiency franchise tax .................................. P166.85

2. 25% surcharge .................................................. 41.71
3. Compromise ...................................................... 10.00
Total ............................................
P218.56
The 1958 dividends were included in the franchise tax return
for the first quarter of 1959, the tax for which was paid on
April 16, 1959.

In the determination of the taxes due, the 50% surcharge

sought by petitioner should not be included. To subject a
taxpayer to the payment of 50% surcharge provided for in
Section 72 of the National Internal Revenue Code, the State
must show either that there was a wilful neglect to file a return
or that a case of a false or fraudulent return wilfully made
exists. There is total absence of proof, and petitioner does not
allege, that respondent company wilfully neglected to file a
return or that it made a false or fraudulent return. In fact, this
Court's pronouncement was necessary to determine whether
such dividends are taxable at all, and if so, under what law. In
Yutivo Sons Hardware Company vs. Commissioner,25 our
ruling is that where a man "honestly believes" that the method
employed by him in computing his tax liability is correct, he
does not incur any fraud; in which case, no fraud penalty
attaches under Section 72 of the Tax Code, which in part
reads:

SEC. 72. Surcharges for failure to render return and for

rendering false and fraudulent returns.
... In case of wilful neglect to file the return or list within the
time prescribed by law, or in case a false or fraudulent return
or list is wilfully made, the Commissioner of Internal Revenue
shall add to the tax or to the deficiency tax, in case any
payment has been made on the basis of such return before the
discovery of the falsity or fraud, a surcharge of fifty per
centum of the amount of such tax or deficiency tax....

Absent the specifics exacted in Section 72, no 50% surcharge

is collectible.

4. Was respondent company late in the payment of its

franchise taxes?

We first go to the controlling statutes. Section 259, paragraph

(2) of the National Internal Revenue Code reads:

SEC. 259. Tax on corporate franchises. ....

The taxes, charges, and percentages on corporate franchises,

shall be due and payable as specified in the particular
franchise, or in case no time limit is specified therein, the
provisions of section one hundred and eighty-three shall apply;
and if such taxes, charges, and percentages remain unpaid for
fifteen days from and after the date on which they must be
paid, twenty-five per centum shall be added to the amount of
such taxes, charges, and percentages, which increase shall
form part of the tax.26
Section 183 (a) mentioned in Section 259 of the same Code in
turn partly reads:

SEC. 183. Payment of percentage taxes. (a) In general. It

shall be the duty of every person conducting a business on
which a percentage tax is imposed under this Title, to make a
true and complete return of the amount of his, her or its gross
monthly sales, receipts or earnings, or gross value of output
actually removed from the factory or mill warehouses and
within twenty days after the end of each month, pay the tax
due thereon:....

Upon the other hand, the company's franchise provides:

... Said percentage shall be due and payable quarterly.

The quintessence of petitioner's argument is that the phrase

"due and payable quarterly" in the franchise of the company
means that the tax is immediately demandable at the end of
each calendar quarter; and that since the franchise itself sets
the time limit for the payment of the franchise tax, Section
183 just quoted finds no application. In which case, so
petitioner avers, the 25% surcharge would be collectible if the
percentage taxes remain unpaid after fifteen days from the
end of each calendar quarter.

Decisive of the question is the meaning of the term "due and

payable quarterly." Resort to the following definitions may help
in clearing up the issue:
(1) The word "due" is only equivalent to or synonymous with
"payable."27

(2) The word "due" with reference to taxes, implies that such
taxes are then "owing, collectible or matured."28

(3) "The word 'due' in one sense means that the debt or
obligation to which it is applied has by contract of operation of
law become immediately payable, but in another sense it
denotes the existence of a simple indebtedness, without
reference to the time of payment, in which it is synonymous
with 'owing' and includes all debts whether payable in
praesenti or in futuro."29

(4) "Unless context clearly indicates a contrary meaning, the

phrase 'due and payable' on a specified date means the debt
or obligation to which it is applicable is then immediately
payable."30

In line with the foregoing definitions, the term "due and

payable on the first day of each month" was interpreted to
mean that payment on any day during the month other than
the first day would constitute non-compliance.31

In our opinion, the term "due and payable quarterly" in this

case merely indicates the frequency of payment of the
franchise tax, viz., very three months. It does not refer to the
time limit or, in the precise language of Section 259, "the date
on which they (the taxes) must be paid."

Under Section 183(a) in relation to Section 259, second

paragraph, the law has opted to collect the tax within twenty
days after it becomes due and payable, namely, the last day of
each quarter. The time limit or the date on which the
percentage tax must be paid by the company is the twentieth
day after the last day of each quarter. Section 259 grants
another grace period of fifteen days from the termination of
this time limit before imposing the 25% surcharge.

To say that Section 183(a) is not applicable simply because, as

amended, it provides for monthly payment while the
company's charter speaks of quarterly payment, is to hang so
heavy a meaning on too slender a frame. Prior to its
amendment by R.A. 1612 on August 24, 1956, said Section
183(a) prescribed quarterly payment of percentage taxes.32
Accurately read, the amendment merely changed the manner
or frequency of payment of the tax, whereas Section 259
makes reference to Section 183(a) with respect to the time
limit for payment of percentage taxes. The amendment does
not nullify the applicability of Section 183(a) to franchises
which do not set any time limit for payment although providing
for a different manner or frequency of payment. Common
sense dictates that it be so. For, if the law has chosen to allow
a fifteen-day grace period to taxpayers paying every month,
no cogent reason exists why the same period if not longer
should be denied taxpayers paying every three months. The
latter require more time for preparation their return covers
a longer period. The tax court is correct.33
Really, the tax cannot be immediately demandable at the end
of each calendar quarter. Reason for this is that transactions
on the last day of the quarter must have to be included in the
computation of the taxpayer's return for each particular
quarter. It is well-nigh impossible for the taxpayer to add up
his income, write down the deductions, and compute the net
amount taxable as of the last working hour of the last day of
the quarter, and at the same time go to the nearest revenue
office, submit the quarterly return and pay the tax. This
accounts for the fact that Section 183(a) of the National
Internal Revenue Code gives the taxpayer a leeway of twenty
days after the end of each quarter to do all of these. And by
Section 259, it is only upon failure to pay for fifteen days "from
and after the date on which they must be paid" that the
twenty-five per centum shall be added to the amount of
"taxes, charges, and percentages," on corporate franchises.
Statutes are not to be so narrowly read as to beget
unreasonableness.

We accordingly rule that the franchise tax "must be paid"

within "twenty days after the end" of each quarter and that if
such tax remains unpaid for 15 days "from and after the date
on which they must be paid," then twenty-five per centum
shall be added to the amount due. No surcharge for late
payment of respondent company's franchise taxes accrues.

For the reasons given

The judgment under review is hereby AFFIRMED insofar as it

reverses petitioner's assessment of surcharge for late payment
of respondent company's franchise tax;34 and
Said judgment is hereby REVERSED insofar as it exempts
respondent company from the payment of deficiency income
tax, in the sense that respondent company, in its capacity as
fiduciary of its employees' reserve fund, is hereby declared
liable for the payment of individual income tax set forth in
Section 56(a) in connection with Section 21 of the National
Internal Revenue Code; and

Conformably to the opinion expressed herein, let the record of

this case be returned to the Court of Tax Appeals with
instructions to hear and determine the tax liability of the trust
known as "Employees' Reserve for Pensions" and/or tax
refund, if any, to respondent Visayan Electric Company, upon
the dividends received during the years 1953 to 1958 on the
investment of its employees' reserve fund for pensions, and
tax payments made by reason thereof, said tax to be
computed in accordance with Section 56(a) and (c) of the
National Internal Revenue Code in relation to Section 21 of the
same Code.

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 138919 May 2, 2006

FAR EAST BANK AND TRUST COMPANY as Trustee of Various
Retirement Funds, Petitioner,
vs.
COMMISSIONER OF INTERNAL REVENUE and THE COURT OF
APPEALS, Respondents.

DECISION

TINGA, J.:

The present petition evokes some degree of natural sympathy

for the petitioner, as it seeks the refund of taxes wrongfully
paid on the income earned by several retirement funds of
private employees held by petitioner in their behalf. The steps
undertaken by petitioner to seek the refund were woefully
error-laden, yet their claims still received due solicitation from
this Court. But in the end, the errors committed are just too
multiple as well as consequential, and the claim for refund not
sufficiently proven. Impulses may suggest that we reverse and
grant, but logic and the law dictate that the Court affirm the
assailed rulings of the Court of Appeals and the Court of Tax
Appeals.

Before us is a Petition for Review on Certiorari filed by

petitioner Far East Bank & Trust Company, assailing the
Resolutions of the Court of Appeals Fifth Division dated 12
January 1999 and 3 June 1999.1 The Resolution of 12 January
1999 dismissed outright, on procedural grounds, a petition for
review filed by petitioner questioning a Decision of the Court
of Tax Appeals dated 11 September 1998.2
While the petition before us primarily seeks the review of the
procedural grounds on which the petition before the Court of
Appeals was denied, it stems from a claim for refund lodged by
petitioner against the Commissioner of Internal Revenue (CIR)
on taxes on interest income withheld and paid to the CIR for
the four (4) quarters of 1993, arising from investments derived
from money market placements, bank deposits, deposit
substitute instruments and government securities made by
petitioner as the trustee of various retirement funds.

Petitioner is the trustee of various retirement plans established

by several companies for its employees. As trustee of the
retirement plans, petitioner was authorized to hold, manage,
invest and reinvest the assets of these plans.3 Petitioner
utilized such authority to invest these retirement funds in
various money market placements, bank deposits, deposit
substitute instruments and government securities. These
investments necessarily earned interest income. Petitioners
claim for refund centers on the tax withheld by the various
withholding agents, and paid to the CIR for the four (4)
quarters of 1993, on the aforementioned interest income. It is
alleged that the total final withholding tax on interest income
paid for that year amounted to P6,049,971.83.1avvphil.net4

On four dates, 12 May 1993, 16 August 1993, 31 January

1994, and 29 April 1994, petitioner filed its written claim for
refund with the Bureau of Internal Revenue (BIR) for the first,
second, third and fourth quarters of 1993, respectively.
Petitioner cited this Courts "precedent setting" decision in
Commissioner of Internal Revenue v. Court of Appeals,5
promulgated on 23 March 1992, said case holding that
employees trusts are exempted by specific mandate of law
from income taxation. Nonetheless, the claims for refund were
denied.

By this time, petitioner already had a pending petition before

the Court of Tax Appeals (CTA), docketed as CTA Case No.
4848, and apparently involving the same legal issue but a
previous taxable period. Hoping to comply with the two (2)-
year period within which to file an action for refund under
Section 230 of the then Tax Code, petitioner filed a Motion to
Admit Supplemental Petition6 in CTA Case No. 4848 on 28 April
1995, seeking to include in that case the tax refund claimed
for the year 1993. However, the CTA denied the admission of
the Supplemental Petition in a Resolution dated 25 August
1995.7 The CTA reasoned then that CTA Case No. 4848 had
already been pending for more than two and a half (2 )
years, and the admission of the supplemental petition, with a
substantial enlargement of petitioners original claim for
refund, would further delay the proceedings, causing as it
would, an effective change in the cause of action.
Nonetheless, the CTA advised that petitioner could instead file
a separate petition for review for the refund of the withholding
taxes paid in 1993.8

Petitioner decided to follow the CTAs advice, and on 9 October

1995, it filed another petition for review with the CTA,
docketed as CTA Case No. 5292, concerning its claim for
refund for the year 1993. The CIR posed various defenses,
among them, that the claim for refund had already
prescribed.9 Trial ensued.
On 11 September 1998, the CTA promulgated its decision in
CTA Case No. 5292, denying the claim for refund for the year
1993. While the CTA noted that the income from employees
trust funds were exempt from income taxes, the claims for
refund had already prescribed insofar as they covered the first,
second and third quarters of 1993, as well as from the period
of 1 October to 8 October 1993. The CTA so ruled considering
that the petition before it was filed only on 9 October 1995,
and thus, only those claims that arose after 9 October 1993
could be considered in light of the two (2)-year prescriptive
period for the filing of a judicial claim for refund from the date
of payment of the tax, as provided in Section 230 of the Tax
Code.10

As to the claim for refund covering the period 9 October 1993

up to 31 December 1993, the CTA likewise ruled that such
could not be granted, the evidence being insufficient to
establish the fact "that the money or assets of the funds were
indeed used or placed in money market placements, bank
deposits, other deposit substitute instruments and
government securities, more particularly treasury bills." The
CTA noted that petitioner merely submitted as its evidence
copies of the following documents: the list of the various
funds; the schedule of taxes withheld on a quarterly basis in
1993; the written claims for refund; the BIR Rulings on the
various Retirement Plans; the trust agreements of the various
retirement plans; and certifications of the Accounting
Department of petitioner, Citibank, and the Bangko Sentral ng
Pilipinas as to the taxes that they respectively withheld.11

The CTA faulted petitioner for failing to submit such necessary

documentary proof of transactions, such as confirmation
receipts and purchase orders that would ordinarily show the
fact of purchase of treasury bills or money market placements
by the various funds, together with their individual bank
account numbers. These various documents which petitioner
failed to submit were characterized as "the best evidence on
the participation of the funds, and without them, there is no
way for this Court to verify the actual involvement of the funds
in the alleged investment in treasury bills and money market
placements."12 The CTA also held as insufficient for such
purposes the certifications issued by Citibank, BSP, and
petitioners own Accounting Department, considering that the
aggregate amount of the final withholding taxes to which they
attest totalled more than P40,000,000.00, in comparison to
the present claims of only around P6,000,000.00. The CTA thus
concluded that such certifications included non-tax exempt or
otherwise taxable transactions, the sums of which were
conglomerated with the amount that may have actually been
refundable.

