G.R. No.

L-19872 December 3, 1974

EMILIANO B. RAMOS, ET AL., plaintiffs-appellants,

vs.
GREGORIA T. RAMOS, ET AL., defendants-appellants.

Humberto V. Quisumbing and Maximino M. San Diego for plaintiffs-appellants.

Hilado and Hilado for defendants-appellants.

AQUINO, J.:p

The parties appealed from the decision of the Court of First Instance of Negros Occidental, dismissing plaintiffs' complaint and holding that
the intestate estate of Martin Ramos was settled in Civil Case No. 217, which was terminated on March 4,1914, and that the judgment
therein is res judicata and bars any litigation regarding the same estate (Civil Case no. 4522).

The documentary evidence reveals the following facts:

The spouses Martin Ramos and Candida Tanate died on October 4, 1906 and October 26, 1888,
respectively. They were survived by their three legitimate children named Jose, Agustin and
Granada. Martin Ramos was also survived by his seven natural children named Atanacia, Timoteo,
Modesto, Manuel, Emiliano, Maria and Federico.

On December 10, 1906 a special proceeding was instituted in the Court of First Instance of Negros
Occidental for the settlement of the intestate estate of the said spouses. The case was docketed as
Civil Case No. 217 (its expediente is still existing). Rafael O. Ramos, a brother of Martin, was
appointed administrator. The estate was administered for more than six years (Exh. F, G, H, I and J).

A project of partition dated April 25, 1913 was submitted. It was signed by the three legitimate
children, Jose, Agustin and Granada; by the two natural children, Atanacia and Timoteo, and by
Timoteo Zayco in representation of the other five natural children who were minors. It was sworn to
before the justice of the peace (Exh. 3).

In the project of partition the conjugal hereditary estate was appraised at P74,984.93. It consisted of
eighteen parcels of land, some head of cattle and the advances to the legitimate children(Exh. 3).

Under that project of partition, the following adjudications were made to the heirs:

Legitimate children: Value

1. To Jose Ramos: (a) Hacienda Calaza

with an area of 328 hectares,
(b) a one-hectare town lot, (c) a
23-hectare lot in Sitio Bingig, and
(d) some head of cattle P25,291.66

2. To Granada Ramos: (a) a

parcel of riceland with a capacity
of 16 cavans of seedlings, located
in Barrio Binicuel, Kabankalan,
 Negros Occidental and (b) some
head of cattle 1,891.66

3. To Agustin Ramos: (a) the

remaining fourteen (14) lots out of
the eighteen lots described in the
inventory, which included the Hacienda
Ylaya with an area of 185 hectares and
(b) some head of cattle 36,291.68

Natural children:

4. To each of the seven (7) natural

children named Atanacia, Modesto,
Timoteo, Federico, Manuel, Emiliano
and Maria, were adjudicated personal
properties valued at P1,785.35 consisting
of (a) cash amounting to P1,760.35 and
(b) P25, representing a one-seventh (1/7)
of a one-sixth (1/6) portion in certain head
of cattle allegedly representing one-third
of the free portion of the estate of Martin
Ramos, with an aggregate value of 12,497.51
Total adjudications P75,972.51

It was agreed in the project of partition that Jose Ramos would pay the cash adjudications to
Atanacia, Timoteo and Manuel, while Agustin Ramos would pay the cash adjudications to Modesto,
Federico, Emiliano and Maria. It was further agreed that Jose Ramos and Agustin Ramos would pay
their sister, Granada, the sums of P3,302.36 and P14,273.78, respectively (Exh. 3).

The record does not show whether assessed or market values were used in appraising the eighteen
parcels of land. By way of explanation, it may be stated that, inasmuch as the ganancial estate had
an appraised value of P74,984.93, one-half thereof or the sum of P37,492.46 represented the estate
of Martin Ramos. One-third thereof was the free portion or P12,497.48. The shares of the seven
natural children were to be taken from that one-third free portion. Dividing P12,497.48 by seven
gives a result of P1,783.35 which represented the one-seventh share of each natural child in the free
portion of the estate of their putative father, Martin Ramos. The partition was made in accordance
with the old Civil Code which provides:

ART. 840. When the testator leaves legitimate children or descendants, and also
natural children, legally acknowledged, each of the latter shall be entitled to one-half
of the portion pertaining to each of the legitimate children not bettered, provided that
it can be included within the third for free disposal, from which it must betaken, after
deducting the burial and funeral expenses.

The legitimate children may satisfy the portion pertaining to the natural children in
cash, or in other property of the estate, at a fair valuation.

The sum of P1,785.35, as the legal share of each natural child, was the amount which was indicated
in the project of partition(Exh. 3) and which was to be satisfied in cash. The second paragraph of
article 840 gives the legitimate children the right to satisfy in cash the hereditary portions of the
natural children. (Article 840 was applied in the project of partition when it stated that each natural
child had "una septima partede un sexto de semovientes" but the statement in the project of partition
that each legitimate child was entitled to "un tercio delos cinco quintos de los semovientes" is
erroneous. It should be "un tercii de los cinco sextos de los semovientes").

Judge Richard Campbell, in his "decision" dated April 28,1913, approved the project of partition as
well as the intervention of Timoteo Zayco as guardian of the five heirs, who were minors. The court
declared that the proceeding would be considered closed and the record should be archived as soon
as proof was submitted that each heir had received the portion adjudicated to him (Exh. 4).

In an order dated February 3, 1914 Judge V. Nepomuceno asked the administrator to submit a
report, complete with the supporting evidence, showing that the shared of the heirs had been
delivered to them as required in the decision of April 28,1913 (Exh. 5). In a manifestation dated
February 24, 1914, which was signed by Jose, Agustin, Granada, Atanacia and Timoteo all
surnamed Ramos, and by Timoteo Zayco, the guardian, and which was sworn to before the justice
of the peace on March 2 (not 4), 1914 and filed in court on March 5,1914, they acknowledged:

... hemos recibido del Administrador Judicial Rafael O. Ramostodas y cada una de
las participaciones a que respectivamente tenemos derecho en los bienes relictor de
los finados esposos Martin Ramos y Candida Tanate, completo acuerto y
conformidad con elproyecto de reparticion que nosotros mismo sometemos al
Juzgado en 25 de Abril de 1913 ... . (Exh. 6).

Note that Granada Ramos and the natural children were assumed to have received their shares
from the administrator although according to the object of partition, Jose Ramos and Agustin Ramos
(not the administrator) were supposed to pay the cash adjudications to each of them. No receipts
were attached to the manifestation, Exhibit 6. Apparently, the manifestation was not in strict
conformity with the terms of judge Nepomuceno's order and with the project of partition itself.

Lots Nos. 1370, 1371, 1372, 1375, 2158, 2159, 2161 and 2163(eight lots) of the Himamaylan
cadastre (page 8 of the Record on Appeal does not mention Lot 1370), which are involved in this
case were registered (as of 1958) in equal shares in the names of Gregoria Ramos and her
daughter, Granada Ramos, as shown below (Exh. 8):

Original
Lot No Registration Present title Date
1370 Aug. 29, 1923 TCT No. RT-2238 Dec. 1, 1933
1371 — do — TCT No. RT-2235 — do —
1372 — do — TCT No. RT-2237 — do —
1375 — do — TCT No. RT-2236 — do —
2158 Sept. 10, 1923 TCT No. RT-2230 — do —
2159 — do — TCT No. RT-2233 — do —
2161 — do — TCT No. RT-2232 — do —
2163 — do — TCT No. RT-2231 — do —

Plaintiffs' version of the case. — A summary of plaintiffs' oral evidence is found in pages 4 to 13 of
their well-written brief. It is reproduced below (omitting the citations of the transcript):

Martin Ramos, who died in 1906 in the municipality of Himamaylan, Negros Occidental, left
considerable real estate, the most valuable of which were the Hacienda Calaza and Hacienda Ylaya,
both located in Himamaylay, Negros Occidental. Hacienda Calaza consists of sugar land, palay land
and nipa groves with an area of 400 hectares and with a sugar quota allotment of 10,000 piculs,
more or less, and having as its present actual value P500,000 more or less.
"All the children of martin Ramos, whether legitimate or acknowledged natural, lived together in
Hacienda Ylaya during his lifetime and were under his care. Even defendant Gregoria Ramos,
widow of Jose Ramos, admitted that she dealt with plaintiffs as family relations, especially seeing
them during Sundays in church as they lived with their father, and maintained close and harmonious
relations with them even after the death of their father. All said children continued to live in said
house of their father for years even after his death.

"Upon their father's death, his properties were left under the administration of Rafael Ramos, the
younger brother of their father and their uncle, Rafael Ramos continued to administer those
properties of their father, giving plaintiffs money as their shares of the produce of said properties but
plaintiffs not receiving any property or piece of land however, until 1913 when Rafael Ramos
gathered all the heirs, including plaintiffs, in the house of their father, saying he would return the
administration of the properties. He turned over Hacienda Ylaya to Agustin Ramos and Hacienda
Calaza to Jose Ramos.

"All said children, defendants and plaintiffs alike, continued to live in the same house of their father in
Hacienda Ylaya, now under the support of Agustin Ramos. Plaintiff Modesto Ramos who 'could
understand Spanish a little', only left said house in 1911; plaintiff Manuel stayed there for one year
and lived later with Jose Ramos for four years. Plaintiff Maria Ramos, who herself testified that she
has 'a very low educational attainment', lived there until 1916 when she got married. Plaintiff
Emiliano lived there with Agustin, helping him supervise the work in Hacienda Ylaya, until he
transferred to Hacienda Calaza where he helped Jose Ramos supervise the work in said hacienda.

"Agustin Ramos supported plaintiffs, getting the money from the produce of Hacienda Ylaya, the
only source of income of Agustin coming from said hacienda. Plaintiffs asked money from Agustin
pertaining to their share in the produce of Hacienda Ylaya and received varied amounts, sometimes
around P50 at a time, getting more when needed, and receiving P90 or P100 more or less a year.

"Jose Ramos gave plaintiffs also money as their shares from the products of Hacienda Calaza. Even
Maria Ramos who upon her marriage in 1916 lived in La Cartota with her husband was given money
whenever she went to Himamaylan. Plaintiffs received varied amounts or sums of money from Jose
as their shares in the produce of Hacienda Ylaya more or less about P100 a year, mostly during the
milling season every year while he was alive up to his death in 1930. Emiliano Ramos, now
deceased and substituted by his widow, Rosario Tragico, moreover, received P300 from Jose
Ramos in 1918 taken from the products of Hacienda Calaza when he went to the United States to
study.

"Upon Jose Ramos death his widow Gregoria Ramos, herself, his first cousin, their father and
mother, respectively being brother and sister, continued to give plaintiffs money pertaining to their
shares in the products of Hacienda Calaza. She however stopped doing so in 1951, telling them that
the lessee Estanislao Lacson was not able to pay the lease rental.

"There was never any accounting made to plaintiffs by Jose Ramos, plaintiffs reposing confidence in
their elder brother, Nor was any accounting made by his widow, defendant Gregoria Ramos, upon
his death, plaintiff Manuel Ramos moreover having confidence in her.

"Before the survey of these properties by the Cadastral Court, plaintiff Modesto Ramos was informed
by the Surveying Department that they were going to survey these properties. Plaintiffs then went to
see their elder brother Jose to inform him that there was a card issued to them regarding the survey
and gave him 'a free hand to do something as an administrator'. They therefore did not intervene in
the said cadastral proceedings because they were promised that they(defendants Jose and Agustin)
would 'be the ones responsible to have it registered in the names of the heirs'. Plaintiffs did not file
and cadastral answer because defendants Jose and Agustin told them 'not to worry about it as they
have to answer for all the heirs'. Plaintiffs were 'assured' by defendants brothers.

"Plaintiffs did not know that intestate proceedings were instituted for the distribution of the estate of
their father. Neither did plaintiffs Modesto, Manuel, Emiliano and Maria know (that) Timoteo Zayco,
their uncle and brother-in-law of defendant widow Gregoria was appointed their guardian. There was
an express admission by defendant Gregoria Ramos that Timoteo Zayco was her brother-in-law.

"Plaintiffs did not know of any proceedings of Civil Case No. 217. They never received any sum of
money in cash — the alleged insignificant sum of P1,785.35 each — from said alleged guardian as
their supposed share in the estate of their father under any alleged project of partition.

"Neither did Atanacia Ramos nor her husband, Nestor Olmedo, sign any project of partition or any
receipt of share in(the) inheritance of Martin Ramos in cash. Nestor Olmedo did not sign any receipt
allegedly containing the signatures of Atanacia assisted by himself as husband, Timoteo Ramos,
and Timoteo Zayco as guardian ad-litem of the minors Modesto, Manual, Federico, Emiliano and
Maria. As a matter of fact, plaintiffs Modesto and Manuel were in 1913 no longer minors at the time
of the alleged project of partition of the estate being approved, both being of age at that time. No
guardian could in law act on their behalf.

"Plaintiffs only discovered later on that the property administered by their elder brother Jose had a
Torrens Title in the name of his widow, Gregoria, and daughter, Candida, when plaintiff Modesto's
children insisted and inquired from the Register of Deeds sometime in 1956 or 1957. Plaintiffs did
not intervene in the intestate proceedings for (the) settlement of the estate of their brother Jose as
they did not know of it.

"Plaintiffs were thus constrained to bring the present suit before the Court of First Instance of Negros
Occidental on September 5, 1957 seeking for the reconveyance in their favor by defendants
Gregoria and daughter Candida and husband Jose Bayot of their corresponding participations in
said parcels of land in accordance with article 840 of the old Civil Code and attorney's fees in the
sum of P10,000 plus costs and expenses of this litigation". (4-13 Brief).

Proceedings in the lower court. — The instant action was filed on September 5, 1957 against
defendants Agustin Ramos, Granada Ramos and the heirs of Jose Ramos for the purpose of
securing a reconveyance of the supposed participations of plaintiffs Atanacia, Emiliano, Manuel,
Maria and Modesto, all surnamed Ramos, in the aforementioned eight (8) lots which apparently form
part of Hacienda Calaza. (The plaintiffs did not specify that the said shares would amount to one-
sixth of the said eight cadastral lots. One-sixth represented the one-third free portion of Martin
Ramos' one-half shares in the said lots. And the said one-sixth portion was the share of his seven
legally acknowledged natural children under article 840 of the old Civil Code).

The action is really directed against the heirs of Jose Ramos, namely, his wife Gregoria and his
daughter Candida in whose names the said eight lots are now registered as shown in Exhibit 8 and
in page 4 hereof. It is predicated on the theory that plaintiffs' shares were held in trust by the
defendants. No deed of trust was alleged and proven.

The defendants denied the existence of a trust. They pleaded the defenses of (a) release of claim as
shown in the project of partition, the decision and the receipt of shares forming part of the
expediente of Civil Case No. 217 (Exh. 3, 4 and 6), (b) lack of cause of action, (c) res judicata and
(d) prescription.
Timoteo Ramos, who was joined as a co-plaintiff, manifested that he had already received his own
share of the inheritance, that he did not authorized anyone to include him as a plaintiff and that he
did not want to be a party in this case. He moved that his name be stricken out of the complaint (44-
45 Rec. or Appeal; Exh. 7).

Emiliano Ramos, who died in 1958, was substituted by his widow and their ten children (Exh. E, 61-
64 Rec. on Appeal).The complaint is silent as to the fate of Federico Ramos, the seventh natural
child of Martin Ramos.

As already noted, after trial, the lower court dismissed the complaint on the ground of res judicata.
The plaintiffs as well as the defendants appealed.

Plaintiffs' appeal. — The plaintiffs contend that the trial court erred (1) in dismissing their complaint,
(2) in denying their right to share in their father's estate and (3) in holding that the action was barred
by res judicata or the prior judgment in the special proceeding for the settlement of Martin Ramos'
intestate estate, Civil Case No. 217 of the Court of First Instance of Negros Occidental, Abintesdado
de los finados esposos Martin Ramos y Candida Tanate (Exh. F to J and 1 to 6).

The plaintiffs vigorously press on this Court their theory that the plaintiffs, as acknowledged natural
children, were grievously prejudiced by the partition and that the doctrine of res judicata should not
bar their action.

A preliminary issue, which should first be resolved, is the correctness of the trial court's "inexorable
conclusion" that the plaintiffs were the legally acknowledged natural children of Martin Ramos.
Plaintiffs' action is anchored on that premise.

The defendants failed to impugn that conclusion in their appellants' brief. Not having done so, it may
be regarded as conclusive against them. That is the proposition advanced by the plaintiffs in their
reply-brief.

The defendants in their appellees' brief assail that conclusion. It is true that an appellee may make
an assignment of error in his brief but that rule refers to an appellee who is not an appellant (Saenz
vs. Mitchell, 60 Phil. 69, 80). However, since an appellee is allowed to point out the errors committed
by the trial court against him (Relativo vs. Castro, 76 Phil. 563; Lucero vs. De Guzman, 45 Phil.
852), defendants' contention that the plaintiffs were not legally acknowledged natural children may
just as well be passed upon.

The defendants, in contesting the lower court's finding that the plaintiffs were legally acknowledged
children, assume that the legitimate children committed a mistake in conferring successional rights
on the plaintiffs.

We hold that the trial court's conclusion is correct. It is true that the acknowledgment of the plaintiffs
is not evidenced by a record of birth, will or other public document (Art. 131, Old Civil Code). But the
record of Civil Case No. 217, which is relied upon by the defendants to support their defense of res
judicata, indubitably shows that the plaintiffs were treated as acknowledged natural children of
Martin Ramos. The reasonable inference is that they were in the continuous possession of the status
of natural children of Martin Ramos, as evidenced by his direct acts and the acts of his family (Art.
135, Old Civil Code).

Unacknowledged natural children have no rights whatsoever(Buenaventura vs. Urbano, 5 Phil. 1;

Siguiong vs. Siguiong, 8 Phil. 5, 11; Infante vs. Figueras, 4 Phil. 738; Crisolo vs. Macadaeg, 94 Phil.
862). The fact that the plaintiffs, as natural children of Martin Ramos, received shares in his estate
implies that they were acknowledged. Obviously, defendants Agustin Ramos and Granada Ramos
and the late Jose Ramos accorded successional rights to the plaintiffs because martin Ramos and
members of his family had treated them as his children. Presumably, that fact was well-known in the
community. Under the circumstances, Agustin Ramos and Granada Ramos and the heirs of Jose
Ramos are estopped from attacking plaintiffs' status as acknowledged natural children (See Arts.
283[4] and 2266[3], New Civil Code).

Even the lower court, after treating the plaintiffs in 1913 in the intestate proceeding as acknowledged
natural children, had no choice but to reaffirm that same holding in its 1961 decision in this case.

The crucial issue is prescription. With it the question of res judicata and the existence of a trust are
inextricably interwoven. Inasmuch as trust is the main thrust of plaintiffs' action, it will be useful to
make a brief disgression of the nature of trusts (fideicomisos) and on the availability of prescription
and laches to bar the action for reconveyance of property allegedly held in trust.

"In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the
beneficial enjoyment of property, the legal title to which is vested in another, but the words 'trust' is
frequently employed to indicate duties, relations, and responsibilities which are not strictly technical
trusts." (89 C.J.S. 712).

"A person who establishes a trust is called the trust or; one in whom confidence is reposed is known
as the trustee; and the person for whose benefit the trust has been created is referred to as the
beneficiary" (Art. 1440, Civil Code). There is a fiduciary relation between the trustee and the cestui
que trust as regards certain property, real, personal, money or choses inaction (Pacheco vs. Arro, 85
Phil. 505).

"Trusts are either express or implied. Express trusts are created by the intention of the trust or of the
parties. Implied trusts come into being by operation of law." (Art. 1144, Civil Code). "No express
trusts concerning an immovable or any interest therein may be proven by oral evidence. An implied
trust may be proven by oral evidence" (Ibid, Arts. 1443 and 1457).

"No particular words are required for the creation of an express trust, it being sufficient that a trust is
clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-
19012, October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which are created by the
direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly
or impliedly evincing an intention to create a trust" (89 C.J.S. 722).

"Implied trust are those which, without being expressed, are deducible from the nature of the
transaction as matters of intent, or which are super induced on the transaction by operation of law as
matters of equity, independently of the particular intention of the parties" (89 C.J.S. 724). They are
ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722).

"A resulting trust is broadly defined as a trust which is raised or created by the act or construction of
law, but in its more restricted sense it is a trust raised by implication of law and presumed always to
have been contemplated by the parties, the intention as to which is to be found in the nature of their
transaction, but not expressed in the deed or instrument of conveyance" (89 C.J.S. 725). Examples
of resulting trusts are found in article 1448 to 1455 of the Civil Code. See Padilla vs. Court of
Appeals, L-31569, September 28, 1973, 53 SCRA 168,179).

On the other hand, a constructive trust is a trust "raised by construction of law, or arising by
operation of law". In a more restricted sense and as contra distinguished from a resulting trust, a
constructive trust is "a trust not created by any words, either expressly or impliedly evincing a direct
intention to create a trust, but by the construction of equity in order to satisfy the demands of justice.
It does not arise by agreement or intention but by operation of law." (89 C.J.S. 7260727). "If a person
obtains legal title to property by fraud or concealment, courts of equity will impress upon the title a
so-called constructive trust in favor of the defrauded party." A constructive trust is not a trust in the
technical sense(Gayondato vs. Treasurer of the P.I., 49 Phil. 244; See Art. 1456, Civil Code).

There is a rule that a trustee cannot acquire by prescription the ownership of property entrusted to
him (Palma vs. Cristobal, 77 Phil. 712), or that an action to compel a trustee to convey property
registered in his name in trust for the benefit of the cestui qui trust does not prescribed (Manalang
vs. Canlas, 94 Phil. 776; Cristobal vs. Gomez, 50 Phil. 810), or that the defense of prescription
cannot be set up in an action to recover property held by a person in trust for the benefit of
another(Sevilla vs. De los Angeles, 97 Phil. 875), or that property held in trust can be recovered by
the beneficiary regardless of the lapse of time (Marabilles vs. Quito, 100 Phil. 64; Bancairen vs.
Diones, 98 Phil. 122, 126 Juan vs. Zuniga, 62 O.g. 1351; 4 SCRA 1221; Jacinto, L-17957, May 31,
1962. See Tamayo vs. Callejo, 147 Phil. 31, 37).

That rule applies squarely to express trusts. The basis of the rule is that the possession of a trustee
is not adverse. Not being adverse, he does not acquire by prescription the property held in trust.
Thus, section 38 of Act 190 provides that the law of prescription does not apply "in the case of a
continuing and subsisting trust" (Diaz vs. Gorricho and Aguado, 103 Phil. 261,266; Laguna vs.
Levantino, 71 Phil. 566; Sumira vs. Vistan, 74 Phil. 138; Golfeo vs. Court of Appeals, 63 O.G. 4895,
12 SCRA 199; Caladiao vs. Santos, 63 O.G. 1956, 10 SCRA 691).

The rule of imprescriptibility of the action to recover property held in trust may possibly apply to
resulting trusts as long as the trustee has not repudiated the trust (Heirs of Candelaria vs. Romero,
109 Phil. 500, 502-3; Martinez vs. Grano, 42 Phil. 35; Buencamino vs. Matias, 63 O. G. 11033, 16
SCRA 849).

The rule of imprescriptibility was misapplied to constructive trusts (Geronimo and Isidoro vs. Nava
and Aquino, 105 Phil. 145, 153. Compare with Cuison vs. Fernandez and Bengzon, 105 Phil. 135,
139; De Pasion vs. De Pasion, 112 Phil. 403, 407).

Acquisitive prescription may bar the action of the beneficiary against the trustee in an express trust
for the recovery of the property held in trust where (a) the trustee has performed unequivocal acts of
repudiation amounting to an ouster of the cestui qui trust; (b) such positive acts of repudiation have
been made known to the cestui qui trust and(c) the evidence thereon is clear and conclusive
(Laguna vs. Levantino, supra; Salinas vs. Tuason, 55 Phil. 729. Compare with the rule regarding co-
owners found in the last paragraph of article 494, Civil Code; Casanas vs. Rosello, 50 Phil. 97;
Gerona vs. De Guzman, L-19060, May 29, 1964, 11 SCRA 153,157).

With respect to constructive trusts, the rule is different. The prescriptibility of an action for
reconveyance based on constructive trust is now settled (Alzona vs. Capunitan, L-10228, February
28, 1962, 4 SCRA 450; Gerona vs. De Guzman, supra; Claridad vs. Henares, 97 Phil. 973;
Gonzales vs. Jimenez, L-19073, January 30, 1965, 13 SCRA 80; Bonaga vs. Soler, 112 Phil. 651; J.
M. Tuason & Co., vs. Magdangal, L-15539, January 30, 1962, 4 SCRA 84). Prescription may
supervene in an implied trust (Bueno vs. Reyes, L-22587, April 28, 1969, 27 SCRA 1179; Fabian vs.
Fabian, L-20449, January 29, 1968; Jacinto vs. Jacinto, L-17957, May 31, 1962, 5 SCRA 371).

And whether the trust is resulting or constructive, its enforcement may be barred by laches (90
C.J.S. 887-889; 54 Am Jur. 449-450; Diaz vs. Gorricho and Aguado, supra. Compare with Mejia vs.
Gampona, 100 Phil. 277).
The plaintiffs did not prove any express trust in this case. The expediente of the intestate
proceeding, Civil Case No. 217, particularly the project of partition, the decision and the
manifestation as to the receipt of shares (Exh. 3, 4 and 6)negatives the existence of an express
trust. Those public documents prove that the estate of Martin Ramos was settled in that proceeding
and that adjudications were made to his seven natural children. A trust must be proven by clear,
satisfactory, and convincing evidence. It cannot rest on vague and uncertain evidence or on loose,
equivocal or indefinite declarations (De Leon vs. Peckson, 62 O. G. 994). As already noted, an
express trust cannot be proven by parol evidence(Pascual vs. Meneses, L-18838, May 25, 1967, 20
SCRA 219, 228; Cuaycong vs. Cuaycong, L-21616, December 11, 1967, 21 SCRA 1192).

Neither have the plaintiffs specified the kind of implied trust contemplated in their action. We have
stated that whether it is a resulting or constructive trust, its enforcement may be barred by laches.

In the cadastral proceedings, which supervened after the closure of the intestate proceeding, the
eight lots involved herein were claimed by the spouses Jose Ramos and Gregoria T. Ramos to the
exclusion of the plaintiffs (Exh. 8 to 19). After the death of Jose Ramos, the said lots were
adjudicated to his widow and daughter (Exh. 8). In 1932 Gregoria T. Ramos and Candida Ramos
leased the said lots to Felix Yulo (Exh. 20).Yulo in 1934 transferred his lease rights over Hacienda
Calazato Juan S. Bonin and Nestor Olmedo, the husband of plaintiff Atanacia Ramos (Exh. 22).
Bonin and Olmedo in 1935 sold their lease rights over Hacienda Calaza to Jesus S. Consing (Exh.
23).

Those transactions prove that the heirs of Jose Ramos had repudiated any trust which was
supposedly constituted over Hacienda Calaza in favor of the plaintiffs.

Under Act 190, whose statute of limitations applies to this case (Art. 116, Civil Code), the longest
period of extinctive prescription was only ten years Diaz vs. Gorricho and Aguado, supra.).

Atanacia, Modesto and Manuel, all surnamed Ramos, were already of age in 1914 (Exh. A to D).
From that year, they could have brought the action to annul the partition. Maria Ramos and Emiliano
Ramos were both born in 1896. They reached the age of twenty-one years in 1917. They could have
brought the action from that year.

The instant action was filed only in 1957. As to Atanacia, Modesto and Manuel, the action was filed
forty-three years after it accrued and, as to Maria and Emiliano, the action was filed forty years after
it accrued. The delay was inexcusable. The instant action is unquestionably barred by prescription
and res judicata.

This case is similar to Go Chi Gun vs. Co, 96 Phil. 622, where a partition judicially approved in 1916
was sought to be annulled in 1948 on the ground of fraud. it was contended that there was fraud
because the real properties of the decedent were all adjudicated to the eldest son, while the two
daughters, who were minors, were given only cash and shares of stocks. This Court, in upholding
the petition, said:

"In any case, the partition was given the stamp of judicial approval, and as a matter of principle and
policy we should sustain its regularity, in the absence of such cause or reason that the law itself fixes
as a ground for invalidity" (on page 634). "As the administration proceedings ended in the year 1916,
the guardianship proceedings in 1931, and the action was brought only in the year 1948, more than
32 years from the time of the distribution and 27 years from the termination of guardianship
proceedings", the action was barred by laches (on page 637). See Lopez vs. Gonzaga, L-18788,
January 31, 1964, 10 SCRA 167; Cuaycong vs. Cuaycong, supra).
The leading case of Severino vs. Severino, 44 Phil. 343, repeatedly cited by the plaintiffs, does not
involve any issue of prescription or laches. In that case, the action for reconveyance was seasonably
brought. The alleged trustee was an overseer who secured title in his name for the land of his
brother which was under his administration. He could not have acquired it by prescription because
his possession was not adverse. On certain occasions, he had admitted that he was merely the
administrator of the land and not its true owner.

More in point is the Cuaycong case, supra, where the action for the reconveyance of property held in
trust accrued in 1936 and it was filed only in 1961 or after the lapse of twenty-five years. That action
was barred.

On its face, the partition agreement was theoretically correct since the seven natural children were
given their full legitime, which under article 942 of the old Civil Code was their share as legal heirs.
But is was possible that the lands were undervalued or were not properly appraised at their fair
market value and, therefore, the natural children were short-changed in the computation of the value
of their shares which the legitimate children could pay in case as allowed in article 840 of the old
Civil Code. It is of common knowledge that anyone who received lands in the partition of a
decedent's estate would ultimately have an advantage over the one who received cash because
lands increase in value as time goes by while money is easily spent.

As pointed out in the statement if facts, it was anomalous that the manifestation, evidencing the
alleged receipt by the natural children of their shares, should recite that they received their shares
from the administrator, when in the project of partition itself, as approved by the probate court (Exh.
3 to 6),it was stipulated that Jose Ramos and Agustin Ramos would be the ones to pay the cash
settlement for their shares. No receipts were submitted to the court to prove that Jose Ramos and
Agustin Ramos paid to the plaintiffs the cash adjudicated to them in the project of partition.

The plaintiffs pinpoint certain alleged irregularities in the intestate proceeding. The aver that Modesto
Ramos and Manuel Ramos were already of age in 1913 and could not therefore have been
represented by Timoteo Zayco as guardian ad litem and that, consequently, the two were denied
due process. The plaintiffs accused Zayco of not having competently protected the interests of the
minors, Maria Ramos and Emiliano Ramos. The allege that Atanacia Ramos signed the project of
partition and the "receipt" of share (Exh. 3 and 6)without understanding those documents which were
in Spanish. They assert that the lopsided and defective partition was not implemented.

In short, the plaintiffs contend that the partition was not binding on them (Note that their brother,
Timoteo, considered himself bound by that partition). They ask that the case be remanded to the
lower court for the determination and adjudication of their rightful shares.

All those contentions would have a semblance of cogency and would deserve serious consideration
if the plaintiffs had not slept on their rights. They allowed more than forty years to elapse before they
woke up and complained that they were much aggrieved by the partition. Under the circumstances,
their claims can hardly evoke judicial compassion. Vigilantibus et non dormientibus jura subveniunt.
"If eternal vigilance is the price of safety, one cannot sleep on one's right for more than a tenth of a
century and except it to be preserved in its pristine purity" (Ozaeta, J. in Association Cooperativa de
Credito Agricola de Miagao vs. Monteclaro, 74 Phil. 281, 283).

The plaintiffs have only themselves to blame if the courts at this late hour can no longer afford them
relief against the inequities allegedly vitiating the partition of their father's estate.

In connection with the res judicata aspect of the case, it maybe clarified that in the settlement of a
decedent's estate it is not de rigueur for the heirs to sign a partition agreement. "It is the judicial
decree of distribution, once final, that vests title in the distributees" (Reyes vs. Barretto-Datu, L-
17818, January 25,1967, 19 SCRA 85, 91) which in this case was Judge Campbell's decision (Exh.
4).