Petitioner filed a Motion for Reconsideration and/or New Trial,

which the CTA denied in a Resolution dated 4 December
1998.13 Petitioner then filed a Petition for Review under Rule
43 with the Court of Appeals. However, this petition was
denied outright by the appellate court in its Resolution dated
12 January 1999. The Court of Appeals held that petitioner had
failed to observe the requirement, under Section 2, Rule 42 of
the 1997 Rules of Civil Procedure that the petition should be
accompanied by other material portions of the record as would
support the allegations of the petition. The Court of Appeals
particularly mentioned the following documents omitted by
the petitioner in its petition: the Supplemental Petition, the
CTA Resolution denying the admission of the Supplemental
Petition, the new Petition filed with the CTA, and the Motion for
Reconsideration and/or New Trial.14

Petitioner moved for reconsideration of the adverse decision of

the Court of Appeals, attaching to its motion the required
certified copies of the cited documents. Nonetheless, the Court
of Appeals denied the motion for reconsideration through a
Resolution dated 3 June 1999, holding that the belated
compliance did not cure the defect of the petition. Moreover,
the Court of Appeals also noted that it had taken a "closer look
at the petition" and on that basis concluded that the CTA
Decision contained no reversible error.15

Hence, the present petition, which we deny.

Petitioner argues that it was error on the part of the Court of

Appeals to have dismissed its petition "on a mere
technicality."16 Yet the dismissal engaged in by the Court of
Appeals on procedural grounds is wholly sanctioned by the
relevant provisions of the Rules of Court. Section 6 of Rule 43,
1997 Rules of Civil Procedure, then governing the procedure of
appeals from decisions of the CTA to the Court of Appeals,17
explicitly provides that the petition for review be accompanied
by "certified true copies of such material portions of the record
referred to [in the petition] and other supporting papers".
Under Section 7, Rule 43, the failure to attach such documents
which should accompany the petition is sufficient ground for
the dismissal of the petition.

It should be remembered that it is only when the petition has

been given due course, after a prima facie finding that the CTA
had committed errors of fact or law that would warrant
reversal18, that the case record would be transmitted from the
court of origin to the Court of Appeals.19 Clearly, upon the
filing of the petition, the appellate court would have no
documentary basis to discern whether the required prima facie
standard has been met except the petition itself and the
documents that accompany it. While the submissions in the
petition may refer to other documents in the record, or may
even quote at length from those documents, the Court of
Appeals would have no way to ascertain the veracity of the
submissions unless the certified true copies of these
documents are attached to the petition itself.

Thus, the requirement that certified true copies of such

portions of the record referred to in the petition be attached is
not a mere technicality that can be overlooked with ease, but
an essential requisite for the determination of prima facie
basis for giving due course to the petition. Thus, it does not
constitute error in law when the Court of Appeals dismissed
the petition on such ground. Moreover, while the court a quo is
capacitated to give cognizance to the belated compliance
attempted by petitioner, acquiescence to such belated
compliance is a matter of sound discretion on the part of the
lower court, and one not ordinarily disturbed by the Court.

Even assuming that the procedural errors may be overlooked,

we still agree with the Court of Appeals in holding in the
Resolution of 3 June 1999 that the CTA committed no
reversible error in its assailed decision.
We hold, as the CTA did, that the exemption from income tax
of income from employees trusts still stands. The Court had
first recognized such exemption in the aforementioned CIR v.
Court of Appeals20 case, arising as it did from the enactment
of Republic Act No. 4917 which granted exemption from
income tax to employees trusts.21 The same exemption was
provided in Republic Act No. 8424, the Tax Reform Act of 1997,
and may now be found under Section 60(B) of the present
National Internal Revenue Code. Admittedly, such interest
income of the petitioner for 1993 was not subject to income
tax.

Still, petitioner did pay the income tax it was not liable for
when it withheld such tax on interest income for the year
1993. Such taxes were erroneously assessed or collected, and
thus, Section 230 of the National Internal Revenue Code then
in effect comes into full application. The provision reads:

SEC. 230. Recovery of tax erroneously or illegally collected.

No suit or proceeding shall be maintained in any court for the
recovery of any national internal revenue tax hereafter alleged
to have been erroneously or illegally assessed or collected, or
of any penalty claimed to have been collected without
authority or of any sum alleged to have been excessive or in
any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such suit
or proceeding may be maintained, whether or not such tax,
penalty, or sum has been paid under protest or duress.

In any case, no such suit or proceeding shall be begun after

the expiration of two years from the date of payment of the
tax or penalty regardless of any supervening cause that may
arise after payment: Provided, however, That the
Commissioner may, even without a written claim therefor,
refund or credit any tax, where on the face of the return upon
which payment was made, such payment appears clearly to
have been erroneously paid. (emphasis supplied)

The CTA noted that since the petition for review was only filed
on 9 October 1995, petitioner could no longer claim the refund
of such tax withheld for the period of January to 8 October
1995, the two (2)-year prescriptive period having elapsed.
Petitioner submits that the two (2)-year prescriptive period
should be reckoned from the date of its filing of the
Supplemental Petition on 28 April 1995, not from the filing of
its new petition for review after the Supplemental Petition was
denied.22 Even granting that this should be the case, such
argument would still preclude the refund of taxes wrongfully
paid from January to 27 April 1993, the two (2)-year
prescriptive period for those taxes paid then having already
become operative.

Yet could the two (2)-year prescriptive period for the refund of
erroneously paid taxes be deemed tolled by the filing of the
Supplemental Petition? Petitioner argues that Section 230 of
the then Tax Code does not specify the form in which the
judicial claim should be made. That may be so, but it does not
follow that the two (2)-year period may be suspended by the
filing of just any judicial claim with any court. For example, the
prescriptive period to claim for the refund of corporate income
tax paid by a Makati-based corporation cannot be suspended
by the filing of a complaint with the Municipal Circuit Trial
Court of Sorsogon. At the very least, such judicial claim should
be filed with a court which would properly have jurisdiction
over the action for the refund.

In this case, there is no doubt that the CTA has jurisdiction

over actions seeking the refund of income taxes erroneously
paid. But it should be borne in mind that petitioner initially
sought to bring its claim for refund for the taxes paid in 1993
through a supplemental petition in another case pending
before the CTA, and not through an original action. The
admission of supplemental pleadings, including supplemental
complaints, does not arise as a matter of right on the
petitioner, but remains in the sound discretion of the court,
which is well within its right to deny the admission of the
pleading. Section 6, Rule 10 of the 1997 Rules of Civil
Procedure, governing supplemental pleadings, is clear that the
court only "may" admit the supplemental pleading, and is thus
not obliged to do so.

It is only upon the admission by the court of the supplemental

complaint that it may be deem to augment the original
complaint. Until such time, the court acquires no jurisdiction
over such new claims as may be raised in the supplemental
complaint. Assuming that the CTA erred in refusing to admit
the Supplemental Petition, such action is now beyond the
review of this Court, the order denying the same having long
lapsed into finality, and it appearing that petitioner did not
attempt to elevate such denial for judicial review with the
proper appellate court.

We thus cannot treat the Supplemental Petition as having any

judicial effect. It cannot even be deemed as having been filed,
the CTA refusing to admit the same. Moreover, the CTA could
not have acquired jurisdiction over the causes of action stated
in the Supplemental Petition by virtue of the same pleading
owing to that courts non-admission of that complaint. The CTA
acquired jurisdiction over the claim for refund for taxes paid by
petitioner in 1993 only upon the filing of the new Petition for
Review on 9 October 1995.

Yet, let us assume again, this time, that the filing of the
Supplemental Petition could have tolled the two (2)-year
prescriptive period insofar as the 1993 taxes paid after 28
April 1993 were concerned. There may even be cause to
entertain this assumption, considering that this two (2)-year
prescriptive period is not jurisdictional and may be suspended
under exceptional circumstances.23 Yet a closer look at the
case does not indicate the presence of such exceptional
circumstances, but instead affirm that the petition is still bereft
of merit.

The CTA evinced palpable discomfort over the sufficiency of

the evidence presented by petitioner to establish its claim for
refund. It noted as follows:

As regards the third issue, this Court is convinced that the

evidence of the petitioner for the remaining portion of the
claim for the fourth quarter of 1993 is insufficient to establish
the fact that the money or assets of the funds were indeed
used or placed in money market placements, bank deposits,
other deposit substitute instruments and government
securities, more particularly treasury bills.
To prove its case, petitioner merely submitted copies of the
following documents, namely:

Exhibit

1. List of the various funds A

2. Schedule of taxes withheld on B

a quarterly basis in 1993

3. Written claims for refund C-C4

D-D4

E-E4

F-F4

4. BIR Rulings on the various G-Y

Retirement Plans at bar

5. Trust agreements of the Z-RR

various Retirement Plans

6. Certifications of the Accounting SS-UU49,

Department of petitioner, Citibank, inclusive and Bangko

Sentral ng Pilipinas on the taxes they respectively withheld

It is to be noted from the above listed exhibits that

documentary proof of transactions, such as confirmation
receipts and purchase orders which would ordinarily show the
fact of purchase of treasury bills or money market placements
by the various funds, together with their individual bank
account numbers, were not submitted in evidence by the
petitioner. They represent the best evidence on the
participation of the funds and without them, there is no way
for this Court to verify the actual involvement of the funds in
the alleged investment in the treasury bills and money market
placements.24

Clarifications are in order. The cited passage may seem to

implicitly assume that only such income earned by the
employees trusts from money market placements, bank
deposits, other deposit substitute instruments and
government securities are exempted from income taxation.
This is contrary to the provisions in Republic Act No. 4917,
which then stood as the governing provision on income tax
exemption of employees trusts:

SECTION 1. Any provision of law to the contrary

notwithstanding, the retirement benefits received by official
and employees of private firms, whether individual or
corporate, in accordance with a reasonable private benefit
plan maintained by the employer shall be exempt from all
taxes and shall not be liable to attachment, levy or seizure by
or under any legal or equitable process whatsoever except to
pay a debt of the official or employee concerned to the private
benefit plan or that arising from liability imposed in a criminal
action; xxx

The tax exemption enjoyed by employees trusts was absolute,

irrespective of the nature of the tax. There was no need for the
petitioner to particularly show that the tax withheld was
derived from interest income from money market placements,
bank deposits, other deposit substitute instruments and
government securities, since the source of the interest income
does not have any effect on the exemption enjoyed by
employees trusts.

What has to be established though, as a matter of evidence, is

that the amount sought to be refunded to petitioner actually
corresponds to the tax withheld on the interest income earned
from the exempt employees trusts. The need to be
determinate on this point especially militates, considering that
petitioner, in the ordinary course of its banking business, earns
interest income not only from its investments of employees
trusts, but on a whole range of accounts which do not enjoy
the same broad exemption as employees trusts.

It clearly bothered the CTA that the submitted certifications

from Citibank, the BSP, and petitioners own Accounting
Department attest only to the total amount of final withholding
taxes remitted to the BIR. Evidently, the sum includes not only
such taxes withheld from the interest income of the exempt
employees trusts, but also from other transactions between
petitioner and the BSP or Citibank which are not similarly
exempt from taxation. For these certifications to hold value,
there is particular need for them to segregate such taxes
withheld from the interest income of employees trusts, and
those withheld from other income sources. Otherwise, these
certifications are ineffectual to establish the present claim for
refund.

The weak evidentiary value of these certifications proved

especially fatal, as no other documentary evidence was
submitted to establish that the withholding agents actually
withheld interest income earned from the employees trusts
administered by petitioner. The other evidence submitted by
petitioner merely establishes the fact that it administered
various named employees trusts, the particular trust
agreements between petitioner and these trusts, its requests
for refund from the BIR and their consequent denials.
Petitioner did submit a schedule of taxes withheld on a
quarterly basis for the year 1993, but this document was
apparently prepared by petitioner itself, and its self-serving
nature precludes from according it any authoritative value.

We agree with the CIR that petitioner should have instead

submitted documentary proof of transactions, such as
confirmation receipts and purchase orders, as the best
evidence on the participation of the funds from these
employees trusts. The appreciation of facts made by the CTA,
which exercises particular expertise on the subject of tax,
generally binds this Court.25 It may not be so, as the CIR
contends, that the proper purpose for presenting such
documents is to establish that the funds were actually
invested "in treasury bills and money market placements",
since the character of the investments does not detract from
the fact that all income earned by the employees trusts is
exempt from taxation. Instead, these documents are vital
insofar as they establish the extent of the investments made
by petitioner from the employees trusts, as distinguished from
those made from other account sources, and correspondingly,
the amount of taxes withheld from the interest income derived
from these employees trusts alone.

Petitioner argues that the testimony of its witnesses

establishes that it would be next to impossible to single out
the particular transactions involving exempt employees
trusts, in view of the manner of lumping all the data in the
reporting procedures of the withholding agents, particularly
concerning treasury bills. While that may be so, a necessary
consequence of the special exemption enjoyed alone by
employees trusts would be a necessary segregation in the
accounting of such income, interest or otherwise, earned from
those trusts from that earned by the other clients of petitioner.
The Court has no desire to impose unnecessarily pernickety
documentary requirements in obtaining a valid tax refund. Yet
it cannot be escaped that the taxpayer needs to establish not
only that the refund is justified under the law, but also the
correct amount that should be refunded. If the latter requisite
cannot be ascertained with particularity, there is cause to
deny the refund, or allow it only to the extent of the sum that
is actually proven as due. Tax refunds partake the nature of
tax exemptions and are thus construed strictissimi juris
against the person or entity claiming the exemption.26 The
burden in proving the claim for refund necessarily falls on the
taxpayer, and petitioner in this case failed to discharge the
necessary burden of proof.

One argument remains. It can be dispensed with briefly.

Petitioner argues that the CTA should have granted its motion
for a new trial, which was premised on the claim that certain
documents had been misplaced during the relocation of
petitioners headquarters, and were located only after the case
was submitted for resolution.27 Section 1, Rule 37 of the 1997
Rules of Civil Procedure does allow for a new trial on the
ground that "newly discovered evidence, which [movant] could
not, with reasonable diligence, have discovered and produced
at the trial, and which if presented would probably alter the
result". However, as the CTA pointed out in its 4 December
1998 Resolution, the case was submitted for resolution with
the CTA only in May of 1998, or more than two (2) years since
the alleged transfer of headquarters by the petitioner. The CTA
also noted that during that time, petitioner "made no visible
attempt to retrieve the documents or at the very least, inform
this Court of such problem".28 These observations sufficiently
rebut the claim that the alleged newly discovered evidence
could not have been located with reasonable diligence.

It is tragic that the ultimate loss to be borne by the tardy claim

for the refund would be not by the petitioner-bank, but the
hundreds of private employees whose retirement funds were
reposed in petitioners trust. However, the damage was
sustained due to multiple levels of incompetence on the part
of the petitioner which this Court cannot simply give sanction
to. Many of the so-called procedural hurdles could have been
overlooked, even by this Court, but in the end, the claim for
tax refund was simply not proven with the particularity
demanded of an action seeking to siphon off the nations
"lifeblood."

WHEREFORE, the petition is DENIED. Costs against petitioner.

SO ORDERED.

SECOND DIVISION

[G.R. No. 103635. February 1, 1996.]

CATALINA BUAN VDA. DE ESCONDE,

CONSTANCIA ESCONDE VDA. DE PERALTA,
ELENITA ESCONDE and
BENJAMIN ESCONDE, petitioners, vs.
HONORABLE COURT OF APPEALS and
PEDRO ESCONDE,respondents.

Lazaro Law Firm for petitioners.

Regalado C. Fermin for private respondent.

SYLLABUS

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUST;

CONCEPT. 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. Trusts are either express or implied. An
express trust is created by the direct and positive acts of the
parties, by some writing or deed or will or by words evidencing
an intention to create a trust. No particular words are required
for the creation of an express trust, it being sufficient that a
trust is clearly intended. On the other hand, 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
matters of equity, independently of the particular
intention of the parties. LLcd
2. ID.; ID.; ID.; CONSTRUCTIVE TRUST; DEEMED ESTABLISHED
IF BY MISTAKE A PROPERTY IS ENTIRELY ALLOTED TO
ONEOF THE HEIRS; CASE AT BENCH. In the case at bench,
petitioner Catalina Buan vda. de Esconde, as mother and legal
guardian of her children, appears to have favored her elder
son, private respondent, in allowing that he be given Lot No.
1700 in its entirety in the extrajudicial
partition of the Esconde estate to the prejudice of her other
children. Although it does not appear on record whether
Catalina intentionally granted private respondent that
privileged bestowal, the fact is that, said lot was registered in
private respondent's name. After the TCT No. 394 was handed
to him by his mother, private respondent exercised exclusive
rights of ownership therein to the extent of even mortgaging
the lot when he needed money. If, as petitioners insist, a
mistake was committed in allotting Lot No. 1700 to private
respondent, then a trust relationship was created between
them and private respondent. However, private respondent
never considered himself a trustee. If he allowed his brother
Benjamin to construct or make improvements thereon, it
appears to have been out oftolerance to a brother.
Consequently, if indeed, by mistake, private respondent was
given the entirety of Lot No. 1700, the trust relationship
between him and petitioners was a constructive, not resulting,
implied trust. Petitioners, therefore, correctly questioned
private respondent's exercise of absolute ownership over the
property. Unfortunately, however, petitioners assailed it long
after their right to do so had prescribed. cda
3. ID.; ID.; ID.; ID.; RULE THAT REPUDIATION OF THE TRUST IS
ESSENTIAL FOR PRESCRIPTION TO SUPERVENE, NOT
APPLICABLE THERETO; CASE AT BENCH. The rule that a
trustee cannot acquire by prescription 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.
Since the action for the annulment of private respondent's title
to Lot No. 1700 accrued during the effectivity of Act No. 190,
Section 40 of Chapter III thereof applies. . . . Thus,
in Heirs of Jose Olviga v. Court of Appeals, (G.R. No. 104813,
October 21, 1993, 227 SCRA 330, 334-335) the Court ruled
that the ten-year prescriptive period for an action for
reconveyance of real property based on implied or
constructive trust which is counted from the
date of registration of the property, applies when the plaintiff
is not in possession of the contested property. In this case,
private respondent, not petitioners who instituted the action,
is in actual possession of Lot No. 1700. Having filed their
action only on June 29, 1987, petitioners' action has been
barred by prescription.
4. ID.; ID.; ID.; ID.; APPLICABILITY OF LACHES DOCTRINE TO
IMPLIED TRUSTS. Laches has also circumscribed the action
for, whether the implied trust is constructive or resulting, this
doctrine applies.

DECISION

ROMERO, J p:
This petition for review on certiorari seeks the reversal of the
January 22, 1992 decision 1 in CA G.R. CV No.
26795 of theCourt of Appeals affirming the Decision of the
Regional Trial Court of Bataan, Branch 2. 2 The
lower court declared that petitioners' action for
reconveyance of real property based on an implied trust has
been barred by prescription and laches.
Petitioners Constancia, Benjamin and Elenita, and private
respondent Pedro, are the children of the late
Eulogio Escondeand petitioner Catalina Buan.
Eulogio Esconde was one of the children 3 and
heirs of Andres Esconde. Andres is the
brother of Estanislao Esconde, the original owner of the
disputed lot who died without issue on April 1942. Survived by
his only brother, Andres, Estanislao left an estate
consisting of four (4) parcels of land in Samal, Bataan, namely:
(a) Lot No. 1865 with 22,712 square meters; (b) Lot No. 1902
with 54,735 square meters; (c) Lot No. 1208 with 20,285
square meters; and (d) Lot No. 1700 with 547 square
meters. cdll
Eulogio died in April, 1944 survived by petitioners and private
respondent. At that time, Lazara and Ciriaca, Eulogio's sisters,
had already died without having partitioned the estate of the
late Estanislao Esconde.
On December 5, 1946, the heirs of Lazara, Ciriaca and Eulogio
executed a deed of extrajudicial partition, 4 with the
heirs ofLazara identified therein as the Party of the First Part,
that of Ciriaca, the Party of the Second Part and
that of Eulogio, the Party of the Third Part. Since the
children of Eulogio, with the exception of Constancia, were
then all minors, they were represented by their mother and
judicial guardian, petitioner Catalina
Buan vda. de Esconde who renounced and waived her
usufructuary rights over the parcels of land in favor of her
children in the same deed. Salient provisions of the deed state
as follows:
"1. TO ARTURO DOMINGUEZ, minor, Party of the First
Part is adjudicated:
(a) Lot No. 1865 of Samal Cadastre;
(b) Portion of Lot No. 1208, Samal Cadastre,
which portion has an area of FIVE (5) Luang;
2. TO JOVITA BUAN, RICARDO BUAN, and MELODY
and LEOPOLDO OCONER, are adjudicated Lot No.
1902 Samal Cadastre, and to de (sic) divided as
follows:
(a) Jovita Buan undivided one-third (1/3)
share;
(b) Ricardo Buan Undivided one-third (1/3)
share;
(c) Melody Oconer Undivided one-sixth
(1/6) share;
(d) Leopoldo Oconer Undivided one-sixth
(1/6) share;
3. TO CONSTANCIA, PEDRO, BENJAMIN and ELENITA,
all Surnamed ESCONDE, are adjudicated, in
undivided equal shares each, the following:
(a) Lot No. 1208 Samal Cadastre, subject to
the encumbrance of the
right of ownership of Arturo Dominguez on the
FIVE LUANG;
4. TO PEDRO ESCONDE is adjudicated exclusively Lot
No. 1700 of the Cadastral Survey of Samal;"
(Emphasis supplied.)
The deed bears the thumbmark of Catalina Buan and the
signature of Constancia Esconde, as well as the approval and
signature of Judge Basilio Bautista. 5
Pursuant to the same deed, transfer certificates of title were
issued to the new owners of the properties. 6 Transfer
Certificate of Title No. 394 for Lot No. 1700 was issued on
February 11, 1947 in the name of private respondent but
Catalina kept it in her possession until she delivered it to him
in 1949 when private respondent got married.
Meanwhile, Benjamin constructed the family home on Lot No.
1698-B 7 which is adjacent to Lot No. 1700. A portion of the
house occupied an area of twenty (20) square meters, more or
less, of Lot No. 1700. Benjamin also built a concrete fence and
a common gate enclosing the two (2) lots, as well as an
artesian well within Lot No. 1700. LexLibris
Sometime in December, 1982, Benjamin discovered that Lot
No. 1700 was registered in the name of his brother, private
respondent. Believing that the lot was co-owned by all the
children of Eulogio Esconde, Benjamin demanded his
share ofthe lot from private respondent. 8 However, private
respondent asserted exclusive ownership thereof pursuant to
the deedof extrajudicial partition and, in 1985 constructed a
"buho" fence to segregate Lot No. 1700 from Lot No. 1698-B.
Hence, on June 29, 1987, petitioners herein filed a complaint
before the Regional Trial Court of Bataan against private
respondent for the annulment of TCT No. 394. They further
prayed that private respondent be directed to enter into a
partition agreement with them, and for damages (Civil Case
No. 5552).
In its decision of July 31, 1989, the lower court dismissed the
complaint and the counterclaims. It found that the
deed ofextrajudicial partition was an unenforceable contract as
far as Lot No. 1700 was concerned because petitioner Catalina
Buan vda. de Esconde, as mother and judicial guardian of her
children, exceeded her authority as such in "donating" the lot
to private respondent or waiving the rights
thereto of Benjamin and Elenita in favor of private respondent.
Because ofthe unenforceability of the deed, a trust relationship
was created with private respondent as trustee and Benjamin
and Elenita as beneficiaries. The court said:
"Although the parties to the partition did not either
contemplate or express it in said document,
the resulting trustarose or was created by
operation of Article 1456 of the new Civil Code, which
reads: 'If property is acquired throughmistake or
fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the
benefit ofthe person from whom the property comes.'
The persons from whom the two-thirds portion of Lot
1700 came are plaintiffs Benjamin and
Elenita Esconde and the trustee was
defendant Pedro Esconde, who acquired such portion
through mistake by virtue of the subject partition.
The mistake was the allotment or assignment of such
portion to Pedro Esconde although it had rightfully
belonged to said two plaintiffs more than two (2)
years before." 9

However, the lower court ruled that the action had been
barred by both prescription and laches. Lot No. 1700 having
been registered in the name of private respondent on February
11, 1947, the action to annul such title prescribed within ten
(10) years on February 11, 1957 or more than thirty (30) years
before the action was filed on June 29, 1987. Thus, even if Art.
1963 of the old Civil Code providing for a 30-year prescriptive
period for real actions over immovable properties were to be
applied, still, the action would have prescribed on February 11,
1977.
Hence, petitioners elevated the case to
the Court of Appeals which affirmed the lower court's decision.
The appellate courtheld that the deed of extrajudicial partition
established "an implied trust arising from the mistake of the
judicial guardian in favoring one heir by giving him a bigger
share in the hereditary property." It stressed that "an action for
reconveyance based on implied or constructive trust"
prescribes in ten (10) years "counted from the
registration of the property in the sole name of the co-heir." 10
Petitioners are now before this Court charging
the Court of Appeals with having erred in: (a) denying their
appeal by reason of prescription and laches, and (b) not
reversing the decision of the lower court insofar as awarding
them damages is concerned.
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. 11 Trusts are
either express or implied. An express trust is created by the
direct and positive acts of the parties, by some writing or deed
or will or by words evidencing an intention to create a
trust.12 No particular words are required for the creation of an
express trust, it being sufficient that a trust is clearly
intended. 13
On the other hand, 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 matters of equity,
independently of the particular intention of the parties. 14 In
turn, implied trusts are either resulting or constructive trusts.
These two are differentiated from each other as follows:
"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." 15
While the deed of extrajudicial partition and the
registration of Lot No. 1700 occurred in 1947 when
the Code of Civil Procedure or Act No. 190 was yet in force, we
hold that the trial court correctly applied Article 1456. In Diaz,
et al. v. Gorricho and Aguado, 16 the Court categorically held
that while it is not a retroactive provision of the new Civil
Code, Article 1456 "merely expresses a rule already
recognized by our courts prior to the Code's promulgation."
This article provides:
"ARTICLE 1456. 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."
Construing this provision of the Civil Code, in Philippine
National Bank v. Court of Appeals, the Court stated:
"A deeper analysis of Article 1456 reveals that it is
not a trust in the technical sense for in a typical
trust, confidence is reposed in one person who is
named a trustee for the benefit of another who is
 called the cestui que trust, respecting property which
is held by the trustee for the benefit of the cestui
que trust. 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
so-called trustee neither accepts any trust nor
intends holding the property for the beneficiary." 17
In the case at bench, petitioner Catalina
Buan vda. de Esconde, as mother and legal guardian of her
children, appears to have favored her elder son, private
respondent, in allowing that he be given Lot No. 1700 in its
entirety in the extrajudicial partition of the Esconde estate to
the prejudice of her other children. Although it does not
appear on record whether Catalina intentionally granted
private respondent that privileged bestowal, the fact is that,
said lot was registered in private respondent's name. After TCT
No. 394 was handed to him by his mother, private respondent
exercised exclusive rights ofownership therein to the
extent of even mortgaging the lot when he needed
money. SDML
If, as petitioners insist, a mistake was committed in allotting
Lot No. 1700 to private respondent, then a trust relationship
was created between them and private respondent. However,
private respondent never considered himself a trustee. If he
allowed his brother Benjamin to construct or make
improvements thereon, it appears to have been
out of tolerance to a brother. Consequently, if indeed, by
mistake, 18 private respondent was given the entirety of Lot
No. 1700, the trust relationship between him and petitioners
was a constructive, not resulting, implied trust. Petitioners,
therefore, correctly questioned private respondent's
exercise of absolute ownership over the property.
Unfortunately, however, petitioners assailed it long after their
right to do so had prescribed.
The rule that a trustee cannot acquire by prescription
ownership over property entrusted to him until and unless he
repudiates the trust, applies to express trusts 19 and resulting
implied trusts. 20 However, in constructive implied trusts,
prescription may supervene 21 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.
Since the action for the annulment of private respondent's title
to Lot No. 1700 accrued during the effectivity of Act No. 190,
Section 40 of Chapter III thereof applies. It provides:
"SECTION 40. Period of prescription as to real estate.
An action for recovery of title to, or possession of,
real property, or an interest therein, can only be
brought within ten years after the cause of such
action accrues."
Thus, in Heirs of Jose
Olviga v. Court of Appeals, 22 the Court ruled that the ten-
year prescriptive period for an action for
reconveyance of real property based on implied or
constructive trust which is counted from the
date of registration ofthe property, applies when the plaintiff
is not in possession of the contested property. In this case,
private respondent, not petitioners who instituted the action,
is in actual possession of Lot No. 1700. Having filed their
action only on June 29, 1987, petitioners' action has been
barred by prescription.
Not only that. Laches has also circumscribed the action for,
whether the implied trust is constructive or resulting, this
doctrine applies. 23 As regards constructive implied trusts,
the Court held in Diaz, et al. v. Gorricho and Aguado 24 that:
 ". . . in constructive trusts (that are imposed by law),
there is neither promise nor fiduciary relation; the so-
called trustee does not recognize any trust and has
no intent to hold for the beneficiary; therefore, the
latter is not justified in delaying action to recover his
property. It is his fault if he delays; hence, he may be
estopped by his own laches."
It is tragic that a land dispute has once again driven a wedge
between brothers. However, credit must be given to petitioner
Benjamin Esconde 25 for resorting to all means possible in
arriving at a settlement between him and his brother in
accordance with Article 222 of the Civil Code. 26 Verbally and
in two letters, 27 he demanded that private respondent give
him and his sisters their share in Lot No. 1700. He even
reported the matter to the barangay authorities for which
three conferences were held. 28 Unfortunately, his efforts
proved fruitless. Even the action he brought before
the court was filed too late. LLpr
On the other hand, private respondent should not be unjustly
enriched by the improvements introduced by his brother on
Lot No. 1700 which he himself had tolerated. He is obliged by
law to indemnify his brother, petitioner Benjamin Esconde, for
whatever expenses the latter had incurred.
WHEREFORE, the instant petition for review on certiorari is
hereby DENIED and the questioned decision AFFIRMED subject
to the modification that private respondent shall indemnify
petitioner Benjamin Esconde the expenses the latter had
incurred for the improvements on Lot No. 1700. No costs.
SO ORDERED.
||| (Vda. de Esconde v. Court of Appeals, G.R. No. 103635,
[February 1, 1996], 323 PHIL 81-94)
 FIRST DIVISION