A judgment in an intestate proceeding may be considered asa judgment in rem (Varela vs.
Villanueva, 95 Phil. 248, 267. See Sec. 49[a], Rule 39, Rules of Court). There is a ruling that "if that
decree of distribution was erroneous or not in conformity with law or the testament, the same should
have been corrected by opportune appeal; but once it had become final; its binding effect is like that
of any other judgment in rem, unless properly set aside for lack of jurisdiction or fraud". A partition
approved by the court in 1939 could no longer be contested in 1956 on the ground of fraud. The
action had already prescribed. "The fact that one of the distributees was a minor at the time the court
issued the decree of distribution does not imply that the court had no jurisdiction to enter the decree
of distribution." (Reyes vs. Barretto-Datu, supra, citing Ramos vs. Ortuzar, 89 Phil. 742). "A final
order of distribution of the estate of a deceased person vests the title to the land of the estate in the
distributes" (Syllabus, Santos vs. Roman Catholic Bishop of Nueva Caceres, 45 Phil. 895, 900).

Parenthetically, it may be noted that the filing of the instant case long after the death of Jose Ramos
and other persons involved in the intestate proceeding renders it difficult to determine with certitude
whether the plaintiffs had really been defrauded. What Justice Street said in Sinco vs. Longa, 51
Phil. 507, 518-9 is relevant to this case.

In passing upon controversies of this character experience teaches the danger of

accepting lightly charged of fraud made many years after the transaction in question
was accomplished, when death may have sealed the lips of the principal actors and
changes effected by time may have given a totally different color to the cause of
controversy. In the case before us the guardia, Emilio Tevez, is dead. The same is
true of Trinidad Diago, mother of the defendant Agueda Longa; while Agapito Longa
is now living in Spain. It will be borne in mind also that, insofar as oral proof is
concerned, the charge of fraud rests principally on the testimony of a single witness
who, if fraud was committed, was a participant therein and who naturally would now
be anxious, so far as practicable, to put the blame on others. In this connection it is
well to bear in mind the following impressive language of Mr. Justice Story:

... But length of time necessarily obscures all human evidence; and as it thus
removed from the parties all the immediate means to verify the nature of the original
transactions, it operates by way of presumption, in favor of innocence, and against
imputation of fraud. It would be unreasonable, after a great length of time, to require
exact proof of all the minute circumstances of any transaction, or to expect a
satisfactory explanation of every difficulty, real or apparent with which it may be
incumbered. The most that can fairly be expected, in such cases, if the parties are
living, from the frailty of memory, and human infirmity, is, that the material facts can
be given with certainty to a common intent; and, if the parties are dead, and the
cases rest in confidence, and in parol agreements, the most that we can hope is to
arrive at probable conjectures, and to substitute general presumption of law, for
exact knowledge. Fraud, or breach of trust, ought not lightly to be imputed to the
living, for, the legal presumption is the other way; as to the dead, are not here to
answer for themselves, it would be the height of injustice and cruelty, to disturb their
ashes, and violate the sanctity of the grave, unless the evidence of fraud be clear,
beyond a reasonable doubt (Prevost vs. Gratz, 6 Wheat. [U.S.],481, 498).

Defendants' appeal. — Defendants Granada Ramos, Gregoria T. Ramos, Candida Ramos, Jose
Bayor and Agustin Ramos appealed from the lower court's decision insofar as it ignored their
counterclaim for P50,000 as moral damages and P10,000 as attorney's fees. In their brief the claim
for attorney's fees was increased to P20,000. They prayed for exemplary damages.

The defendants argue that plaintiffs' action was baseless and was filed in gross and evident bad
faith. It is alleged that the action caused defendants mental anguish, wounded feelings, moral shock
and serious anxiety and compelled them to hire the service of counsel and incur litigation expenses.

Articles 2219 and 2220 (also 1764 and 2206) of the Civil Code indicate the cases where morel
damages may be recovered. The instant litigation does not fall within any of the enumerated cases.
Nor can it be regarded as analogous to any of the cases mentioned in those articles. Hence,
defendants' claim for moral damages cannot be sustained (Ventanilla vs. Centeno, 110 Phil. 811,
814). The worries and anxiety of a defendant in a litigation that was not maliciously instituted are not
the moral damages contemplated in the law (Solis & Yarisantos vs. Salvador, L-17022, August 14,
1965, 14 SCRA 887).

"The adverse result of an action does not per se make the act wrongful and subject the actor to the
payment of moral damages. The law could not have meant to impose a penalty on the right to
litigate, such right is so precious that moral damages may not be charged on those who may
exercise it erroneously." (Barretto vs. Arevalo, 99 Phil. 771, 779).

On the other hand, the award of reasonable attorney's fees is governed by article 2208 of the Civil
Code which lays down the general rule that, in the absence of stipulation, attorney's fees and
litigation expenses cannot be recovered. Article 2208 specifies eleven instances where attorney's
fees may be recovered. The defendants did not point out the specific provision of article 2208 on
which their counterclaim may be predicated.

What may possibly apply to defendants' counterclaim are paragraphs four and eleven which
respectively provide that attorney's fees may be recovered "in case of a clearly unfounded civil
action or proceeding against the plaintiff"(defendant is a plaintiff in his counterclaim) or "in any other
cases where the court deems it just and equitable" that attorney's fees should be awarded.

We hold that, notwithstanding the dismissal of the action, no attorney's fees should be granted to the
defendants. Under the facts of the case, it cannot be asseverated with dogmatic finality that plaintiffs'
action was manifestly unfounded or was maliciously filed to harass and embarrass the defendants.
All indications point to the fact that the plaintiffs honestly thought that they had a good cause of
action. They acted in evident good faith. (See Herrera vs. Luy Kim Guan, 110 Phil. 1020, 1028; Rizal
Surety & Insurance Co., Inc. vs. Court of Appeals, L-23729, May 16, 1967, 20 SCRA 61).

Inasmuch as some of the plaintiffs were minors when the partition of their father's landed estate was
made, and considering that they were not allotted even a few square meters out of the hundreds of
hectares of lands, which belonged to him, they had reason to feel aggrieved and to seek redress for
their grievances. Those circumstances as well as the marked contrast between their indigence and
the affluence of the heirs of their half-brother, Jose Ramos, might have impelled them to ask the
courts to reexamine the partition of their father's estate.

It is not sound public policy to set a premium on the right to litigate. An adverse decision does not
ipso facto justify the award of attorney's fees to the winning party (Herrera vs. Luy Kim, supra; Heirs
of Justiva vs. Gustilo, 61 O. G. 6959. Cf. Lazatin vs. Twano and Castro, 112 Phil. 733, 741).

Since no compensatory and moral damages have been awarded in this case, defendants' claim for
exemplary damages, which was ventilated for the first time in their appellants' brief, may be as an
afterthought, cannot be granted(Art. 2229, Civil Code).
WHEREFORE, the trial court's judgment is affirmed with the clarification that defendants'
counterclaim is dismissed. No costs.

SO ORDERED.

G.R. No. L-11229 March 29, 1958

MANUEL DIAZ, CONSTANCIA DIAZ and SOR PETRA DIAZ, plaintiffs-appellants,

vs.
CARMEN GORRICHO and her husband FRANCISCO AGUADO, defendants-appellees.

Pedro D. Maldia for appellants.

Leoncio M. Aranda for appellees.

REYES, J.B.L., J.:

Appeal originally brought to the Court of Appeals but certified to us by said court because only
questions of law are raised therein.

The facts of the case are as follows:

Lots Nos. 1941 and 3073 of the Cadastral Survey of Cabanatuan originally belonged to the conjugal
partnership of the spouses Francisco Diaz and Maria Sevilla, having been registered in their name
under Original Certificates of Title Nos. 3114 and 3396. Francisco Diaz died in 1919, survived by his
widow Maria Sevilla and their three children — Manuel Diaz born in 1911, Lolita Diaz born in 1913,
and Constancia Diaz born in 1918.

Sometime in 1935, appellee Carmen J. Gorricho filed an action against Maria Sevilla in the Court of
First Instance of Manila (C. C. No. 43474) and in connection their with, a writ of attachment was
issued upon the shares of Maria Sevilla in said lots numbers 1941 and 3073 (Exhibit C). Thereafter,
said parcels were sold at public auction and purchased by the plaintiff herself, Carmen J. Gorricho
(Exhibit G). Maria Sevilla failed to redeem within one year, whereupon the acting provincial sheriff
executed a final deed of sale in favor of Carmen J. Gorricho. In said final deed (Exhibit E), however,
the sheriff conveyed to Gorricbo the whole of parcels numbers 1941 and 3073 instead of only the
half-interest of Maria Sevilla therein. Pursuant to said deed, Carmen J. Gorricho obtained Transfer
Certificate of Title Nos. 1354 and 1355 in her name on April 13, 1937, and has been possessing said
land is as owner ever since.

In November, 1951, Maria Sevilla died. The following year on March 31, 1952, her children Manuel
Diaz, Constancia Diaz, and Sor Petra Diaz (Lolita Diaz) filed the action (C. C. No. 926 of the Court of
First Instance of Nueva Ecija) against Carmen Gorricho and her husband Francisco Aguado to
compel defendants to execute in their favor a deed of reconveyance over an undevided one-half
interest over the lots in question (the share therein of their deceased father Francisco Diaz illegally
conveyed by the provincial sheriff to Gorricho), which defendants were allegedly holding in trust for
them. Defendants answered denying the allegations of the complaint and alleging, as a special
defense, that plaintiffs' action has long prescribed. After trial, the court below rendered judgment,
holding that while a constructive trust in plaintiffs' favor arose when defendant Gorricho took
advantage of the error of the provincial sheriff in conveying to her the whole of the parcels in
question and obtained title in herself, the action of plaintiffs was, however, barred by laches and
prescription. From this judgment, plaintiffs appealed.
The principal contention of appellants is that their father's half of the disputed property was acquired
by Carmen J. Gorricho through an error of the provincial sheriff; that having been acquired through
error, it was subject to an implied trust, as provided by Article 1456 of the new Civil Code; and
therefore, since the trust is continuing and subsisting, the appellants may compel reconveyance of
the property despite the lapse of time, specially, because prescription does not run against titles
registered under Act 496.

Article 1456 of the new Civil Code, while not retroactive in character, merely expresses a rule
already recognized by our courts prior to the Code's promulgation (see Gayondato vs. Insular
Treasurer, 49 Phil 244). Appellants are, however, in error in believing that like express trusts, such
constructive trusts may not be barred by lapse of time. The American law on trusts has always
maintained a distinction between express trusts created by intention of the parties, and the implied
or constructive trusts that are exclusively created by law, the latter not being trusts in their technical
sense (Gayondato vs. Insular Treasurer, supra). The express trusts disable the trustee from
acquiring for his own benefit the property committed to his management or custody, at least while he
does not openly repudiate the trust, and makes such repudiation known to the beneficiary or cestui
que trust. For this reason, the old Code of Civil Procedure (Act 190) declared that the rules on
adverse possession do not apply to "continuing and subsisting" (i.e., unrepudiated) trusts.

But in constructive trusts, as pointed out by the court below, the rule is that laches constitutes a bar
to actions to enforce the trust, and repudiation is not required, unless there is concealment of the
facts giving rise to the trust (54 Am. Jur., secs. 580, 581; 65 C. J., secs. 956, 957, 958; Amer. Law
Institute, Restatement on Trusts, section 219; on Restitution, section 179; Stianson vs. Stianson, 6
ALR 287; Claridad vs. Benares, 97 Phil., 973).

SEC. 580. In Case of Express Trust. — In the case of an express trust, a cestui que trust is
entitled to rely upon the fidelity of the trustee. Laches does not apply until the lapse of time is
great, or until the active duties of the trustee are terminated except for turning, over the trust
property or funds to the beneficiaries, the claim of the trustee in respect of the trust estate is
held adversely to the beneficiary, the trustee openly denies or repudiates the trust or
commits acts in breach thereof, or in hostility to, or fraud of, the beneficiaries, and the
beneficiary is notified, or is chargeable with constructive notice, thereof, or is otherwise
plainly put on guard against the trustee. No laches exists until a reasonable time after a
beneficiary is notified of a breach or other cause of suit against the trustee. Laches does
exist, however, where suit is not commenced within such reasonable time. Long delay is not
excused where the trustee put the beneficiary of from time to time with a promise to settle
the trusteeship, or where the trustee was a lawyer and related by affinity to the beneficiaries,
who were all women.

SEC. 581. In case of Constructive or Resulting Trust. — Laches constitutes a defense to a

suit to declare and enforce a constructive trust for the purpose of the rule, repudiation of the
constructive trust is not required, and time runs from the moment that the law creates the
trust, which is the time when the cause of action arises. But laches does not exist while the
trusted, fraudulently and successfully conceals the facts giving rise to the trust, although the
concealment must be adequately pleaded by the plaintiff in a suit to declare a trust where the
delay is apparent on the face of his pleading.

Laches may constitute a bar to an action to declare and enforce a resulting trust, but lapse of
time is only one of the many circumstances from which the conclusion of laches in the
enforcement of such a trust must be drawn, and each case must be determined in, the light
of the particular facts shown. No laches exists in respect of failure to assert a resulting trust
of which a beneficiary has no knowledge or of which he is not chargeable with knowledge.
 Continuous recognition of a resulting trust precludes any defense of laches in a suit to
declare and enforce the trust. It has been held that the beneficiary of a resulting trust may,
without prejudice to his right to enforce the trust, prefer the trust to persist and demand no
conveyance from the trustee. On the other hand, it has been held that the one who permits a
claim to establish a resulting trust to lie dormant for an unreasonable length of time, land until
the alleged trustee, has died, will not be aided by a court of equity to establish his trust. (54
Am. Jur., pp. 448-450.)

The reason for the difference in treatment is obvious. In express trusts, the delay of the beneficiary is
directly attributable to the trustee who undertakes to hold the property for the former, or who linked
to the beneficiary by confidential or fiduciary relations. The trustee's possession is, therefore, not
adverse to the beneficiary, until and unless the latter is made aware that the trust has been
repudiated. But 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.

Of course the equitable doctrine of estoppel by laches requires that the one invoking it must show,
not only the unjustified inaction, but that some unfair injury would result to him unless the action is
held barred (Go Chi Gun vs. Co Cho, 96 Phil., 622; Mejia vs. Gamponia, * 53 Off. Gaz., 677). This
requirement the appellees have not met, and they are thereby bereft of the protection of this rule.

Nevertheless, we are of the opinion that the judgment of dismissal should be upheld, because the
appellants' cause of action to attack the sheriff's deed and cancel the transfer certificates of title
issued to the appellees accrued from the year of issuance and recording, 1937, and appellants have,
allowed fifteen (15) years to elapse before taking remedial action in 1952. Even considering that the
youngest among them (Constancia), born in 1918, only became of age in 1939, more than sufficient
time (thirteen years) has been allowed to elapse, notwithstanding the appellees' public assertion of
title during this entire period, to extinguish appellant's action. Under the old Code of Civil Procedure
(Ch. III), in force at the time, the longest period extinctive prescription was only ten years.

Wherefore, the judgment appealed from is affirmed, with costs against appellants.

G.R. No. 168770 February 9, 2011

ANUNCIACION VDA. DE OUANO, MARIO P. OUANO, LETICIA OUANO ARNAIZ, and CIELO
OUANO MARTINEZ, Petitioners,
vs.
THE REPUBLIC OF THE PHILIPPINES, THE MACTAN-CEBU INTERNATIONAL AIRPORT
AUTHORITY, and THE REGISTER OF DEEDS FOR THE CITY OF CEBU, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 168812

MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY (MCIAA), Petitioner,

vs.
RICARDO L. INOCIAN, in his personal capacity and as Attorney-in-Fact of OLYMPIA E.
ESTEVES, EMILIA E. BACALLA, RESTITUTA E. MONTANA, and RAUL L. INOCIAN; and
ALETHA SUICO MAGAT, in her personal capacity and as Attorney-in-Fact of PHILIP M.
SUICO, DORIS S. DELA CRUZ, JAMES M. SUICO, EDWARD M. SUICO, ROSELYN SUICO-
LAWSIN, REX M. SUICO, KHARLA SUICO-GUTIERREZ, ALBERT CHIONGBIAN, and JOHNNY
CHAN, Respondents.

DECISION

VELASCO, JR., J.:

At the center of these two (2) Petitions for Review on Certiorari under Rule 45 is the issue of the
right of the former owners of lots acquired for the expansion of the Lahug Airport in Cebu City to
repurchase or secure reconveyance of their respective properties.

In the first petition, docketed as G.R. No. 168770, petitioners Anunciacion vda. de Ouano, Mario
Ouano, Leticia Ouano Arnaiz and Cielo Ouano Martinez (the Ouanos) seek to nullify the
Decision1 dated September 3, 2004 of the Court of Appeals (CA) in CA-G.R. CV No. 78027,
affirming the Order dated December 9, 2002 of the Regional Trial Court (RTC), Branch 57 in Cebu
City, in Civil Case No. CEB-20743, a suit to compel the Republic of the Philippines and/or the
Mactan-Cebu International Airport Authority (MCIAA) to reconvey to the Ouanos a parcel of land.

The second petition, docketed as G.R. No. 168812, has the MCIAA seeking principally to annul and
set aside the Decision2 and Resolution3 dated January 14, 2005 and June 29, 2005, respectively, of
the CA in CA-G.R. CV No. 64356, sustaining the RTC, Branch 13 in Cebu City in its Decision of
October 7, 1988 in Civil Case No. CEB-18370.

Per its October 19, 2005 Resolution, the Court ordered the consolidation of both cases.

Except for the names of the parties and the specific lot designation involved, the relevant factual
antecedents which gave rise to these consolidated petitions are, for the most part, as set forth in the
Court’s Decision4 of October 15, 2003, as reiterated in a Resolution5 dated August 9, 2005, in G.R.
No. 156273 entitled Heirs of Timoteo Moreno and Maria Rotea v. Mactan-Cebu International Airport
Authority (Heirs of Moreno), and in other earlier related cases.6

In 1949, the National Airport Corporation (NAC), MCIAA’s predecessor agency, pursued a program
to expand the Lahug Airport in Cebu City. Through its team of negotiators, NAC met and negotiated
with the owners of the properties situated around the airport, which included Lot Nos. 744-A, 745-A,
746, 747, 761-A, 762-A, 763-A, 942, and 947 of the Banilad Estate. As the landowners would later
claim, the government negotiating team, as a sweetener, assured them that they could repurchase
their respective lands should the Lahug Airport expansion project do not push through or once the
Lahug Airport closes or its operations transferred to Mactan-Cebu Airport. Some of the landowners
accepted the assurance and executed deeds of sale with a right of repurchase. Others, however,
including the owners of the aforementioned lots, refused to sell because the purchase price offered
was viewed as way below market, forcing the hand of the Republic, represented by the then Civil
Aeronautics Administration (CAA), as successor agency of the NAC, to file a complaint for the
expropriation of Lot Nos. 744-A, 745-A, 746, 747, 761-A, 762-A, 763-A, 942, and 947, among others,
docketed as Civil Case No. R-1881 entitled Republic v. Damian Ouano, et al.

On December 29, 1961, the then Court of First Instance (CFI) of Cebu rendered judgment for the
Republic, disposing, in part, as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered:

 1. Declaring the expropriation of Lots Nos. 75, 76, 76, 89, 90, 91, 92, 105, 106, 107, 108,
104, 921-A, 88, 93, 913-B, 72, 77, 916, 777-A, 918, 919, 920, 764-A, 988, 744-A, 745-A,
746, 747, 762-A, 763-A, 951, 942, 720-A, x x x and 947, included in the Lahug Airport, Cebu
City, justified in and in lawful exercise of the right of eminent domain.

xxxx

3. After the payment of the foregoing financial obligation to the landowners, directing the
latter to deliver to the plaintiff the corresponding Transfer Certificates of Title to their
respective lots; and upon the presentation of the said titles to the Register of Deeds, ordering
the latter to cancel the same and to issue, in lieu thereof, new Transfer Certificates of Title in
the name of the plaintiff.7

In view of the adverted buy-back assurance made by the government, the owners of the lots no
longer appealed the decision of the trial court.8 Following the finality of the judgment of
condemnation, certificates of title for the covered parcels of land were issued in the name of the
Republic which, pursuant to Republic Act No. 6958,9 were subsequently transferred to MCIAA.

At the end of 1991, or soon after the transfer of the aforesaid lots to MCIAA, Lahug Airport
completely ceased operations, Mactan Airport having opened to accommodate incoming and
outgoing commercial flights. On the ground, the expropriated lots were never utilized for the purpose
they were taken as no expansion of Lahug Airport was undertaken. This development prompted the
former lot owners to formally demand from the government that they be allowed to exercise their
promised right to repurchase. The demands went unheeded. Civil suits followed.

G.R. No. 168812 (MCIAA Petition)

On February 8, 1996, Ricardo L. Inocian and four others (all children of Isabel Limbaga who
originally owned six [6] of the lots expropriated); and Aletha Suico Magat and seven others,
successors-in-interest of Santiago Suico, the original owner of two (2) of the condemned lots
(collectively, the Inocians), filed before the RTC in Cebu City a complaint for reconveyance of real
properties and damages against MCIAA. The complaint, docketed as Civil Case No. CEB-18370,
was eventually raffled to Branch 13 of the court.

On September 29, 1997, one Albert Chiongbian (Chiongbian), alleging to be the owner of Lot Nos.
761-A and 762-A but which the Inocians were now claiming, moved and was later allowed to
intervene.

During the pre-trial, MCIAA admitted the following facts:

1. That the properties, which are the subject matter of Civil Case No. CEB-18370, are also
the properties involved in Civil Case R-1881;

2. That the purpose of the expropriation was for the expansion of the old Lahug Airport; that
the Lahug Airport was not expanded;

3. That the old Lahug Airport was closed sometime in June 1992;

4. That the price paid to the lot owners in the expropriation case is found in the decision of
the court; and
 5. That some properties were reconveyed by the MCIAA because the previous owners were
able to secure express waivers or riders wherein the government agreed to return the
properties should the expansion of the Lahug Airport not materialize.

During trial, the Inocians adduced evidence which included the testimony of Ricardo Inocian
(Inocian) and Asterio Uy (Uy). Uy, an employee of the CAA, testified that he was a member of the
team which negotiated for the acquisition of certain lots in Lahug for the proposed expansion of the
Lahug Airport. He recalled that he acted as the interpreter/spokesman of the team since he could
speak the Cebuano dialect. He stated that the other members of the team of negotiators were Atty.
Pedro Ocampo, Atty. Lansang, and Atty. Saligumba. He recounted that, in the course of the
negotiation, their team assured the landowners that their landholdings would be reconveyed to them
in the event the Lahug Airport would be abandoned or if its operation were transferred to the Mactan
Airport. Some landowners opted to sell, while others were of a different bent owing to the
inadequacy of the offered price.

Inocian testified that he and his mother, Isabel Lambaga, attended a meeting called by the NAC
team of negotiators sometime in 1947 or 1949 where he and the other landowners were given the
assurance that they could repurchase their lands at the same price in the event the Lahug Airport
ceases to operate. He further testified that they rejected the NAC’s offer. However, he said that they
no longer appealed the decree of expropriation due to the repurchase assurance adverted to.

The MCIAA presented Michael Bacarizas (Bacarizas), who started working for MCIAA as legal
assistant in 1996. He testified that, in the course of doing research work on the lots subject of Civil
Case No. CEB-18370, he discovered that the same lots were covered by the decision in Civil Case
No. R-1881. He also found out that the said decision did not expressly contain any condition on the
matter of repurchase.

Ruling of the RTC

On October 7, 1998, the RTC rendered a Decision in Civil Case No. CEB-18370, the dispositive
portion of which reads as follows:

WHEREFORE, in view of the foregoing, judgment is hereby rendered directing defendant Mactan
Cebu International Airport Authority (MCIAA) to reconvey (free from liens and encumbrances) to
plaintiffs Ricardo Inocian, Olimpia E. Esteves, Emilia E. Bacalla, Restituta E. Montana and Raul
Inocian Lots No. 744-A, 745-A, 746, 762-A, 747, 761-A and to plaintiffs Aletha Suico Magat, Philip
M. Suico, Doris S. dela Cruz, James M. Suico, Edward M. Suico, Roselyn S. Lawsin, Rex M. Suico
and Kharla Suico-Gutierrez Lots No. 942 and 947, after plaintiffs shall have paid MCIAA the sums
indicated in the decision in Civil Case No. R-1881. Defendant MCIAA is likewise directed to pay the
aforementioned plaintiffs the sum or P50,000.00 as and for attorney’s fees and P10,000.00 for
litigation expenses.

Albert Chiongbian’s intervention should be, as it is hereby DENIED for utter lack of factual basis.

With costs against defendant MCIAA.10

Therefrom, MCIAA went to the CA on appeal, docketed as CA-G.R. CV No. 64356.

Ruling of the CA
On January 14, 2005, the CA rendered judgment for the Inocians, declaring them entitled to the
reconveyance of the questioned lots as the successors-in-interest of the late Isabel Limbaga and
Santiago Suico, as the case may be, who were the former registered owners of the said lots. The
decretal portion of the CA’s Decision reads:

WHEREFORE, in view of the foregoing premises, judgment is hereby rendered by

us DISMISSING the appeal filed in this case and AFFFIRMING the decision rendered by the court a
quo on October 7, 1998 in Civil Case No. CEB-18370.

SO ORDERED.

The CA, citing and reproducing excerpts from Heirs of Moreno,11 virtually held that the decision in
Civil Case No. R-1881 was conditional, stating "that the expropriation of [plaintiff-appellees’] lots for
the proposed expansion of the Lahug Airport was ordered by the CFI of Cebu under the impression
that Lahug Airport would continue in operation."12 The condition, as may be deduced from the CFI’s
decision, was that should MCIAA, or its precursor agency, discontinue altogether with the operation
of Lahug Airport, then the owners of the lots expropriated may, if so minded, demand of MCIAA to
make good its verbal assurance to allow the repurchase of the properties. To the CA, this
assurance, a demandable agreement of repurchase by itself, has been adequately established.

On September 21, 2005, the MCIAA filed with Us a petition for review of the CA’s Decision,
docketed as G.R. No. 168812.

G.R. No. 168770 (Ouano Petition)

Soon after the MCIAA jettisoned the Lahug Airport expansion project, informal settlers entered and
occupied Lot No. 763-A which, before its expropriation, belonged to the Ouanos. The Ouanos then
formally asked to be allowed to exercise their right to repurchase the aforementioned lot, but the
MCIAA ignored the demand. On August 18, 1997, the Ouanos instituted a complaint before the
Cebu City RTC against the Republic and the MCIAA for reconveyance, docketed as Civil Case No.
CEB-20743.

Answering, the Republic and MCIAA averred that the Ouanos no longer have enforceable rights
whatsoever over the condemned Lot No. 763-A, the decision in Civil Case No. R-1881 not having
found any reversionary condition.

Ruling of the RTC

By a Decision dated November 28, 2000, the RTC, Branch 57 in Cebu City ruled in favor of the
Ouanos, disposing as follows:

WHEREFORE, in the light of the foregoing, the Court hereby renders judgment in favor of the
plaintiffs, Anunciacion Vda. De Ouano, Mario P. Ouano, Leticia Ouano Arnaiz and Cielo Ouano
Martinez and against the Republic of the Philippines and Mactan Cebu International Airport Authority
(MCIAA) to restore to plaintiffs, the possession and ownership of their land, Lot No. 763-A upon
payment of the expropriation price to defendants; and

2. Ordering the Register of Deeds to effect the transfer of the Certificate of Title from defendant
Republic of the Philippines on Lot 763-A, canceling TCT No. 52004 in the name of defendant
Republic of the Philippines and to issue a new title on the same lot in the names of Anunciacion Vda.
De Ouano, Mario P. Ouano, Leticia Ouano Arnaiz and Cielo Ouano Martinez.
No pronouncement as to costs.13

Acting on the motion of the Republic and MCIAA for reconsideration, however, the RTC, Branch 57
in Cebu City, presided this time by Judge Enriqueta L. Belarmino, issued, on December 9, 2002, an
Order14 that reversed its earlier decision of November 28, 2000 and dismissed the Ouanos’
complaint.

Ruling of the CA

In time, the Ouanos interposed an appeal to the CA, docketed as CA-G.R. CV No. 78027.
Eventually, the appellate court rendered a Decision15 dated September 3, 2004, denying the appeal,
thus:

WHEREFORE, premises considered, the Order dated December 9, 2002, of the Regional Trial
Court, 7th Judicial Region, Branch 57, Cebu City, in Civil Case No. CEB-20743, is hereby
AFFIRMED. No pronouncement as to costs.

SO ORDERED.

Explaining its case disposition, the CA stated that the decision in Civil Case No. R-1881 did not state
any condition that Lot No. 763-A of the Ouanos––and all covered lots for that matter––would be
returned to them or that they could repurchase the same property if it were to be used for purposes
other than for the Lahug Airport. The appellate court also went on to declare the inapplicability of the
Court’s pronouncement in MCIAA v. Court of Appeals, RTC, Branch 9, Cebu City, Melba Limbago,
et al.,16 to support the Ouanos’ cause, since the affected landowners in that case, unlike the Ouanos,
parted with their property not through expropriation but via a sale and purchase transaction.

The Ouanos filed a motion for reconsideration of the CA’s Decision, but was denied per the CA’s
May 26, 2005 Resolution.17 Hence, they filed this petition in G.R. No. 168770.

The Issues

G.R. No. 168812

GROUNDS FOR ALLOWANCE OF THE PETITION

l. THE ASSAILED ISSUANCES ILLEGALLY STRIPPED THE REPUBLIC OF ITS

ABSOLUTE AND UNCONDITIONAL TITLE TO THE SUBJECT EXPROPRIATED
PROPERTIES.

ll. THE IMPUNGED DISPOSITIONS INVALIDLY OVERTURNED THIS HONORABLE

COURT’S FINAL RULINGS IN FERY V. MUNICIPALITY OF CABANATUAN, MCIAA V.
COURT OF APPEALS AND REYES V. NATIONAL HOUSING AUTHORITY.

lll. THE COURT OF APPEALS GRAVELY ERRED IN APPLYING THIS HONORABLE

COURT’S RULING IN MORENO, ALBEIT IT HAS NOT YET ATTAINED FINALITY.18

G.R. No. 168770

Questions of law presented in this Petition

Whether or not the testimonial evidence of the petitioners proving the promises, assurances and
representations by the airport officials and lawyers are inadmissbale under the Statute of Frauds.

Whether or not under the ruling of this Honorable Court in the heirs of Moreno Case, and pursuant to
the principles enunciated therein, petitioners herein are entitiled to recover their litigated property.

Reasons for Allowances of this Petition

Respondents did not object during trial to the admissibility of petitioners’ testimonial evidence under
the Statute of Frauds and have thus waived such objection and are now barred from raising the
same. In any event, the Statute of Frauds is not applicable herein. Consequently, petitioners’
evidence is admissible and should be duly given weight and credence, as initially held by the trial
court in its original Decision.19

While their respective actions against MCIAA below ended differently, the Ouanos and the Inocians’
proffered arguments presented before this Court run along parallel lines, both asserting entitlement
to recover the litigated property on the strength of the Court’s ruling in Heirs of Moreno. MCIAA has,
however, formulated in its Consolidated Memorandum the key interrelated issues in these
consolidated cases, as follows:

WHETHER ABANDONMENT OF THE PUBLIC USE FOR WHICH THE SUBJECT PROPERTIES
WERE EXPROPRIATED ENTITLES PETITIONERS OUANOS, ET AL. AND RESPONDENTS
INOCIAN, ET AL. TO REACQUIRE THEM.

II

WHETHER PETITIONERS OUANOS, ET AL. AND RESPONDENTS INOCIAN, ET AL. ARE

ENTITLED TO RECONVEYANCE OF THE SUBJECT PROPERTIES SIMPLY ON THE BASIS OF
AN ALLEGED VERBAL PROMISE OR ASSURANCE OF SOME NAC OFFICIALS THAT THE
SUBJECT PROPERTIES WILL BE RETUNRED IF THE AIRPORT PROJECT WOULD BE
ABANDONED.

The Court’s Ruling

The Republic and MCIAA’s petition in G.R. No. 168812 is bereft of merit, while the Ouano petition in
G.R. No. 168770 is meritorious.

At the outset, three (3) fairly established factual premises ought to be emphasized:

First, the MCIAA and/or its predecessor agency had not actually used the lots subject of the final
decree of expropriation in Civil Case No. R-1881 for the purpose they were originally taken by the
government, i.e., for the expansion and development of Lahug Airport.