[G.R. No. 165849. December 10, 2007.]

GILBERT G. GUY, petitioner, vs. THE COURT OF

APPEALS (8TH DIVISION), NORTHERN ISLANDS
CO., INCORPORATED, SIMNY G. GUY,
GERALDINE G. GUY, GLADYS G. YAO, and EMILIA
TABUGADIR,respondents.

[G.R. No. 170185. December 10, 2007.]

IGNACIO AND IGNACIO LAW

OFFICES, petitioner, vs. THE COURT OF APPEALS
(7TH DIVISION), NORTHERN ISLANDS CO.,
INCORPORATED, SIMNY G. GUY, GERALDINE G.
GUY, GLADYS G. YAO, and EMILIA A.
TABUGADIR, respondents.

[G.R. No. 170186. December 10, 2007.]

SMARTNET PHILIPPINES, petitioner, vs. THE

COURT OF APPEALS (7TH DIVISION), NORTHERN
ISLANDS CO., INCORPORATED, SIMNY G. GUY,
GERALDINE G. GUY, GLADYS G. YAO, and EMILIA
A. TABUGADIR,respondents.

[G.R. No. 171066. December 10, 2007.]

LINCOLN CONTINENTAL DEVELOPMENT CO.,

INC., petitioner, vs. NORTHERN ISLANDS CO.,
INCORPORATED, SIMNY G. GUY, GERALDINE G.
GUY, GRACE G. CHEU, GLADYS G. YAO, and
EMILIA A. TABUGADIR, respondents.

[G.R. No. 176650. December 10, 2007.]

 LINCOLN CONTINENTAL DEVELOPMENT
COMPANY, INC., petitioner, vs. NORTHERN
ISLANDS CO., INCORPORATED, SIMNY G. GUY,
GERALDINE G. GUY, GRACE G. CHEU, GLADYS G.
YAO, and EMILIA A. TABUGADIR, respondents.

DECISION

SANDOVAL-GUTIERREZ, J p:
Before us are five (5) consolidated cases which stemmed from
Civil Case No. 04-109444 filed with the Regional Trial Court
(RTC), Branch 24, Manila, subsequently re-raffled to Branch
46 1 and eventually to Branch 25. 2
The instant controversies arose from a family dispute. Gilbert
Guy is the son of Francisco and Simny Guy. Geraldine, Gladys
and Grace are his sisters. The family feud involves the
ownership and control of 20,160 shares of stock of Northern
Islands Co., Inc. (Northern Islands) engaged in the
manufacture, distribution, and sales of various home
appliances bearing the "3-D" trademark.
Simny and her daughters Geraldine, Gladys and Grace, as well
as Northern Islands and Emilia Tabugadir, have been
impleaded as respondents in the above-entitled cases.
Northern Islands is a family-owned corporation organized in
1957 by spouses Francisco and respondent Simny Guy. In
November 1986, they incorporated Lincoln Continental
Development Corporation, Inc. (Lincoln Continental) as a
holding company of the 50% shares of stock of Northern
Islands in trust for their three (3) daughters, respondents
Geraldine, Gladys and Grace. Sometime in December 1986,
upon instruction of spouses Guy, Atty. Andres Gatmaitan,
president of Lincoln Continental, indorsed in blank Stock
Certificate No. 132 (covering 8,400 shares) and Stock
Certificate No. 133 (covering 11,760 shares) and delivered
them to Simny.
In 1984, spouses Guy found that their son Gilbert has been
disposing of the assets of their corporations without authority.
In order to protect the assets of Northern Islands, Simny
surrendered Stock Certificate Nos. 132 and 133 to Emilia
Tabugadir, an officer of Northern Islands. The 20,160 shares
covered by the two Stock Certificates were then registered in
the names of respondent sisters, thus enabling them to
assume an active role in the management of Northern Islands.
On January 27, 2004, during a special meeting of the
stockholders of Northern Islands, Simny was elected President;
Grace as Vice-President for Finance; Geraldine as Corporate
Treasurer; and Gladys as Corporate Secretary. Gilbert retained
his position as Executive Vice President. This development
started the warfare between Gilbert and his sisters. ACcTDS
On March 18, 2004, Lincoln Continental filed with the RTC,
Branch 24, Manila a Complaint for Annulment of the Transfer of
Shares of Stock against respondents, docketed as Civil Case
No. 04-109444. The complaint basically alleges that Lincoln
Continental owns 20,160 shares of stock of Northern Islands;
and that respondents, in order to oust Gilbert from the
management of Northern Islands, falsely transferred the said
shares of stock in respondent sisters' names. Lincoln
Continental then prayed for an award of damages and that the
management of Northern Islands be restored to Gilbert.
Lincoln also prayed for the issuance of a temporary restraining
order (TRO) and a writ of preliminary mandatory injunction to
prohibit respondents from exercising any right of ownership
over the shares.
On June 16, 2004, Lincoln Continental filed a Motion to Inhibit
the Presiding Judge of Branch 24, RTC, Manila on the ground of
partiality. In an Order dated June 22, 2004, the presiding judge
granted the motion and inhibited himself from further hearing
Civil Case No. 04-109444. It was then re-raffled to Branch 46
of the same court.
On July 12, 2004, Branch 46 set the continuation of the
hearing on Lincoln Continentals application for a TRO.
On July 13, 2004, respondents filed with the Court of Appeals a
Petition for Certiorari and Mandamus, docketed as CA-G.R. SP
No. 85069, raffled off to the Tenth Division. Respondents
alleged that the presiding judge of Branch 24, in issuing the
Order dated June 22, 2004 inhibiting himself from further
hearing Civil Case No. 04-109444, and the presiding judge of
Branch 46, in issuing the Order dated July 12, 2004 setting the
continuation of hearing on Lincoln Continental's application for
a TRO, acted with grave abuse of discretion tantamount to
lack or excess of jurisdiction.
Meanwhile, on July 15, 2004, the trial court issued the TRO
prayed for by Lincoln Continental directing respondents to
restore to Gilbert the shares of stock under controversy. In the
same Order, the trial court set the hearing of Lincoln
Continental's application for a writ of preliminary injunction on
July 19, 20, and 22, 2004.
On July 16, 2004, the Court of Appeals (Tenth Division) issued
a TRO enjoining Branch 46, RTC, Manila from enforcing,
maintaining, or giving effect to its Order of July 12, 2004
setting the hearing of Lincoln Continental's application for a
TRO.
Despite the TRO, the trial court proceeded to hear Lincoln
Continental's application for a writ of preliminary injunction.
This prompted respondents to file in the same CA-G.R. SP No.
85069 a Supplemental Petition for Certiorari, Prohibition,
and Mandamus seeking to set aside the Orders of the trial
court setting the hearing and actually hearing Lincoln
Continental's application for a writ of preliminary injunction.
They prayed for a TRO and a writ of preliminary injunction to
enjoin the trial court (Branch 46) from further hearing Civil
Case No. 04-109444.
On September 17, 2004, the TRO issued by the Court of
Appeals (Tenth Division) in CA-G.R. SP No. 85069 expired.
On September 20, 2004, Gilbert filed a Motion for Leave to
Intervene and Motion to Admit Complaint-in-Intervention in
Civil Case No. 04-109444. In its Order dated October 4, 2004,
the trial court granted the motions. DCESaI
Meantime, on October 13, 2004, the trial court issued the writ
of preliminary mandatory injunction prayed for by Lincoln
Continental in Civil Case No. 04-109444.
On October 20, 2004, the Court of Appeals (Tenth Division)
denied respondents' application for injunctive relief since the
trial court had already issued a writ of preliminary injunction in
favor of Lincoln Continental. Consequently, on October 22,
2004, respondents filed with the Tenth Division a Motion to
Withdraw Petition and Supplemental Petition in CA-G.R. SP No.
85069.
On October 26, 2004, respondents filed a new Petition
for Certiorari with the Court of Appeals, docketed as CA-G.R.
SP No. 87104, raffled off to the Eighth Division. They prayed
that the TRO and writ of preliminary injunction issued by the
RTC, Branch 46, Manila be nullified and that an injunctive relief
be issued restoring to them the management of Northern
Islands. They alleged that Gilbert has been dissipating the
assets of the corporation for his personal gain.
On October 28, 2004, the Court of Appeals Eighth Division
issued a TRO enjoining the implementation of the writ of
preliminary injunction dated October 13, 2004 issued by the
trial court in Civil Case No. 04-109444; and directing Lincoln
Continental to turn over the assets and records of Northern
Islands to respondents.
On November 2, 2004, respondents filed with the appellate
court (Eighth Division) an Urgent Omnibus Motion praying for
the issuance of a break-open Order to implement its TRO.
On November 4, 2004, the Eighth Division issued a Resolution
granting respondents' motion. Pursuant to this Resolution,
respondents entered the Northern Islands premises at No. 3
Mercury Avenue, Libis, Quezon City.
On November 18, 2004, Gilbert filed with this Court a petition
for certiorari, docketed as G.R. No. 165849, alleging that the
Court of Appeals (Eighth Division), in granting an injunctive
relief in favor of respondents, committed grave abuse of
discretion tantamount to lack or in excess of jurisdiction. The
petition also alleges that respondents resorted to forum
shopping.
Meanwhile, on December 16, 2004, Smartnet Philippines, Inc.
(Smartnet) filed with the Metropolitan Trial Court (MeTC),
Branch 35, Quezon City a complaint for forcible entry against
respondents, docketed as Civil Case No. 35-33937. The
complaint alleges that in entering the Northern Islands
premises, respondents took possession of the area being
occupied by Smartnet and barred its officers and employees
from occupying the same.
Likewise on December 16, 2004, Ignacio and Ignacio Law
Offices also filed with Branch 37, same court, a complaint for
forcible entry against respondents, docketed as Civil Case No.
34106. It alleges that respondents forcibly occupied its office
space when they took over the premises of Northern Islands.
On December 22, 2004, the Eighth Division issued the writ of
preliminary injunction prayed for by respondents in CA-G.R. SP
No. 87104. DISHEA
Subsequently, the presiding judge of the RTC, Branch 46,
Manila retired. Civil Case No. 04-109444 was then re-raffled to
Branch 25.
On January 20, 2005, respondents filed with the Eighth
Division of the appellate court a Supplemental Petition
for Certiorariwith Urgent Motion for a Writ of Preliminary
Injunction to Include Supervening Events. Named as additional
respondents were 3-D Industries, Judge Celso D. Lavia,
Presiding Judge, RTC, Branch 71, Pasig City and Sheriff
Cresencio Rabello, Jr. This supplemental petition alleges that
Gilbert, in an attempt to circumvent the injunctive writ issued
by the Eighth Division of the appellate court, filed with the
RTC, Branch 71, Pasig City a complaint for replevin on behalf of
3-D Industries, to enable it to take possession of the assets
and records of Northern Islands. The complaint was docketed
as Civil Case No. 70220. On January 18, 2005, the RTC issued
the writ of replevin in favor of 3-D Industries.

On April 15, 2005, respondents filed with the Eighth Division a

Second Supplemental Petition for Certiorari and Prohibition
with Urgent Motion for the Issuance of an Expanded Writ of
Preliminary Injunction. Impleaded therein as additional
respondents were Ignacio and Ignacio Law Offices, Smartnet,
Judge Maria Theresa De Guzman, Presiding Judge, MeTC,
Branch 35, Quezon City, Judge Augustus C. Diaz, Presiding
Judge, MeTC, Branch 37, Quezon City, Sun Fire Trading
Incorporated, Zolt Corporation, Cellprime Distribution
Corporation, Goodgold Realty and Development Corporation,
John Does and John Doe Corporations. Respondents alleged in
the main that the new corporations impleaded are alter
egos of Gilbert; and that the filing of the forcible entry cases
with the MeTC was intended to thwart the execution of the writ
of preliminary injunction dated December 22, 2004 issued by
the Court of Appeals (Eighth Division) in CA-G.R. SP No. 87104.
On April 26, 2005, the Eighth Division issued a Resolution
admitting respondents' new pleading. On August 19, 2005, the
Eighth Division (now Seventh Division) rendered its Decision in
CA-G.R. SP No. 87104, the dispositive portion of which reads:
 WHEREFORE, premises considered, the petition is
hereby GRANTED and the October 13, 2004 Order
and the October 13, 2004 Writ of Preliminary
Mandatory Injunction issued by Branch 46 of the
Regional Trial Court of Manila are hereby REVERSED
and SET ASIDE. The December 17, 2004 Order and
Writ of Preliminary Injunction issued by this Court of
Appeals are hereby MADE PERMANENT against all
respondents herein.
SO ORDERED.
Meanwhile, in a Decision 3 dated September 19, 2005, the
RTC, Branch 25, Manila dismissed the complaint filed by
Lincoln Continental and the complaint-in-intervention of
Gilbert in Civil Case No. 04-109444, thus:
WHEREFORE, in view of the foregoing, the Complaint
and the Complaint-in-Intervention are hereby
DISMISSED. Plaintiff and plaintiff-intervenor are
hereby ordered to jointly and severally pay
defendants the following:
(a) Moral damages in the amount of
Php2,000,000.00 each for defendants Simny
Guy, Geraldine Guy, Grace Guy-Cheu and
Gladys Yao;
(b) Moral damages in the amount of
Php200,000.00 for defendant Emilia
Tabugadir; cTIESa
(c) Exemplary damages in the amount of
Php2,000,000.00 each for defendants Simny
Guy, Geraldine Guy, Grace Guy-Cheu, and
Gladys Yao;
(d) Exemplary damages in the amount of
Php200,000.00 for defendant Emilia
Tabugadir;
 (e) Attorney's fees in the amount of
Php2,000.000.00; and
(f) Costs of suit.
SO ORDERED.
The trial court held that Civil Case No. 04-109444 is a baseless
and an unwarranted suit among family members; that based
on the evidence, Gilbert was only entrusted to hold the
disputed shares of stock in his name for the benefit of the
other family members; and that it was only when Gilbert
started to dispose of the assets of the family's corporations
without their knowledge that respondent sisters caused the
registration of the shares in their respective names.
Both Lincoln Continental and Gilbert timely appealed the RTC
Decision to the Court of Appeals, docketed therein as CA-G.R.
CV No. 85937.
On September 15, 2005, 3-D Industries, Inc. filed a petition
for certiorari, prohibition, and mandamus with this Court
assailing the Decision of the Court of Appeals in CA-G.R. SP No.
87104 setting aside the writ of preliminary injunction issued by
the RTC, Branch 46. The petition was docketed as G.R. No.
169462 and raffled off to the Third Division of this Court.
On October 3, 2005, the Third Division of this Court issued a
Resolution 4 dismissing the petition of 3-D Industries in G.R.
No. 169462. 3-D Industries timely filed its motion for
reconsideration but this was denied by this Court in its
Resolution 5dated December 14, 2005.
Meanwhile, on October 10, 2005, Gilbert, petitioner in G.R.
No. 165849 for certiorari, filed with this Court a
Supplemental Petition for Certiorari, Prohibition,
and Mandamus with Urgent Application for a Writ of
Preliminary Mandatory Injunction challenging the Decision of
the Court of Appeals (Seventh Division), dated August 19,
2005, in CA-G.R. SP No. 87104. This Decision set aside the
Order dated October 13, 2004 of the RTC, Branch 46 granting
the writ of preliminary injunction in favor of Lincoln
Continental.
On November 8, 2005, Ignacio and Ignacio Law Offices and
Smartnet filed with this Court their petitions for certiorari,
docketed as G.R. Nos. 170185 and 170186, respectively.
On February 27, 2006, Lincoln Continental filed with this Court
a petition for review on certiorari challenging the Decision of
the Court of Appeals (Seventh Division) in CA-G.R. CV No.
85937, docketed as G.R. No. 171066.
On March 20, 2006, we ordered the consolidation of G.R. No.
171066 with G.R. Nos. 165849, 170185, and 170186.
In the meantime, in a Decision dated November 27, 2006 in
CA-G.R. CV No. 85937, the Court of Appeals (Special Second
Division) affirmed the Decision in Civil Case No. 04-109444 of
the RTC (Branch 25) dismissing Lincoln Continental's complaint
and Gilbert's complaint-in-intervention, thus: cSaADC
WHEREFORE, the appeals are dismissed and the
assailed decision AFFIRMED with modifications that
plaintiff and plaintiff-intervenor are ordered to pay
each of the defendants-appellees Simny Guy,
Geraldine Guy, Grace Guy-Cheu and Gladys Yao
moral damages of P500,000.00, exemplary damages
of P100,000.00 and attorney's fees of P500,000.00.
SO ORDERED.
Lincoln Continental and Gilbert filed their respective motions
for reconsideration, but they were denied in a Resolution
promulgated on February 12, 2007.
Lincoln Continental then filed with this Court a petition for
review on certiorari assailing the Decision of the Court of
Appeals (Former Special Second Division) in CA-G.R. CV No.
85937. This petition was docketed as G.R. No. 176650 and
raffled off to the Third Division of this Court.
In our Resolution dated June 6, 2007, we ordered G.R. No.
176650 consolidated with G.R. Nos. 165849, 170185, 170186,
and 171066.
THE ISSUES
In G.R. Nos. 165849 and 171066, petitioners Gilbert and
Lincoln Continental raise the following issues: (1) whether
respondents are guilty of forum shopping; and (2) whether
they are entitled to the injunctive relief granted in CA-G.R. SP
No. 87104.
In G.R. Nos. 170185 and 170186, the pivotal issue is
whether the Court of Appeals committed grave abuse of
discretion amounting to lack or excess of jurisdiction in ruling
that petitioners Ignacio and Ignacio Law Offices and Smartnet
are also covered by its Resolution granting the writ of
preliminary injunction in favor of respondents.
In G.R. No. 176650, the core issue is whether the Court of
Appeals (Special Second Division) erred in affirming the
Decision of the RTC, Branch 25, Manila dated September 19,
2005 dismissing the complaint of Lincoln Continental and the
complaint-in-intervention of Gilbert in Civil Case No. 04-
109444.
THE COURT'S RULING
A. G.R. Nos. 165849 and 171066
On the question of forum shopping, petitioners Gilbert and
Lincoln Continental contend that the acts of respondents in
filing a petition for certiorari and mandamus in CA-G.R. SP No.
85069 and withdrawing the same and their subsequent filing
of a petition for certiorari in CA-G.R. SP No. 87104 constitute
forum shopping; that respondents withdrew their petition in
CA-G.R. SP No. 85069 after the Tenth Division issued a
Resolution dated October 20, 2004 denying their application
for a writ of preliminary injunction; that they then filed an
identical petition in CA-G.R. SP No. 87104 seeking the same
relief alleged in their petition in CA-G.R. SP No. 85069; and
that by taking cognizance of the petition in CA-G.R. SP No.
87104, instead of dismissing it outright on the ground of forum
shopping, the Court of Appeals committed grave abuse of
discretion tantamount to lack or excess of jurisdiction. cTAaDC
A party is guilty of forum shopping when he repetitively avails
of several judicial remedies in different courts, simultaneously
or successively, all substantially founded on the same
transactions and the same essential facts and circumstances,
and all raising substantially the same issues either pending in,
or already resolved adversely by some other court. 6 It is
prohibited by Section 5, Rule 7 of the 1997 Rules of Civil
Procedure, as amended, which provides:
SECTION 5. Certification against forum shopping.
The plaintiff or principal party shall certify under oath
in the complaint or other initiatory pleading asserting
a claim for relief, or in a sworn certification annexed
thereto and simultaneously filed therewith: (a) that
he has not theretofore commenced any action or
filed any other claim involving the same issues in any
court, tribunal, or quasi-judicial agency and, to the
best of his knowledge, no such other action or claim
is pending therein; (b) if there is such other pending
action or claim, a complete statement of the present
status thereof; and (c) if he should thereafter learn
that the same or similar action has been filed or is
pending, he shall report that fact within five (5) days
therefrom to the court wherein his aforesaid
complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements
shall not be curable by mere amendment of the
complaint or other initiatory pleading but shall be
cause for the dismissal of the case without prejudice,
unless otherwise provided, upon motion and hearing.
The submission of a false certification or non-
compliance with any of the undertakings therein shall
 constitute indirect contempt of court, without
prejudice to the corresponding administrative and
criminal actions. If the acts of the party or his
counsel clearly constitute willful and deliberate forum
shopping, the same shall be ground for summary
dismissal with prejudice and shall constitute direct
contempt, as well as a cause for administrative
sanctions.
Forum shopping is condemned because it unnecessarily
burdens our courts with heavy caseloads, unduly taxes the
manpower and financial resources of the judiciary and trifles
with and mocks judicial processes, thereby affecting the
efficient administration of justice. 7 The primary evil sought to
be proscribed by the prohibition against forum shopping is,
however, the possibility of conflicting decisions being rendered
by the different courts and/or administrative agencies upon
the same issues. 8