Second, the Lahug Airport had been closed and abandoned. A significant portion of it had, in fact,
been purchased by a private corporation for development as a commercial complex.20

Third, it has been preponderantly established by evidence that the NAC, through its team of
negotiators, had given assurance to the affected landowners that they would be entitled to
repurchase their respective lots in the event they are no longer used for airport purposes.21 "No less
than Asterio Uy," the Court noted in Heirs of Moreno, "one of the members of the CAA Mactan Legal
Team, which interceded for the acquisition of the lots for the Lahug Airport’s expansion, affirmed that
persistent assurances were given to the landowners to the effect that as soon as the Lahug Airport is
abandoned or transferred to Mactan, the lot owners would be able to reacquire their properties."22 In
Civil Case No. CEB-20743, Exhibit "G," the transcript of the deposition23 of Anunciacion vda. de
Ouano covering the assurance made had been formally offered in evidence and duly considered in
the initial decision of the RTC Cebu City. In Civil Case No. CEB-18370, the trial court, on the basis of
testimonial evidence, and later the CA, recognized the reversionary rights of the suing former lot
owners or their successors in interest24 and resolved the case accordingly. In point with respect to
the representation and promise of the government to return the lots taken should the planned airport
expansion do not materialize is what the Court said in Heirs of Moreno, thus:

This is a difficult case calling for a difficult but just solution. To begin with there exists an undeniable
historical narrative that the predecessors of respondent MCIAA had suggested to the landowners
of the properties covered by the Lahug Airport expansion scheme that they could repurchase their
properties at the termination of the airport’s venue. Some acted on this assurance and sold their
properties; other landowners held out and waited for the exercise of eminent domain to take its
course until finally coming to terms with respondent’s predecessors that they would not appeal nor
block further judgment of condemnation if the right of repurchase was extended to them. A handful
failed to prove that they acted on such assurance when they parted with ownership of their
land.25 (Emphasis supplied; citations omitted.)

For perspective, Heirs of Moreno––later followed by MCIAA v. Tudtud (Tudtud)26 and the
consolidated cases at bar––is cast under the same factual setting and centered on the expropriation
of privately-owned lots for the public purpose of expanding the Lahug Airport and the alleged
promise of reconveyance given by the negotiating NAC officials to the private lot owners. All the lots
being claimed by the former owners or successors-in-interest of the former owners in the Heirs of
Moreno, Tudtud, and the present cases were similarly adjudged condemned in favor of the Republic
in Civil Case No. R-1881. All the claimants sought was or is to have the condemned lots reconveyed
to them upon the payment of the condemnation price since the public purpose of the expropriation
was never met. Indeed, the expropriated lots were never used and were, in fact, abandoned by the
expropriating government agencies.

In all then, the issues and supporting arguments presented by both sets of petitioners in these
consolidated cases have already previously been passed upon, discussed at length, and practically
peremptorily resolved in Heirs of Moreno and the November 2008 Tudtud ruling. The Ouanos, as
petitioners in G.R. No. 168770, and the Inocians, as respondents in G.R. No. 168812, are similarly
situated as the heirs of Moreno in Heirs of Moreno and Benjamin Tudtud in Tudtud. Be that as it
may, there is no reason why the ratio decidendi in Heirs of Moreno and Tudtud should not be made
to apply to petitioners Ouanos and respondents Inocians such that they shall be entitled to recover
their or their predecessors’ respective properties under the same manner and arrangement as the
heirs of Moreno and Tudtud. Stare decisis et non quieta movere (to adhere to precedents, and not to
unsettle things which are established).27

Just like in Tudtud and earlier in Heirs of Moreno, MCIAA would foist the theory that the judgment of
condemnation in Civil Case No. R-1881 was without qualification and was unconditional. It would, in
fact, draw attention to the fallo of the expropriation court’s decision to prove that there is nothing in
the decision indicating that the government gave assurance or undertook to reconvey the covered
lots in case the Lahug airport expansion project is aborted. Elaborating on this angle, MCIAA argues
that the claim of the Ouanos and the Inocians regarding the alleged verbal assurance of the NAC
negotiating team that they can reacquire their landholdings is barred by the Statute of Frauds.28
Under the rule on the Statute of Frauds, as expressed in Article 1403 of the Civil Code, a contract for
the sale or acquisition of real property shall be unenforceable unless the same or some note of the
contract be in writing and subscribed by the party charged. Subject to defined exceptions, evidence
of the agreement cannot be received without the writing, or secondary evidence of its contents.

MCIAA’s invocation of the Statute of Frauds is misplaced primarily because the statute applies only
to executory and not to completed, executed, or partially consummated contracts.29 Carbonnel v.
Poncio, et al., quoting Chief Justice Moran, explains the rationale behind this rule, thusly:

x x x "The reason is simple. In executory contracts there is a wide field for fraud because unless they
may be in writing there is no palpable evidence of the intention of the contracting parties. The statute
has been precisely been enacted to prevent fraud." x x x However, if a contract has been totally or
partially performed, the exclusion of parol evidence would promote fraud or bad faith, for it would
enable the defendant to keep the benefits already derived by him from the transaction in litigation,
and at the same time, evade the obligations, responsibilities or liabilities assumed or contracted by
him thereby.30 (Emphasis in the original.)

Analyzing the situation of the cases at bar, there can be no serious objection to the proposition that
the agreement package between the government and the private lot owners was already partially
performed by the government through the acquisition of the lots for the expansion of the Lahug
airport. The parties, however, failed to accomplish the more important condition in the CFI decision
decreeing the expropriation of the lots litigated upon: the expansion of the Lahug Airport. The
project––the public purpose behind the forced property taking––was, in fact, never pursued and, as
a consequence, the lots expropriated were abandoned. Be that as it may, the two groups of
landowners can, in an action to compel MCIAA to make good its oral undertaking to allow
repurchase, adduce parol evidence to prove the transaction.

At any rate, the objection on the admissibility of evidence on the basis of the Statute of Frauds may
be waived if not timely raised. Records tend to support the conclusion that MCIAA did not, as the
Ouanos and the Inocians posit, object to the introduction of parol evidence to prove its commitment
to allow the former landowners to repurchase their respective properties upon the occurrence of
certain events.

In a bid to deny the lot owners the right to repurchase, MCIAA, citing cases,31 points to the
dispositive part of the decision in Civil Case R-1881 which, as couched, granted the Republic
absolute title to the parcels of land declared expropriated. The MCIAA is correct about the
unconditional tone of the dispositive portion of the decision, but that actuality would not carry the day
for the agency. Addressing the matter of the otherwise absolute tenor of the CFI’s disposition in Civil
Case No. R-1881, the Court, in Heirs of Moreno, after taking stock of the ensuing portion of the body
of the CFI’s decision, said:

As for the public purpose of the expropriation proceeding, it cannot now be doubted. Although
Mactan Airport is being constructed, it does not take away the actual usefulness and importance of
the Lahug Airport: it is handling the air traffic of both civilian and military. From it aircrafts fly to
Mindanao and Visayas and pass thru it on their flights to the North and Manila. Then, no evidence
was adduced to show how soon is the Mactan Airport to be placed in operation and whether the
Lahug Airport will be closed immediately thereafter. It is up to the other departments of the
Government to determine said matters. The Court cannot substitute its judgments for those of the
said departments or agencies. In the absence of such showing, the court will presume that the
Lahug Airport will continue to be in operation.32 (Emphasis supplied.)

We went on to state as follows:

While the trial court in Civil Case No. R-1881 could have simply acknowledged the presence of
public purpose for the exercise of eminent domain regardless of the survival of the Lahug Airport, the
trial court in its Decision chose not to do so but instead prefixed its finding of public purpose upon its
understanding that ‘Lahug Airport will continue to be in operation’. Verily, these meaningful
statements in the body of the Decision warrant the conclusion that the expropriated properties would
remain to be so until it was confirmed that Lahug Airport was no longer ‘in operation’. This inference
further implies two (2) things: (a) after the Lahug Airport ceased its undertaking as such and the
expropriated lots were not being used for any airport expansion project, the rights vis-à-vis the
expropriated lots x x x as between the State and their former owners, petitioners herein, must be
equitably adjusted; and (b) the foregoing unmistakable declarations in the body of
the Decision should merge with and become an intrinsic part of the fallo thereof which under the
premises is clearly inadequate since the dispositive portion is not in accord with the findings as
contained in the body thereof.33

Not to be overlooked of course is what the Court said in its Resolution disposing of MCIAA’s motion
to reconsider the original ruling in Heirs of Moreno. In that resolution, We stated that the fallo of the
decision in Civil Case R-1881 should be viewed and understood in connection with the entire text,
which contemplated a return of the property taken if the airport expansion project were abandoned.
For ease of reference, following is what the Court wrote:

Moreover, we do not subscribe to the [MCIAA’s] contention that since the possibility of the Lahug
Airport’s closure was actually considered by the trial court, a stipulation on reversion or repurchase
was so material that it should not have been discounted by the court a quo in its decision in Civil
Case No. R-1881, if, in fact, there was one. We find it proper to cite, once more, this Court’s ruling
that the fallo of the decision in Civil Case No. R-1881 must be read in reference to the other portions
of the decision in which it forms a part. A reading of the Court’s judgment must not be confined to the
dispositive portion alone; rather it should be meaningfully construed in unanimity with the ratio
decidendi thereof to grasp the true intent and meaning of a decision.34

The Court has, to be sure, taken stock of Fery v. Municipality of Cabanatuan,35 a case MCIAA cites
at every possible turn, where the Court made these observations:

If, for example, land is expropriated for a particular purpose, with the condition that when that
purpose is ended or abandoned the property shall return to its former owner, then of course, when
the purpose is terminated or abandoned, the former owner reacquires the property so expropriated.
x x x If, upon the contrary, however the decree of expropriation gives to the entity a fee simple title,
then, of course, the land becomes the absolute property of the expropriator x x x and in that case the
non-user does not have the effect of defeating the title acquired by the expropriation proceedings x x
x.

Fery notwithstanding, MCIAA cannot really rightfully say that it has absolute title to the lots decreed
expropriated in Civil Case No. R-1881. The correct lesson of Fery is captured by what the Court said
in that case, thus: "the government acquires only such rights in expropriated parcels of land as may
be allowed by the character of its title over the properties." In light of our disposition in Heirs of
Moreno and Tudtud, the statement immediately adverted to means that in the event the particular
public use for which a parcel of land is expropriated is abandoned, the owner shall not be entitled to
recover or repurchase it as a matter of right, unless such recovery or repurchase is expressed in or
irresistibly deducible from the condemnation judgment. But as has been determined below, the
decision in Civil Case No. R-1881 enjoined MCIAA, as a condition of approving expropriation, to
allow recovery or repurchase upon abandonment of the Lahug airport project. To borrow from our
underlying decision in Heirs of Moreno, "[n]o doubt, the return or repurchase of the condemned
properties of petitioners could readily be justified as the manifest legal effect of consequence of the
trial court’s underlying presumption that ‘Lahug Airport will continue to be in operation’ when it
granted the complaint for eminent domain and the airport discontinued its activities."36

Providing added support to the Ouanos and the Inocians’ right to repurchase is what in Heirs of
Moreno was referred to as constructive trust, one that is akin to the implied trust expressed in Art.
1454 of the Civil Code,37 the purpose of which is to prevent unjust enrichment.38 In the case at
bench, the Ouanos and the Inocians parted with their respective lots in favor of the MCIAA, the latter
obliging itself to use the realties for the expansion of Lahug Airport; failing to keep its end of the
bargain, MCIAA can be compelled by the former landowners to reconvey the parcels of land to them,
otherwise, they would be denied the use of their properties upon a state of affairs that was not
conceived nor contemplated when the expropriation was authorized. In effect, the government
merely held the properties condemned in trust until the proposed public use or purpose for which the
lots were condemned was actually consummated by the government. Since the government failed to
perform the obligation that is the basis of the transfer of the property, then the lot owners Ouanos
and Inocians can demand the reconveyance of their old properties after the payment of the
condemnation price.

Constructive trusts are fictions of equity that courts use as devices to remedy any situation in which
the holder of the legal title, MCIAA in this case, may not, in good conscience, retain the beneficial
interest. We add, however, as in Heirs of Moreno, that the party seeking the aid of equity––the
landowners in this instance, in establishing the trust––must himself do equity in a manner as the
court may deem just and reasonable.

The Court, in the recent MCIAA v. Lozada, Sr., revisited and abandoned the Fery ruling that the
former owner is not entitled to reversion of the property even if the public purpose were not pursued
and were abandoned, thus:

On this note, we take this opportunity to revisit our ruling in Fery, which involved an expropriation
suit commenced upon parcels of land to be used as a site for a public market. Instead of putting up a
public market, respondent Cabanatuan constructed residential houses for lease on the area.
Claiming that the municipality lost its right to the property taken since it did not pursue its public
purpose, petitioner Juan Fery, the former owner of the lots expropriated, sought to recover his
properties. However, as he had admitted that, in 1915, respondent Cabanatuan acquired a fee
simple title to the lands in question, judgment was rendered in favor of the municipality, following
American jurisprudence, particularly City of Fort Wayne v. Lake Shore & M.S. RY. Co., McConihay
v. Theodore Wright, and Reichling v. Covington Lumber Co., all uniformly holding that the transfer to
a third party of the expropriated real property, which necessarily resulted in the abandonment of the
particular public purpose for which the property was taken, is not a ground for the recovery of the
same by its previous owner, the title of the expropriating agency being one of fee simple. 1avv phi 1

Obviously, Fery was not decided pursuant to our now sacredly held constitutional right that private
property shall not be taken for public use without just compensation. It is well settled that the taking
of private property by the Governments power of eminent domain is subject to two mandatory
requirements: (1) that it is for a particular public purpose; and (2) that just compensation be paid to
the property owner. These requirements partake of the nature of implied conditions that should be
complied with to enable the condemnor to keep the property expropriated.

More particularly, with respect to the element of public use, the expropriator should commit to use
the property pursuant to the purpose stated in the petition for expropriation filed, failing which, it
should file another petition for the new purpose. If not, it is then incumbent upon the expropriator to
return the said property to its private owner, if the latter desires to reacquire the same. Otherwise,
the judgment of expropriation suffers an intrinsic flaw, as it would lack one indispensable element for
the proper exercise of the power of eminent domain, namely, the particular public purpose for which
the property will be devoted. Accordingly, the private property owner would be denied due process of
law, and the judgment would violate the property owners right to justice, fairness, and equity.

In light of these premises, we now expressly hold that the taking of private property, consequent to
the Governments exercise of its power of eminent domain, is always subject to the condition that the
property be devoted to the specific public purpose for which it was taken. Corollarily, if this particular
purpose or intent is not initiated or not at all pursued, and is peremptorily abandoned, then the
former owners, if they so desire, may seek the reversion of the property, subject to the return of the
amount of just compensation received. In such a case, the exercise of the power of eminent domain
has become improper for lack of the required factual justification.39 (Emphasis supplied.)

Clinging to Fery, specifically the fee simple concept underpinning it, is no longer compelling,
considering the ensuing inequity such application entails. Too, the Court resolved Fery not under the
cover of any of the Philippine Constitutions, each decreeing that private property shall not be taken
for public use without just compensation. The twin elements of just compensation and public
purpose are, by themselves, direct limitations to the exercise of eminent domain, arguing, in a way,
against the notion of fee simple title. The fee does not vest until payment of just compensation.40
1avv phi 1

In esse, expropriation is forced private property taking, the landowner being really without a ghost of
a chance to defeat the case of the expropriating agency. In other words, in expropriation, the private
owner is deprived of property against his will. Withal, the mandatory requirement of due process
ought to be strictly followed, such that the state must show, at the minimum, a genuine need, an
exacting public purpose to take private property, the purpose to be specifically alleged or least
reasonably deducible from the complaint.

Public use, as an eminent domain concept, has now acquired an expansive meaning to include any
use that is of "usefulness, utility, or advantage, or what is productive of general benefit [of the
public]."41 If the genuine public necessity—the very reason or condition as it were—allowing, at the
first instance, the expropriation of a private land ceases or disappears, then there is no more cogent
point for the government’s retention of the expropriated land. The same legal situation should hold if
the government devotes the property to another public use very much different from the original or
deviates from the declared purpose to benefit another private person. It has been said that the direct
use by the state of its power to oblige landowners to renounce their productive possession to
another citizen, who will use it predominantly for that citizen’s own private gain, is offensive to our
laws.42

A condemnor should commit to use the property pursuant to the purpose stated in the petition for
expropriation, failing which it should file another petition for the new purpose. If not, then it behooves
the condemnor to return the said property to its private owner, if the latter so desires. The
government cannot plausibly keep the property it expropriated in any manner it pleases and, in the
process, dishonor the judgment of expropriation. This is not in keeping with the idea of fair play,

The notion, therefore, that the government, via expropriation proceedings, acquires unrestricted
ownership over or a fee simple title to the covered land, is no longer tenable. We suggested as much
in Heirs of Moreno and in Tudtud and more recently in Lozada, Sr. Expropriated lands should be
differentiated from a piece of land, ownership of which was absolutely transferred by way of an
unconditional purchase and sale contract freely entered by two parties, one without obligation to buy
and the other without the duty to sell. In that case, the fee simple concept really comes into play.
There is really no occasion to apply the "fee simple concept" if the transfer is conditional. The taking
of a private land in expropriation proceedings is always conditioned on its continued devotion to its
public purpose. As a necessary corollary, once the purpose is terminated or peremptorily
abandoned, then the former owner, if he so desires, may seek its reversion, subject of course to the
return, at the very least, of the just compensation received.

To be compelled to renounce dominion over a piece of land is, in itself, an already bitter pill to
swallow for the owner. But to be asked to sacrifice for the common good and yield ownership to the
government which reneges on its assurance that the private property shall be for a public purpose
may be too much. But it would be worse if the power of eminent domain were deliberately used as a
subterfuge to benefit another with influence and power in the political process, including
development firms. The mischief thus depicted is not at all far-fetched with the continued application
of Fery. Even as the Court deliberates on these consolidated cases, there is an uncontroverted
allegation that the MCIAA is poised to sell, if it has not yet sold, the areas in question to Cebu
Property Ventures, Inc. This provides an added dimension to abandon Fery.

Given the foregoing disquisitions, equity and justice demand the reconveyance by MCIAA of the
litigated lands in question to the Ouanos and Inocians. In the same token, justice and fair play also
dictate that the Ouanos and Inocian return to MCIAA what they received as just compensation for
the expropriation of their respective properties plus legal interest to be computed from default, which
in this case should run from the time MCIAA complies with the reconveyance obligation.43 They must
likewise pay MCIAA the necessary expenses it might have incurred in sustaining their respective lots
and the monetary value of its services in managing the lots in question to the extent that they, as
private owners, were benefited thereby.

In accordance with Art. 1187 of the Civil Code on mutual compensation, MCIAA may keep whatever
income or fruits it may have obtained from the parcels of land expropriated. In turn, the Ouanos and
Inocians need not require the accounting of interests earned by the amounts they received as just
compensation.44

Following Art. 1189 of the Civil Code providing that "[i]f the thing is improved by its nature, or by
time, the improvement shall inure to the benefit of the creditor x x x," the Ouanos and Inocians do
not have to settle the appreciation of the values of their respective lots as part of the reconveyance
process, since the value increase is merely the natural effect of nature and time.

Finally, We delete the award of PhP 50,000 and PhP 10,000, as attorney’s fees and litigation
expenses, respectively, made in favor of the Inocians by the Cebu City RTC in its judgment in Civil
Case No. CEB-18370, as later affirmed by the CA. As a matter of sound policy, no premium should
be set on the right to litigate where there is no doubt about the bona fides of the exercise of such
right,45 as here, albeit the decision of MCIAA to resist the former landowners’ claim eventually turned
out to be untenable.

WHEREFORE, the petition in G.R. No. 168770 is GRANTED. Accordingly, the CA Decision dated
September 3, 2004 in CA-G.R. CV No. 78027 is REVERSED and SET ASIDE. Mactan-Cebu
International Airport Authority is ordered to reconvey subject Lot No. 763-A to petitioners
Anunciacion vda. de Ouano, Mario P. Ouano, Leticia Ouano Arnaiz, and Cielo Ouano Martinez. The
Register of Deeds of Cebu City is ordered to effect the necessary cancellation of title and transfer it
in the name of the petitioners within fifteen (15) days from finality of judgment.

The petition of the Mactan-Cebu International Airport Authority in G.R. No. 168812 is DENIED, and
the CA’s Decision and Resolution dated January 14, 2005 and June 29, 2005, respectively, in CA-
G.R. CV No. 64356 are AFFIRMED, except insofar as they awarded attorney’s fees and litigation
expenses that are hereby DELETED. Accordingly, Mactan-Cebu International Airport Authority is
ordered to reconvey to respondents Ricardo L. Inocian, Olympia E. Esteves, Emilia E. Bacalla,
Restituta E. Montana, and Raul L. Inocian the litigated Lot Nos. 744-A, 745-A, 746, 762-A, 747, and
761-A; and to respondents Aletha Suico Magat, Philip M. Suico, Dolores S. dela Cruz, James M.
Suico, Edward M. Suico, Roselyn S. Lawsin, Rex M. Suico, and Kharla Suico-Gutierrez the litigated
Lot Nos. 942 and 947. The Register of Deeds of Cebu City is ordered to effect the necessary
cancellation of title and transfer it in the name of respondents within a period of fifteen (15) days
from finality of judgment.

The foregoing dispositions are subject to QUALIFICATIONS, to apply to these consolidated

petitions, when appropriate, as follows:

(1) Petitioners Ouano, et al. in G.R. No. 168770 and respondents Ricardo L Inocian, et al. in
G.R. No. 168812 are ordered to return to the MCIAA the just compensation they or their
predecessors-in-interest received for the expropriation of their respective lots as stated in
Civil Case No. R-1881, within a period of sixty (60) days from finality of judgment;

(2) The MCIAA shall be entitled to RETAIN whatever fruits and income it may have obtained
from the subject expropriated lots without any obligation to refund the same to the lot
owners; and

(3) Petitioners Ouano, et al. in G.R. No. 168770 and respondents Ricardo L. Inocian, et al. in
G.R. No. 168812 shall RETAIN whatever interests the amounts they received as just
compensation may have earned in the meantime without any obligation to refund the same
to MCIAA.

SO ORDERED.

G.R. No. 157784 December 16, 2008

RICHARD B. LOPEZ, in his capacity as Trustee of the Trust Estate of the Late JULIANA
LOPEZ-MANZANO, petitioner,
vs.
COURT OF APPEALS, CORAZON LOPEZ, FERNANDO LOPEZ, ROBERTO LOPEZ,
represented by LUZVIMINDA LOPEZ, MARIA ROLINDA MANZANO, MARIA ROSARIO
MANZANO SANTOS, JOSE MANZANO, JR., NARCISO MANZANO (all represented by
Attorney-in-fact, MODESTO RUBIO), MARIA CRISTINA MANZANO RUBIO, IRENE MONZON
and ELENA MANZANO, respondents.

DECISION

TINGA, J.:

This is a petition for review on certiorari 1under Rule 45 of the 1997 Rules of Civil Procedure,
assailing the Decision2 and Resolution3 of the Court of Appeals in CA-G.R. CV No. 34086. The Court
of Appeals' decision affirmed the summary judgment of the Regional Trial Court (RTC), Branch 10,
Balayan, Batangas, dismissing petitioner's action for reconveyance on the ground of prescription.

The instant petition stemmed from an action for reconveyance instituted by petitioner Richard B.
Lopez in his capacity as trustee of the estate of the late Juliana Lopez Manzano (Juliana) to recover
from respondents several large tracts of lands allegedly belonging to the trust estate of Juliana.

The decedent, Juliana, was married to Jose Lopez Manzano (Jose). Their union did not bear any
children. Juliana was the owner of several properties, among them, the properties subject of this
dispute. The disputed properties totaling more than 1,500 hectares consist of six parcels of land,
which are all located in Batangas. They were the exclusive paraphernal properties of Juliana
together with a parcel of land situated in Mindoro known as Abra de Ilog and a fractional interest in a
residential land on Antorcha St., Balayan, Batangas.

On 23 March 1968, Juliana executed a notarial will,4 whereby she expressed that she wished to
constitute a trust fund for her paraphernal properties, denominated as Fideicomiso de Juliana Lopez
Manzano (Fideicomiso), to be administered by her husband. If her husband were to die or renounce
the obligation, her nephew, Enrique Lopez, was to become administrator and executor of
the Fideicomiso. Two-thirds (2/3) of the income from rentals over these properties were to answer
for the education of deserving but needy honor students, while one-third 1/3 was to shoulder the
expenses and fees of the administrator. As to her conjugal properties, Juliana bequeathed the
portion that she could legally dispose to her husband, and after his death, said properties were to
pass to her biznietos or great grandchildren.

Juliana initiated the probate of her will five (5) days after its execution, but she died on 12 August
1968, before the petition for probate could be heard. The petition was pursued instead in Special
Proceedings (S.P.) No. 706 by her husband, Jose, who was the designated executor in the will. On 7
October 1968, the Court of First Instance, Branch 3, Balayan, Batangas, acting as probate court,
admitted the will to probate and issued the letters testamentary to Jose. Jose then submitted an
inventory of Juliana's real and personal properties with their appraised values, which was approved
by the probate court.

Thereafter, Jose filed a Report dated 16 August 1969, which included a proposed project of partition.
In the report, Jose explained that as the only compulsory heir of Juliana, he was entitled by
operation of law to one-half (1/2) of Juliana's paraphernal properties as his legitime, while the other
one-half (1/2) was to be constituted into the Fideicomiso. At the same time, Jose alleged that he and
Juliana had outstanding debts totaling P816,000.00 excluding interests, and that these debts were
secured by real estate mortgages. He noted that if these debts were liquidated, the "residuary estate
available for distribution would, value-wise, be very small."

From these premises, Jose proceeded to offer a project of partition. The relevant portion pertaining
to the Fideicomiso stated, thus:

PROJECT OF PARTITION

14. Pursuant to the terms of the Will, one-half (1/2) of the following properties, which are not
burdened with any obligation, shall be constituted into the "Fidei-comiso de Juliana Lopez
Manzano" and delivered to Jose Lopez Manzano as trustee thereof:

Location Title No. Area (Sq. M.) Improvements

Abra de Ilog, Mindoro TCT - 540 2,940,000 pasture, etc.

Antorcha St. Balayan, Batangas TCT - 1217-A 13,040 Residential

(1/6 thereof)

and all those properties to be inherited by the decedent, by intestacy, from her sister,
Clemencia Lopez y Castelo.
 15. The other half (1/2) of the aforesaid properties is adjudicated to Jose Lopez Manzano as
heir.

Then, Jose listed those properties which he alleged were registered in both his and Juliana's names,
totaling 13 parcels in all. The disputed properties consisting of six (6) parcels, all located in Balayan,
Batangas, were included in said list. These properties, as described in the project of partition, are as
follows:

Location Title No. Area (Sq. M.) Improvements

Pantay, Calaca, 91,283 coconuts

Batangas

Mataywanak, Tuy, OCT-29[6]94 485,486 sugar

Batangas

Patugo, Balayan, OCT-2807 16,757,615 coconut, sugar,

Batangas citrus, pasteur

Cagayan, Balayan, TCT-1220 411,331 sugar

Batangas

Pook, Baayan TCT-1281 135,922 sugar

Batangas

Bolbok, Balayan, TCT-18845 444,998 sugar

Batangas

Calzada, Balayan, TCT 1978 2,312 sugar

Batangas

Gumamela, TCT-2575 829

Balayan, Batangas

Bombon, Balayan, 4,532

Batangas

Parañaque, Rizal TCT-282340 800 residential

Parañaque, Rizal TCT-11577 800 residential

Modesto St., TCT-52212 137.8 residential

Manila

and the existing sugar quota in the name of the deceased with the Central Azucarera Don Pedro at
Nasugbo.

16. The remaining ¼ shall likewise go to Jose Lopez Manzano, with the condition to be annotated on
the titles thereof, that upon his death, the same shall pass on to Corazon Lopez, Ferdinand Lopez,
and Roberto Lopez:

Location Title No. Area (Sq. M.) Improvements

 Dalig, Balayan, TCT-10080 482,872 sugar
Batangas

San Juan, Rizal TCT-53690 523 residential

On 25 August 1969, the probate court issued an order approving the project of partition. As to the
properties to be constituted into the Fideicomiso, the probate court ordered that the certificates of
title thereto be cancelled, and, in lieu thereof, new certificates be issued in favor of Jose as trustee of
the Fideicomiso covering one-half (1/2) of the properties listed under paragraph 14 of the project of
partition; and regarding the other half, to be registered in the name of Jose as heir of Juliana. The
properties which Jose had alleged as registered in his and Juliana's names, including the disputed
lots, were adjudicated to Jose as heir, subject to the condition that Jose would settle the obligations
charged on these properties. The probate court, thus, directed that new certificates of title be issued
in favor of Jose as the registered owner thereof in its Order dated 15 September 1969. On even
date, the certificates of title of the disputed properties were issued in the name of Jose.

The Fideicomiso was constituted in S.P No. 706 encompassing one-half (1/2) of the Abra de Ilog lot
on Mindoro, the 1/6 portion of the lot in Antorcha St. in Balayan, Batangas and all other properties
inherited ab intestato by Juliana from her sister, Clemencia, in accordance with the order of the
probate court in S.P. No. 706. The disputed lands were excluded from the trust.

Jose died on 22 July 1980, leaving a holographic will disposing of the disputed properties to
respondents. The will was allowed probate on 20 December 1983 in S.P. No. 2675 before the RTC
of Pasay City. Pursuant to Jose's will, the RTC ordered on 20 December 1983 the transfer of the
disputed properties to the respondents as the heirs of Jose. Consequently, the certificates of title of
the disputed properties were cancelled and new ones issued in the names of respondents.

Petitioner's father, Enrique Lopez, also assumed the trusteeship of Juliana's estate. On 30 August
1984, the RTC of Batangas, Branch 9 appointed petitioner as trustee of Juliana's estate in S.P. No.
706. On 11 December 1984, petitioner instituted an action for reconveyance of parcels of land with
sum of money before the RTC of Balayan, Batangas against respondents. The complaint5 essentially
alleged that Jose was able to register in his name the disputed properties, which were the
paraphernal properties of Juliana, either during their conjugal union or in the course of the
performance of his duties as executor of the testate estate of Juliana and that upon the death of
Jose, the disputed properties were included in the inventory as if they formed part of Jose's estate
when in fact Jose was holding them only in trust for the trust estate of Juliana.

Respondents Maria Rolinda Manzano, Maria Rosario Santos, Jose Manzano, Jr., Narciso Manzano,
Maria Cristina Manzano Rubio and Irene Monzon filed a joint answer6 with counterclaim for
damages. Respondents Corazon, Fernando and Roberto, all surnamed Lopez, who were minors at
that time and represented by their mother, filed a motion to dismiss,7 the resolution of which was
deferred until trial on the merits. The RTC scheduled several pre-trial conferences and ordered the
parties to submit pre-trial briefs and copies of the exhibits.

On 10 September 1990, the RTC rendered a summary judgment,8 dismissing the action on the
ground of prescription of action. The RTC also denied respondents' motion to set date of hearing on
the counterclaim.

Both petitioner and respondents elevated the matter to the Court of Appeals. On 18 October 2002,
the Court of Appeals rendered the assailed decision denying the appeals filed by both petitioner and
respondents. The Court of Appeals also denied petitioner's motion for reconsideration for lack of
merit in its Resolution dated 3 April 2003.

Hence, the instant petition attributing the following errors to the Court of Appeals:

I. THE COURT OF APPEAL'S CONCLUSION THAT PETITIONER'S ACTION FOR

[RECONVEYANCE] HAS PRESCRIBED TAKING AS BASIS SEPTEMBER 15, 1969 WHEN
THE PROPERTIES IN DISPUTE WERE TRANSFERRED TO THE NAME OF THE LATE
JOSE LOPEZ MANZANO IN RELATION TO DECEMBER 12, 1984 WHEN THE ACTION
FOR RECONVEYANCE WAS FILED IS ERRONEOUS.

II. THE RESPONDENT COURT OF APPEALS CONCLUSION IN FINDING THAT THE

FIDUCIARY RELATION ASSUMED BY THE LATE JOSE LOPEZ MANZANO, AS
TRUSTEE, PURSUANT TO THE LAST WILL AND TESTAMENT OF JULIANA LOPEZ
MANZANO WAS IMPLIED TRUST, INSTEAD OF EXPRESS TRUST IS EQUALLY
ERRONEOUS.

None of the respondents filed a comment on the petition. The counsel for respondents Corazon,
Fernando and Roberto, all surnamed Lopez, explained that he learned that respondents had
migrated to the United States only when the case was pending before the Court of
Appeals.9 Counsel for the rest of the respondents likewise manifested that the failure by said
respondents to contact or communicate with him possibly signified their lack of interest in the
case.10 In a Resolution dated 19 September 2005, the Court dispensed with the filing of a comment
and considered the case submitted for decision.11

The core issue of the instant petition hinges on whether petitioner's action for reconveyance has
prescribed. The resolution of this issue calls for a determination of whether an implied trust was
constituted over the disputed properties when Jose, the trustee, registered them in his name.