Forum shopping may only exist where the elements of litis

pendentia are present or where a final judgment in one case
will amount to res judicata in the other. 9 Litis pendentia as a
ground for dismissing a civil action is that situation wherein
another action is pending between the same parties for the
same cause of action, such that the second action is
unnecessary and vexatious. The elements of litis
pendentia are as follows: (a) identity of parties, or at least
such as representing the same interest in both actions; (b)
identity of rights asserted and the relief prayed for, the relief
being founded on the same facts; and (c) the identity of the
two cases such that judgment in one, regardless of which
party is successful, would amount to res judicata in the
other. 10 From the foregoing, it is clear that sans litis
pendentia or res judicata, there can be no forum shopping.
While the first element of litis pendentia identity of parties
is present in both CA-G.R. SP No. 85069 and CA-G.R. SP No.
87104, however, the second element, does not exist. The
petitioners in CA-G.R. SP No. 85069 prayed that the following
Orders be set aside:
(1) the Order of inhibition dated June 22, 2004 issued
by the presiding judge of the RTC of Manila,
Branch 24; and aTCADc
(2) the Order dated July 12, 2004 issued by Branch
46 setting Gilbert's application for preliminary
injunction for hearing.
In their petition in CA-G.R. SP No. 87104, respondents prayed
for the annulment of the writ of preliminary injunction issued
by the RTC, Branch 46 after the expiration of the TRO issued
by the Tenth Division of the Court of Appeals. Evidently, this
relief is not identical with the relief sought by respondents in
CA-G.R. SP No. 85069. Clearly, the second element of litis
pendentia the identity of reliefs sought is lacking in the
two petitions filed by respondents with the appellate court.
Thus, we rule that no grave abuse of discretion amounting to
lack or excess of jurisdiction may be attributed to the Court of
Appeals (Eighth Division) for giving due course to respondents'
petition in CA-G.R. SP No. 87104.
On the second issue, Section 3, Rule 58 of the 1997 Rules of
Civil Procedure, as amended provides:
SECTION 3. Grounds for issuance of preliminary
injunction. A preliminary injunction may be
granted when it is established:
(a) That the applicant is entitled to the relief
demanded, and the whole or part of such
relief consists in restraining the commission
or continuance of the act or acts complained
of, or in requiring the performance of an act
 or acts, either for a limited period or
perpetually;
(b) That the commission, continuance, or non-
performance of the act or acts complained of
during the litigation would probably work
injustice to the applicant; or
(c) That a party, court, agency, or a person is
doing, threatening, or is attempting to do, or
is procuring or suffering to be done, some
act or acts probably in violation of the rights
of the applicant respecting the subject of the
action or proceeding, and tending to render
the judgment ineffectual.
For a party to be entitled to an injunctive writ, he must show
that there exists a right to be protected and that the acts
against which the injunction is directed are violative of this
right. 11 In granting the respondents' application for injunctive
relief and making the injunction permanent, the Court of
Appeals (Seventh Division) found that they have shown their
clear and established right to the disputed 20,160 shares of
stock because: (1) they have physical possession of the two
stock certificates equivalent to the said number of shares; (2)
Lincoln Continental is a mere trustee of the Guy family; and (3)
respondents constitute a majority of the board of directors of
Northern Islands, and accordingly have management and
control of the company at the inception of Civil Case No. 94-
109444. The appellate court then ruled that the trial court
committed grave abuse of discretion in issuing a writ of
preliminary mandatory injunction in favor of Guy. The writ
actually reduced the membership of Northern Islands board to
just one member Gilbert Guy. Moreover, he failed to
establish by clear and convincing evidence his ownership of
the shares of stock in question. The Court of Appeals then held
there was an urgent necessity to issue an injunctive writ in
order to prevent serious damage to the rights of respondents
and Northern Islands.
We thus find no reason to depart from the findings of the Court
of Appeals. Indeed, we cannot discern any taint of grave abuse
of discretion on its part in issuing the assailed writ of
preliminary injunction and making the injunction
permanent.DHCSTa
B. G.R. Nos. 170185 & 170186
Ignacio and Ignacio Law Offices and Smartnet, petitioners,
claim that the Court of Appeals never acquired jurisdiction
over their respective persons as they were not served with
summons, either by the MeTC or by the appellate court in CA-
G.R. SP No. 87104. Thus, they submit that the Court of Appeals
committed grave abuse of discretion amounting to lack or
excess of jurisdiction when it included them in the coverage of
its injunctive writ.
Jurisdiction is the power or capacity given by the law to a court
or tribunal to entertain, hear, and determine certain
controversies. 12 Jurisdiction over the subject matter of a case
is conferred by law.
Section 9 (1) of Batas Pambansa Blg. 129, 13 as amended,
provides:
SEC. 9. Jurisdiction. The Court of Appeals shall
exercise:
(1) Original jurisdiction to issue writs of mandamus,
prohibition, certiorari, habeas corpus, and quo
warranto, and auxiliary writs or processes, whether
or not in aid of its appellate jurisdiction.
Rule 46 of the 1997 Rules of Civil Procedure, as
amended, governs all cases originally filed with
the Court of Appeals. The following provisions of
the Rule state:
 SEC. 2. To what actions applicable. This Rule shall
apply to original actions for certiorari,
prohibition, mandamusand quo warranto.
Except as otherwise provided, the actions for
annulment of judgment shall be governed by Rule
47, for certiorari, prohibition, and mandamus by Rule
65, and for quo warranto by Rule 66.
xxx xxx xxx
SEC. 4. Jurisdiction over person of respondent, how
acquired. The court shall acquire jurisdiction over
the person of the respondent by the service on him
of its order or resolution indicating its initial action on
the petition or by his voluntary submission to such
jurisdiction.
SEC. 5. Action by the court. The court may dismiss
the petition outright with specific reasons for such
dismissal or require the respondent to file a comment
on the same within ten (10) days from notice. Only
pleadings required by the court shall be allowed. All
other pleadings and papers may be filed only with
leave of court.
It is thus clear that in cases covered by Rule 46, the Court of
Appeals acquires jurisdiction over the persons of the
respondents by the service upon them of its order or
resolution indicating its initial action on the petitions or by
their voluntary submission to such jurisdiction. 14 The reason
for this is that, aside from the fact that no summons or other
coercive process is served on respondents, their response to
the petitions will depend on the initial action of the court
thereon. Under Section 5, the court may dismiss the petitions
outright, hence, no reaction is expected from respondents and
under the policy adopted by Rule 46, they are not deemed to
have been brought within the court's jurisdiction until after
service on them of the dismissal order or resolution. 15
Records show that on April 27, 2005, petitioners in these two
forcible entry cases, were served copies of the Resolution of
the Court of Appeals (Seventh Division) dated April 26, 2005 in
CA-G.R. SP No. 87104. 16 The Resolution states: SEcAIC
Private respondents SMARTNET PHILIPPINES,
INC., IGNACIO & IGNACIO LAW OFFICE, SUNFIRE
TRADING, INC., ZOLT CORPORATION, CELLPRIME
DISTRIBUTION CORPO., GOODGOLD REALTY &
DEVELOPMENT CORP., are hereby DIRECTED to file
CONSOLIDATED COMMENT on the original Petition
for Certiorari, the First Supplemental Petition
forCertiorari, and the Second Supplemental Petition
for Certiorari (not a Motion to Dismiss) within ten (10)
days from receipt of a copy of the original, first and
second Petitions for Certiorari. 17
Pursuant to Rule 46, the Court of Appeals validly acquired
jurisdiction over the persons of Ignacio and Ignacio Law Offices
and Smartnet upon being served with the above Resolution.
But neither of the parties bothered to file the required
comment. Their allegation that they have been deprived of
due process is definitely without merit. We have consistently
held that when a party was afforded an opportunity to
participate in the proceedings but failed to do so, he cannot
complain of deprivation of due process for by such failure, he
is deemed to have waived or forfeited his right to be heard
without violating the constitutional guarantee. 18
On the question of whether the Court of Appeals could amend
its Resolution directing the issuance of a writ of preliminary
injunction so as to include petitioners, suffice to state that
having acquired jurisdiction over their persons, the appellate
court could do so pursuant to Section 5 (g), Rule 135 of the
Revised Rules of Court, thus: aCSTDc
SEC. 5. Inherent powers of courts. Every court
shall have power:
 xxx xxx xxx
(g) To amend and control its process and orders so as
to make them conformable to law and justice.
In Villanueva v. CFI of Oriental Mindoro 19 and Eternal
Gardens Memorial Parks Corp. v. Intermediate Appellate
Court, 20 we held that under this Rule, a court has inherent
power to amend its judgment so as to make it conformable to
the law applicable, provided that said judgment has not yet
acquired finality, as in these cases.

C. G.R. No. 176650

The fundamental issue is who owns the disputed shares of
stock in Northern Islands.
We remind petitioner Lincoln Continental that what it filed with
this Court is a petition for review on certiorari under Rule 45 of
the 1997 Rules of Civil Procedure, as amended. It is a rule in
this jurisdiction that in petitions for review under Rule 45, only
questions or errors of law may be raised. 21 There is a
question of law when the doubt or controversy concerns the
correct application of law or jurisprudence to a certain set of
facts, or when the issue does not call for an examination of the
probative value of the evidence presented. There is a question
of fact when the doubt arises as to the truth or falsehood of
facts or when there is a need to calibrate the whole evidence
considering mainly the credibility of the witnesses, the
existence and relevancy of specific surrounding circumstances,
as well as their relation to each other and to the whole, and
the probability of the situation. 22 Obviously, the issue raised
by the instant petition for review on certiorari, involves a
factual matter, hence, is outside the domain of this Court.
However, in the interest of justice and in order to settle this
controversy once and for all, a ruling from this Court is
imperative.
One thing is clear. It was established before the trial
court, affirmed by the Court of Appeals, that Lincoln
Continental held the disputed shares of stock of
Northern Islands merely in trust for the Guy sisters. In
fact, the evidence proffered by Lincoln Continental itself
supports this conclusion. It bears emphasis that this factual
finding by the trial court was affirmed by the Court of Appeals,
being supported by evidence, and is, therefore, final and
conclusive upon this Court.
Article 1440 of the Civil Code provides that:
ART. 1440. 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.
In the early case of Gayondato v. Treasurer of the Philippine
Islands, 23 this Court defines trust, in its technical sense, as "a
right of property, real or personal, held by one party for the
benefit of another." Differently stated, a trust is "a fiduciary
relationship with respect to property, subjecting the person
holding the same to the obligation of dealing with the property
for the benefit of another person." 24
Both Lincoln Continental and Gilbert claim that the latter holds
legal title to the shares in question. But record shows that
there is no evidence that the stock certificates representing
the contested shares are in respondents' possession.
Significantly, there is no proof to support his allegation that
the transfer of the shares of stock to respondent sisters is
fraudulent. As aptly held by the Court of Appeals, fraud is
never presumed but must be established by clear and
convincing evidence. 25 Gilbert failed to discharge this
burden. We agree with the Court of Appeals that respondent
sisters own the shares of stock, Gilbert being their mere
trustee. Verily, we find no reversible error in the challenged
Decision of the Court of Appeals (Special Second Division) in
CA-G.R. CV No. 85937. HCDAac
WHEREFORE, we DISMISS the petitions in G.R. Nos. 165849,
170185, 170186 and 176650; and DENY the petitions in G.R.
Nos. 171066 and 176650. The Resolutions of the Court of
Appeals (Eighth Division), dated October 28, 2004 and
November 4, 2004, as well as the Decision dated October 10,
2005 of the Court of Appeals (Seventh Division) in CA-G.R. SP
No. 87104 are AFFIRMED. We likewise AFFIRM IN TOTO the
Decision of the Court of Appeals (Special Second Division),
dated November 27, 2006 in CA-G.R. CV No. 85937. Costs
against petitioners.
SO ORDERED.
||| (Guy v. Court of Appeals, G.R. No. 165849, 170185, 170186,
171066, 176650, [December 10, 2007], 564 PHIL 540-565)

SECOND DIVISION

[G.R. No. 162175. June 28, 2010.]

MIGUEL J. OSSORIO PENSION FOUNDATION,

INCORPORATED, petitioner, vs. COURT OF
APPEALS and COMMISSIONER OF INTERNAL
REVENUE, respondents.

DECISION

CARPIO, J p:
The Case
 The Miguel J. Ossorio Pension Foundation, Incorporated
(petitioner or MJOPFI) filed this Petition for Certiorari 1with
Prayer for the Issuance of a Temporary Restraining Order
and/or Writ of Preliminary Injunction to reverse the Court of
Appeals' (CA) Decision 2 dated 30 May 2003 in CA-G.R. SP
No. 61829 as well as the Resolution 3 dated 7 November
2003 denying the Motion for Reconsideration. In the assailed
decision, the CA affirmed the Court of Tax Appeals' (CTA)
Decision 4 dated 24 October 2000. The CTA denied
petitioner's claim for refund of withheld creditable tax of
P3,037,500 arising from the sale of real property of which
petitioner claims to be a co-owner as trustee of the
employees' trust or retirement funds.
The Facts
Petitioner, a non-stock and non-profit corporation, was
organized for the purpose of holding title to and
administering the employees' trust or retirement funds
(Employees' Trust Fund) established for the benefit of the
employees of Victorias Milling Company, Inc.
(VMC). 5 Petitioner, as trustee, claims that the income
earned by the Employees' Trust Fund is tax exempt under
Section 53 (b) of the National Internal Revenue Code (Tax
Code).
Petitioner alleges that on 25 March 1992, petitioner
decided to invest part of the Employees' Trust Fund to
purchase a lot 6 in the Madrigal Business Park (MBP lot) in
Alabang, Muntinlupa. Petitioner bought the MBP lot through
VMC. 7 Petitioner alleges that its investment in the MBP lot
came about upon the invitation of VMC, which also
purchased two lots. Petitioner claims that its share in the
MBP lot is 49.59%. Petitioner's investment manager, the
Citytrust Banking Corporation (Citytrust), 8 in submitting its
Portfolio Mix Analysis, regularly reported the Employees'
Trust Fund's share in the MBP lot. 9 The MBP lot is covered
by Transfer Certificate of Title No. 183907 (TCT 183907) with
VMC as the registered owner. 10
Petitioner claims that since it needed funds to pay the
retirement and pension benefits of VMC employees and to
reimburse advances made by VMC, petitioner's Board of
Trustees authorized the sale of its share in the MBP lot. 11
On 14 March 1997, VMC negotiated the sale of the MBP
lot with Metropolitan Bank and Trust Company, Inc.
(Metrobank) for P81,675,000, but the consummation of the
sale was withheld. 12 On 26 March 1997, VMC eventually
sold the MBP lot to Metrobank. VMC, through its Vice
President Rolando Rodriguez and Assistant Vice President
Teodorico Escober, signed the Deed of Absolute Sale as the
sole vendor.
Metrobank, as withholding agent, paid the Bureau of
Internal Revenue (BIR) P6,125,625 as withholding tax on the
sale of real property.
Petitioner alleges that the parties who co-owned the
MBP lot executed a notarized Memorandum of Agreement as
to the proceeds of the sale, the pertinent provisions of which
state: 13
2. The said parcels of land are actually co-owned by
the following:
BLOCK 4, LOT 1 COVERED BY TCT NO. 183907

% SQ. M. AMOUNT

MJOPFI 49.59% 450.00 P5,504,748.

25
VMC 32.23% 351.02 3,578,294.7
0
VFC 18.18% 197.98 2,018,207.3
0
 3. Since Lot 1 has been sold for P81,675,000.00
(gross of 7.5% withholding tax and 3% broker's
commission, MJOPFI's share in the proceeds of the
sale is P40,500,000.00 (gross of 7.5% withholding tax
and 3% broker's commission. However, MJO Pension
Fund is indebted to VMC representing pension benefit
advances paid to retirees amounting to
P21,425,141.54, thereby leaving a balance of
P14,822,358.46 in favor of MJOPFI. Check for said
amount of P14,822,358.46 will therefore be issued to
MJOPFI as its share in the proceeds of the sale of Lot
1. The check corresponding to said amount will be
deposited with MJOPFI's account with BPI Asset
Management & Trust Group which will then be
invested by it in the usual course of its
administration of MJOPFI funds.
Petitioner claims that it is a co-owner of the MBP lot as
trustee of the Employees' Trust Fund, based on the notarized
Memorandum of Agreement presented before the appellate
courts. Petitioner asserts that VMC has confirmed that
petitioner, as trustee of the Employees' Trust Fund, is VMC's
co-owner of the MBP lot. Petitioner maintains that its
ownership of the MBP lot is supported by the excerpts of the
minutes and the resolutions of petitioner's Board Meetings.
Petitioner further contends that there is no dispute that the
Employees' Trust Fund is exempt from income tax. Since
petitioner, as trustee, purchased 49.59% of the MBP lot
using funds of the Employees' Trust Fund, petitioner asserts
that the Employees' Trust Fund's 49.59% share in the
income tax paid (or P3,037,697.40 rounded off to
P3,037,500) should be refunded. 14
Petitioner maintains that the tax exemption of the
Employees' Trust Fund rendered the payment of P3,037,500
as illegal or erroneous. On 5 May 1997, petitioner filed a
claim for tax refund. 15
 On 14 August 1997, the BIR, through its Revenue
District Officer, wrote petitioner stating that under Section
26 of the Tax Code, petitioner is not exempt from tax on its
income from the sale of real property. The BIR asked
petitioner to submit documents to prove its co-ownership of
the MBP lot and its exemption from tax. 16
On 2 September 1997, petitioner replied that the
applicable provision granting its claim for tax exemption is
not Section 26 but Section 53 (b) of the Tax Code. Petitioner
claims that its co-ownership of the MBP lot is evidenced by
Board Resolution Nos. 92-34 and 96-46 and the memoranda
of agreement among petitioner, VMC and its subsidiaries.17
Since the BIR failed to act on petitioner's claim for
refund, petitioner elevated its claim to the Commissioner of
Internal Revenue (CIR) on 26 October 1998. The CIR did not
act on petitioner's claim for refund. Hence, petitioner filed a
petition for tax refund before the CTA. On 24 October 2000,
the CTA rendered a decision denying the petition. 18
On 22 November 2000, petitioner filed its Petition for
Review before the Court of Appeals. On 20 May 2003, the CA
rendered a decision denying the appeal. The CA also denied
petitioner's Motion for Reconsideration. 19
Aggrieved by the appellate court's Decision, petitioner
elevated the case before this Court.
The Ruling of the Court of Tax Appeals
The CTA held that under Section 53 (b) 20 [now Section
60 (b)] of the Tax Code, it is not petitioner that is entitled to
exemption from income tax but the income or earnings of
the Employees' Trust Fund. The CTA stated that petitioner is
not the pension trust itself but it is a separate and distinct
entity whose function is to administer the pension plan for
some VMC employees. 21 The CTA, after evaluating the
evidence adduced by the parties, ruled that petitioner is not
a party in interest.
 To prove its co-ownership over the MBP lot, petitioner
presented the following documents:
a. Secretary's Certificate showing how the purchase
and eventual sale of the MBP lot came about.
b. Memoranda of Agreement showing various details:
i. That the MBP lot was co-owned by VMC and
petitioner on a 50/50 basis;
ii. That VMC held the property in trust for North
Legaspi Land Development Corporation,
North Negros Marketing Co., Inc., Victorias
Insurance Factors Corporation, Victorias
Science and Technical Foundation, Inc. and
Canetown Development Corporation.
iii. That the previous agreement (ii) was
cancelled and it showed that the MBP lot was
co-owned by petitioner, VMC and Victorias
Insurance Factors Corporation (VFC). 22
The CTA ruled that these pieces of evidence are self-
serving and cannot by themselves prove petitioner's co-
ownership of the MBP lot when the TCT, the Deed of
Absolute Sale, and the Monthly Remittance Return of Income
Taxes Withheld (Remittance Return) disclose otherwise. The
CTA further ruled that petitioner failed to present any
evidence to prove that the money used to purchase the MBP
lot came from the Employees' Trust Fund. 23
The CTA concluded that petitioner is estopped from
claiming a tax exemption. The CTA pointed out that VMC has
led the government to believe that it is the sole owner of the
MBP lot through its execution of the Deeds of Absolute Sale
both during the purchase and subsequent sale of the MBP lot
and through the registration of the MBP lot in VMC's name.
Consequently, the tax was also paid in VMC's name alone.
The CTA stated that petitioner may not now claim a refund
of a portion of the tax paid by the mere expediency of
presenting Secretary's Certificates and memoranda of
agreement in order to prove its ownership. These documents
are self-serving; hence, these documents merit very little
weight. 24
The Ruling of the Court of Appeals
The CA declared that the findings of the CTA involved
three types of documentary evidence that petitioner
presented to prove its contention that it purchased 49.59%
of the MBP lot with funds from the Employees' Trust Fund:
(1) the memoranda of agreement executed by petitioner and
other VMC subsidiaries; (2) Secretary's Certificates
containing excerpts of the minutes of meetings conducted
by the respective boards of directors or trustees of VMC and
petitioner; (3) Certified True Copies of the Portfolio Mix
Analysis issued by Citytrust regarding the investment of
P5,504,748.25 in Madrigal Business Park I for the years 1994
to 1997. 25
The CA agreed with the CTA that these pieces of
documentary evidence submitted by petitioner are largely
self-serving and can be contrived easily. The CA ruled that
these documents failed to show that the funds used to
purchase the MBP lot came from the Employees' Trust Fund.
The CA explained, thus:
We are constrained to echo the findings of the Court
of Tax Appeals in regard to the failure of the
petitioner to ensure that legal documents pertaining
to its investments, e.g., title to the subject property,
were really in its name, considering its awareness of
the resulting tax benefit that such foresight or
providence would produce; hence, genuine efforts
towards that end should have been exerted, this
notwithstanding the alleged difficulty of procuring a
title under the names of all the co-owners. Indeed,
we are unable to understand why petitioner would
 allow the title of the property to be placed solely in
the name of petitioner's alleged co-owner, i.e., the
VMC, although it allegedly owned a much bigger
(nearly half), portion thereof. Withal, petitioner failed
to ensure a "fix" so to speak, on its investment, and
we are not impressed by the documents which the
petitioner presented, as the same apparently allowed
"mobility" of the subject real estate assets between
or among the petitioner, the VMC and the latter's
subsidiaries. Given the fact that the subject parcel of
land was registered and sold under the name solely
of VMC, even as payment of taxes was also made
only under its name, we cannot but concur with the
finding of the Court of Tax Appeals that petitioner's
claim for refund of withheld creditable tax is bereft of
solid juridical basis. 26
The Issues
The issues presented are:
1. Whether petitioner or the Employees' Trust Fund is
estopped from claiming that the Employees'
Trust Fund is the beneficial owner of 49.59% of
the MBP lot and that VMC merely held 49.59% of
the MBP lot in trust for the Employees' Trust
Fund.
2. If petitioner or the Employees' Trust Fund is not
estopped, whether they have sufficiently
established that the Employees' Trust Fund is the
beneficial owner of 49.59% of the MBP lot, and
thus entitled to tax exemption for its share in the
proceeds from the sale of the MBP lot.
The Ruling of the Court
We grant the petition.
 The law expressly allows a co-owner (first co-owner)
of a parcel of land to register his proportionate share in the
name of his co-owner (second co-owner) in whose name the
entire land is registered. The second co-owner serves as a
legal trustee of the first co-owner insofar as the
proportionate share of the first co-owner is concerned. The
first co-owner remains the owner of his proportionate share
and not the second co-owner in whose name the entire land
is registered. Article 1452 of the Civil Code provides:
Art. 1452.If two or more persons agree to purchase a
property and by common consent the legal title is
taken in the name of one of them for the benefit of
all, a trust is created by force of law in favor of
the others in proportion to the interest of each.
(Emphasis supplied)
For Article 1452 to apply, all that a co-owner needs to
show is that there is "common consent" among the
purchasing co-owners to put the legal title to the purchased
property in the name of one co-owner for the benefit of all.
Once this "common consent" is shown, "a trust is created
by force of law." The BIR has no option but to recognize
such legal trust as well as the beneficial ownership of the
real owners because the trust is created by force of law. The
fact that the title is registered solely in the name of one
person is not conclusive that he alone owns the property.
Thus, this case turns on whether petitioner can
sufficiently establish that petitioner, as trustee of the
Employees' Trust Fund, has a common agreement with VMC
and VFC that petitioner, VMC and VFC shall jointly purchase
the MBP lot and put the title to the MBP lot in the name of
VMC for the benefit petitioner, VMC and VFC.
We rule that petitioner, as trustee of the Employees'
Trust Fund, has more than sufficiently established that it has
an agreement with VMC and VFC to purchase jointly the MBP
lot and to register the MBP lot solely in the name of VMC for
the benefit of petitioner, VMC and VFC.
Factual findings of the CTA will be reviewed
when judgment is based on a misapprehension of
facts.
Generally, the factual findings of the CTA, a special court
exercising expertise on the subject of tax, are regarded as
final, binding and conclusive upon this Court, especially if
these are substantially similar to the findings of the CA
which is normally the final arbiter of questions of
fact. 27 However, there are recognized exceptions to this
rule, 28 such as when the judgment is based on a
misapprehension of facts.
Petitioner contends that the CA erred in evaluating the
documents as self-serving instead of considering them as
truthful and genuine because they are public documents
duly notarized by a Notary Public and presumed to be
regular unless the contrary appears. Petitioner explains that
the CA erred in doubting the authenticity and genuineness
of the three memoranda of agreement presented as
evidence. Petitioner submits that there is nothing wrong in
the execution of the three memoranda of agreement by the
parties. Petitioner points out that VMC authorized petitioner
to administer its Employees' Trust Fund which is basically
funded by donation from its founder, Miguel J. Ossorio, with
his shares of stocks and share in VMC's profits. 29
Petitioner argues that the Citytrust report reflecting
petitioner's investment in the MBP lot is concrete proof that
money of the Employees' Trust Funds was used to purchase
the MBP lot. In fact, the CIR did not dispute the authenticity
and existence of this documentary evidence. Further, it
would be unlikely for Citytrust to issue a certified copy of the
Portfolio Mix Analysis stating that petitioner invested in the
MBP lot if it were not true. 30
 Petitioner claims that substantial evidence is all that is
required to prove petitioner's co-ownership and all the
pieces of evidence have overwhelmingly proved that
petitioner is a co-owner of the MBP lot to the extent of
49.59% of the MBP lot. Petitioner explains:
Thus, how the parties became co-owners was shown
by the excerpts of the minutes and the resolutions of
the Board of Trustees of the petitioner and those of
VMC. All these documents showed that as far as
March 1992, petitioner already expressed intention
to be co-owner of the said property. It then decided
to invest the retirement funds to buy the said
property and culminated in it owning 49.59% thereof.
When it was sold to Metrobank, petitioner received
its share in the proceeds from the sale thereof. The
excerpts and resolutions of the parties' respective
Board of Directors were certified under oath by their
respective Corporate Secretaries at the time. The
corporate certifications are accorded verity by law
and accepted as prima facie evidence of what took
place in the board meetings because the corporate
secretary is, for the time being, the board itself. 31
Petitioner, citing Article 1452 of the Civil Code, claims
that even if VMC registered the land solely in its name, it
does not make VMC the absolute owner of the whole
property or deprive petitioner of its rights as a co-
owner. 32Petitioner argues that under the Torrens system,
the issuance of a TCT does not create or vest a title and it
has never been recognized as a mode of acquiring
ownership. 33
The issues of whether petitioner or the Employees' Trust
Fund is estopped from claiming 49.59% ownership in the
MBP lot, whether the documents presented by petitioner are
self-serving, and whether petitioner has proven its
exemption from tax, are all questions of fact which could
only be resolved after reviewing, examining and evaluating
the probative value of the evidence presented. The CTA
ruled that the documents presented by petitioner cannot
prove its co-ownership over the MBP lot especially that the
TCT, Deed of Absolute Sale and the Remittance Return
disclosed that VMC is the sole owner and taxpayer.
However, the appellate courts failed to consider the
genuineness and due execution of the notarized
Memorandum of Agreement acknowledging petitioner's
ownership of the MBP lot which provides:
2. The said parcels of land are actually co-
owned by the following:
BLOCK 4, LOT 1 COVERED BY TCT NO. 183907
% SQ. M. AMOUNT

MJOPFI 49.59% 450.00 P5,504,748.