Petitioner insists that an express trust was constituted over the disputed properties; thus the
registration of the disputed properties in the name of Jose as trustee cannot give rise to prescription
of action to prevent the recovery of the disputed properties by the beneficiary against the trustee.

Evidently, Juliana's testamentary intent was to constitute an express trust over her paraphernal
properties which was carried out when the Fideicomiso was established in S.P. No. 706.12 However,
the disputed properties were expressly excluded from the Fideicomiso. The probate court
adjudicated the disputed properties to Jose as the sole heir of Juliana. If a mistake was made in
excluding the disputed properties from the Fideicomiso and adjudicating the same to Jose as sole
heir, the mistake was not rectified as no party appeared to oppose or appeal the exclusion of the
disputed properties from the Fideicomiso. Moreover, the exclusion of the disputed properties from
the Fideicomiso bore the approval of the probate court. The issuance of the probate court's order
adjudicating the disputed properties to Jose as the sole heir of Juliana enjoys the presumption of
regularity.13

On the premise that the disputed properties were the paraphernal properties of Juliana which should
have been included in the Fideicomiso, their registration in the name of Jose would be erroneous
and Jose's possession would be that of a trustee in an implied trust. 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
The provision on implied trust governing the factual milieu of this case is provided in Article 1456 of
the Civil Code, which states:

ART. 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.

In Aznar Brothers Realty Company v. Aying,15 the Court differentiated two kinds of implied trusts, to
wit:

x x x 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 of circumstances of the
consideration involved in a transaction whereby one person thereby becomes invested with
legal title but is obligated in equity to hold his legal title for the benefit of another. On the
other hand, constructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention against
one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property
which he ought not, in equity and good conscience, to hold.16

A resulting trust is presumed to have been contemplated by the parties, the intention as to which is
to be found in the nature of their transaction but not expressed in the deed itself.17 Specific examples
of resulting trusts may be found in the Civil Code, particularly Arts. 1448,18 1449,19 1451,20 145221 and
1453.22

A constructive trust is created, not by any word evincing a direct intention to create a trust, but by
operation of law in order to satisfy the demands of justice and to prevent unjust enrichment.23 It is
raised by equity in respect of property, which has been acquired by fraud, or where although
acquired originally without fraud, it is against equity that it should be retained by the person holding
it.24 Constructive trusts are illustrated in Arts. 1450,25 1454,26 145527 and 1456.28

The disputed properties were excluded from the Fideicomiso at the outset. Jose registered the
disputed properties in his name partly as his conjugal share and partly as his inheritance from his
wife Juliana, which is the complete reverse of the claim of the petitioner, as the new trustee, that the
properties are intended for the beneficiaries of the Fideicomiso. Furthermore, the exclusion of the
disputed properties from the Fideicomiso was approved by the probate court and, subsequently, by
the trial court having jurisdiction over the Fideicomiso. The registration of the disputed properties in
the name of Jose was actually pursuant to a court order. The apparent mistake in the adjudication of
the disputed properties to Jose created a mere implied trust of the constructive variety in favor of the
beneficiaries of the Fideicomiso.

Now that it is established that only a constructive trust was constituted over the disputed properties,
may prescription for the recovery of the properties supervene?

Petitioner asserts that, if at all, prescription should be reckoned only when respondents caused the
registration of the disputed properties in their names on 13 April 1984 and not on 15 September
1969, when Jose registered the same in his name pursuant to the probate court's order adjudicating
the disputed properties to him as the sole heir of Juliana. Petitioner adds, proceeding on the premise
that the prescriptive period should be counted from the repudiation of the trust, Jose had not
performed any act indicative of his repudiation of the trust or otherwise declared an adverse claim
over the disputed properties.

The argument is tenuous.

The right to seek reconveyance based on an implied or constructive trust is not absolute. It is subject
to extinctive prescription.29 An action for reconveyance based on implied or constructive trust
prescribes in 10 years. This period is reckoned from the date of the issuance of the original
certificate of title or transfer certificate of title. Since such issuance operates as a constructive notice
to the whole world, the discovery of the fraud is deemed to have taken place at that time.30

In the instant case, the ten-year prescriptive period to recover the disputed property must be counted
from its registration in the name of Jose on 15 September 1969, when petitioner was charged with
constructive notice that Jose adjudicated the disputed properties to himself as the sole heir of Juana
and not as trustee of the Fideicomiso.

It should be pointed out also that Jose had already indicated at the outset that the disputed
properties did not form part of the Fideicomiso contrary to petitioner's claim that no overt acts of
repudiation may be attributed to Jose.It may not be amiss to state that in the project of partition
submitted to the probate court, Jose had indicated that the disputed properties were conjugal in
nature and, thus, excluded from Juliana's Fideicomiso. This act is clearly tantamount to repudiating
the trust, at which point the period for prescription is reckoned.

In any case, the rule that a trustee cannot acquire by prescription ownership over property entrusted
to him until and unless he repudiates the trust applies only 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 said trust is not a condition precedent to
the running of the prescriptive period.31 Thus, for the purpose of counting the ten-year prescriptive
period for the action to enforce the constructive trust, the reckoning point is deemed to be on 15
September 1969 when Jose registered the disputed properties in his name.

WHEREFORE, the instant petition for review on certiorari is DENIED and the decision and resolution
of the Court of Appeals in CA-G.R. CV No. 34086 are AFFIRMED. Costs against petitioner.

SO ORDERED.

G.R. No. L-26699 March 16, 1976

BENITA SALAO, assisted by her husband, GREGORIO MARCELO; ALMARIO ALCURIZA,

ARTURO ALCURIZA, OSCAR ALCURIZA and ANITA ALCURIZA, the latter two being minors
are represented by guardian ad litem, ARTURO ALCURIZA, plaintiffs-appellants,
vs.
JUAN S. SALAO, later substituted by PABLO P. SALAO, Administrator of the Intestate of
JUAN S. SALAO; now MERCEDES P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO
VDA. DE SANTOS, LUCIANA P. SALAO, ISABEL SALAO DE SANTOS, and PABLO P. SALAO,
as successors-in-interest of the late JUAN S. SALAO, together with PABLO P. SALAO,
Administrator, defendants-appellants.

Eusebio V. Navarro for plaintiffs-appellants.

Nicolas Belmonte & Benjamin T. de Peralta for defendants-appellants.

AQUINO, J.:

This litigation regarding a forty-seven-hectare fishpond located at Sitio Calunuran, Hermosa, Bataan
involves the law of trusts and prescription. The facts are as follows:

The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal begot four
children named Patricio, Alejandra, Juan (Banli) and Ambrosia. Manuel Salao died in 1885. His
eldest son, Patricio, died in 1886 survived by his only child. Valentin Salao.

There is no documentary evidence as to what, properties formed part of Manuel Salao's estate, if
any. His widow died on May 28, 1914. After her death, her estate was administered by her daughter
Ambrosia.

It was partitioned extrajudicially in a deed dated December 29, 1918 but notarized on May 22, 1919
(Exh. 21). The deed was signed by her four legal heirs, namely, her three children, Alejandra, Juan
and Ambrosia, and her grandson, Valentin Salao, in representation of his deceased father, Patricio.

The lands left by Valentina Ignacio, all located at Barrio Dampalit were as follows:

Nature of Land

(1) One-half interest in a fishpond which she had inherited from her parents, Feliciano Ignacio and
Damiana Mendoza, and the other half of which was owned by her co-owner, Josefa Sta. Ana . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,700

(2) Fishpond inherited from her parents . . . . . . . . . . . . 7,418

(3) Fishpond inherited from her parents . . . . . . . . . . . . . 6,989

(4) Fishpond with a bodega for salt . . . . . . . . . . . . . . . . 50,469

(5) Fishpond with an area of one hectare, 12 ares and 5 centares purchased from Bernabe and
Honorata Ignacio by Valentina Ignacio on November 9, 1895 with a bodega for salt . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,205

(6) Fishpond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

(7) One-half interest in a fishpond with a total area of 10,424 square meters, the other half was
owned by A. Aguinaldo . . . . . . . . . . . . . . . . . . . . . . . 5,217

(8) Riceland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,454

(9) Riceland purchased by Valentina Ignacio from Eduardo Salao on January 27, 1890 with a house
and two camarins thereon . . . . . . . . . . . . . . . . . . 8,065

(10) Riceland in the name of Ambrosia Salao, with an area of 11,678 square meters, of which 2,173
square meters were sold to Justa Yongco . . . . . . . . . .9,505

TOTAL . . . . . . . . . . . . .. 179,022 square

To each of the legal heirs of Valentina Ignacio was adjudicated a distributive share valued at
P8,135.25. In satisfaction of his distributive share, Valentin Salao (who was then already forty-eight
years old) was given the biggest fishpond with an area of 50,469 square meters, a smaller fishpond
with an area of 6,989 square meters and the riceland with a net area of 9,905 square meters. Those
parcels of land had an aggregate appraised value of P13,501 which exceeded Valentin's distributive
share. So in the deed of partition he was directed to pay to his co-heirs the sum of P5,365.75. That
arrangement, which was obviously intended to avoid the fragmentation of the lands, was beneficial
to Valentin.

In that deed of partition (Exh. 21) it was noted that "desde la muerte de Valentina Ignacio y
Mendoza, ha venido administrando sus bienes la referida Ambrosia Salao" "cuya administracion lo
ha sido a satisfaccion de todos los herederos y por designacion los mismos". It was expressly
stipulated that Ambrosia Salao was not obligated to render any accounting of her administration "en
consideracion al resultado satisfactorio de sus gestiones, mejoradas los bienes y pagodas por ella
las contribusiones (pages 2 and 11, Exh. 21).

By virtue of the partition the heirs became "dueños absolutos de sus respectivas propiedadas, y
podran inmediatamente tomar posesion de sus bienes, en la forma como se han distribuido y
llevado a cabo las adjudicaciones" (page 20, Exh. 21).

The documentary evidence proves that in 1911 or prior to the death of Valentina Ignacio her two
children, Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens title, OCT No. 185 of the
Registry of Deeds of Pampanga, in their names for a forty-seven-hectare fishpond located at Sitio
Calunuran, Lubao, Pampanga (Exh. 14). It is also known as Lot No. 540 of the Hermosa cadastre
because that part of Lubao later became a part of Bataan.

The Calunuran fishpond is the bone of contention in this case.

Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had engaged in the fishpond
business. Where they obtained the capital is not shown in any documentary evidence. Plaintiffs'
version is that Valentin Salao and Alejandra Salao were included in that joint venture, that the funds
used were the earnings of the properties supposedly inherited from Manuel Salao, and that those
earnings were used in the acquisition of the Calunuran fishpond. There is no documentary evidence
to support that theory.

On the other hand, the defendants contend that the Calunuran fishpond consisted of lands
purchased by Juan Y. Salao, Sr. and Ambrosia Salao in 1905, 1906, 1907 and 1908 as, shown in
their Exhibits 8, 9, 10 and 13. But this point is disputed by the plaintiffs.

However, there can be no controversy as to the fact that after Juan Y. Salao, Sr. and Ambrosia
Salao secured a Torrens title for the Calunuran fishpond in 1911 they exercised dominical rights
over it to the exclusion of their nephew, Valentin Salao.

Thus, on December 1, 1911 Ambrosia Salao sold under pacto de retro for P800 the Calunuran
fishpond to Vicente Villongco. The period of redemption was one year. In the deed of sale (Exh19)
Ambrosia confirmed that she and her brother Juan were the dueños proindivisos of the
said pesqueria. On December 7, 1911 Villongco, the vendee a retro, conveyed the same fishpond to
Ambrosia by way of lease for an anual canon of P128 (Exh. 19-a).

After the fishpond was redeemed from Villongco or on June 8, 1914 Ambrosia and Juan sold it
under pacto de retro to Eligio Naval for the sum of P3,360. The period of redemption was also one
year (Exh. 20). The fishpond was later redeemed and Naval reconveyed it to the vendors a retro in a
document dated October 5, 1916 (Exh. 20-a).

The 1930 survey shown in the computation sheets of the Bureau of Lands reveals that the
Calunuran fishpond has an area of 479,205 square meters and that it was claimed by Juan Salao
and Ambrosia Salao, while the Pinanganacan fishpond (subsequently acquired by Juan and
Ambrosia) has an area of 975,952 square meters (Exh. 22).

Likewise, there is no controversy as to the fact that on May 27, 1911 Ambrosia Salao bought for four
thousand pesos from the heirs of Engracio Santiago a parcel of swampland planted to bacawan and
nipa with an area of 96 hectares, 57 ares and 73 centares located at Sitio Lewa, Barrio
Pinanganacan, Lubao, Pampanga (Exh. 17-d).

The record of Civil Case No. 136, General Land Registration Office Record No. 12144, Court of First
Instance of Pampanga shows that Ambrosia Salao and Juan Salao filed an application for the
registration of that land in their names on January 15, 1916. They alleged in their petition that "han
adquirido dicho terreno por partes iguales y por la compra a los herederos del finado, Don Engracio
Santiago" (Exh. 17-a).

At the hearing on October 26, 1916 before Judge Percy M. Moir, Ambrosia testified for the
applicants. On that same day Judge Moir rendered a decision, stating, inter alia, that the heirs of
Engracio Santiago had sold the land to Ambrosia Salao and Juan Salao. Judge Moir "ordena la
adjudicacion y registro del terreno solicitado a nombre de Juan Salao, mayor de edad y de estado
casado y de su esposa Diega Santiago y Ambrosia Salao, de estado soltera y mayor de edad, en
participaciones iguales" (Exh. 17-e).

On November 28, 1916 Judge Moir ordered the issuance of a decree for the said land. The decree
was issued on February 21, 1917. On March 12, 1917 Original Certificate of Title No. 472 of the
Registry of Deeds of Pampanga was issued in the names of Juan Salao and Ambrosia Salao.

That Pinanganacan or Lewa fishpond later became Cadastral Lot No. 544 of the Hermosa cadastre
(Exh. 23). It adjoins the Calunuran fishpond (See sketch, Exh. 1).

Juan Y. Salao, Sr. died on November 3, 1931 at the age of eighty years (Exh. C). His nephew,
Valentin Salao, died on February 9, 1933 at the age of sixty years according to the death certificate
(Exh. A. However, if according to Exhibit 21, he was forty-eight years old in 1918, he would be sixty-
three years old in 1933).

The intestate estate of Valentin Salao was partitioned extrajudicially on December 28, 1934 between
his two daughters, Benita Salao-Marcelo and Victorina Salao-Alcuriza (Exh. 32). His estate
consisted of the two fishponds which he had inherited in 1918 from his grandmother, Valentina
Ignacio.

If it were true that he had a one-third interest in the Calunuran and Lewa fishponds with a total area
of 145 hectares registered in 1911 and 1917 in the names of his aunt and uncle, Ambrosia Salao
and Juan Y. Salao, Sr., respectively, it is strange that no mention of such interest was made in the
extrajudicial partition of his estate in 1934.

It is relevant to mention that on April 8, 1940 Ambrosia Salao donated to her grandniece, plaintiff
Benita Salao, three lots located at Barrio Dampalit with a total area of 5,832 square meters (Exit. L).
As donee Benita Salao signed the deed of donation.

On that occasion she could have asked Ambrosia Salao to deliver to her and to the children of her
sister, Victorina, the Calunuran fishpond if it were true that it was held in trust by Ambrosia as the
share of Benita's father in the alleged joint venture.

But she did not make any such demand. It was only after Ambrosia Salao's death that she thought of
filing an action for the reconveyance of the Calunuran fishpond which was allegedly held in trust and
which had become the sole property of Juan Salao y Santiago (Juani).

On September 30, 1944 or during the Japanese occupation and about a year before Ambrosia
Salao's death on September 14, 1945 due to senility (she was allegedly eighty-five years old when
she died), she donated her one-half proindiviso share in the two fishponds in question to her
nephew, Juan S. Salao, Jr. (Juani) At that time she was living with Juani's family. He was already the
owner of the the other half of the said fishponds, having inherited it from his father, Juan Y. Salao,
Sr. (Banli) The deed of denotion included other pieces of real property owned by Ambrosia. She
reserved for herself the usufruct over the said properties during her lifetime (Exh. 2 or M).

The said deed of donation was registered only on April 5, 1950 (page 39, Defendants' Record on
Appeal).

The lawyer of Benita Salao and the Children of Victorina Salao in a letter dated January 26, 1951
informed Juan S. Salao, Jr. that his clients had a one-third share in the two fishponds and that when
Juani took possession thereof in 1945, he refused to give Benita and Victorina's children their one-
third share of the net fruits which allegedly amounted to P200,000 (Exh. K).

Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated that Valentin Salao did
not have any interest in the two fishponds and that the sole owners thereof his father Banli and his
aunt Ambrosia, as shown in the Torrens titles issued in 1911 and 1917, and that he Juani was the
donee of Ambrosia's one-half share (Exh. K-1).

Benita Salao and her nephews and niece filed their original complaint against Juan S. Salao, Jr. on
January 9, 1952 in the Court of First Instance of Bataan (Exh. 36). They amended their complaint on
January 28, 1955. They asked for the annulment of the donation to Juan S. Salao, Jr. and for the
reconveyance to them of the Calunuran fishpond as Valentin Salao's supposed one-third share in
the 145 hectares of fishpond registered in the names of Juan Y. Salao, Sr. and Ambrosia Salao.

Juan S. Salao, Jr. in his answer pleaded as a defense the indefeasibility of the Torrens title secured
by his father and aunt. He also invoked the Statute of Frauds, prescription and laches. As counter-
claims, he asked for moral damages amounting to P200,000, attorney's fees and litigation expenses
of not less than P22,000 and reimbursement of the premiums which he has been paying on his bond
for the lifting of the receivership Juan S. Salao, Jr. died in 1958 at the age of seventy-one. He was
substituted by his widow, Mercedes Pascual and his six children and by the administrator of his
estate.

In the intestate proceedings for the settlement of his estate the two fishponds in question were
adjudicated to his seven legal heirs in equal shares with the condition that the properties would
remain under administration during the pendency of this case (page 181, Defendants' Record on
Appeal).

After trial the trial court in its decision consisting of one hundred ten printed pages dismissed the
amended complaint and the counter-claim. In sixty-seven printed pages it made a laborious recital of
the testimonies of plaintiffs' fourteen witnesses, Gregorio Marcelo, Norberto Crisostomo, Leonardo
Mangali Fidel de la Cruz, Dionisio Manalili, Ambrosio Manalili, Policarpio Sapno, Elias Manies
Basilio Atienza, Benita Salao, Emilio Cagui Damaso de la Peña, Arturo Alcuriza and Francisco
Buensuceso, and the testimonies of defendants' six witnesses, Marcos Galicia, Juan Galicia,
Tiburcio Lingad, Doctor Wenceslao Pascual, Ciriaco Ramirez and Pablo P. Salao. (Plaintiffs
presented Regino Nicodemus as a fifteenth witness, a rebuttal witness).

The trial court found that there was no community of property among Juan Y. Salao, Sr., Ambrosia
Salao and Valentin Salao when the Calunuran and Pinanganacan (Lewa) lands were acquired; that
a co-ownership over the real properties of Valentina Ignacio existed among her heirr after her death
in 1914; that the co-ownership was administered by Ambrosia Salao and that it subsisted up to 1918
when her estate was partitioned among her three children and her grandson, Valentin Salao.

The trial court surmised that the co-ownership which existed from 1914 to 1918 misled the plaintiffs
and their witnesses and caused them to believe erroneously that there was a co-ownership in 1905
or thereabouts. The trial court speculated that if valentin had a hand in the conversion into fishponds
of the Calunuran and Lewa lands, he must have done so on a salary or profit- sharing basis. It
conjectured that Valentin's children and grandchildren were given by Ambrosia Salao a portion of the
earnings of the fishponds as a reward for his services or because of Ambrosia's affection for her
grandnieces.

The trial court rationalized that Valentin's omission during his lifetime to assail the Torrens titles of
Juan and Ambrosia signified that "he was not a co-owner" of the fishponds. It did not give credence
to the testimonies of plaintiffs' witnesses because their memories could not be trusted and because
no strong documentary evidence supported the declarations. Moreover, the parties involved in the
alleged trust were already dead.

It also held that the donation was validly executed and that even if it were void Juan S. Salao, Jr.,
the donee, would nevertheless be the sole legal heir of the donor, Ambrosia Salao, and would inherit
the properties donated to him.

Both parties appealed. The plaintiffs appealed because their action for reconveyance was
dismissed. The defendants appealed because their counterclaim for damages was dismissed.

The appeals, which deal with factual and legal issues, were made to the Court of Appeals. However,
as the amounts involved exceed two hundred thousand pesos, the Court of Appeals elevated the
case to this Court in its resolution of Octoter 3, 1966 (CA-G.R. No. 30014-R).

Plaintiffs' appeal. — An appellant's brief should contain "a subject index index of the matter in the
brief with a digest of the argument and page references" to the contents of the brief (Sec. 16 [a],
Rule 46, 1964 Rules of Court; Sec. 17, Rule 48, 1940 Rules of Court).

The plaintiffs in their appellants' brief consisting of 302 pages did not comply with that requirement.
Their statements of the case and the facts do not contain "page references to the record" as required
in section 16[c] and [d] of Rule 46, formerly section 17, Rule 48 of the 1940 Rules of Court.

Lawyers for appellants, when they prepare their briefs, would do well to read and re-read section 16
of Rule 46. If they comply strictly with the formal requirements prescribed in section 16, they might
make a competent and luminous presentation of their clients' case and lighten the burden of the
Court.

What Justice Fisher said in 1918 is still true now: "The pressure of work upon this Court is so great
that we cannot, in justice to other litigants, undertake to make an examination of the voluminous
transcript of the testimony (1,553 pages in this case, twenty-one witnesses having testified), unless
the attorneys who desire us to make such examination have themselves taken the trouble to read
the record and brief it in accordance with our rules" (Palara vs. Baguisi 38 Phil. 177, 181). As noted
in an old case, this Court decides hundreds of cases every year and in addition resolves in minute
orders an exceptionally considerable number of petitions, motions and interlocutory matters (Alzua
and Arnalot vs. Johnson, 21 Phil. 308, 395; See In re Almacen, L-27654, February 18, 1970, 31
SCRA 562, 573).

Plaintiffs' first assignment of error raised a procedural issue. In paragraphs 1 to 14 of their first cause
of action they made certain averments to establish their theory that Valentin Salao had a one-third
interest in the two fishponds which were registrered in the names of Juan Y. Salao, Sr. (Banli) and
Ambrosia Salao.

Juan S. Salao, Jr. (Juani) in his answer "specifically" denied each and all the allegations" in
paragraphs I to 10 and 12 of the first cause of action with the qualification that Original certificates of
Title Nos. 185 and 472 were issued "more than 37 years ago" in the names of Juan (Banli) and
Ambrosia under the circumstances set forth in Juan S. Salao, Jr.'s "positive defenses" and "not
under the circumstances stated in the in the amended complaint".

The plaintiffs contend that the answer of Juan S. Salao, Jr. was in effect tin admission of the
allegations in their first cause of action that there was a co-ownership among Ambrosia, Juan,
AIejandra and Valentin, all surnamed Salao, regarding the Dampalit property as early as 1904 or
1905; that the common funds were invested the acquisition of the two fishponds; that the 47-hectare
Calunuran fishpond was verbally adjudicated to Valentin Salao in the l919 partition and that there
was a verbal stipulation to to register "said lands in the name only of Juan Y. Salao".

That contention is unfounded. Under section 6, Rule 9 of the 1940 of Rules of Court the answer
should "contain either a specific dinial a statement of matters in accordance of the cause or causes
of action asserted in the complaint". Section 7 of the same rule requires the defendant to "deal
specificaly with each material allegation of fact the truth of wihich he does not admit and, whenever
practicable shall set forth the substance of the matters which he will rely upon to support his denial".
"Material averments in the complaint, other than those as to the amount damage, shall be deemed
admitted when specifically denied" (Sec. 8). "The defendant may set forth set forth by answer as
many affirmative defenses as he may have. All grounds of defenses as would raise issues of fact not
arising upon the preceding pleading must be specifically pleaded" (Sec. 9).

What defendant Juan S. Salao, Jr. did in his answer was to set forth in his "positive defenses" the
matters in avoidance of plaintiffs' first cause of action which which supported his denials of
paragraphs 4 to 10 and 12 of the first cause of action. Obviously, he did so because he found it
impracticable to state pierceneal his own version as to the acquisition of the two fishponds or to
make a tedious and repetitious recital of the ultimate facts contradicting allegations of the first cause
of action.

We hold that in doing so he substantially complied with Rule 9 of the 1940 Rules of Court. It may be
noted that under the present Rules of Court a "negative defense is the specific denial of t the
material fact or facts alleged in the complaint essential to plaintiff's cause of causes of action". On
the other hand, "an affirmative defense is an allegation of new matter which, while admitting the
material allegations of the complaint, expressly or impliedly, would nevertheless prevent or bar
recovery by the plaintiff." Affirmative defenses include all matters set up "by of confession and
avoidance". (Sec. 5, Rule 6, Rules of Court).

The case of El Hogar Filipino vs. Santos Investments, 74 Phil. 79 and similar cases are
distinguishable from the instant case. In the El Hogar case the defendant filed a laconic answer
containing the statement that it denied "generally ans specifically each and every allegation
contained in each and every paragraph of the complaint". It did not set forth in its answer any
matters by way of confession and avoidance. It did not interpose any matters by way of confession
and avoidance. It did not interpose any affirmative defenses.

Under those circumstances, it was held that defendant's specific denial was really a general denial
which was tantamount to an admission of the allegations of the complaint and which justified
judgment on the pleadings. That is not the situation in this case.

The other nine assignments of error of the plaintiffs may be reduced to the decisive issue of whether
the Calunuran fishpond was held in trust for Valentin Salao by Juan Y. Salao, Sr. and Ambrosia
Salao. That issue is tied up with the question of whether plaintiffs' action for reconveyance had
already prescribed.

The plaintiffs contend that their action is "to enforce a trust which defendant" Juan S. Salao, Jr.
allegedly violated. The existence of a trust was not definitely alleged in plaintiffs' complaint. They
mentioned trust for the first time on page 2 of their appelants' brief.

To determine if the plaintiffs have a cause of action for the enforcement of a trust, it is necessary to
maek some exegesis on the nature of trusts (fideicomosis). Trusts in Anglo-American jurisprudence
were derived from the fideicommissa of the Roman law (Government of the Philippine Islands vs.
Abadilla, 46 Phil. 642, 646).

"In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the
beneficial enjoyment of property, the legal title to which is vested in another, but the word 'trust' is
frequently employed to indicate duties, relations, and responsibilities which are not strictly technical
trusts" (89 C.J.S. 712).

A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards
property for the benefit of another person is known as the trustee; and the person for whose benefit
the trust has been created is referred to as the beneficiary" (Art. 1440, Civil Code). There is a
fiduciary relation between the trustee and the cestui que trust as regards certain property, real,
personal, money or choses in action (Pacheco vs. Arro, 85 Phil. 505).

"Trusts are either express or implied. Express trusts are created by the intention of the trustor or of
the parties. Implied trusts come into being by operation of law" (Art. 1441, Civil Code). "No express
trusts concerning an immovable or any interest therein may be proven by parol evidence. An implied
trust may be proven by oral evidence" (Ibid, Arts. 1443 and 1457).

"No particular words are required for the creation of an express trust, it being sufficient that a trust is
clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-
19012, October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which are created by the
direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly
or impliedly evincing an intention to create a trust" (89 C.J.S. 72).

"Implied trusts are those which, without being expressed, are deducible from the nature of the
transaction as matters of intent, or which are superinduced on the transaction by operation of law as
matter of equity, independently of the particular intention of the parties" (89 C.J.S. 724). They are
ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722).

"A resulting trust. is broadly defined as a trust which is raised or created by the act or construction of
law, but in its more restricted sense it is a trust raised by implication of law and presumed to have
been contemplated by the parties, the intention as to which is to be found in the nature of their
transaction, but not expressed in the deed or instrument of conveyance (89 C.J.S. 725). Examples of
resulting trusts are found in articles 1448 to 1455 of the Civil Code. (See Padilla vs. Court of
Appeals, L-31569, September 28, 1973, 53 SCRA 168, 179; Martinez vs. Graño 42 Phil. 35).

On the other hand, a constructive trust is -a trust "raised by construction of law, or arising by
operation of law". In a more restricted sense and as contra-distinguished from a resulting trust, a
constructive trust is "a trust not created by any words, either expressly or impliedly evincing a direct
intension to create a trust, but by the construction of equity in order to satisfy the demands of
justice." It does not arise "by agreement or intention, but by operation of law." (89 C.J.S. 726-727).

Thus, "if property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes"
(Art. 1456, Civil Code).

Or "if a person obtains legal title to property by fraud or concealment, courts of equity will impress
upon the title a so-called constructive trust in favor of the defrauded party". Such a constructive trust
is not a trust in the technical sense. (Gayondato vs. Treasurer of the P. I., 49 Phil. 244).
Not a scintilla of documentary evidence was presented by the plaintiffs to prove that there was an
express trust over the Calunuran fishpond in favor of Valentin Salao. Purely parol evidence was
offered by them to prove the alleged trust. Their claim that in the oral partition in 1919 of the two
fishponds the Calunuran fishpond was assigned to Valentin Salao is legally untenable.

It is legally indefensible because the terms of article 1443 of the Civil Code (already in force when
the action herein was instituted) are peremptory and unmistakable: parol evidence cannot be used to
prove an express trust concerning realty.

Is plaintiffs' massive oral evidence sufficient to prove an implied trust, resulting or constructive,
regarding the two fishponds?

Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust. The trial court's
firm conclusion that there was no community of property during the lifetime of Valentina; Ignacio or
before 1914 is substantiated by defendants' documentary evidence. The existence of the alleged co-
ownership over the lands supposedly inherited from Manuel Salao in 1885 is the basis of plaintiffs'
contention that the Calunuran fishpond was held in trust for Valentin Salao.

But that co-ownership was not proven by any competent evidence. It is quite improbable because
the alleged estate of Manuel Salao was likewise not satisfactorily proven. The plaintiffs alleged in
their original complaint that there was a co-ownership over two hectares of land left by Manuel
Salao. In their amended complaint, they alleged that the co-ownership was over seven hectares of
fishponds located in Barrio Dampalit, Malabon, Rizal. In their brief they alleged that the fishponds,
ricelands and saltbeds owned in common in Barrio Dampalit had an area of twenty-eight hectares, of
which sixteen hectares pertained to Valentina Ignacio and eleven hectares represented Manuel
Salao's estate.

They theorized that the eleven hectares "were, and necessarily, the nucleus, nay the very root, of
the property now in litigation (page 6, plaintiffs-appellants' brief). But the eleven hectares were not
proven by any trustworthy evidence. Benita Salao's testimony that in 1918 or 1919 Juan, Ambrosia,
Alejandra and Valentin partitioned twenty-eight hectares of lands located in Barrio Dampalit is not
credible. As noted by the defendants, Manuel Salao was not even mentioned in plaintiffs' complaints.

The 1919 partition of Valentina Ignacio's estate covered about seventeen hectares of fishponds and
ricelands (Exh. 21). If at the time that partition was made there were eleven hectares of land in
Barrio Dampalit belonging to Manuel Salao, who died in 1885, those eleven hectares would have
been partitioned in writing as in the case of the seventeen hectares belonging to Valentina Ignacio's
estate.

It is incredible that the forty-seven-hectare Calunuran fishpond would be adjudicated to Valentin

Salao mere by by word of mouth. Incredible because for the partition of the seventeen hectares of
land left by Valentina Ignacio an elaborate "Escritura de Particion" consisting of twenty-two pages
had to be executed by the four Salao heirs. Surely, for the partition of one hundred forty-five
hectares of fishponds among three of the same Salao heirs an oral adjudication would not have
sufficed.

The improbability of the alleged oral partition becomes more evident when it is borne in mind that the
two fishponds were registered land and "the act of registration" is "the operative act" that conveys
and affects the land (Sec. 50, Act No. 496). That means that any transaction affecting the registered
land should be evidenced by a registerable deed. The fact that Valentin Salao and his successors-
in-interest, the plaintiffs, never bothered for a period of nearly forty years to procure any
documentary evidence to establish his supposed interest ox participation in the two fishponds is very
suggestive of the absence of such interest.

The matter may be viewed from another angle. As already stated, the deed of partition for Valentina
Ignacio's estate wag notarized in 1919 (Exh. 21). The plaintiffs assert that the two fishponds were
verbally partitioned also in 1919 and that the Calunuran fishpond was assigned to Valentin Salao as
his share.

Now in the partition of Valentina Ignacio's estate, Valentin was obligated to pay P3,355.25 to
Ambrosia Salao. If, according to the plaintiffs, Ambrosia administered the two fishponds and was the
custodian of its earnings, then it could have been easily stipulated in the deed partitioning Valentina
Ignacio's estate that the amount due from Valentin would just be deducted by Ambrosia from his
share of the earnings of the two fishponds. There was no such stipulation. Not a shred of
documentary evidence shows Valentin's participation in the two fishponds.

The plaintiffs utterly failed to measure up to the yardstick that a trust must be proven by clear,
satisfactory and convincing evidence. It cannot rest on vague and uncertain evidence or on loose,
equivocal or indefinite declarations (De Leon vs. Molo-Peckson, 116 Phil. 1267, 1273).

Trust and trustee; establishment of trust by parol evidence; certainty of proof. —

Where a trust is to be established by oral proof, the testimony supporting it must be
sufficiently strong to prove the right of the alleged beneficiary with as much certainty
as if a document proving the trust were shown. A trust cannot be established,
contrary to the recitals of a Torrens title, upon vague and inconclusive
proof. (Syllabus, Suarez vs. Tirambulo, 59 Phil. 303).

Trusts; evidence needed to establish trust on parol testimony. — In order to establish

a trust in real property by parol evidence, the proof should be as fully convincing as if
the act giving rise to the trust obligation were proven by an authentic document. Such
a trust cannot be established upon testimony consisting in large part of insecure
surmises based on ancient hearsay. (Syllabus, Santa Juana vs. Del Rosario 50 Phil.
110).

The foregoing rulings are good under article 1457 of the Civil Code which, as already noted, allows
an implied trust to be proven by oral evidence. Trustworthy oral evidence is required to prove an
implied trust because, oral evidence can be easily fabricated.

On the other hand, a Torrens title is generally a conclusive of the ownership of the land referred to
therein (Sec. 47, Act 496). A strong presumption exists. that Torrens titles were regularly issued and
that they are valid. In order to maintain an action for reconveyance, proof as to the fiduciary relation
of the parties must be clear and convincing (Yumul vs. Rivera and Dizon, 64 Phil. 13, 17-18).

The real purpose of the Torrens system is, to quiet title to land. "Once a title is registered, the owner
may rest secure, without the necessity of waiting in the portals of the court, or sitting in the mirador
de su casa, to avoid the possibility of losing his land" (Legarda and Prieto vs. Saleeby, 31 Phil. 590,
593).

There was no resulting trust in this case because there never was any intention on the part of Juan
Y. Salao, Sr., Ambrosia Salao and Valentin Salao to create any trust. There was no constructive
trust because the registration of the two fishponds in the names of Juan and Ambrosia was not
vitiated by fraud or mistake. This is not a case where to satisfy the demands of justice it is necessary
to consider the Calunuran fishpond " being held in trust by the heirs of Juan Y. Salao, Sr. for the
heirs of Valentin Salao.

And even assuming that there was an implied trust, plaintiffs' action is clearly barred by prescription
or laches (Ramos vs. Ramos, L-19872, December 3, 1974, 61 SCRA 284; Quiniano vs. Court of
Appeals, L-23024, May 31, 1971, 39 SCRA 221; Varsity Hills, Inc. vs. Navarro, 9, February 29,
1972, 43 SCRA 503; Alzona vs. Capunitan and Reyes, 114 Phil. 377).

Under Act No. 190, whose statute of limitation would apply if there were an implied trust in this case,
the longest period of extinctive prescription was only ten year (Sec. 40; Diaz vs. Gorricho and
Aguado, 103 Phil. 261, 266).

The Calunuran fishpond was registered in 1911. The written extrajudicial demand for its
reconveyance was made by the plaintiffs in 1951. Their action was filed in 1952 or after the lapse of
more than forty years from the date of registration. The plaintiffs and their predecessor-in-interest,
Valentin Salao, slept on their rights if they had any rights at all. Vigilanti prospiciunt jura or the law
protects him who is watchful of his rights (92 C.J.S. 1011, citing Esguerra vs. Tecson, 21 Phil. 518,
521).

"Undue delay in the enforcement of a right is strongly persuasive of a lack of merit in the claim, since
it is human nature for a person to assert his rights most strongly when they are threatened or
invaded". "Laches or unreasonable delay on the part of a plaintiff in seeking to enforce a right is not
only persuasive of a want of merit but may, according to the circumstances, be destructive of the
right itself." (Buenaventura vs. David, 37 Phil. 435, 440-441).

Having reached the conclusion that the plaintiffs are not entitled to the reconveyance of the
Calunuran fishpond, it is no longer n to Pass upon the validity of the donation made by Ambrosia
Salao to Juan S. Salao, Jr. of her one-half share in the two fishponds The plaintiffs have no right and
personality to assil that donation.

Even if the donation were declared void, the plaintiffs would not have any successional rights to
Ambrosia's share. The sole legal heir of Ambrosia was her nephew, Juan, Jr., her nearest relative
within the third degree. Valentin Salao, if living in 1945 when Ambrosia died, would have been also
her legal heir, together with his first cousin, Juan, Jr. (Juani). Benita Salao, the daughter of Valentin,
could not represent him in the succession to the estate of Ambrosia since in the collateral line,
representation takes place only in favor of the children of brothers or sisters whether they be of the
full or half blood is (Art 972, Civil Code). The nephew excludes a grandniece like Benita Salao or
great-gandnephews like the plaintiffs Alcuriza (Pavia vs. Iturralde 5 Phil. 176).

The trial court did not err in dismissing plaintiffs' complaint.

Defendants' appeal. — The defendants dispute the lower court's finding that the plaintiffs filed their
action in good faith. The defendants contend that they are entitled to damages because the plaintiffs
acted maliciously or in bad faith in suing them. They ask for P25,000 attorneys fees and litigation
expenses and, in addition, moral damages.

We hold that defemdamts' appeal is not meritorious. The record shows that the plaintiffs presented
fifteen witnesses during the protracted trial of this case which lasted from 1954 to 1959. They fought
tenaciously. They obviously incurred considerable expenses in prosecuting their case. Although their
causes of action turned out to be unfounded, yet the pertinacity and vigor with which they pressed
their claim indicate their sincerity and good faith.
There is the further consideration that the parties were descendants of common ancestors, the
spouses Manuel Salao and Valentina Ignacio, and that plaintiffs' action was based on their honest
supposition that the funds used in the acquisition of the lands in litigation were earnings of the
properties allegedly inherited from Manuel Salao.

Considering those circumstances, it cannot be concluded with certitude that plaintiffs' action was
manifestly frivolous or was primarily intended to harass the defendants. An award for damages to
the defendants does not appear to be just and proper.

The worries and anxiety of a defendant in a litigation that was not maliciously instituted are not the
moral damages contemplated in the law (Solis & Yarisantos vs. Salvador, L-17022, August 14, 1965,
14 SCRA 887; Ramos vs. Ramos, supra). The instant case is not among the cases mentioned in
articles 2219 and 2220 of the Civil Code wherein moral damages may be recovered. Nor can it be
regarded as analogous to any of the cases mentioned in those articles.

The adverse result of an action does not per se make the act wrongful and subject
the actor to the payment of moral damages. The law could not have meant to impose
a penalty on the right to litigate; such right is so precious that moral damages may
not be charged on those who may exercise it erroneously. (Barreto vs. Arevalo, 99
Phil. 771. 779).

The defendants invoke article 2208 (4) (11) of the Civil Code which provides that attorney's fees may
be recovered "in case of a clearly unfounded civil action or proceeding against the plaintiff"
(defendant is a plaintiff in his counterclaim) or "in any other case where the court deems it just and
equitable" that attorney's fees should he awarded.

But once it is conceded that the plaintiffs acted in good faith in filing their action there would be no
basis for adjudging them liable to the defendants for attorney's fees and litigation expenses (See
Rizal Surety & Insurance Co., Inc. vs. Court of Appeals, L-23729, May 16, 1967, 20 SCRA 61).

It is not sound public policy to set a premium on the right to litigate. An adverse decision does not
ipso facto justify the award of attorney's fees to the winning party (Herrera vs. Luy Kim Guan, 110
Phil. 1020, 1028; Heirs of Justiva vs. Gustilo, 61 O. G. 6959).

The trial court's judgment is affirmed. No pronouncement as to costs.

SO ORDERED.

G.R. No. L-31189 March 31, 1987

MUNICIPALITY OF VICTORIAS, petitioner,

vs.
THE COURT OF APPEALS, NORMA LEUENBERGER and FRANCISCO SOLIVA, respondents.

Enrique I. Soriano, Jr. for private respondents.

PARAS, J.:
This is a Petition for Review on certiorari of the decision * of respondent Court of Appeals promulgated on September
29, 1969 in CA-G.R. No. 35036-R (Rollo, p. 11) setting aside the decision ** of the Court of First Intance of Negros Occidental, Branch I,
dated September 24, 1964 which dismissed the complaint for recovery of possession in Civil Case No. 181-S and declared the cemetery site
on Lot No. 76 in Victorias as property of the municipality of Victorias (Record on Appeal, p. 9).

The dispositive portion of the questioned decision reads as follows:

IN VIEW OF THE FOREGOING, the judgment of the lower court is hereby set aside
and another is hereby rendered:

(1) Ordering the defendant municipality and/or thru its appropriate officials to return
and deliver the possession of the portion of Lot 76 used as cemetery or burial site of
the plaintiff-appellant.

(2) Ordering defendant municipality to pay the plaintiff-appellant the sum of P400.00
a year from 1963 until the possession of said land is actually delivered.

Lot No. 76 containing an area of 208,157 sq. meters forms a part of Cadastral Lot No. 140 (Rollo, p.
11), a 27.2460 ha. sugar land located in Bo. Madaniog, Victorias, Negros Occidental, in the name of
the deceased Gonzalo Ditching under Tax Declaration No. 3429 of Negros Occidental for the year
1941 (Exh. "3," Folder of Exhibits, p. 22). He was survived by his widow Simeona Jingeo Vda. de
Ditching and a daughter, Isabel, who died in 1928 (TSN, July 1, 1964, p. 7) leaving one off-spring,
respondent Norma Leuenberger, who was then only six months old (TSN, July 1, 1964, p. 34).

Respondent Norma Leuenberger, married to Francisco Soliva, inherited the whole of Lot No. 140
from her grandmother, Simeona J. Vda. de Ditching (not from her predeceased mother Isabel
Ditching). In 1952, she donated a portion of Lot No. 140, about 3 ha., to the municipality for the
ground of a certain high school and had 4 ha. converted into a subdivision. (TSN, July 1, 1964, p.
24).

In 1963, she had the remaining 21 ha. or 208.157 sq. m. relocated by a surveyor upon request of
lessee Ramon Jover who complained of being prohibited by municipal officials from cultivating the
land. It was then that she discovered that the parcel of land, more or less 4 ha. or 33,747 sq.m. used
by Petitioner Municipality of Victorias, as a cemetery from 1934, is within her property which is now
Identified as Lot 76 and covered by TCT No. 34546 (TSN, July 1, 1964, pp. 7-9; Exh. "4," Folder of
Exhibits, p. 23 and Exh. "A," Folder of Exhibits, p. 1).

On May 20, 1963, Respondent wrote the Mayor of Victorias regarding her discovery, demanding
payment of past rentals and requesting delivery of the area allegedly illegally occupied by Petitioner
(Exh. "G, Folder of Exhibits, p. 15). When the Mayor replied that Petitioner bought the land she
asked to be shown the papers concerning the sale but was referred by the Mayor to the municipal
treasurer who refused to show the same (TSN, July 1, 1964, pp. 32-33).

On January 11, 1964, Respondents filed a complaint in the Court of First Instance of Negros
Occidental, Branch 1, for recovery of possession of the parcel of land occupied by the municipal
cemetery (Record on Appeal, p. 1). In its answer, petitioner Municipality, by way of special defense,
alleged ownership of the lot, subject of the complaint, having bought it from Simeona Jingco Vda. de
Ditching sometime in 1934 (Record on Appeal, p. 7). The lower court decided in favor of the
Municipality. On appeal Respondent appellate Court set aside the decision of the lower court
(Record on AppeaL p. 9); hence, this petition for review on certiorari.
This petition was filed with the Court on November 6, 1969 (Rollo, p. 2), the Record on Appeal on
December 19, 1969 (Rollo, p. 80). On January 5, 1970, the Court gave due course to the petition
(Rollo, p. 84).

The Brief for the Petitioner was filed on April 1, 1970 (Rollo, p. 88), the Brief for Respondents was
filed on May 18, 1970 (Rollo, p. 92).

On July 8, 1970, the Court resolved to consider the case submitted for decision without Petitioner's
Reply Brief, Petitioner having failed to file the brief within the period which expired on June 10, 1970
(Rollo. p. 99).

On motion of counsel for the Respondents (Rollo, p. 104), the Court resolved on June 30, 1972 to
allow respondent Francisco Soliva to continue the appeal in behalf of the estate of respondent
Norma Leuenberger who died on January 25, 1972, Respondent Francisco Soliva having been
appointed special administrator in Special Proceedings No. 84-V of the Court of First Instance of
Negros Occidental (Rollo, p. 110).

In their brief, petitioner raised the following errors of respondent Court of Appeals: (Brief for the
Petitioner, p. 1-3);

I.

The Honorable Court of Appeals erred in holding that respondents Norma

Leuenberger and Francisco Soliva are the lawful owners of the land in litigation as
they are estopped from questioning the possession and ownership of herein
petitioner which dates back to more than 30 years.

II.

The Honorable Court of Appeals also erred in ordering the petition petitioner to
deliver the possession of the land in question to the respondents Nomia Leuenberger
and Francisco Soliva, by holding that non-annotation on the Torrens Certificate of
Title could not affect the said land when the possession by the petitioner of the said
land for over 30 years and using it as a public cemetery for that length of time are
sufficient proof of purchase and transfer of title and non-annotation of the Certificate
of Title did not render the sale ineffectual

III.

The Honorable Court of Appeals further erred in ordering the petitioner Municipality
of Victories to pay the respondents the sum of P400.00 a year from 1963 until
possession is actually delivered because under the law, an owner of a piece of land
has no obligation to pay rentals as it owns and possesses the same.

There is merit in the petition.

It is undisputed that petitioner failed to present before the Court a Deed of Sale to prove its purchase
of the land in question which is included in the Transfer Certificate of Title No. T-34546 in the name
of private respondent Norma Leuenberger.
The pivotal issue in this case is whether or not the secondary evidence presented by the petitioner
municipality is sufficient to substantiate its claim that it acquired the disputed land by means of a
Deed of Sale.

Under the Best Evidence Rule when the original writing is lost or otherwise unavailable, the law in
point provides:

Sec. 4. Secondary evidence when original is lost or destroyed. — When the original
writing has been lost or destroyed, or cannot be produced in court, upon proof of its
execution and loss or destruction or unavailability, its contents may be proved by a
copy, or by a recital of its contents in some authentic document, or by the recollection
of witnesses. (Rule 130, Rules of Court).

In lieu of a Deed of Sale, petitioner presented a certificate issued by the Archives Division of the
Bureau of Records Management in Manila, of a page of the 1934 Notarial Register of Vicente D.
Aragon with the following entries:

Nature of Instrument — Compra venta 2 porciones Terrenos: Lotes Nos. 140-A y

140-B, Victorias, Neg. Occidental pago por esso despues aprobacion Jusgado la
Instance, Neg. Occidental causa civil 5116 Vendedora: — Simeona Jingco Vda. de
Ditching . . . administradora Abint. G. Ditching

Comprador: — Municipio Victorias, Neg. Occidental . . . . por su Pres.Mpal Vicente

B. Arnaes

Valor: — P750.00 ...

Vease copia correspondiente.

Names of-persons Executing/ Acknowledging:

Simeona Vda. de Ditching

Adm. Abint actuacion especial No. 5116

Jusgado la Instance Neg. Occidental

Vendedora

Vicente B. Arnaes

Pres. Municipal. Victorias

Comprador

Witnesses to the Signatures:

Esteban Jalandoni

Gregorio Elizalde
 Date: Month

9 Julio 1934

Fees: P2.00

Cedulas:

Exenta por susexo

F1027880 Enero 26/34 Victories, Neg. Occidental

Remarks.

En Victorias, Neg. Occidental

Los annexes A. y B. estan unidos

solamente en el original de la

escritura.

Respondent Court of Appeals was of the view (Rollo, p. 16) that a mere entry in the notarial register
of a notary public of an alleged sale cannot prove that a particular piece of land was sold by one
person to another, one of the important requirements being the indication of the area and the
technical description of the land being sold. In the present case, since no deed of sale could be
produced, there is no way of telling what particular portion of the property was sold to defendant
municipality and how big was the sale of the land conveyed to the defendant municipality.

It will be observed that the entries in the notarial register clearly show: (a) the nature of the
instrument. — a deed of sale; (b) the subject of the sale — two parcels of land, Lot Nos. 140-A and
140-B; (c) the parties of the contract — the vendor Simeona J. Vda. de Ditching in her capacity as
Administrator in Civil Case No. 5116 of the Court of First Instance of Negros Occidental and the
vendee, Vicente B. Ananosa, Municipal Mayor of Victorias; (d) the consideration P750.00; (e) the
names of the witnesses Esteban Jalandoni and Gregoria Elizado; and the date of the sale on July 9,
1934.

It is beyond question that the foregoing certificate is an authentic document clearly corroborated and
supported by: (a) the testimony of the municipal councilor of Victorias, Ricardo Suarez, (Original
TSN Hearing of September 14, 1964, pp. 1222) who negotiated the sale; (b) the testimony of Emilio
Cuesta, (Original TSN Hearing of September 14, 1964, pp. 2238) the municipal treasurer of said
municipality, since 1932 up to the date of trial on September 14, 1964, who personally paid the
amount of P750.00 to Felipe Leuenberger as consideration of the Contract of Sale; (c) Certificate of
Settlement (Original Exhibits, p. 20) "as evidence of said payment;" (d) Tax Declaration No. 429
(Ibid., p. 22) which was cancelled and was substituted by Tax Declaration No. 3600 covering the
portion of the property unsold (Decision, CFI, Neg. Occidental Orig. Record on Appeal, p. 6) and (e)
Tax Declaration No. 3601 (Ibid, p. 23) in the name of the Municipal Government of Victorias covering
the portion occupied as cemetery.

Tax Declaration No. 3601 shows on its face the boundaries as follows:
 North — NE — Lot No. 140-C of the Subdivision

South — SW — Lot No. 140-C of the Subdivision

West — NW — Lots Nos. 140-C & 140-B of the Subdivision.

The area is 33,747 sq.m.

At the back Exh. 4-A, the sale of a portion of the lot to the Municipality of Victorias was clearly
explained as follows:

Note: The whole Lot No. 140, belongs to Norma Leuenberger as evidenced by a
Transfer of Cert. of Title No. 18672. Portion of this Lot, (30,000 sq.m. was sold to
Municipality of Victories for Cemetery Site as evidenced by a Deed of Sale executed
by Simeona Jingco Vda. de Ditching in favor of the aforesaid Municipality and ratified
by Notary Public Mr. Vicente Aragon under Doc. No. 132; Page No. 2; Book No. 10,
Series of 1934.

At the lowest portion under Memoranda it was explained that —

The area under this declaration includes 3,746 sq. meters donated by Mrs. Simeona
Jingco Vda. de Ditching and used as road leading to the cemetery. " (EXIL 4; Original
Exhibits, p. 23).

The above-mentioned testimonies and documentary evidence sufficiently Identify the land sold by
the predecessors-in-interest of private respondent. To insist on the technical description of the land
in dispute would be to sacrifice substance to form which would undoubtedly result in manifest
injustice to the petitioner.

Moreover, it is expressly provided by law that the thing sold shall be understood as delivered, when
it is placed in the control and possession of the vendee. (Civil Code Art. 1497). Where there is no
express provision that title shall not pass until payment of the price, and the thing gold has been
delivered, title passes from the moment the thing sold is placed in the possession and control of the
buyer. (Kuenzle & Streiff vs. Watson & Co., 13 PhiL 26 [1909]). Delivery produces its natural effects
in law, the principal and most important of which being the conveyance of ownership, without
prejudice to the right of the vendor to payment of the price. (Ocejo, Perez & Co. vs. International
Banking Corp., 37 PhiL 631 [1918]).

Similarly, when the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the contract, if from the deed, the
contrary does not appear or cannot be clearly inferred. (Civil Code Art. 1498). The execution of the
public instrument operates as a formal or symbolic delivery of the property sold and authorizes the
buyer to use the document as proof of ownership. (Florendo v. Foz, 20 PhiL 388 [1911]).

In the case at bar it is undisputed that petitioner had been in open, public, adverse and continuous
possession of the land for a period of more than thirty years. In fact, according to the municipal
treasurer there are over 1000 graves in the cemetery. (Decision, Court of Appeals, Rollo, pp. 11-22).

As correctly observed by Justice Magno S. Gatmaitan in his dissenting opinion (Rollo, pp. 23-28) in
the decision of this case by the Court of Appeals, the evidence establishes without debate that the
property was originally registered in 1916. Plaintiff was born only in 1928 and cannot possibly be the
registered owner of the original lot 140 at the time. Indeed, according to her own evidence, (Exhibit
A; Original Record pp. 13) she became the registered owner only in 1963. Likewise, it is undisputed
that in the intestate estate of Gonzalo Ditching, the grandfather of private respondent Norma
Leunberger, it was her grandmother, Simeona, the surviving spouse of Gonzalo who was named
judicial administratrix. According to Norma's own testimony, Isabel her mother, died in 1928 (TSN
Aug. 12, 1964, p. 34) while Simeona the grandmother died in 1942. (Ibid.) Therefore, as of 1934
when a document of sale was executed by Simeona in favor of the municipality of Victories as
indubitably shown in the notarial register (Exhibit 5.A) in question, Simeona was still the
administratrix of the properties left by her husband, Gonzalo and of their conjugal partnership.
Consequently, she is the only person who could legally dispose of by sale this particular four-
hectare portion of Lot 140. And so it is, that in 1934, Simeona Ditching in her capacity as judicial
administratrix made and executed the document described in the Report as Lots 140-A and 140-B,
showing clearly that they are portions of the original big Lot 140. As this conveyance was executed
by the judicial administratrix, unquestionably the party authorized to dispose of the same, the
presumption must be that she did so upon proper authority of the Court of First Instance.

As to the description of the property sold, the fact that a notarial report shows that they are portions
of Lot 140 and the property in question occupied by the public cemetery is admittedly a portion of
said lot in the absence of evidence that there were other portions of Lot 140 ceded unto the
petitioner municipality, the inevitable conclusion is that the sale executed in the Notarial Register
refers to the disputed lot.

Unfortunately, the purchaser Municipality of Victorias failed to register said Deed of Sale; hence,
when Simeona Jingco Vda. de Ditching died, her grand-daughter, respondent Norma Leuenberger
claimed to have inherited the land in dispute and succeeded in registering said land under the
Torrens system. Said land is now covered by Transfer Certificate of Title No. T-34036 (Exhibit A,
supra) issued by the Register of Deeds of -Negros Occidental on March 11, 1963 in the name of
Norma Leuenberger, married to Francisco Soliva, containing an area of 208,157 square meters. As
registered owner, she is unquestionably entitled to the protection afforded to a holder of a Torrens
Title.

Admittedly, it is well-settled that under the Torrens System "Every person receiving a certificate of
title in pursuance of a decree of registration, . . . shall hold the same free of all encumbrance except
those noted on said certificate ... " (Sec. 39, Act 496; now Sec. 43, PD 1529).

In the instant case, however, respondent Norma Leuenberger admitted that she inherited the land
covered by Transfer Certificate of Title No. T-34036 from her grandmother, who had already sold the
land to the petitioner in 1934; hence, she merely stepped into the shoes of her grandmother and she
cannot claim a better right than her predecessor-in-interest. When she applied for registration of the
disputed land, she had no legal right to do so as she had no ownership of the land since land
registration is not a mode of acquiring ownership but only of confirming ownership of the land.
(Grande, et al. vs. Court of Appeals, et al., 115 Phil. 521.)"The Torrens System was not established
as a means for the acquisition of title to private land, ..." It is intended merely to confirm and register
the title which one may already have on the land. Where the applicant possesses no title or
ownership over the parcel of land, he cannot acquire one under the Torrens system of Registration.
(Torela, et al., vs. Torela, et al., L-27843, October 11, 1979).

While an inherently defective Torrens title may not ordinarily be cancelled even after proof of its
defect, the law nevertheless safeguards the rightful party's interest in the titled land from fraud and
improper use of technicalities by snowing such party, in appropriate cases, to judicially seek
reconveyance to him of whatever he has been deprived of as long as the land has not been
transferred or conveyed to a purchaser in good faith. (Pedro Pascua, et al., vs. Mariano Gopuyoc et
al., L-23197, May 31, 1977.)

The Civil Code provides:

Art. 1456. If the 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.

Thus, it has been held that where the land is decreed in the name of a person through fraud or
mistake, such person is by operation of law considered a trustee of an implied trust for the benefit of
the persons from whom the property comes. The beneficiary shag have the right t• enforce the trust,
notwithstanding the irrevocability of the Torrens title and the trustee and his successors-in-interest
are bound to execute the deed of reconveyance. (Pacheco vs. Arro, 85 Phil. 505; Escobar vs.
Locsin, 74 Phil. 86).

As the land in dispute is held by private respondents in trust for the Municipality of Victorias, it is
logical to conclude that the latter can neither be deprived of its possession nor be made to pay
rentals thereof. Private respondent is in equity bound to reconvey the subject land to the cestui que
trust the Municipality of Victorias. The Torrens system was never calculated to foment betrayal in the
performance of a trust. (Escobar vs. Locsin, 74 Phil. 86).

For a more expeditious disposition of the case at bar, Rule 39 of the Rules of Court provides:

SEC. 10. Judgment for Specific acts; vesting title. — ... If real or personal property is
within the Philippines, the court in lieu of directing a conveyance thereof may enter
judgment divesting the title of any party and vesting it in others and such judgment
shall have the force and effect of a conveyance executed in due form of law.

Finally, the conclusions and findings of fact by the trial court are entitled to great weight on appeal
and should not be disturbed unless for strong and cogent reasons because the trial court is in a
better position to examine real evidence, as well as to observe the demeanor of the witnesses while
testifying in the case. (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]).

PREMISES CONSIDERED, the judgment of the respondent appellate court is hereby SET ASIDE
and the decision of the Court of First Instance of Negros Occidental, Branch I-Silay City in Civil Case
No. 181-S declaring the cemetery site (Exh. E-2) on Lot No. 76 in Victories as the property of the
municipality of Victorias, is hereby REINSTATED. Additionally, We hereby order (a) the petitioner to
have the disputed land segregated by a licensed surveyor from the rest of Lot No. 76 described in
Transfer Certificate of Title No. T-34036 and to have the corresponding subdivision plan, duly
approved by the Land Registration Commission, submitted to the court of origin for approval; (b) the
private respondents Norma Leuenberger and Francisco Soliva to be divested of their title to the
disputed land under Rule 39, Sec. 10, Rules of Court; and (c) the Register of Deeds of Negros
Occidental to cancel Transfer Certificate of Title No. 34036 and issue, in lieu thereof, one title in the
name of the Municipality of Victories for the disputed land and another title in the names of the
private respondents Norma Leuenberger and Francisco Soliva for the rest of Lot No. 76. Without
costs.

SO ORDERED.

G.R. No. 97995 January 21, 1993

PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS AND B.P. MATA AND CO., INC., respondents.

Roland A. Niedo for petitioner.

Benjamin C. Santos Law Office for respondent.

ROMERO, J.:

Rarely is this Court confronted with a case calling for the delineation in broad strokes of the
distinctions between such closely allied concepts as the quasi-contract called "solutio indebiti" under
the venerable Spanish Civil Code and the species of implied trust denominated "constructive trusts,"
commonly regarded as of Anglo-American origin. Such a case is the one presented to us now which
has highlighted more of the affinity and less of the dissimilarity between the two concepts as to lead
the legal scholar into the error of interchanging the two. Presented below are the factual
circumstances that brought into juxtaposition the twin institutions of the Civil Law quasi-contract and
the Anglo-American trust.

Private Respondent B.P. Mata & Co. Inc. (Mata), is a private corporation engaged in providing goods
and services to shipping companies. Since 1966, it has acted as a manning or crewing agent for
several foreign firms, one of which is Star Kist Foods, Inc., USA (Star Kist). As part of their
agreement, Mata makes advances for the crew's medical expenses, National Seaman's Board fees,
Seaman's Welfare fund, and standby fees and for the crew's basic personal needs. Subsequently,
Mata sends monthly billings to its foreign principal Star Kist, which in turn reimburses Mata by
sending a telegraphic transfer through banks for credit to the latter's account.

Against this background, on February 21, 1975, Security Pacific National Bank (SEPAC) of Los
Angeles which had an agency arrangement with Philippine National Bank (PNB), transmitted a cable
message to the International Department of PNB to pay the amount of US$14,000 to Mata by
crediting the latter's account with the Insular Bank of Asia and America (IBAA), per order of Star Kist.
Upon receipt of this cabled message on February 24, 1975, PNB's International Department noticed
an error and sent a service message to SEPAC Bank. The latter replied with instructions that the
amount of US$14,000 should only be for US$1,400.

On the basis of the cable message dated February 24, 1975 Cashier's Check No. 269522 in the
amount of US$1,400 (P9,772.95) representing reimbursement from Star Kist, was issued by the Star
Kist for the account of Mata on February 25, 1975 through the Insular Bank of Asia and America
(IBAA).

However, fourteen days after or on March 11, 1975, PNB effected another payment through
Cashier's Check No. 270271 in the amount of US$14,000 (P97,878.60) purporting to be another
transmittal of reimbursement from Star Kist, private respondent's foreign principal.

Six years later, or more specifically, on May 13, 1981, PNB requested Mata for refund of US$14,000
(P97,878.60) after it discovered its error in effecting the second payment.
On February 4, 1982, PNB filed a civil case for collection and refund of US$14,000 against Mata
arguing that based on a constructive trust under Article 1456 of the Civil Code, it has a right to
recover the said amount it erroneously credited to respondent Mata.1

After trial, the Regional Trial Court of Manila rendered judgment dismissing the complaint ruling that
the instant case falls squarely under Article 2154 on solutio indebiti and not under Article 1456 on
constructive trust. The lower court ruled out constructive trust, applying strictly the technical
definition of a trust as "a right of property, real or personal, held by one party for the benefit of
another; that there is a fiduciary relation between a trustee and a cestui que trust as regards certain
property, real, personal, money or choses in action."2

In affirming the lower court, the appellate court added in its opinion that under Article 2154 on solutio
indebiti, the person who makes the payment is the one who commits the mistake vis-a-vis the
recipient who is unaware of such a mistake.3 Consequently, recipient is duty bound to return the
amount paid by mistake. But the appellate court concluded that petitioner's demand for the return of
US$14,000 cannot prosper because its cause of action had already prescribed under Article 1145,
paragraph 2 of the Civil Code which states:

The following actions must be commenced within six years:

xxx xxx xxx

(2) Upon a quasi-contract.

This is because petitioner's complaint was filed only on February 4, 1982, almost seven
years after March 11, 1975 when petitioner mistakenly made payment to private respondent.

Hence, the instant petition for certiorari proceeding seeking to annul the decision of the appellate
court on the basis that Mata's obligation to return US$14,000 is governed, in the alternative, by
either Article 1456 on constructive trust or Article 2154 of the Civil Code on quasi-contract.4

Article 1456 of the Civil Code provides:

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.

On the other hand, Article 2154 states:

If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.

Petitioner naturally opts for an interpretation under constructive trust as its action filed on February 4,
1982 can still prosper, as it is well within the prescriptive period of ten (10) years as provided by
Article 1144, paragraph 2 of the Civil Code.5

If it is to be construed as a case of payment by mistake or solutio indebiti, then the prescriptive

period for quasi-contracts of six years applies, as provided by Article 1145. As pointed out by the
appellate court, petitioner's cause of action thereunder shall have prescribed, having been brought
almost seven years after the cause of action accrued. However, even assuming that the instant case
constitutes a constructive trust and prescription has not set in, the present action has already been
barred by laches.