25
VMC 32.23% 351.02 3,578,294.7
0
VFC 18.18% 197.98 2,018,207.3
0
Thus, there is a "common consent" or agreement among
petitioner, VMC and VFC to co-own the MBP lot in the
proportion specified in the notarized Memorandum of
Agreement.
In Cuizon v. Remoto,34 we held:
Documents acknowledged before notaries public are
public documents and public documents are
admissible in evidence without necessity of
preliminary proof as to their authenticity and due
execution. They have in their favor the presumption
of regularity, and to contradict the same, there must
be evidence that is clear, convincing and more than
merely preponderant.
 The BIR failed to present any clear and convincing
evidence to prove that the notarized Memorandum of
Agreement is fictitious or has no legal effect. Likewise, VMC,
the registered owner, did not repudiate petitioner's share in
the MBP lot. Further, Citytrust, a reputable banking
institution, has prepared a Portfolio Mix Analysis for the
years 1994 to 1997 showing that petitioner invested
P5,504,748.25 in the MBP lot. Absent any proof that the
Citytrust bank records have been tampered or falsified, and
the BIR has presented none, the Portfolio Mix Analysis
should be given probative value.
The BIR argues that under the Torrens system, a third
person dealing with registered property need not go beyond
the TCT and since the registered owner is VMC, petitioner is
estopped from claiming ownership of the MBP lot. This
argument is grossly erroneous. The trustor-beneficiary is not
estopped from proving its ownership over the property held
in trust by the trustee when the purpose is not to contest
the disposition or encumbrance of the property in favor of an
innocent third-party purchaser for value. The BIR, not being
a buyer or claimant to any interest in the MBP lot, has not
relied on the face of the title of the MBP lot to acquire any
interest in the lot. There is no basis for the BIR to claim that
petitioner is estopped from proving that it co-owns, as
trustee of the Employees' Trust Fund, the MBP lot. Article
1452 of the Civil Code recognizes the lawful ownership of
the trustor-beneficiary over the property registered in the
name of the trustee. Certainly, the Torrens system was not
established to foreclose a trustor or beneficiary from proving
its ownership of a property titled in the name of another
person when the rights of an innocent purchaser or lien-
holder are not involved. More so, when such other person, as
in the present case, admits its being a mere trustee of the
trustor or beneficiary.
 The registration of a land under the Torrens system does
not create or vest title, because registration is not one of the
modes of acquiring ownership. A TCT is merely an evidence
of ownership over a particular property and its issuance in
favor of a particular person does not foreclose the possibility
that the property may be co-owned by persons not named in
the certificate, or that it may be held in trust for another
person by the registered owner. 35
No particular words are required for the creation of a
trust, it being sufficient that a trust is clearly intended. 36 It
is immaterial whether or not the trustor and the trustee
know that the relationship which they intend to create is
called a trust, and whether or not the parties know the
precise characteristic of the relationship which is called a
trust because what is important is whether the parties
manifested an intention to create the kind of relationship
which in law is known as a trust. 37
The fact that the TCT, Deed of Absolute Sale and the
Remittance Return were in VMC's name does not forestall
the possibility that the property is owned by another
entity because Article 1452 of the Civil Code expressly
authorizes a person to purchase a property with his
own money and to take conveyance in the name of
another.
In Tigno v. Court of Appeals, the Court explained, thus:
An implied trust arises where a person purchases
land with his own money and takes conveyance
thereof in the name of another. In such a case, the
property is held on resulting trust in favor of the one
furnishing the consideration for the transfer, unless a
different intention or understanding appears. The
trust which results under such circumstances does
not arise from a contract or an agreement of the
parties, but from the facts and circumstances; that is
 to say, the trust results because of equity and it
arises by implication or operation of law. 38
In this case, the notarized Memorandum of Agreement
and the certified true copies of the Portfolio Mix Analysis
prepared by Citytrust clearly prove that petitioner invested
P5,504,748.25, using funds of the Employees' Trust Fund, to
purchase the MBP lot. Since the MBP lot was registered in
VMC's name only, a resulting trust is created by
operation of law. A resulting trust is based on the
equitable doctrine that valuable consideration and not legal
title determines the equitable interest and is presumed to
have been contemplated by the parties. 39 Based on this
resulting trust, the Employees' Trust Fund is considered the
beneficial co-owner of the MBP lot.
Petitioner has sufficiently proven that it had a "common
consent" or agreement with VMC and VFC to jointly purchase
the MBP lot. The absence of petitioner's name in the TCT
does not prevent petitioner from claiming before the BIR
that the Employees' Trust Fund is the beneficial owner of
49.59% of the MBP lot and that VMC merely holds 49.59% of
the MBP lot in trust, through petitioner, for the benefit of the
Employees' Trust Fund.
The BIR has acknowledged that the owner of a land can
validly place the title to the land in the name of another
person. In BIR Ruling [DA-(I-012) 190-09] dated 16 April
2009, a certain Amelia Segarra purchased a parcel of land
and registered it in the names of Armin Segarra and Amelito
Segarra as trustees on the condition that upon demand by
Amelia Segarra, the trustees would transfer the land in favor
of their sister, Arleen May Segarra-Guevara. The BIR ruled
that an implied trust is deemed created by law and the
transfer of the land to the beneficiary is not subject to
capital gains tax or creditable withholding tax.
Income from Employees' Trust Fund is Exempt from
Income Tax
 Petitioner claims that the Employees' Trust Fund is
exempt from the payment of income tax. Petitioner further
claims that as trustee, it acts for the Employees' Trust Fund,
and can file the claim for refund. As trustee, petitioner
considers itself as the entity that is entitled to file a claim for
refund of taxes erroneously paid in the sale of the MBP
lot.40
The Office of the Solicitor General argues that the
cardinal rule in taxation is that tax exemptions are highly
disfavored and whoever claims a tax exemption must justify
his right by the clearest grant of law. Tax exemption cannot
arise by implication and any doubt whether the exemption
exists is strictly construed against the taxpayer. 41 Further,
the findings of the CTA, which were affirmed by the CA,
should be given respect and weight in the absence of abuse
or improvident exercise of authority. 42
Section 53 (b) and now Section 60 (b) of the Tax Code
provides:
SEC. 60. Imposition of Tax.
(A) Application of Tax. . . .
(B) Exception. The tax imposed by this Title shall
not apply to employee's 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: Provided, That any amount actually
distributed to any employee or distributee shall be
taxable to him in the year in which so distributed to
the extent that it exceeds the amount contributed by
such employee or distributee.
Petitioner's Articles of Incorporation state the purpose for
which the corporation was formed:
Primary Purpose
To hold legal title to, control, invest and administer in
the manner provided, pursuant to applicable rules
and conditions as established, and in the interest and
for the benefit of its beneficiaries and/or
participants, the private pension plan as
established for certain employees of Victorias
Milling Company, Inc., and other pension plans
of Victorias Milling Company affiliates and/or
subsidiaries, the pension funds and assets, as well
as accruals, additions and increments thereto, and
such amounts as may be set aside or accumulated
for the benefit of the participants of said pension
plans; and in furtherance of the foregoing and as
may be incidental thereto. 43 (Emphasis supplied)
Petitioner is a corporation that was formed to administer
the Employees' Trust Fund. Petitioner invested
P5,504,748.25 of the funds of the Employees' Trust Fund to
purchase the MBP lot. When the MBP lot was sold, the gross
income of the Employees' Trust Fund from the sale of the
MBP lot was P40,500,000. The 7.5% withholding tax of
P3,037,500 and broker's commission were deducted from
the proceeds. In Commissioner of Internal Revenue v. Court
of Appeals, 44 the Court explained the rationale for the tax-
exemption privilege of income derived from employees'
trusts:
 It is evident that tax-exemption is likewise to be
enjoyed by the income of the pension trust.
Otherwise, taxation of those earnings would result in
a diminution of accumulated income and reduce
whatever the trust beneficiaries would receive out of
the trust fund. This would run afoul of the very
intendment of the law.
In Miguel J. Ossorio Pension Foundation, Inc. v.
Commissioner of Internal Revenue, 45 the CTA held that
petitioner is entitled to a refund of withholding taxes paid on
interest income from direct loans made by the Employees'
Trust Fund since such interest income is exempt from tax.
The CTA, in recognizing petitioner's entitlement for tax
exemption, explained:
In or about 1968, Victorias Milling Co., Inc.
established a retirement or pension plan for its
employees and those of its subsidiary companies
pursuant to a 22-page plan. Pursuant to said pension
plan, Victorias Milling Co., Inc. makes a(sic) regular
financial contributions to the employee trust for the
purpose of distributing or paying to said employees,
the earnings and principal of the funds accumulated
by the trust in accordance with said plan. Under the
plan, it is imposable, 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 used for, or diverted to, purposes other than for
the exclusive benefit of said employees. Moreover,
upon the termination of the plan, any remaining
assets will be applied for the benefit of all employees
and their beneficiaries entitled thereto in proportion
to the amount allocated for their respective benefits
as provided in said plan.
The petitioner and Victorias Milling Co., Inc., on
January 22, 1970, entered into a Memorandum of
Understanding, whereby they agreed that petitioner
would administer the pension plan funds and assets,
as assigned and transferred to it in trust, as well as
all amounts that may from time to time be set aside
by Victorias Milling Co., Inc. "For the benefit of the
Pension Plan, said administration is to be strictly
adhered to pursuant to the rules and regulations of
the Pension Plan and of the Articles of Incorporation
and By Laws" of petitioner.
The pension plan was thereafter submitted to the
Bureau of Internal Revenue for registration and for a
ruling as to whether its income or earnings are
exempt from income tax pursuant to Rep. Act 4917,
in relation to Sec. 56(b), now Sec. 54(b), of the Tax
Code.
In a letter dated January 18, 1974 addressed to
Victorias Milling Co., Inc., the Bureau of Internal
Revenue ruled that"the income of the trust fund
of your retirement benefit plan is exempt from
income tax, pursuant to Rep. Act 4917 in
relation to Section 56(b) of the Tax Code."
In accordance with petitioner's Articles of
Incorporation (Annex A), petitioner would "hold
legal title to, control, invest and administer, in
the manner provided, pursuant to applicable
rules and conditions as established, and in the
interest and for the benefit of its beneficiaries
and/or participants, the private pension plan
as established for certain employees of
Victorias Milling Co., Inc. and other pension
plans of Victorias Milling Co. affiliates and/or
subsidiaries, the pension funds and assets, as
well as the accruals, additions and increments
thereto, and such amounts as may be set aside
or accumulated of said pension plans.
Moreover, pursuant to the same Articles of
Incorporations, petitioner is empowered to
"settle, compromise or submit to arbitration,
any claims, debts or damages due or owing to
or from pension funds and assets and other
funds and assets of the corporation, to
commence or defend suits or legal proceedings
and to represent said funds and assets in all
suits or legal proceedings."
Petitioner, through its investment manager, the
City Trust Banking Corporation, has invested
the funds of the employee trust in treasury
bills, Central Bank bills, direct lending, etc. so
as to generate income or earnings for the
benefit of the employees-beneficiaries of the
pension plan. Prior to the effectivity of Presidential
Decree No. 1959 on October 15, 1984, respondent
did not subject said income or earning of the
employee trust to income tax because they were
exempt from income tax pursuant to Sec. 56(b), now
Sec. 54(b) of the Tax Code and the BIR Ruling dated
January 18, 1984 (Annex D). (Boldfacing supplied;
italicization in the original)
xxx xxx xxx
It asserted that the pension plan in question was
previously submitted to the Bureau of Internal
Revenue for a ruling as to whether the income or
earnings of the retirement funds of said plan are
exempt from income tax and in a letter dated
January 18, 1984, the Bureau ruled that the
earnings of the trust funds of the pension plan
are exempt from income tax under Sec. 56(b)
of the Tax Code. (Emphasis supplied)
 "A close review of the provisions of the plan and
trust instrument disclose that in reality the
corpus and income of the trust fund are not at no
time used for, or diverted to, any purpose other
than for the exclusive benefit of the plan
beneficiaries. This fact was likewise confirmed
after verification of the plan operations by the
Revenue District No. 63 of the Revenue Region
No. 14, Bacolod City. Section X also confirms this
fact by providing that if any assets remain after
satisfaction of the requirements of all the above
clauses, such remaining assets will be applied for
the benefits of all persons included in such
classes in proportion to the amounts allocated
for their respective benefits pursuant to the
foregoing priorities.
"In view of all the foregoing, this Office is of the
opinion, as it hereby holds, that the income of
the trust fund of your retirement benefit plan is
exempt from income tax pursuant to Republic
Act 4917 in relation to Section 56(b) of the Tax
Code. (Annex "D" of Petition)
This CTA decision, which was affirmed by the CA in a
decision dated 20 January 1993, became final and executory
on 3 August 1993.
The tax-exempt character of petitioner's Employees'
Trust Fund is not at issue in this case. The tax-exempt
character of the Employees' Trust Fund has long been
settled. It is also settled that petitioner exists for the
purpose of holding title to, and administering, the tax-
exempt Employees' Trust Fund established for the benefit of
VMC's employees. As such, petitioner has the personality to
claim tax refunds due the Employees' Trust Fund.
In Citytrust Banking Corporation as Trustee and
Investment Manager of Various Retirement Funds v.
Commissioner of Internal Revenue, 46 the CTA granted
Citytrust's claim for refund on withholding taxes paid on the
investments made by Citytrust in behalf of the trust funds it
manages, including petitioner. 47 Thus:
In resolving the second issue, we note that the same
is not a case of first impression. Indeed, the
petitioner is correct in its adherence to the clear
ruling laid by the Supreme Court way back in 1992 in
the case of Commissioner of Internal Revenue vs.
The Honorable Court of Appeals, The Court of Tax
Appeals and GCL Retirement Plan, 207 SCRA 487 at
page 496, supra, wherein it was succinctly held:
xxx xxx xxx
There can be no denying either that the final
withholding tax is collected from income in
respect of which employees' trusts are declared
exempt (Sec. 56(b), now 53(b), Tax Code). The
application of the withholdings system to interest
on bank deposits or yield from deposit
substitutes is essentially to maximize and
expedite the collection of income taxes by
requiring its payment at the source. If an
employees' trust like the GCL enjoys a tax-
exempt status from income, we see no logic in
withholding a certain percentage of that income
which it is not supposed to pay in the first place.
xxx xxx xxx
Similarly, the income of the trust funds involved
herein is exempt from the payment of final
withholding taxes.
This CTA decision became final and executory when the CIR
failed to file a Petition for Review within the extension
granted by the CA.
Similarly, in BIR Ruling [UN-450-95], Citytrust wrote the BIR to
request for a ruling exempting it from the payment of
withholding tax on the sale of the land by various BIR-
approved trustees and tax-exempt private employees'
retirement benefit trust funds 48 represented by Citytrust. The
BIR ruled that the private employees benefit trust
funds, which included petitioner, have met the
requirements of the law and the regulations and therefore
qualify as reasonable retirement benefit plans within the
contemplation of Republic Act No. 4917 (now Sec. 28 (b) (7)
(A), Tax Code). The income from the trust fund investments is
therefore exempt from the payment of income tax and
consequently from the payment of the creditable withholding
tax on the sale of their real property. 49
Thus, the documents issued and certified by Citytrust showing
that money from the Employees' Trust Fund was invested in
the MBP lot cannot simply be brushed aside by the BIR as self-
serving, in the light of previous cases holding that Citytrust
was indeed handling the money of the Employees' Trust Fund.
These documents, together with the notarized Memorandum
of Agreement, clearly establish that petitioner, on behalf of the
Employees' Trust Fund, indeed invested in the purchase of the
MBP lot. Thus, the Employees' Trust Fund owns 49.59% of the
MBP lot.
Since petitioner has proven that the income from the sale of
the MBP lot came from an investment by the Employees' Trust
Fund, petitioner, as trustee of the Employees' Trust Fund, is
entitled to claim the tax refund of P3,037,500 which was
erroneously paid in the sale of the MBP lot.
WHEREFORE, we GRANT the petition and SET ASIDE the
Decision of 30 May 2003 of the Court of Appeals in CA-G.R. SP
No. 61829. Respondent Commissioner of Internal Revenue is
directed to refund petitioner Miguel J. Ossorio Pension
Foundation, Incorporated, as trustee of the Employees' Trust
Fund, the amount of P3,037,500, representing income tax
erroneously paid.
SO ORDERED.
||| (Miguel J. Ossorio Pension Foundation, Inc. v. Court of
Appeals, G.R. No. 162175, [June 28, 2010], 635 PHIL 573-598)