To recall, trusts are either express or implied. While express trusts are created by the intention of the
trustor or of the parties, implied trusts come into being by operation of law.6 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.7

In turn, implied trusts are subdivided into resulting and constructive trusts.8 A resulting trust is a trust
raised by implication of law and presumed always to have been contemplated by the parties, the
intention of which is found in the nature of the transaction, but not expressed in the deed or
instrument of conveyance.9 Examples of resulting trusts are found in Articles 1448 to 1455 of the
Civil Code.10 On the other hand, a constructive trust is one not created by words either expressly or
impliedly, but by construction of equity in order to satisfy the demands of justice. An example of a
constructive trust is Article 1456 quoted above.11

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense 12 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.13 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.14

In the case at bar, Mata, in receiving the US$14,000 in its account through IBAA, had no intent of
holding the same for a supposed beneficiary or cestui que trust, namely PNB. But under Article
1456, the law construes a trust, namely a constructive trust, for the benefit of the person from whom
the property comes, in this case PNB, for reasons of justice and equity.

At this juncture, a historical note on the codal provisions on trust and quasi-contracts is in order.

Originally, under the Spanish Civil Code, there were only two kinds of quasi contracts: negotiorum
gestio and solutio indebiti. But the Code Commission, mindful of the position of the eminent Spanish
jurist, Manresa, that "the number of quasi contracts may be indefinite," added Section 3 entitled
"Other Quasi-Contracts."15

Moreover, even as Article 2142 of the Civil Code defines a quasi-contract, the succeeding article
provides that: "The provisions for quasi-contracts in this Chapter do not exclude other quasi-
contracts which may come within the purview of the preceding article."16

Indubitably, the Civil Code does not confine itself exclusively to the quasi-contracts enumerated from
Articles 2144 to 2175 but is open to the possibility that, absent a pre-existing relationship, there
being neither crime nor quasi-delict, a quasi-contractual relation may be forced upon the parties to
avoid a case of unjust enrichment.17 There being no express consent, in the sense of a meeting of
minds between the parties, there is no contract to speak of. However, in view of the peculiar
circumstances or factual environment, consent is presumed to the end that a recipient of benefits or
favors resulting from lawful, voluntary and unilateral acts of another may not be unjustly enriched at
the expense of another.
Undoubtedly, the instant case fulfills the indispensable requisites of solutio indebiti as defined in
Article 2154 that something (in this case money) has been received when there was no right to
demand it and (2) the same was unduly delivered through mistake. There is a presumption that there
was a mistake in the payment "if something which had never been due or had already been
paid was delivered; but he from whom the return is claimed may prove that the delivery was made
out of liberality or for any other just cause."18

In the case at bar, a payment in the corrected amount of US$1,400 through Cashier's Check No.
269522 had already been made by PNB for the account of Mata on February 25, 1975. Strangely,
however, fourteen days later, PNB effected another payment through Cashier's Check No. 270271 in
the amount of US$14,000, this time purporting to be another transmittal of reimbursement from Star
Kist, private respondent's foreign principal.

While the principle of undue enrichment or solutio indebiti, is not new, having been incorporated in
the subject on quasi-contracts in Title XVI of Book IV of the Spanish Civil Code entitled "Obligations
incurred without contract,"19 the chapter on Trusts is fairly recent, having been introduced by the
Code Commission in 1949. Although the concept of trusts is nowhere to be found in the Spanish
Civil Code, the framers of our present Civil Code incorporated implied trusts, which includes
constructive trusts, on top of quasi-contracts, both of which embody the principle of equity above
strict legalism.20

In analyzing the law on trusts, it would be instructive to refer to Anglo-American jurisprudence on the
subject. Under American Law, a court of equity does not consider a constructive trustee for all
purposes as though he were in reality a trustee; although it will force him to return the property, it will
not impose upon him the numerous fiduciary obligations ordinarily demanded from a trustee of an
express trust.21 It must be borne in mind that in an express trust, the trustee has active duties of
management while in a constructive trust, the duty is merely to surrender the property.

Still applying American case law, quasi-contractual obligations give rise to a personal liability
ordinarily enforceable by an action at law, while constructive trusts are enforceable by a proceeding
in equity to compel the defendant to surrender specific property. To be sure, the distinction is more
procedural than substantive.22

Further reflection on these concepts reveals that a constructive "trust" is as much a misnomer as a
"quasi-contract," so far removed are they from trusts and contracts proper, respectively. In the case
of a constructive trust, as in the case of quasi-contract, a relationship is "forced" by operation of law
upon the parties, not because of any intention on their part but in order to prevent unjust enrichment,
thus giving rise to certain obligations not within the contemplation of the parties.23

Although we are not quite in accord with the opinion that "the trusts known to American and English
equity jurisprudence are derived from the fidei commissa of the Roman Law,"24 it is safe to state that
their roots are firmly grounded on such Civil Law principles are expressed in the Latin maxim, "Nemo
cum alterius detrimento locupletari potest," 25 particularly the concept of constructive trust.

Returning to the instant case, while petitioner may indeed opt to avail of an action to enforce a
constructive trust or the quasi-contract of solutio indebiti, it has been deprived of a choice, for
prescription has effectively blocked quasi-contract as an alternative, leaving only constructive trust
as the feasible option.

Petitioner argues that the lower and appellate courts cannot indulge in semantics by holding that in
Article 1456 the recipient commits the mistake while in Article 2154, the recipient commits no
mistake. 26 On the other hand, private respondent, invoking the appellate court's reasoning, would
impress upon us that under Article 1456, there can be no mutual mistake. Consequently, private
respondent contends that the case at bar is one of solutio indebiti and not a constructive trust.

We agree with petitioner's stand that under Article 1456, the law does not make any distinction since
mutual mistake is a possibility on either side — on the side of either the grantor or the
grantee.27 Thus, it was error to conclude that in a constructive trust, only the person obtaining the
property commits a mistake. This is because it is also possible that a grantor, like PNB in the case at
hand, may commit the mistake.

Proceeding now to the issue of whether or not petitioner may still claim the US$14,000 it erroneously
paid private respondent under a constructive trust, we rule in the negative. Although we are aware
that only seven (7) years lapsed after petitioner erroneously credited private respondent with the
said amount and that under Article 1144, petitioner is well within the prescriptive period for the
enforcement of a constructive or implied trust, we rule that petitioner's claim cannot prosper since it
is already barred by laches. It is a well-settled rule now that an action to enforce an implied trust,
whether resulting or constructive, may be barred not only by prescription but also by laches.28

While prescription is concerned with the fact of delay, laches deals with the effect of unreasonable
delay.29 It is amazing that it took petitioner almost seven years before it discovered that it had
erroneously paid private respondent. Petitioner would attribute its mistake to the heavy volume of
international transactions handled by the Cable and Remittance Division of the International
Department of PNB. Such specious reasoning is not persuasive. It is unbelievable for a bank, and a
government bank at that, which regularly publishes its balanced financial statements annually or
more frequently, by the quarter, to notice its error only seven years later. As a universal bank with
worldwide operations, PNB cannot afford to commit such costly mistakes. Moreover, as between
parties where negligence is imputable to one and not to the other, the former must perforce bear the
consequences of its neglect. Hence, petitioner should bear the cost of its own negligence.

WHEREFORE, the decision of the Court of Appeals dismissing petitioner's claim against private
respondent is AFFIRMED.

Costs against petitioner.

SO ORDERED.

G.R. No. 202247 June 19, 2013

SIME DARBY PILIPINAS, INC., Petitioner,

vs.
JESUS B. MENDOZA, Respondent.

DECISION

CARPIO, J.:

The Case

Before us is a petition for review on certiorari1 assailing the Decision2 dated 30 March 2012 and
Resolution3 dated 6 June 2012 of the Court of Appeals in CA-G.R. CV No. 89178.

The Facts
Petitioner Sime Darby Pilipinas, Inc. (Sime Darby) employed Jesus B. Mendoza (Mendoza) as sales
manager to handle sales, marketing, and distribution of the company's tires and rubber products. On
3 July 1987, Sime Darby bought a Class "A" club share4 in Alabang Country Club (ACC) from
Margarita de Araneta as evidenced by a Deed of Absolute Sale.5 The share, however, was placed
under the name of Mendoza in trust for Sime Darby since the By-Laws6 of ACC state that only
natural persons may own a club share.7 As part of the arrangement, Mendoza endorsed the Club
Share Certificate8 in blank and executed a Deed of Assignment,9 also in blank, and handed over the
documents to Sime Darby. From the time of purchase in 1987, Sime Darby paid for the monthly
dues and other assessments on the club share.

When Mendoza retired in April 1995, Sime Darby fully paid Mendoza his separation pay amounting
to more than ₱3,000,000. Nine years later, or sometime in July 2004, Sime Darby found an
interested buyer of the club share for ₱1,101,363.64. Before the sale could push through, the broker
required Sime Darby to secure an authorization to sell from Mendoza since the club share was still
registered in Mendoza’s name. However, Mendoza refused to sign the required authority to sell or
special power of attorney unless Sime Darby paid him the amount of ₱300,000, claiming that this
represented his unpaid separation benefits. As a result, the sale did not push through and Sime
Darby was compelled to return the payment to the prospective buyer.

On 13 September 2005, Sime Darby filed a complaint10 for damages with writ of preliminary
injunction against Mendoza with the Regional Trial Court (RTC) of Makati City, Branch 132. Sime
Darby claimed that it was the practice of the company to extend to its senior managers and
executives the privilege of using and enjoying the facilities of various club memberships, i.e. Manila
Golf and Country Club, Quezon City Sports Club, Makati Sports Club, Wack Wack Golf Club, and
Baguio Golf and Country Club. Sime Darby added that during Mendoza’s employment with the
company until his retirement in April 1995, Sime Darby regularly paid for the monthly dues and other
assessments on the ACC Class "A" club share. Further, Sime Darby alleged that Mendoza sent a
letter11 dated 9 August 2004 to ACC and requested all billings effective September 2004 be sent to
his personal address. Despite having retired from Sime Darby for less than 10 years and long after
the employment contract of Mendoza with the company has been severed, Mendoza resumed using
the facilities and privileges of ACC, to the damage and prejudice of Sime Darby. Thus, Sime Darby
prayed that a restraining order be issued, pending the hearing on the issuance of a writ of
preliminary injunction, enjoining Mendoza from availing of the club’s facilities and privileges as if he
is the owner of the club share.

On 15 November 2005, Mendoza filed an Answer alleging ownership of the club share. Mendoza
stated that Sime Darby purchased the Class "A" club share and placed it under his name as part of
his employee benefits and bonus for past exemplary service. Mendoza admitted endorsing in blank
the stock certificate covering the club share and signing a blank assignment of rights only for the
purpose of securing Sime Darby’s right of first refusal in case he decides to sell the club share.
Mendoza also alleged that when he retired in 1995, Sime Darby failed to give some of his retirement
benefits amounting to ₱300,000. Mendoza filed a separate Opposition to Sime Darby’s application
for restraining order and preliminary injunction stating that there was no showing of grave and
irreparable injury warranting the relief demanded.

On 3 January 2006, the RTC denied Sime Darby’s prayer for restraining order and preliminary
injunction. Sime Darby then filed a Motion for Summary Judgment explaining that a trial was no
longer necessary since there was no issue as to any material fact. On 13 March 2006, the trial court
denied the motion. Thereafter, trial on the merits ensued.

Sime Darby presented three witnesses: (1) Atty. Ronald E. Javier, Sime Darby’s Vice-President for
Legal Affairs and Corporate Secretary, who testified that Mendoza refused to give Sime Darby his
authorization to sell the club share unless he was paid ₱300,000 as additional retirement benefit and
that Sime Darby was compelled to institute the case and incurred legal expenses of ₱200,000; (2)
Ranel A. Villar, ACC’s Membership Department Supervisor, who testified that the club share was
registered under the name of Mendoza since ACC’s By-Laws prohibits juridical persons from
acquiring a club share and attested that Sime Darby paid for the monthly dues of the share since it
was purchased in 1987; and (3) Ira F. Cascon, Sime Darby’s Treasurer since 1998, who testified
that she asked Mendoza to endorse ACC Stock Certificate No. A-1880 at the back and to sign the
assignment of rights, as required by Sime Darby.

On the other hand, Mendoza presented two witnesses: (1) himself; and (2) Ranel Villar, the same
employee of ACC who also testified for Sime Darby, who confirmed that the club share could not be
sold to a corporation like Sime Darby. In his testimony, Mendoza testified that (1) he owns the
disputed club share; (2) Sime Darby allowed him to personally choose the share that he liked as part
of his benefits; (3) as a condition for membership in ACC, he had to personally undergo an interview
with regard to his background and not the company’s; (4) though he retired in 1995, he only started
paying the club share dues in 2004 because after his retirement, he migrated to the United States
until he came back in 1999 and since then he had been going back and forth to the United States;
(5) in May 2004, he met with Atty. Ronald E. Javier, Sime Darby’s representative, to discuss the
supposed selling of the club share which he refused since there were still unpaid retirement benefits
due him; and (6) ACC recognizes him as the owner of the club share.

On 30 April 2007, the trial court rendered a Decision in favor of Sime Darby. The dispositive portion
states:

WHEREFORE, premises considered, judgment is hereby rendered enjoining defendant Jesus B.

Mendoza, from making use of Stock Certificate No. 1880 of the Alabang Golf and Country Club, Inc.,
and ordering defendant Jesus B. Mendoza to pay the plaintiff ₱100,000.00 as temperate damages,
and ₱250,000.00 as attorney’s fees and litigation expenses.

SO ORDERED.12

Mendoza filed an appeal with the Court of Appeals. On 30 March 2012, the appellate court reversed
the ruling of the trial court.13 The appellate court ruled that Sime Darby failed to prove that it has a
clear and unmistakable right over the club share of ACC. The dispositive portion of the Decision
states:

WHEREFORE, in view of all the foregoing, the appealed decision of the Regional Trial Court is
REVERSED and SET ASIDE. Resultantly, the Complaint in Civil Case No. 05-821, is hereby
DISMISSED.

SO ORDERED.14

Sime Darby filed a Motion for Reconsideration which the Court of Appeals denied in a
Resolution15 dated 6 June 2012.

Hence, the instant petition.

The Issues
The issues for our resolution are: (1) whether Sime Darby is entitled to damages and injunctive relief
against Mendoza, its former employee; and (2) whether the appellate court erred in declaring that
Mendoza is the owner of the club share.

The Court’s Ruling

The petition has merit.

Section 3, Rule 58 of the Rules of Court, which provides for the grounds for the issuance of a
preliminary injunction, states:

SEC. 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.

In Medina v. Greenfield Development Corp.,16 we held that the purpose of a preliminary injunction is
to prevent threatened or continuous irremediable injury to some of the parties before their claims can
be thoroughly studied and adjudicated. Its sole aim is to preserve the status quo until the merits of
the case can be heard fully. Thus, to be entitled to an injunctive writ, Sime Darby has the burden of
establishing the following requisites:

(1) a right in esse or a clear and unmistakable right to be protected;

(2) a violation of that right;

(3) that there is an urgent and permanent act and urgent necessity for the writ to prevent
serious damage.

In the present case, petitioner Sime Darby has sufficiently established its right over the subject club
share. Sime Darby presented evidence that it acquired the Class "A" club share of ACC in 1987
through a Deed of Sale. Being a corporation which is expressly disallowed by ACC’s By-Laws to
acquire and register the club share under its name, Sime Darby had the share registered under the
name of respondent Mendoza, Sime Darby’s former sales manager, under a trust arrangement.
Such fact was clearly proved when in the application form17 dated 17 July 1987 of the ACC for the
purchase of the club share, Sime Darby placed its name in full as the owner of the share and
Mendoza as the assignee of the club share. Also, in connection with the application for membership,
Sime Darby sent a letter18 dated 17 September 1987 addressed to ACC confirming that "Mendoza,
as Sime Darby’s Sales Manager, is entitled to club membership benefit of the Company."
Even during the trial, at Mendoza’s cross-examination, Mendoza identified his signature over the
printed words "name of assignee" as his own and when confronted with his Reply-Affidavit, he did
not refute Sime Darby’s ownership of the club share as well as Sime Darby’s payment of the monthly
billings from the time the share was purchased.19 Further, Mendoza admitted signing the club share
certificate and the assignment of rights, both in blank, and turning it over to Sime Darby. Clearly,
these circumstances show that there existed a trust relationship between the parties.

While the share was bought by Sime Darby and placed under the name of Mendoza, his title is only
limited to the usufruct, or the use and enjoyment of the club’s facilities and privileges while employed
with the company. In Thomson v. Court of Appeals,20 we held that a trust arises in favor of one who
pays the purchase price of a property in the name of another, because of the presumption that he
who pays for a thing intends a beneficial interest for himself. While Sime Darby paid for the purchase
price of the club share, Mendoza was given the legal title. Thus, a resulting trust is presumed as a
matter of law. The burden then shifts to the transferee to show otherwise.

Mendoza, as the transferee, claimed that he only signed the assignment of rights in blank in order to
give Sime Darby the right of first refusal in case he decides to sell the share later on. A right of first
refusal, in this case, would mean that Sime Darby has a right to match the purchase price offer of
Mendoza’s prospective buyer of the club share and Sime Darby may buy back the share at that
price. However, Mendoza’s contention of the right of first refusal is a self-serving statement. He did
not present any document to show that there was such an agreement between him and the
company, not even an acknowledgment from Sime Darby that it actually intended the club share to
be given to him as a reward for his performance and past service.

In fact, the circumstances which occurred after the purchase of the club share point to the opposite.
First, Mendoza signed the share certificate and assignment of rights both in blank. Second,
Mendoza turned over possession of the documents to Sime Darby. Third, from the time the share
was purchased in 1987 until 1995, Sime Darby paid for the monthly bills pertaining to the share.
Last, since 1987, the monthly bills were regularly sent to Sime Darby’s business address until
Mendoza requested in August 2004, long after he retired from the employ of the company, that such
bills be forwarded to his personal address starting September 2004.

It can be gathered then that Sime Darby did not intend to give up its beneficial interest and right over
the share. The company merely wanted Mendoza to hold the share in trust since Sime Darby, as a
corporation, cannot register a club share in its own name under the rules of the ACC. At the same
1âwphi1

time, Mendoza, as a senior manager of the company, was extended the privilege of availing a club
membership, as generously practiced by Sime Darby.

However, Mendoza violated Sime Darby’s beneficial interest and right over the club share after he
was informed by Atty. Ronald E. Javier of Sime Darby’s plan to sell the share to an interested buyer.
Mendoza refused to give an authorization to sell the club share unless he was paid ₱300,000
allegedly representing his unpaid retirement benefit. In August 2004, Mendoza tried to appropriate
the club share and demanded from ACC that he be recognized as the true owner of the share as the
named member in the stock certificate as well as in the annual report issued by ACC. Despite being
informed by Sime Darby to stop using the facilities and privileges of the club share, Mendoza
continued to do so. Thus, in order to prevent further damage and prejudice to itself, Sime Darby
properly sought injunction in this case.

As correctly observed by the RTC in its Decision dated 30 April 2007:

In order for a writ of preliminary injunction to issue, the following requisites must be present: (a)
invasion of the right sought to be protected is material and substantial; (b) the right of the
complainant is clear and unmistakable, and (c) there is an urgent and paramount necessity for the
writ to prevent serious damage. The twin requirements of a valid injunction are the existence of a
right and its actual or threatened violations.

All the elements are present in the instant case. Plaintiff bought the subject share in 1987. As the
purchaser of the share, it has interest and right over it. There is a presumption that the share was
bought for the use of the defendant while the latter is still connected with the plaintiff. This is
because when the share was registered under the name of defendant, the latter signed the stock
certificate in blank as well as the deed of assignment and placed the certificate under the possession
of the plaintiff. Hence, plaintiff did not intend to relinquish its interest and right over the subject,
rather it intended to have the share held in trust by defendant, until a new grantee is named. This
can be inferred from plaintiff’s witness’ testimony that plaintiff required the defendant to sign the said
documents so that the plaintiff can be assured that its ownership of the property is properly
documented. Thirdly, plaintiff’s payments of monthly billings of the subject share bolster defendant
possession in trust rather than his ownership over the share. With this, the right of plaintiff over the
share is clear and unmistakable. With defendant’s continued use of the subject share despite that he
is not anymore connected with plaintiff, and with plaintiff’s demand upon the defendant to desist from
making use of the club facilities having been ignored, clearly defendant violated plaintiff’s right over
the use and enjoyment thereof. Hence, plaintiff is entitled to its prayer for injunction.

xxxx

As to the second issue, plaintiff claimed for temperate or moderate damages.

xxxx

In the present case, it was established that sometime in July 2004, plaintiff tried to sell the share but
defendant refused to give the authority. Thus, plaintiff was forced to return the amount of ₱1,100,000
to the buyer. Additionally, plaintiff cannot make use of the facilities of the club because defendant
insists on enjoying it despite the fact that he is no longer connected with the plaintiff. With this, the
Court deems it proper to impose upon the defendant ₱100,000 as temperate damages.

Further, plaintiff having established its right to the relief being claimed and inasmuch as it was
constrained to litigate in order to protect its interest as well as incurred litigation expenses, attorney's
fees are hereby awarded in the amount of ₱250,000.21

In sum, we grant the damages and injunctive relief sought by Sime Darby, as the true owner of the
ACC Class "A" club share. Sime Darby has the right to be protected from Mendoza's act of using the
facilities and privileges of ACC. Since the records show that Sime Darby was dissolved on 31
December 2011, it has three years to convey its property and close its affairs as a body corporate
under the Corporation Code.22 Thus, Sime Darby may choose to dispose of the club share in any
manner it sees fit without undue interference from Mendoza, who lost his right to use the club share
when he retired from the company.

WHEREFORE, we GRANT the petition. We SET ASIDE the 30 March 20 I 2 Decision and 6 June
2012 Resolution of the Court of Appeals in CA-G.R. CV No. 89178. We REINSTATE the 30 April
2007 Decision of the Regional Trial Court of Makati City, Branch 132 in Civil Case No. 05-821.

SO ORDERED.

G.R. No. 181844 September 29, 2010

SPS. FELIPE and JOSEFA PARINGIT, Petitioner,
vs.
MARCIANA PARINGIT BAJIT, ADOLIO PARINGIT and ROSARIO PARINGIT
ORDOÑO, Respondents.

DECISION

ABAD, J.:

This case is about the existence of an implied trust in a transaction where a property was bought by
one sibling supposedly for the benefit of all. The other siblings now want to recover their share in the
property by reimbursing their brother for their share in the purchase price.

The Facts and the Case

During their lifetime, spouses Julian and Aurelia Paringit leased a lot on Norma Street, Sampaloc,
Manila (the lot) from Terocel Realty, Inc. (Terocel Realty).1 They built their home there and raised
five children, namely, Florencio, Felipe, Marciana, Adolio, and Rosario.2 Aurelia died on November 6,
1972.3

For having occupied the lot for years, Terocel Realty offered to sell it to Julian but he did not have
enough money at that time to meet the payment deadline. Julian sought the help of his children so
he can buy the property but only his son Felipe and wife Josefa had the financial resources he
needed at that time.4 To bring about the purchase, on January 16, 1984 Julian executed a deed of
assignment of leasehold right in favor of Felipe and his wife that would enable them to acquire the
lot.5 On January 30, 1984 the latter bought the same from Terocel Realty for ₱55,500.00 to be paid
in installments.6 On April 12, 1984 Felipe and his wife paid the last installment and the realty
company executed a Deed of Absolute Sale in their favor and turned over the title to them.7

On February 25, 1985, due to issues among Julian’s children regarding the ownership of the lot,
Julian executed an affidavit clarifying the nature of Felipe and his wife’s purchase of the lot. He
claimed that it was bought for the benefit of all his children.8 He said in his affidavit:

3. That recently, the Terocel Realty, Inc., owners of the subdivision lots in Sampaloc, gave a limited
period to actual occupants like us within which to purchase the lands occupied and as I had no funds
at that time, I asked all my children and their respective spouses to contribute money with which to
purchase the lot and thereafter to divide the lot among themselves but only my son Felipe Paringit
and his wife Josefa answered my plea and so, in order that they could purchase the land, I assigned
to my son and his wife my right to the whole property and with this assignment, the couple
purchased the parcel of land from the Terocel Realty, Inc. for the sum of Fifty Five Thousand Five
Hundred Pesos (₱55,500.00) Philippine currency on April 12, 1984 as shown in the Deed of
Absolute sale executed by the Terocel Realty, Inc. bearing Registry No. 273, Page 56, Book XV,
Series of 1984, of Notary Public of Manila, Atty. Albino B. Achas plus the sum of ₱4,500.00
expenses or a total of Sixty Thousand (₱60,000.00);

xxxx

5. That to set the records straight, and to effect peace and understanding among my children and
their respective families, I, as father and head of the family, hereby declare:

xxxx
 c) That my conjugal share in the above described property is one half or 75 sq. m. and the
other half or 75 sq. m. belongs to my deceased wife;

d) That I waive my share in the estate of my deceased wife and as she has no will regarding
the said estate, the same must be divided equally among my five children at 15 sq. m. each;
but each of them should reimburse their brother Felipe and his wife, Josefa the proportional
amount advanced by them as I also will reimburse him the sum of ₱30,000.00 or one half of
the amount that the couple advanced.

e) That if any of my children claims or needs a bigger area than 15 sq. m., he/she should
amicably talk with or negotiate with any other brother or sister for transfer or assignment of
such area as they agree.9

Expressing their concurrence with what their father said in his affidavit, Felipe’s siblings, namely,
Marciana, Rosario, and Adolio (collectively, Marciana, et al) signed the same. Josefa, Felipe’s wife,
also signed the affidavit for Felipe who was in Saudi Arabia.10 Only Florencio, among the siblings, did
not sign.

On January 23, 1987 Felipe and his wife registered their purchase of the lot,11 resulting in the
issuance of Transfer Certificate of Title 172313 in their names.12 Despite the title, however, the
spouses moved to another house on the same street in 1988.13 Marciana, et al, on the other hand,
continued to occupy the lot with their families without paying rent.14 This was the situation when their
father Julian died on December 21, 1994.

On December 18, 1995 Felipe and his wife sent a demand letter to Marciana, et al asking them to
pay rental arrearages for occupying the property from March 1990 to December 1995 at the rate of
₱2,400.00 a month, totaling ₱168,000.00.15 Marciana, et al refused to pay or reply to the letter,
believing that they had the right to occupy the house and lot, it being their inheritance from their
parents. On March 11, 1996 Felipe and his wife filed an ejectment suit against them.16 The suit
prospered, resulting in the ejectment of Marciana, et al and their families from the property.17 Shortly
after, Felipe and his wife moved into the same.18

To vindicate what they regarded as their right to the lot and the house, on July 24, 1996 Marciana, et
al filed the present action against Felipe and his wife for annulment of title and reconveyance of
property before the Regional Trial Court (RTC) of Manila, Branch 39.19

In his answer, Felipe denied knowledge of the agreement among the siblings that the property would
devolve to them all.20 Josefa, his wife, claimed that she signed the affidavit only because Marciana,
et al were going to get mad at her had she refused.21 She also claimed that she signed the document
only to prove having received it.22

For their part, Marciana, et al insisted that the agreement was that Felipe and his wife would acquire
the lot for the benefit of all the siblings. They even tried to reimburse the spouses for their shares in
the lot’s price.23 In fact, Adolio offered to pay ₱32,000.00 for his 30 square meter-portion of the lot
but Felipe and his wife did not accept it. The other siblings tried to pay for their shares of the
purchase price, too, but the spouses already avoided them.24 Marciana, et al denied pressuring
Josefa into signing the document in question. They claimed that it was in fact Josefa who caused the
drafting of the affidavit.25

On July 21, 2004 the RTC rendered a decision, finding the evidence of Marciana, et al insufficient to
prove by preponderance of evidence that Felipe and his wife bought the subject lot for all of the
siblings. Not satisfied with that decision, Marciana, et al appealed to the Court of Appeals (CA).
On August 29, 2007 the CA rendered judgment26 reversing the decision of the RTC and ordering
Felipe and his wife to reconvey to Marciana, et al their proportionate share in the lot upon
reimbursement of what the spouses paid to acquire it plus legal interest. Felipe and his wife filed a
motion for reconsideration of the decision but the CA denied it on February 21, 2008,27 prompting
them to come to this Court on a petition for review.

The Issues Presented

This case presents the following issues:

1. Whether or not the CA erred in finding that Felipe and his wife purchased the subject lot
under an implied trust for the benefit of all the children of Julian; and

2. Whether or not the CA erred in failing to hold that Marciana, et al’s right of action was
barred by prescription or laches.

The Court’s Rulings

The CA found that Felipe and his wife’s purchase of the lot falls under the rubric of the implied trust
provided in Article 1450 of the Civil Code.28 Implied trust under Article 1450 presupposes a situation
where a person, using his own funds, buys property on behalf of another, who in the meantime may
not have the funds to purchase it. Title to the property is for the time being placed in the name of the
trustee, the person who pays for it, until he is reimbursed by the beneficiary, the person for whom
the trustee bought the land. It is only after the beneficiary reimburses the trustee of the purchase
price that the former can compel conveyance of the property from the latter.29

Felipe and his wife claim 1) that they did not lend money to Marciana, et al for the purchase of the
lot; 2) that they did not buy it for the benefit of the siblings; and 3) that the conveyance of the lot was
not to secure the payment of any supposed loan. Felipe and his wife insist that they had no
agreement with Marciana, et al regarding the spouses’ purchase of the lot for the benefit of all of
Julian’s children.

But the circumstances of this case are actually what implied trust is about. Although no express
agreement covered Felipe and his wife’s purchase of the lot for the siblings and their father, it came
about by operation of law and is protected by it. The nature of the transaction established the implied
trust and this in turn gave rise to the rights and obligations provided by law. Implied trust is a rule of
equity, independent of the particular intention of the parties.30

Here, the evidence shows that Felipe and his wife bought the lot for the benefit of Julian and his
children, rather than for themselves. Thus:

First. There is no question that the house originally belonged to Julian and Aurelia who built
it. When Aurelia died, Julian and his children inherited her conjugal share of the house.
When Terocel Realty, therefore, granted its long time tenants on Norma Street the right to
acquire the lots on which their house stood, that right technically belonged to Julian and all
his children. If Julian really intended to sell the entire house and assign the right to acquire
the lot to Felipe and his wife, he would have arranged for Felipe’s other siblings to give their
conformity as co-owners to such sale. And if Felipe and his wife intended to buy the lot for
themselves, they would have, knowing that Felipe’s siblings co-owned the same, taken steps
to secure their conformity to the purchase. These did not happen.
 Second. Julian said in his affidavit that Felipe and his wife bought the lot from Terocel Realty
on his behalf and on behalf of his other children. Felipe and his wife advanced the payment
because Julian and his other children did not then have the money needed to meet the realty
company’s deadline for the purchase. Julian added that his other children were to reimburse
Felipe for the money he advanced for them.

Notably, Felipe, acting through his wife, countersigned Julian’s affidavit the way his siblings
did. The document expressly acknowledged the parties’ intention to establish an implied trust
between Felipe and his wife, as trustees, and Julian and the other children as trustors.
Josefa, Felipe’s wife, of course claims that she signed the document only to show that she
received a copy of it. But her signature did not indicate that fact. She signed the document in
the manner of the others.

Third. If Felipe and his wife really believed that the assignment of the house and the right to
buy the lot were what their transactions with Julian were and if the spouses also believed
that they became absolute owners of the same when they paid for the lot and had the title to
it transferred in their name in 1987, then their moving out of the house in 1988 and letting
Marciana, et al continue to occupy the house did not make sense. They would make sense
only if, as Marciana, et al and their deceased father claimed, Felipe and his wife actually
acquired the lot only in trust for Julian and all the children.

Fourth. Felipe and his wife demanded rent from Marciana, et al only on December 18, 1995,
a year following Julian’s death on December 21, 1994. This shows that from 1984 when they
bought the lot to December 18, 1995, when they made their demand on the occupants to
leave, or for over 10 years, Felipe and his wife respected the right of the siblings to reside on
the property. This is incompatible with their claim that they bought the house and lot for
themselves back in 1984. Until they filed the suit, they did nothing to assert their supposed
ownership of the house and lot.

Felipe and his wife also claim that Marciana, et al’s action to recover their portions of the house and
lot had already prescribed. True, an implied trust prescribes within 10 years from the time the right of
action accrues.31 But when did the right of action based on the implied trust accrue in this case? A
right of action implies the existence of a cause of action and a cause of action has three elements: a)
the existence of a right in plaintiff’s favor; b) defendant’s obligation to respect such right; and c)
defendant’s act or omission that violates the plaintiff’s right. Only when the last element occurs or
takes place can it be said in law that a cause of action has arisen.32

In an implied trust, the beneficiary’s cause of action arises when the trustee repudiates the trust, not
when the trust was created as Felipe and his wife would have it.33 The spouses of course registered
the lot in their names in January 1987 but they could not be said to have repudiated the implied trust
by that registration. Their purchase of the land and registration of its title in their names are not
incompatible with implied trust. It was understood that they did this for the benefit of Julian and all
the children.

At any rate, even assuming that Felipe and his wife’s registration of the lot in their names in January
1987 constituted a hostile act or a violation of the implied trust, Marciana, et al had 10 years or until
January of 1997 within which to bring their action. Here, they filed such action in July 1996 well
within the period allowed them.

Felipe and his wife also claim that Marciana, et al’s action was barred by laches. But there is no
basis for such claim. Laches has been defined as the failure or neglect, for an unreasonable and
unexplained length of time, to do that which, by exercising due diligence could or should have been
done earlier.341avvphil

Here, Marciana, et al had no reason to file an earlier suit against Felipe and his wife since the latter
had not bothered them despite their purchase of the lot in their names on January 30, 1984. Only
about 12 years later or on December 18, 1995 when they wrote their demand letter did the spouses
take an adverse attitude against Marciana, et al. The latter filed their action to annul Felipe and his
wife’s title and have the same transferred to their names not too long later on July 24, 1996.

Finally, the CA ordered Marciana, et al to reimburse Felipe and his wife the individual siblings’
proportionate share in the ₱55,500.00 that the spouses paid the realty company. But, according to
Julian’s affidavit, concurred in by Felipe, his wife, and Marciana, et al, the total acquisition cost of the
lot was ₱60,000.00 (purchase price of ₱55,500.00 plus additional expenses of ₱4,500.00). Thus,
respondents should reimburse petitioners their proportionate contribution in the total acquisition cost
of ₱60,000.00.

WHEREFORE, the Court DENIES the petition, and AFFIRMS the decision of the Court of Appeals in
CA-G.R. CV 84792 with the MODIFICATION that respondents Marciana Paringit Bajit, Adolio
Paringit, and Rosario Paringit Ordoño reimburse petitioners Felipe and Josefa Paringit of their
corresponding share in the purchase price plus expenses advanced by petitioners amounting
to ₱60,000.00 with legal interest from April 12, 1984 until fully paid.

SO ORDERED.

G.R. No. L-12149 September 30, 1960

HEIRS OF EMILIO CANDELARIA, ETC., plaintiff-appellant,

vs.
LUISA ROMERO, ET AL., defendants-appellees.

Vicente P. Fernando for appellants.

P.L. Meer for appellees.

GUTIERREZ DAVID, J.:

This is an appeal from an order dismissing plaintiff's complaint for reconveyance of real property with
damages. The dismissal was ordered on a mere motion to dismiss before answer was filed.

The complaint, which was filed on December 20, 1956 by Ester Candelaria in her own behalf and in
representation of the other alleged heirs of Emilio Candelaria, alleges in substance that sometime
prior to 1917 the latter and his brother Lucas Candelaria bought each a lot in the Solokan
Subdivision on the installment basis; that Lucas paid the first two installments corresponding to his
lot, but faced with the inability of meeting the subsequent installments because of sickness which
caused him to be bedridden, he sold his interest therein to his brother Emilio, who then reimbursed
him the amount he had already paid, and thereafter continued payment of the remaining installments
until the whole purchase price had been fully satisfied; "that although Lucas Candelaria had no more
interest over the lot, the subsequent payments made by Emilio Candelaria until fully paid were made
in the name of Lucas Candelaria, with the understanding that the necessary documents of transfer
will be made later, the reason that the transaction being from brother to brother"; that in 1918 a
transfer certificate of title for said lot was issued by the register of deeds of Manila in the name of
"Lucas Candelaria married to Luisa Romero"; that Lucas held the title to said lot merely in trust for
Emilio and that this fact was acknowledged not only by him but also by the defendants (his heirs) on
several occasions; that Lucas' possession of the lot was merely tolerated by Emilio and his heirs;
that from the time Emilio bought the lot from his brother, Lucas had been collecting all its rents for
his own use as financial aid to him as a brother in view of the fact that he was bedridden without any
means of livelihood and with several children to support, although from 1926, when Emilio was
confined at the Culion Leper Colony up to his death on February 5, 1936, Lucas had been giving
part of the rents to Fortunata Bautista, the second wife of Emilio, in accordance with the latter's
wishes; that Lucas died in August, 1942, survived by the present defendants, who are his spouse
Luisa Romero and several children; and that said defendants are still in possession of the lot, having
refused to reconvey it to plaintiff despite repeated demands.

Instead of answering the complaint, the defendants filed a motion to dismiss, alleging, among other
things, that plaintiff's cause of action is unenforceable under the new Civil Code and that the action
has already prescribed. And the court having upheld the motion, plaintiff took this appeal. 1awphîl .nèt

In the order granting the motion to dismiss, the lower court held that an express and not an implied
trust was created as may be gleaned from the facts alleged in the complaint, which is unenforceable
without any writing, and that since Transfer Certificate of Title No. 9584 covering the land in question
had been issued to Lucas Candelaria way-back in 1918 or 38 years before the filing of the
complaint, the action has already prescribed.

The trust alleged to have been created, in our opinion, is an implied trust. As held, in effect, by this
Court in the case of Martinez vs. Graño (42 Phil., 35), where property is taken by a person under an
agreement to hold it for, or convey it to another or the grantor, a resulting or implied trust arises in
favor of the person for whose benefit the property was intended. This rule, which has been
incorporated in the new Civil Code in Art. 1453 thereof, is founded upon equity. The rule is the same
in the United States, particularly where, on the faith of the agreement or the understanding, the
grantee is enabled to gain an advantage in the purchase of the property or where the consideration
or part thereof has been furnished by or for such other. Thus, it has been held that where the
grantee takes the property under an agreement to convey another on certain conditions, a trust
results for the benefit of such other or his heirs, which equity will enforce according to the
agreement. (89 C.J.S. 960.) It is also the rule there that an implied trust arises where a person
purchases land with his own money and takes a conveyance thereof in the name of another. In such
a case, the property is held on a 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 contract or agreement of the parties, but from the facts and
circumstances, that is to say, it results because of equity and arises by implication or operation of
law. (See 89 C.J.S. 964-968.)

In the present case, the complaint expressly alleges that "although Lucas Candelaria had no more
interest over the lot, the subsequent payments made by Emilio Candelaria until fully paid were made
in the name of Lucas Candelaria, with the understanding that the necessary documents of transfer
will be made later, the reason that the transaction being brother to brother." From this allegation, it is
apparent that Emilio Candelaria who furnished the consideration intended to obtain a beneficial
interest in the property in question. Having supplied the purchase money, it may naturally be
presumed that he intended the purchase for his own benefit. Indeed, it is evident from the above-
quoted allegation in the complaint that the property in question was acquired by Lucas Candelaria
under circumstances which show it was conveyed to him on the faith of his intention to hold it for, or
convey it to the grantor, the plaintiff's predecessor in interest.

Constructive or implied trusts may, of course, be barred by lapse of time. The rule in such trusts is
that laches constitutes a bar to actions to enforce the trust, and repudiation is not required, unless
there is a concealment of the facts giving rise to the trust. (Diaz, et al. vs. Gorricho, et al., 103 Phil.,
261; 54 Off. Gaz. [37] 8429.) Continuous recognition of a resulting trust, however, precludes any
defense of laches in a suit to declare and enforce the trust. (See 581, 54 Am Jur. pp. 448-450.) The
beneficiary of a resulting trust may, therefore, without prejudice to his right to enforce the trust, prefer
the trust to persist and demand no conveyance from the trustee. It being alleged in the complaint
that Lucas held the title to the lot in question merely in trust for Emilio and that this fact was
acknowledged not only by him but also by his heirs, herein defendants — which allegation is
hypothetically admitted — we are not prepared to rule that plaintiff's action is already barred by lapse
of time. On the contrary, we think the interest of justice would be better served if she and her alleged
co-heirs were to be given an opportunity to be heard and allowed to present proof in support of their
claim.

Wherefore, the order of dismissal appealed from is hereby reversed and the case remanded to the
court a quo for further proceedings. So ordered without costs.

G.R. No. 47354 March 21, 1989

HORACIO G. ADAZA and FELICIDAD MARUNDAN, petitioners,

vs.
THE HONORABLE COURT OF APPEALS and VIOLETA G. ADAZA, assisted by her husband
LINO AMOR, respondents.

Nitorreda Law 0ffice for petitioners.

Pacatang & Pacatang Law Offices for private respondents.

FELICIANO, J.:

In the lawful wedlock of Victor Adaza and Rosario Gonzales were born six (6) children: petitioner
Horacio, Homero, Demosthenes, respondent Violeta, Teresita and Victor, Jr.

The head of the family, Victor Adaza, Sr., died in 1956, while the wife died in 1971. During his
lifetime, Victor Adaza, Sr. executed a Deed of Donation dated 10 June 1953, covering the parcel of
land subject matter of this case, with an area of 13.3618 hectares, located at Sinonok, Dapitan City,
Zamboanga del Norte, in favor of respondent Violeta, then still single. The donation was accepted in
the same instrument, which both donor and donee acknowledged before Notary Public ex
officio Milagros C. Galeposo. The land donated was then part of the public domain, being disposable
public land, and had been held and cultivated by Victor Adaza, Sr. for many years. Violeta, with the
aid of her brother Horacio, filed a homestead application covering the land involved. This application
was in due course approved and a free patent issued to her on 3 October 1956. As a result thereof,
on 26 January 1960, an Original Certificate of Title No. P-11111 was issued in her name. She
declared the property in her name under Tax Declaration No. 9808.

The record does not show when Violeta Adaza got married. But in 1962, Violeta and her husband
Lino Amor, obtained a loan from the Philippine National Bank which they secured with a mortgage
on the land covered by OCT No. P-11111. The land was, and continued to be administered by
Violeta's brother, Homero Adaza.

Petitioner Horacio Adaza was appointed Provincial Fiscal of Davao Oriental in 1967. He accordingly
moved from Dapitan City to Davao Oriental.
Four (4) years later, petitioner Horacio came back to Dapitan City for the town fiesta. He invited
respondent Violeta and the other brothers and sister for a family gathering in his house. There,
Horacio asked Violeta to sign a Deed of Waiver which had been prepared in respect of the property
in Sinonok donated by their father Victor Adaza, Sr.. This Deed stated that the Sinonok property was
owned in common by Violeta and her brother Horacio G. Adaza, even though the certificate of title
had been issued in her name only. The Deed also provided for the waiver, transfer and conveyance
by Violeta in favor of Horacio of one-half (1/2) of the Sinonok property, together with all
improvements existing in that one-half (1/2) portion. Violeta signed this Deed of Waiver: the Deed
was also signed by petitioner Horacio and Homero Adaza as witnesses. The full text of this Deed of
Waiver follows:

DEED OF WAIVER

KNOW ALL MEN BY THESE PRESENTS:

I, VIOLETA G. ADAZA, of legal age, married to Lino Amor, Filipino, with residence
and postal address at Dapitan City, am the absolute owner in fee simple of a parcel
of land situated in Dapitan City, known as Lot No. Psu-141743, with an area of
13.3618 hectares more or less, covered by TRANSFER CERTIFICATE OF TITLE
NO. T- 11111, (sic) of the Registry of Property of Zamboanga del Norte, and
declared for taxation purposes under Tax Declaration No. 2926 (sic), with an
assessed value of P4,340.00.

Whereas, aforesaid property is owned in common by me and my brother, HORACIO

G. ADAZA, although the certificate of title was issued only in my sole name;

NOW, THEREFORE, for and in consideration of the premises aforestated, I do

hereby WAIVE, TRANSFER, RELINQUISH AND CONVEY unto the said HORACIO
G. ADAZA, of legal age, married to Felicidad Marundan, Filipino, and a resident of
Dapitan City, all my rights, interest, participation and ownership over the ONE-HALF
(1/2) PORTION of the aforesaid property, together with all the improvements, found
and existing over the said one-half.

IN WITNESS WHEREOF, I have hereunto affixed my signature this 28th day of July,
1971, at Dapitan City, Philippines.

(SGD.) VIOLETA G. ADAZA

Signed in my presence:

(SGD.) ILLEGIBLE (SGD.) ILLEGIBLE

Republic of the Philippines)

City of Dapitan ) S.S.

(SGD.) ILLEGIBLE

Before me, this 28th day of July, 1971, at Dapitan City, personally appeared
VIOLETA G. ADAZA, with Res. Certificate No. A2825141, issued at Dapitan City,
Jan. 7,1971, known to me and to me known to be the same person who executed the
 foregoing instrument and she acknowledged to me that the same is her free and
voluntary act and deed.

WITNESS MY HAND AND SEAL, on the date and at the place first above stated.

(SGD.) GODARDO AD. JACINTO

Notary Public

Until December 31, 1972

Doc. No. 138

Page No. 50

Book No. VI

Series of 1971, p. 6, Folder of Exhibits,

Exh. 4. 1

A few months later, or on 12 October 1971, respondent Violeta joined by her husband, Lino Amor, filed a complaint (docketed as Civil Case
No. 2213) for annulment of the Deed of Waiver and for damages, against petitioner spouses Horacio and Felisa M. Adaza. In this
Complaint, 2 Violeta and her husband alleged, among other things: (1) that she was absolute owner of the land in question by virtue of the
unconditional donation executed by their father Victor Adaza, Sr.: (2) that she was registered owner of the same land; (3) that she had signed
the Deed of Waiver because of petitioner Horacio's fraud, misrepresentation and undue influence; and (4) that because of the malicious acts
and conduct of petitioner Horacio, she and her husband were entitled to P5,000.00 as moral damages, P2,000.00 as exemplary damages.
P1,000.00 as attorney's fees and P500.00 as litigation expenses.

In their Answer, 3 petitioner Adaza spouses contended that petitioner Horacio and his sister respondent Violeta were co-owners of the
disputed land although the same had been registered under Violeta's name alone, and that Violeta's ownership was subject to Horacio's
rights as co-owner and to the obligation to keep or use the property for the benefit of their parents while either of them was still alive.
Petitioners further contended that Violeta had executed the Deed of Waiver freely and voluntarily. They also interposed a counterclaim for
accounting of the value of his interest and of his share in the income from the land and for reconveyance of half of the disputed land.

On 31 May 1974, the trial court rendered a Decision 4 declaring the Deed of Waiver as valid and binding upon
respondent Violeta. The Dispositive portion of this Decision read as follows:

IN VIEW OF FOREGOING CONSIDERATIONS, the Court is of the opinion and so

holds that the preponderance of evidence is in favor of the defendants and against
that of plaintiffs, wherefore, judgment is hereby rendered as follows:

1) Declaring the Deed of Waiver executed by the plaintiff (Violeta G. Adaza) in favor
of defendant (Horacio G. Adaza), valid for all legal purpose

2) Declaring the defendant, Horacio G. Adaza, the owner of one-half (1/2) undivided
portion of the parcel of land, including the improvements found thereon, covered by
Original Certificate of Title No. P-11111 (Exhibit 'N'), containing an area of 13.3618
hectares, assessed under Tax Declaration No. 9708 (Exhibit 'E') at P 3,000.00.

3) Ordering the plaintiffs to pay to the defendants the sum of P 10,500.00

corresponding to one-half (1/2) share of the proceeds of the land in question, from
January 1972 up to the end of the year 1973 and the further sum of the price of
 copra every three (3) months, until the possession of the one-half (1/2) undivided
portion of the land, object of this case, is delivered to the defendants.

Plaintiffs shall pay costs.

IT IS SO ORDERED.

Being unhappy with the trial court's decision, respondent Violeta and her husband appealed to the
Court of Appeals where their appeal was docketed as C.A.-G.R. No. 55929-R. In a Decision 5 dated 15
July 1977, the Court of Appeals reversed the decision of the trial court. The Court of Appeals agreed with the finding of the trial court that the
Deed of Waiver had been signed voluntarily, if reluctantly, by Violeta. The appellate court, however, held that such Deed was without cause
or consideration, because the land had been, in the view of the appellate court, unconditionally donated to Violeta alone. The Court of
Appeals further held that the Deed of Waiver could not be regarded as a gratuitous contract or a donation, said Deed being "congenitally
bad" in form because it was not drawn according to the requirements of Articles 749 and 1270 of the Civil Code. Petitioner's Motion for
Reconsideration was denied.

In the instant Petition for Review, petitioners insist once more that respondent Violeta was not the
sole owner of the disputed land but on the contrary held one-half (1/2) thereof in trust for petitioner
Horacio and that this fact of co-ownership was sufficient consideration to sustain the validity of the
Deed of Waiver.

The principal issue raised here thus relates to the ownership of the 13.3618 hectares of land
covered by OCT No. P-11111.

Since Violeta traced her title to and based her claim of ownership upon the Deed of Donation
executed by their father, it is necessary to examine this Deed of Donation. That Deed of Donation is
noteworthy for its inclusion of a paragraph that was crossed-out. The crossed-out provision reads:

That the donee shall share one-half (1/2) of the entire property with one of her
brothers or sisters after the death of the donor.

The next succeeding paragraph reads thus:

That the donee do [sic] hereby receive and accept this gift and donation made in her
favor by the donor, not subject to any condition, and do hereby express her
appreciation and gratefulness for the kindness and generosity of the donor. (Rollo, p.
50).

Petitioner Horacio testified before the trial court that it had been the intention of their father to donate
the parcel of land covered by the Deed of Donation to him and to Violeta, as shown by the above
provision which was ultimately crossed-out. Petitioner Horacio further testified that he himself had
crossed-out the aforementioned provision, with the consent of his father, to make it appear that the
land was being donated solely to Violeta, in order to facilitate the issuance of the title in her name. It
seems worthwhile recalling that at the time of execution of the donation by the father, the land was
still public disposable land and that the final issuance of title was still about seven (7) years down the
road. Clearly, in itself, the crossing out of the above-quoted paragraph was at least an ambiguous
act. The Court of Appeals took what appears to us as a too literal view of the matter, that is, that the
effect of the crossing-out of that paragraph was precisely to render the donation a simple and
unconditional one, such that respondent Violeta was not obliged to share the property with her
brother Horacio. If, indeed, in the view of the Court of Appeals, an informal agreement had been
reached during the lifetime of the parties' father that the subject property would become the property
of Horacio and Violeta in equal shares, such informal agreement, if reached before the execution of
the Deed of Donation, would have to be deemed superseded by the Deed of Donation itself. Upon
the other hand, the Court of Appeals' decision reasoned, if such informal agreement had been
reached after execution of the Deed of Donation on 10 June 1953, then that agreement, to be
effective, must assume the form of another deed of donation to be executed by Violeta in favor of
Horacio and covering a one-half (1/2) share in the property.

We take a different view. We believe that the critical question relates to the reality of the intent
ascribed to the donor and father of Horacio and Violeta to make the two (2) co-owners of the
property in question. Assuming such an intent is sufficiently shown, it must be respected and
implemented through whatever medium is available under our civil law.

We turn to the question of the intent of the donor. Petitioner Horacio claimed that that intent was
precisely to make both Violeta and himself co-owners of the land then being donated to Violeta. Put
a little differently, according to petitioner Horacio, though respondent Violeta alone was to be the
registered owner, she was to share the land donated by the father with Horacio on an equal sharing
basis. We think this intent is evidenced, firstly, by the Deed of Waiver executed by Violeta and
quoted in full earlier. The Deed of Waiver is important because there Violeta acknowledged that she
owned the land in common with her brother Horacio although the certificate of title bore only her
name. As noted earlier, respondent Violeta strove mightily to convince both the trial court and the
Court of Appeals that she had signed the Deed of Waiver by reason of fraud, misrepresentation and
undue influence exercised upon her by her brother Horacio. However, both the trial court and the
Court of Appeals reached the conclusion that Violeta had in fact voluntarily signed the Deed of
Waiver, even though she had done so with reluctance. The Deed of Waiver had been signed by
Violeta in the presence of Horacio and of her other brothers Homero Adaza and Victor Adaza, Jr.
and her sister Teresita Adaza. 6 An aunt, Pilar Adaza Soller, was also at that time present in the same house if not in the same
room at that precise moment. 7 The record is bereft of any indication of any evil intent or malice on the part of Homero, Victor, Jr. and
Teresita that would suggest deliberate collusion against their sister Violeta. Equally important were the testimonies of Homero Adaza and
Teresita Adaza, both of whom explicitly stated that their father had executed the Deed of Donation with the understanding that the same
would be divided between Horacio and Violeta, that Violeta had signed the Deed of Waiver freely and voluntarily, and that their brother
Horacio had not threatened and forced her to do so.8 The evidence also showed that on the same occasion of the signing of the Deed of
Waiver by respondent Violeta, another brother Victor Adaza, Jr. had also executed a similar Deed of Waiver covering one-half (1/2) share of
another piece of property at Tiwalos, Dapitan City (also titled in Victor, Jr.'s name only) in favor of his sister Teresita Adaza. 9 The trial court
pointed out that Victor Adaza, Sr. and Rosario Gonzales left four (4) parcels of land which were divided among their six (6) children, as
follows:

l. Parcel I - located at Sinonok, Dapitan City Tax Declaration No. 9708 (Exhibit 'E') to
be divided between Horacio G. Adaza and Violeta G. Adaza, with an area of 13.3618
hectares (land in dispute).

2. Parcel II - located at Tiwalos, Dapitan City to be divided between Victor Adaza, Jr.
and Teresita G. Adaza (Exhibit '5') with an area of 9.6379 hectares.

3. Parcel III - located at Apao adjudicated to Demosthenes G. Adaza (already sold to

Dionisio Tan), with an area of seven (7) hectares.

4. Parcel IV - located at Sokon Dapitan City, allocated to Homero G. Adaza (already

sold to Tecson).10

Evidently, the parties' parents made it a practice, for reasons of their own, to have lands acquired by them titled in the name of one or
another of their children. Three (3) of the four (4) parcels acquired by the parents were each placed in the name of one of the children. The
land in Tiwalos Dapitan City, intended for Victor, Jr. and Teresita, was placed in the name of Victor, Jr. The parcel located in Sokon Dapitan
City, intended for Homero was placed in the name of petitioner Horacio,11 while the parcel in Sinonok, Dapitan City, was titled in Violeta's
name.

The trial court also pointed to respondent Violeta's "[t]wo (2) letters to defendant [petitioner Horacio],
written to the latter in Davao City (Exhibits '1' and '2') acknowledging that the defendant is the co-
owner of one-half (1/2) share of said land, titled in her name. In said letters (Exhibits '1' and '2')
plaintiff (respondent Violeta) is requesting the defendant [petitioner Horacio] not to be in a hurry to
divide the lot in question (Exhibit '2-C') and get his one-half share in order [that she could] meet her
obligations." 12

Finally, it may be noted that this is not a case of an older brother exploiting or cheating his younger
sister. On the contrary, the evidence showed that petitioner Horacio had taken care of his father and
mother and of his sister Violeta, that petitioner Horacio had been quite relaxed and unworried about
the title remaining in the name of his sister alone until Violeta had gotten married and her husband
began to show what petitioner thought was undue and indelicate interest in the land in
Sinonok. 13 THUS, the trial court found, among other things:

12. That from 1946 to 1968, the property in Sinonok covered by Original Certificate of
Title No. P-11111 (Exhibits 'D', 'D- l' to 'D-3') had been administered by Homero
Adaza, and the income from said land was spent for the expenses of their parents
and the plaintiff [Violeta] who was studying at that time.

13. That defendant waived his share from the [income from the] land in litigation in
favor of plaintiffs [Violeta and her husband] who were hard-up at that time for they
had a child who was suffering from a brain ailment; that it was also agreed upon that
the share of the defendant in said parcel will be used for the expenses of their
mother (at that time bedridden).

14. That defendant voluntarily relinguished his one-half (1/2) share of the income of
the land now in litigation in favor of plaintiff during the lifetime of their mother, Rosar
io Gonzales Adaza, subject to the condition that his (Horacio's) share of the proceeds
shall be spent for the expenses of their mother who was at that time bedridden .14

All the above circumstances lead this Court to the conclusion which Violeta had admitted in the
Deed of Waiver, that is, that the "property [here involved] is owned in common by [her] and [her]
brother, Horacio G. Adaza, although the certificate of title was issued only in [her] name." We believe
and so hold that this statement is an admission that she held half of the land in trust for petitioner
Horacio. The execution of the Deed of Donation of 10 June 1953 by respondent Violeta's father
created an implied trust in favor of Violeta's brother, petitioner Horacio Adaza, in respect of half of
the property donated.15 Article 1449 of the Civil Code is directly in point:

Art. 1449. There is also an implied trust when a donation is made to a person but it
appears that although the legal estate is transmitted to the donee, he nevertheless is
either to have no beneficial interest or only a part thereof.

Respondent Violeta and her husband also contended that the long delay and inaction on the part of
Horacio in taking any steps for reconveyance of the one-half (1/2) share claimed by him, indicates
lack of any color of right over the said one-half (1/2) share. It was also argued by the two (2) that
considering that twelve (12) years had passed since OCT No. P-11111 was issued and more than
nineteen (19) years since the Deed of Donation was executed, the counterclaim for partition and
reconveyance of Horacio's alleged one-half share was barred by laches, if not by prescription. Again,
we rule for the petitioners. In determining whether delay in seeking to enforce a right constitutes
laches, the existence of a confidential relationship based upon, for instance, consanguinity, is an
important circumstance for consideration. Delay in a situation where such circumstance exists,
should not be as strictly construed as where the parties are complete strangers vis-a-vis each other.
The doctrine of laches is not to be applied mechanically as between near relatives; 16 the fact that the
parties in the instant case are brother and sister tends to explain and excuse what would otherwise appears as long delay. Moreover,
continued recognition of the existence of the trust precludes the defense of laches.17 The two (2) letters noted above sent by respondent
Violeta to petitioner Horacio, one in 1969 and the other in 1971, show that Violeta as late as 1971 had recognized the trust imposed on her
by law. Conversely, Horacio's reliance upon his blood relationship with his sister and the trust and confidence normally connoted in our
culture by that relationship, should not be taken against him. Petitioners' counter-claim in the trial court for partition and reconveyance cannot
be regarded as barred whether by laches or by prescription.

WHEREFORE, the Petition for Review is hereby GRANTED. The Decision dated 15 July 1977 of the
Court of Appeals in C.A.-G.R. No. 55929-R is SET ASIDE and the Decision dated 31 May 1974 of
the then Court of First Instance, Branch 2, Dipolog City in Civil Case No. 2213 is REINSTATED. No
pronouncement as to costs.

SO ORDERED.

G.R. No. L-17131 June 30, 1922

SING JUCO and SING BENGCO, plaintiffs-appellees,

vs.
ANTONIO SUNYANTONG and his wife VICENTA LLORENTE DE SUNYANTONG, defendants-
appellants.

Montinola, Montinola and Hontiveros for appellants.

Fisher and De Witt for appellees.

ROMUALDEZ, J.:

On May 20, 1919, the plaintiffs obtained from Maria Gay a written option to purchase an estate
known as "San Antonio Estate," containing more than 2,000 hectares situated in the municipality of
Passi, Province of Iloilo, together with the large cattle existing on said estate. The term of the option
expired, but the plaintiffs had it extended verbally until 12 o 'clock noon of June 17, 1919.

The defendant Antonio Sunyantong was at the time an employee of the plaintiffs, and the
preponderance of evidence shows that they reposed confidence in him and did not mind disclosing
their plans to him, concerning the purchase of the aforesaid estate and the progress of their
negotiations with Maria Gay.

It also sufficiently established in the records that in one of the conferences held by the plaintiffs
among themselves, relative to the purchase of the aforesaid estate, at which the defendant was
present, the latter remarked that it would be advisable to let some days elapse before accepting the
terms of the transfer as proposed by Maria Gay, in order that the latter might not think that they were
coveting said property. This mere remark along in itself cannot be taken to mean any wrongful intent
on the part of said defendant, but it ceases to be innocent when taken in connection with the fact,
also proven, that when the defendant met Alipio de los Santos after the latter's return to Iloilo, sent
by the plaintiffs to examine the estate and satisfy himself of its condition, and Alipio de los Santos
told him of his favorable impression of the estate, he advised De los Santos not to report the estate
to the plaintiffs as being so highly valuable, for if it proved failure they might blame him, De los
Santos. One becomes more strongly convinced that this defendant has been unfaithful to his
principals, the plaintiffs, when these circumstances are considered in connection with the fact at an
early hour in the morning of June 17, 1919, only the midday of which the term of plaintiff's when
these circumstances are considered in connection with the fact that at an early hour in the morning
of June 17, 1919, on the midday of which the term of plaintiff's option to purchase was to expire, said
defendant Antonio Sunyantong called at the house of Mari Gay when she was having breakfast, and
offered to buy the estate on the same terms proposed by her not yet accepted by the plaintiffs,
making the offer to buy not for the benefit of the plaintiff's, but for own wife, his codefendant Vicenta
Llorente de Sunyatong. In view of the opportunity that offered itself, but respecting the option
granted the plaintiffs, Maria Gay communicated by telephone with Manuel Sotelo, who was
communicated by telephone with Manuel Sotelo, who was acting as broker for the plaintiffs in these
transactions, and told him that another buyer of the estate had presented himself who would accept
the terms proposed by her and that she would like to know immediately what decision had been
reached by the plaintiffs on the matter. In view of Maria Gay's insistence that the plaintiff give a
categorical answer, Sing Bengco, one of the plaintiffs who happened to be present at the time the
telephone conversation between Maria Gay and Manuel Sotelo took place, instructed Sotelo to
inform her at the time that if she did not care to wait until 12 o'clock, "ella cuidado": (she could do as
she pleased). This is a purely Philippine phrase, an exact translation of the Tagalog, "siya ang
bahala" and approximately of the Visayan "ambut sa iya," which has very different, and even
contradictory, meanings. It might be interpreted in several different ways, such as a threat on the
part of Sing Bengco to take legal action against Maria Gay in case she did not wait until the
expiration of the option, or that they would waive all claims to the option and be agreeable to
whatever action she might take. Interpreting the phrase to mean that the plaintiffs waived their option
to buy, Maria Gay closed the sale of the estate in favor of the defendant Antonio Sunyantong.

Even supposing that this latter interpretation of the phrase in question was actual intention of Sing
Bengco, the action of the defendant Sunyantong in intervening in the negotiations in the manner in
which he did does not make him innocent of infidelity in view of the fact that he was an employee of
the plaintiffs to whom he owed loyalty and faithfullnes.

Even though it be concede that when he closed the contract of sale with Maria Gay the plaintiffs'
option had expired, but the fact cannot be denied that he was the cause of the option having
precipitously come to such an end. His disloyalty to his employers was responsible for Maria Gay not
accepting the terms proposed by the plaintiffs, because of being certain of another less exigent
buyer. Without such intervention on the part of the defendant it is presumed, taking into account all
the circumstances of the case, that the sale of the estate in question would have been consummated
between Maria Gay and the plaintiffs, perhaps with such advantages to the plaintiffs, as they
expected to obtain by prolonging negotiations.

Such an act of infidelity committed by a trusted employee calculated to redound to his own benefit
and to the detriment of his employers cannot pass without legal sanction. Nemo debet aliena jactura
locupletari; nemo ex suo delicto meliorem suam conditionem facere potest. It is an illicit act
committed with culpa and, therefore, its agent is liable (art. 1089, Civil Code), for the damage
caused (art. 1902, ibidem). Not identical, but similar, to this infidelity is the abuse of the confidence
sanctioned in our Penal Code as a generic circumstances, nay as specific aggravating one, and
even as an essential element of certain crimes.

This reparation provided for in the Civil Code and applied to the case at bar seems to be limited to
the indemnification of damages, as we are not aware of any express provision in said Code which
imposes upon the person thus held liable, any obligation, such as that of transferring to plaintiffs the
estate in question.

Such principle, however, in case of this nature is generally recognized in our laws, since the case of
commercial agents ( factories) it is expressly established. Undoubtedly, formerly under the
circumstances then prevailing such sanction was not necessary in the field of civil law, because is
sphere of action is the general relations of society; but event then it was deemed necessary
expressly to protect with such sanction the commercial relations wherein the question of gain was
involved, which is sometimes so imperatives as to ignore everything, even the very principles of
loyalty, honesty, and fidelity.

This specific relief, however, has already come to be applied in this jurisdiction in similar cases,
among which can be cited that of Camacho vs. Municipality of Baliuag (28 Phil., 466.)
And in the North American law such sanction is expressly recognized, and the transaction of this
nature might be regarded as an "equitable trust" by virtue of which the things acquired by an
employee is deemed not to have been acquired for his own benefit or that of any other person but
for his principal, and held in trust for the latter (21 R. C. L., 825; 2 Corpus Juris, 353).

After examination and consideration of the case we do not find in the appealed judgment any of
errors assigned to it; wherefore the same is affirmed with costs against the appellants. So ordered.

Araullo, C.J., Malcolm, Avanceña and Ostrand, JJ., concur.

G.R. No. 179597 February 3, 2014

IGLESIA FILIPINA INDEPENDIENTE, Petitioner,

vs.
HEIRS of BERNARDINO TAEZA, Respondents.

DECISION

PERALTA, J.:

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that
the Decision1 of the Court of Appeals (CA), promulgated on June 30, 2006, and the
Resolution2 dated August 23, 2007, denying petitioner's motion for reconsideration thereof, be
reversed and set aside.

The CA's narration of facts is accurate, to wit:

The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious
corporation, was the owner of a parcel of land described as Lot 3653, containing an area of 31,038
square meters, situated at Ruyu (now Leonarda), Tuguegarao, Cagayan, and covered by Original
Certificate of Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B, 3653-
C, and 3653-D.

Between 1973 and 1974, the plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga,
sold Lot 3653-D, with an area of 15,000 square meters, to one Bienvenido de Guzman.

On February 5, 1976, Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, were
likewise sold by Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-appellee, to
the defendant Bernardino Taeza, for the amount of ₱100,000.00, through installment, with mortgage
to secure the payment of the balance. Subsequently, the defendant allegedly completed the
payments.

In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with Mortgage was filed
by the Parish Council of Tuguegarao, Cagayan, represented by Froilan Calagui and Dante Santos,
the President and the Secretary, respectively, of the Laymen's Committee, with the then Court of
First Instance of Tuguegarao, Cagayan, against their Supreme Bishop Macario Ga and the
defendant Bernardino Taeza.

The said complaint was, however, subsequently dismissed on the ground that the plaintiffs therein
lacked the personality to file the case.
After the expiration of Rev. Macario Ga's term of office as Supreme Bishop of the IFI on May 8,
1981, Bishop Abdias dela Cruz was elected as the Supreme Bishop. Thereafter, an action for the
declaration of nullity of the elections was filed by Rev. Ga, with the Securities and Exchange
Commission (SEC).

In 1987, while the case with the SEC is (sic) still pending, the plaintiff-appellee IFI, represented by
Supreme Bishop Rev. Soliman F. Ganno, filed a complaint for annulment of the sale of the subject
parcels of land against Rev. Ga and the defendant Bernardino Taeza, which was docketed as Civil
Case No. 3747. The case was filed with the Regional Trial Court of Tuguegarao, Cagayan, Branch
III, which in its order dated December 10, 1987, dismissed the said case without prejudice, for the
reason that the issue as to whom of the Supreme Bishops could sue for the church had not yet been
resolved by the SEC.

On February 11, 1988, the Securities and Exchange Commission issued an order resolving the
leadership issue of the IFI against Rev. Macario Ga.

Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land. Consequently,
Transfer Certificate of Title Nos. T-77995 and T-77994 were issued in his name.

The defendant then occupied a portion of the land. The plaintiff-appellee allegedly demanded the
defendant to vacate the said land which he failed to do.

In January 1990, a complaint for annulment of sale was again filed by the plaintiff-appellee IFI, this
time through Supreme Bishop Most Rev. Tito Pasco, against the defendant-appellant, with the
Regional Trial Court of Tuguegarao City, Branch 3.

On November 6, 2001, the court a quo rendered judgment in favor of the plaintiff-appellee. It held
1âwphi1

that the deed of sale executed by and between Rev. Ga and the defendant-appellant is null and
void.3

The dispositive portion of the Decision of Regional Trial Court of Tuguegarao City (RTC) reads as
follows:

WHEREFORE, judgment is hereby rendered:

1) declaring plaintiff to be entitled to the claim in the Complaint;

2) declaring the Deed of Sale with Mortgage dated February 5, 1976 null and void;

3) declaring Transfer Certificates of Title Numbers T-77995 and T-77994 to be null and void
ab initio;

4) declaring the possession of defendant on that portion of land under question and
ownership thereof as unlawful;

5) ordering the defendant and his heirs and successors-in-interest to vacate the premises in
question and surrender the same to plaintiff; [and]

6) condemning defendant and his heirs pay (sic) plaintiff the amount of ₱100,000.00 as
actual/consequential damages and ₱20,000.00 as lawful attorney's fees and costs of the
amount (sic).4
Petitioner appealed the foregoing Decision to the CA. On June 30, 2006, the CA rendered its
Decision reversing and setting aside the RTC Decision, thereby dismissing the complaint.5 The CA
ruled that petitioner, being a corporation sole, validly transferred ownership over the land in question
through its Supreme Bishop, who was at the time the administrator of all properties and the official
representative of the church. It further held that "[t]he authority of the then Supreme Bishop Rev. Ga
to enter into a contract and represent the plaintiff-appellee cannot be assailed, as there are no
provisions in its constitution and canons giving the said authority to any other person or entity."6

Petitioner then elevated the matter to this Court via a petition for review on certiorari, wherein the
following issues are presented for resolution:

A.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE
FEBRUARY 5, 1976 DEED OF SALE WITH MORTGAGE AS NULL AND VOID;

B.) ASSUMING FOR THE SAKE OF ARGUMENT THAT IT IS NOT VOID, WHETHER OR
NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976
DEED OF SALE WITH MORTGAGE AS UNENFORCEABLE, [and]

C.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING

RESPONDENT TAEZA HEREIN AS BUYER IN BAD FAITH.7

The first two issues boil down to the question of whether then Supreme Bishop Rev. Ga is
authorized to enter into a contract of sale in behalf of petitioner.

Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga
had no authority to give such consent. It emphasized that Article IV (a) of their Canons provides that
"All real properties of the Church located or situated in such parish can be disposed of only with the
approval and conformity of the laymen's committee, the parish priest, the Diocesan Bishop, with
sanction of the Supreme Council, and finally with the approval of the Supreme Bishop, as
administrator of all the temporalities of the Church." It is alleged that the sale of the property in
question was done without the required approval and conformity of the entities mentioned in the
Canons; hence, petitioner argues that the sale was null and void.

In the alternative, petitioner contends that if the contract is not declared null and void, it should
nevertheless be found unenforceable, as the approval and conformity of the other entities in their
church was not obtained, as required by their Canons.

Section 113 of the Corporation Code of the Philippines provides that:

Sec. 113. Acquisition and alienation of property. - Any corporation sole may purchase and hold real
estate and personal property for its church, charitable, benevolent or educational purposes, and may
receive bequests or gifts for such purposes. Such corporation may mortgage or sell real property
held by it upon obtaining an order for that purpose from the Court of First Instance of the province
where the property is situated; x x x Provided, That in cases where the rules, regulations and
discipline of the religious denomination, sect or church, religious society or order concerned
represented by such corporation sole regulate the method of acquiring, holding, selling and
mortgaging real estate and personal property, such rules, regulations and discipline shall control,
and the intervention of the courts shall not be necessary.8

Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons of the
Philippine Independent Church,9 that "[a]ll real properties of the Church located or situated in such
parish can be disposed of only with the approval and conformity of the laymen's
committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally
with the approval of the Supreme Bishop, as administrator of all the temporalities of the Church."

Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the
Supreme Bishop but also the concurrence of the laymen's committee, the parish priest, and the
Diocesan Bishop, as sanctioned by the Supreme Council. However, petitioner's Canons do not
specify in what form the conformity of the other church entities should be made known. Thus, as
petitioner's witness stated, in practice, such consent or approval may be assumed as a matter of
fact, unless some opposition is expressed.10

Here, the trial court found that the laymen's committee indeed made its objection to the sale known
to the Supreme Bishop.11 The CA, on the other hand, glossed over the fact of such opposition from
the laymen's committee, opining that the consent of the Supreme Bishop to the sale was sufficient,
especially since the parish priest and the Diocesan Bishop voiced no objection to the sale.12

The Court finds it erroneous for the CA to ignore the fact that the laymen's committee objected to the
sale of the lot in question. The Canons require that ALL the church entities listed in Article IV (a)
thereof should give its approval to the transaction. Thus, when the Supreme Bishop executed the
contract of sale of petitioner's lot despite the opposition made by the laymen's committee, he acted
beyond his powers.

This case clearly falls under the category of unenforceable contracts mentioned in Article 1403,
paragraph (1) of the Civil Code, which provides, thus:

Art. 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;

In Mercado v. Allied Banking Corporation,13 the Court explained that:

x x x Unenforceable contracts are those which cannot be enforced by a proper action in court,
unless they are ratified, because either they are entered into without or in excess of authority or they
do not comply with the statute of frauds or both of the contracting parties do not possess the
required legal capacity. x x x.14

Closely analogous cases of unenforceable contracts are those where a person signs a deed of
extrajudicial partition in behalf of co-heirs without the latter's authority;15 where a mother as judicial
guardian of her minor children, executes a deed of extrajudicial partition wherein she favors one
child by giving him more than his share of the estate to the prejudice of her other children;16 and
where a person, holding a special power of attorney, sells a property of his principal that is not
included in said special power of attorney.17

In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had already
obtained a transfer certificate of title in his name over the property in question. Since the person
supposedly transferring ownership was not authorized to do so, the property had evidently been
acquired by mistake. In Vda. de Esconde v. Court of Appeals,18 the Court affirmed the trial court's
ruling that the applicable provision of law in such cases is Article 1456 of the Civil Code which states
that "[i]f 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."
Thus, in Aznar Brothers Realty Company v. Aying,19 citing Vda. de Esconde,20 the Court clarified the
concept of trust involved in said provision, to wit:
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.

The concept of constructive trusts was further elucidated in the same case, as follows:

. . . 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. 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 of 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. (Italics
supplied)

A constructive trust having been constituted by law between respondents as trustees and petitioner
as beneficiary of the subject property, may respondents acquire ownership over the said property?
The Court held in the same case of Aznar,21 that unlike in express trusts and resulting implied trusts
where a trustee cannot acquire by prescription any property entrusted to him unless he repudiates
the trust, in constructive implied trusts, the trustee may acquire the property through prescription
even if he does not repudiate the relationship. It is then incumbent upon the beneficiary to bring an
action for reconveyance before prescription bars the same.

In Aznar,22 the Court explained the basis for the prescriptive period, to wit:

x x x under the present Civil Code, we find that just as an implied or constructive trust is an offspring
of the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the property and the
title thereto in favor of the true owner. In this context, and vis-á-vis prescription, Article 1144 of the
Civil Code is applicable.

Article 1144. The following actions must be brought within ten years from the time the right of action
accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

 (3) Upon a judgment.

xxx xxx xxx

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten
years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that,
illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an
implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the
property.

It has also been ruled that the ten-year prescriptive period begins to run from the date of registration
of the deed or the date of the issuance of the certificate of title over the property, x x x.23

Here, the present action was filed on January 19, 1990,24 while the transfer certificates of title over
the subject lots were issued to respondents' predecessor-in-interest, Bernardino Taeza, only on
February 7, 1990.25

Clearly, therefore, petitioner's complaint was filed well within the prescriptive period stated above,
and it is only just that the subject property be returned to its rightful owner.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30,
2006, and its Resolution dated August 23, 2007, are REVERSED and SET ASIDE. A new judgment
is hereby entered:

(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of the
lots covered by Transfer Certificates of Title Nos. T-77994 and T-77995;

(2) ORDERING respondents to execute a deed reconveying the aforementioned lots to

petitioner;

(3) ORDERING respondents and successors-in-interest to vacate the subject premises and
surrender the same to petitioner; and

(4) Respondents to PAY costs of suit.

SO ORDERED.

G.R. No. 175428 April 15, 2013

RICARDO CHU, JR. and DY KOKENG, Petitioners,

vs.
MELANIA CAPARA.S and SPOUSES RUEL and HERMENEGILDA PEREZ, Respondents.

DECISION

BRION, J.:

Under consideration is the petition for review on certiorari1 under Rule 45 of the Rules of Court
challenging the decision2 dated August 7, 2006 of the Court of Appeals (CA) in CA-G.R. CV No.
67243. The CA affirmed the decision3 dated February 19, 1998 of the Regional Trial Court (RTC) of
Tagaytay City, Branch 18, in Civil Case No. TG-1541, dismissing the complaint for recovery of
possession of a parcel of land filed by petitioners Ricardo Chu, Jr. and Dy Kok Eng against
respondents Melania Caparas and spouses Ruel and Hermenegilda Perez.

The Factual Antecedents

At the root of the case is a parcel of land with an area of 26,151 square meters (subject property)
located at Maguyam, Silang, Cavite, originally owned and registered in the name of Miguela Reyes
and covered by Tax Declaration (TD) No. 9529.4

On November 10, 1995, the petitioners filed a complaint to recover possession of the subject
property5 against the respondents, with a prayer to annul the sale of the subject property executed
between the respondents. In the complaint, the petitioners alleged that they are the successors-in-
interest of Miguela over the subject property, which Caparas held in trust for Miguela. The petitioners
also averred that the subject property was erroneously included in the sale of land between the
respondents.

The respondents failed to file an answer to the complaint and were declared in default. The RTC
thus allowed the petitioners to present their evidence ex parte against the respondents.

The petitioners’ evidence showed that the subject property was previously part of the 51,151-square
meter tract of land owned by Miguela at Maguyam, Silang, Cavite. On July 5, 1975, Miguela sold to
Caparas 25,000 square meters of the eastern portion of the 51,151-square meter tract of land.
Miguela retained for herself the balance (or 26, 151 square meters) of the subject property, located
at the western portion of the original 51,151-square meter property. Further, the deed of conveyance
executed between Miguela and Caparas, entitled "Kasulatan ng Tuluyang Bilihan ng
Lupa,"6 described the boundaries of the parcel of land purchased by Caparas as: "sa ibaba ay
Faustino Amparo, sa silangan ay Silang at Carmona boundary, sa ilaya ay Aquilino Ligaya, at sa
kanluran ay ang natitirang lupa ni Miguela Reyes."7

The petitioners asserted that more than fourteen (14) years later, Caparas caused the preparation of
a consolidated survey plan8 (Caparas survey plan) under her name for several parcels of land
(consolidated parcels of land) located at Silang-Carmona, Cavite, with a total land area of 40,697
square meters. Under the Caparas survey plan, the parcel of land supposedly retained by Miguela
was erroneously transferred to the eastern portion of the original 51,151-square meter tract of land.
As a result of the error, the subject property was included in the consolidated parcels of land owned
by Caparas. The petitioners asserted that Caparas admitted the wrongful inclusion of the subject
property owned by Miguela in the consolidated parcels of land through Caparas’ "Sinumpaang
Salaysay ng Pagpapatotoo"9 dated August 27, 1990.

The petitioners also alleged that on November 8, 1991, Caparas sold to the spouses Perez the
consolidated parcels of land in a deed entitled "Kasulatan ng Bilihang Tuluyan." The petitioners
claimed that included in the aforesaid sale was a parcel of land with boundary description similar to
the 25,000-square meter parcel of land sold by Miguela to Caparas.

According to the petitioners, Miguela, on July 24, 1994, sold the subject property to the
petitioners10 for which they (the petitioners) secured a tax declaration (TD No. 22477-
A).11 Considering the alleged error in the Caparas survey plan, the petitioners demanded the
reconveyance of the subject property from Caparas and the spouses Perez, who refused to
reconvey the subject property.
After an ex parte hearing, the RTC ruled in the petitioners’ favor.12 The RTC, however, refused to
approve, for lack of authority, the new survey plan for the subject property13 that the petitioners
submitted.

The spouses Perez filed a petition for relief from judgment14 on the ground of excusable negligence.
The spouses Perez averred that the parcel of land sold to the petitioners was not the subject
property whose title had been confirmed in their (spouses Perez’s) names.15 In the alternative, the
spouses Perez claimed that they bought the subject property in good faith and for value and had
been in open, continuous, public and adverse possession of it since 1991.

The RTC Ruling

On February 19, 1998, the RTC rendered a decision16 setting aside its earlier decision, and
dismissed the petitioners’ complaint for lack of merit.

The RTC held that the petitioners had no sufficient cause of action for reconveyance and damages
against the respondents. The RTC found that Chu admitted during cross-examination17 that the
parcel of land sold to them was different from the subject property.

The RTC also rejected the petitioners’ claim that they were purchasers in good faith of the subject
property considering that the spouses Perez’s title over the consolidated parcels of land was
registered. The RTC ruled that even granting that the subject property was included in the
consolidated parcels of land sold to the spouses Perez, the petitioners were deemed to have
knowledge of the spouses Perez’s interest therein.

Finally, considering the petitioners’ unfounded claims, the RTC ordered the petitioners to pay the
spouses Perez moral and exemplary damages, attorney’s fees and the costs of suit.

The petitioners appealed the RTC decision to the CA, assigning as errors the failure of the RTC: (1)
to recognize that there was an encroachment when the subject property was included in the
Caparas survey plan as part of the consolidated parcels of land owned by Caparas; and (2) to
consider the petitioners’ lack of malice or bad faith in filing the case against Caparas and the
spouses Perez that would justify the award of damages and attorney’s fees.18

The Ruling of the CA

In its August 7, 2006 decision,19 the CA dismissed the petitioners’ appeal and affirmed the February
19, 1998 decision of the RTC. The CA declared that the petitioners’ resort to the court was
premature since there was no proof that the Bureau of Lands revoked its approval of the Caparas
survey plan. In any event, the CA declared that Chu’s admission and the existing and duly approved
Caparas survey plan belied their claim of encroachment in the petitioners’ property by the spouses
Perez.

The CA also affirmed the RTC’s finding that the petitioners were presumed to have knowledge of the
spouses Perez’s registered title over the subject property.

Finally, the CA upheld the RTC’s refusal to approve, for lack of authority, the new survey plan that
the petitioners submitted and also upheld the award of damages, attorney’s fees, and costs. The
CA’s denial of the petitioner’s motion for reconsideration20 prompted the present recourse.

The Petition
The petitioners impute serious error and grave abuse of discretion on the findings of the CA that:
first, there was no encroachment made by the spouses Perez in the petitioners’ property; second,
the filing of the petitioners’ complaint was premature; and third, the petitioners are liable for moral
and exemplary damages and attorney’s fees.21

The petitioners insist that the CA misunderstood the term "encroachment." They argue that this case
involves technical encroachment and not mere physical encroachment. There was technical
encroachment due to the mistake in the Caparas survey plan that included the subject property as
among the consolidated parcels of land owned by Caparas.

The petitioners explained that the "Kasulatan ng Tuluyang Bilihan ng Lupa,"22 between Miguela and
Caparas, referred to a parcel of land located at the eastern portion of the original 51,151-square
meter tract of land. Under the Caparas survey plan however, the parcel of land retained by Miguela
(and thereafter sold to the petitioners) became the parcel of land located at the eastern portion of the
51,151-square meter tract of land (designated as Lot No. 3); the portion on the west of the 51,151-
square meter tract of land (the subject property) was designated as Lot No. 1 and was included in
Caparas’ consolidated parcels of land sold to the spouses Perez.

Similarly, the petitioners assert that the CA also disregarded the evidence of Caparas’ "Sinumpaang
Salaysay ng Pagpapatotoo"23 on Miguela’s ownership of the subject property and Caparas’
admission that she was merely a trustee thereof. The petitioners also assert that the CA should have
also considered that the spouses Perez, as Caparas’ successors-in-interest, are also trustees in the
subject property.

Finally, the petitioners insist that the award of damages and attorney’s fees to the spouses Perez
was improper since they own the subject property.

The Case for the Respondents

The spouses Perez, relying on the rulings of the RTC and of the CA, Maintain24 that: (1) the
petitioners’ resort to the court was premature as they failed to prove their claim of encroachment; (2)
the petitioners cannot be deemed purchasers in good faith over the subject property; and (3) the
RTC has no authority to approve or cancel survey plans.

The spouses Perez also assert that the petition does not raise any issue of law but only questions of
facts not proper for a Rule 45 petition. They submit that the factual findings of the CA, duly passed
upon, are binding and conclusive on this Court, and the alleged technical encroachment, which the
petitioners insist as the real issue obtaining in this case, is better addressed to the appropriate
administrative authorities. Caparas did not file her comment and memorandum.

The Issue

In sum, the core issue for determination is: whether the parcel of land sold to the petitioners is the
subject property included in the consolidated parcels of land sold to the spouses Perez.

The Court’s Ruling

We affirm the decision and the resolution of the CA.

Preliminary considerations
At the outset, we find that the resolution of the petition necessarily requires the re-evaluation of the
factual findings of the RTC and of the CA. Essentially, what the petitioners seek in this petition is a
relief from the Court on the issue of encroachment, as well as the issues of prematurity and propriety
of the award of damages that are intertwined with the issue of encroachment. On this point alone,
the petition must fail, as a Rule 45 petition bars us from the consideration of factual issues.

Repeatedly, this Court has ruled that a petition for review on certiorari under Rule 45 of the Rules of
Court shall raise only questions of law and not questions of facts. "A question of law arises when
there is doubt as to what the law is on a certain state of facts, while there is a question of fact when
the doubt arises as to the truth or falsity of the alleged facts."25

The question, to be one of law, must rest solely on what the law provides on the given set of
circumstances and should avoid the scrutiny of the probative value of the parties’ evidence.26 Once
the issue invites a review of the factual findings of the RTC and of the CA, as in this case, the
question posed is one of fact that is proscribed in a Rule 45 petition.27

The Court’s jurisdiction under a Rule 45 review is limited to reviewing perceived errors of law, which
the lower courts may have committed.28 The resolution of factual issues is the function of the lower
courts whose findings, when aptly supported by evidence, bind this Court. This is especially true
when the CA affirms the lower court’s findings,29 as in this case. While this Court, under established
exceptional circumstances, had deviated from the above rule, we do not find this case to be under
any of the exceptions.

Nevertheless, we still affirm the assailed CA rulings even if we were to disregard these established
doctrinal rules.

On the issue of encroachment and prematurity of the action

A review of the records from the RTC and the CA reveals that both arrived at the same factual
consideration – there was no encroachment. We agree with this factual finding for the following
reasons:

First, the records undoubtedly established that the subject property was not the parcel of land that
the petitioners purchased from Miguela. We note that the Caparas survey plan was used in
identifying the property purchased by the petitioners from Miguela. The deed of sale between them
showed what the petitioners purchased from Miguela referred to another parcel of land designated
as Lot No. 3 in the Caparas survey plan, while the subject property was designated as Lot No. 1 of
the same plan. Significantly, Chu also admitted that the parcel of land they purchased from Miguela
was different from the subject property.

The following pieces of evidence adduced by the petitioners also support the above conclusion:

1. The contents in the Deed of Absolute Sale between Miguela and the petitioners,30 dated
July 24, 1994, which described the parcel of land sold by Miguela to the petitioners as Lot
No. 3, per Ccs-04-000872-D and covered by TD No. 22312-A;

2. The tax declaration (TD No. 22312-A)31 under Miguela’s name for the year 1996 involving
Lot No. 3 Ccs-04-000872-D, with boundary description as NE- creek, NW- creek, SE- Lot
No. 10565, and SW- Lot. No. 1;
 3. The tax declaration (TD No. 22477-A)32 under the petitioners’ name for the year 1996,
which cancelled TD No. 22312, likewise covering Lot No. 3, Ccs-04-000872-D with the same
boundary description as stated in the cancelled TD.

In contrast with these pieces of evidence, the spouses Perez’s Original Certificate of Title No. P-
312333 covering the subject property and their actual occupation of this property since 1991 duly
established their ownership of this property. Clearly then, there was no encroachment by the
spouses Perez since they were the owners of the subject property. There was also no evidence to
prove that the spouses Perez encroached on the parcel of land (Lot No. 3) belonging to the
petitioners.

Second, contrary to the petitioners’ assertion, what Caparas admitted in the "Sinumpaang Salaysay
ng Pagpapatotoo" was the erroneous inclusion of Lot No. 3 in the Caparas survey plan and its
implication that Lot No. 3 belonged to Caparas. It was for this reason that Caparas acknowledged
Miguela’s ownership of Lot No. 3.

On the Action for reconveyance

In light of the above, the petitioners’ action against Caparas and the spouses Perez for
reconveyance, based on trust, must fail for lack of basis. An action for reconveyance is a legal and
equitable remedy that seeks to transfer or reconvey property, wrongfully registered in another
person’s name, to its rightful owner.34 To warrant reconveyance of the land, the plaintiff must allege
and prove, among others,35 ownership of the land in dispute and the defendant’s erroneous,
fraudulent or wrongful registration of the property.36

In the present petition, the petitioners failed to prove that the parcel of land they owned was the
subject property. Logically, there is nothing to reconvey as what the spouses Perez registered in
their names did not include the parcel of land which the petitioners, by their evidence, own.

We also see no trust, express or implied, created between the petitioners and the spouses Perez
over the subject property. A trust by operation of law is the right to the beneficial enjoyment of a
property whose legal title is vested in another.37 A trust presumes the existence of a conflict involving
one and the same property between two parties, one having the rightful ownership and the other
holding the legal title. There is no trust created when the property owned by one party is separate
and distinct from that which has been registered in another’s name.

In this case, the Caparas survey plan and the deed of sale between the petitioners and Miguela
showed that the parcel of land sold to the petitioners is distinct from the consolidated parcels of land
sold by Caparas to the spouses Perez.

Although we are aware of an apparent discrepancy between the boundary description of the parcel
of land described in the "Kasulatan ng Tuluyang Bilihan ng Lupa" executed between Caparas and
Miguela, the "Kasulatan ng Tuluyang Bilihan ng Lupa" executed between Caparas and the spouses
Perez, and Caparas’ TD on the one hand, and the boundary description of the consolidated parcels
of land stated in the Caparas survey plan and the spouses Perez’s title on the other hand, we find
the discrepancy more imagined than real. This perceived discrepancy does not help the petitioners’
cause in light of the evidence that the deed of sale between the petitioners and Miguela used the
Caparas survey plan that clearly identified the parcel of land sold to them was different from the
subject property.

Even granting that the Caparas survey plan did erroneously switch the positions of the petitioners’
and the spouses Perez’s respective landholdings, we agree with the RTC that reconveyance was
still an inappropriate remedy. The petitioners’ recourse should have been to file the proper action
before the Department of Environment and Natural Resources-Land Management Bureau for the
cancellation of the Caparas survey plan and for the approval of a new survey plan38 that correctly
reflects the position of their respective landholdings. For until the Caparas survey plan has been
cancelled, the petitioners’ claim of encroachment has no basis.

Another perspective, too, that must be considered is Miguela’s act in selling to the petitioners Lot No.
3 using the Caparas survey plan, which can be regarded as a ratification of any perceived error
under the circumstances.

On the propriety of the award of damages and attorney’s fees

Based on the above discussion, we find the award of damages and attorney’s fees in the spouses
Perez’s favor proper.

First, assuming that Miguela sold to the petitioners the subject property, the petitioners cannot be
deemed to be purchasers in good faith. To be deemed a purchaser in good faith, there must be
1âwphi1

absence of notice that some other person has a right to or interest in such property.39 The
established facts show that the spouses Perez had been in possession of the subject property since
1991, while the petitioners purchased the subject property only on July 24, 1994. Had the petitioners
actually verified the status of the subject property before they purchased it, they would have known
of the spouses Perez’s interest therein. More importantly, the land registration court has confirmed
the spouses Perez’s title over the subject property on March 1, 1994 or months prior to the
petitioners’ purchase. As the RTC and the CA correctly ruled, the petitioners were deemed to have
been placed on constructive notice of the spouses Perez’s title since the registration proceedings
are in rem.40

Second, the petitioners undoubtedly filed and pursued an unfounded claim against the spouses
Perez, for which the latter incurred unnecessary expenses to protect their interests. To repeat, the
petitioners’ action for reconveyance against the spouses Perez completely had no basis.

Finally, the RTC correctly ruled that the petitioners are liable to pay moral and exemplary damages,
attorney’s fees and the costs of suit, pursuant to Article 2217 in relation to Article 2219,41 Article
222942 and Article 220842 of the Civil Code. As the RTC correctly observed, Chu was a lawyer and a
businessman. He and his-co-petitioner were expected to exercise more prudence in their
transactions before instituting a clearly unfounded action against innocent third persons on the
premise that they committed a mistake for which they themselves are to (source text unreadable).

WHEREFORE, in view of these considerations, we hereby DENY the petition and accordingly
AFFIRM the decision dated August 7, 2006 and the resolution dated November 8, 2006 of the Court
of Appeals in CA-G.R. CV No. 67243.Costs against the petitioners.

SO ORDERED.

G.R. No. 159494 July 31, 2008

ROGELIO, GEORGE, LOLITA, ROSALINDA, and JOSEPHINE, all surnamed PASIÑO,

represented by their father and attorney-in-fact JOSE PASIÑO Petitioners,
vs.
DR. TEOFILO EDUARDO F. MONTERROYO, ROMUALDO MONTERROYO, MARIA TERESA
MONTERROYO, and STEPHEN MONTERROYO, Respondents.
 DECISION

CARPIO, J.:

The Case

Before the Court is a petition for review1 assailing the 31 January 2003 Decision2 and the 5 August
2003 Resolution3 of the Court of Appeals in CA-G.R. CV No. 63199. The Court of Appeals affirmed
the Decision4 dated 2 February 1999 of the Regional Trial Court of Iligan City, Branch 6 (trial court),
in Civil Case No. 06-3060.

The Antecedent Facts

This case originated from an action for recovery of possession and damages, with prayer for the
issuance of a temporary restraining order or writ of preliminary mandatory injunction, filed by
Rogelio, George, Lolita, Rosalinda and Josephine, all surnamed Pasiño, represented by their father
and attorney-in-fact Jose Pasiño (petitioners) against Dr. Teofilo Eduardo F. Monterroyo (Dr.
Monterroyo), later substituted by his heirs Romualdo, Maria Teresa and Stephen, all surnamed
Monterroyo (respondents).

Cad. Lot No. 2139 of Cad. 292, Iligan Cadastre (Lot No. 2139), with an area of 19,979 square
meters, located at Panul-iran, Abuno, Iligan City, was part of a 24-hectare land occupied, cultivated
and cleared by Laureano Pasiño (Laureano) in 1933. The 24-hectare land formed part of the public
domain which was later declared alienable and disposable. On 18 February 1935, Laureano filed a
homestead application over the entire 24-hectare land under Homestead Application No.
205845.5 On 22 April 1940, the Bureau of Forestry wrote Laureano and informed him that the tract of
land covered by his application was not needed for forest purposes.6 On 11 September 1941, the
Director of Lands issued an Order7 approving Laureano’s homestead application and stating that
Homestead Entry No. 154651 was recorded in his name for the land applied for by him.

Laureano died on 24 March 1950. On 15 April 1952, the Director of Lands issued an Order8 for the
issuance of a homestead patent in favor of Laureano, married to Graciana Herbito9 (Graciana).
Laureano’s heirs did not receive the order and consequently, the land was not registered under
Laureano’s name or under that of his heirs. In 1953, the property was covered by Tax Declaration
No. 1110210 in the name of Laureano with Graciana11 as administrator.

Between 1949 and 1954, a Cadastral Survey was conducted in Iligan City. The surveyor found that a
small creek divided the 24-hectare parcel of land into two portions, identified as Lot No. 2138 and
Lot No. 2139.

Petitioners claimed that Laureano’s heirs, headed by his son Jose, continuously possessed and
cultivated both lots. On 16 October 1962, Jose’s co-heirs executed a Deed of Quitclaim renouncing
their rights and interest over the land in favor of Jose. Jose secured a title in his name for Lot No.
2138. Later, Jose alienated Lot No. 2139 in favor of his children (petitioners in this case) who, on 8
January 1994, simultaneously filed applications for grant of Free Patent Titles over their respective
shares of Lot No. 2139 before the Land Management Bureau of the Department of Environment and
Natural Resources (DENR). On 22 August 1994, the DENR granted petitioners’ applications and
issued Original Certificate of Title (OCT) No. P-1322 (a.f.) in favor of Rogelio Pasiño, OCT No. P-
1318 (a.f.) in favor of George Pasiño, OCT No. P-1317 (a.f.) in favor of Lolita Pasiño, OCT No. P-
1321 (a.f.) in favor of Josephine Pasiño, and OCT No. P-1319 (a.f.) in favor of Rosalinda Pasiño.
Petitioners alleged that their possession of Lot No. 2139 was interrupted on 3 January 1993 when
respondents forcibly took possession of the property.
Respondents alleged that they had been in open, continuous, exclusive and notorious possession of
Lot No. 2139, by themselves and through their predecessors-in-interest, since 10 July 1949. They
alleged that on 10 July 1949, Rufo Larumbe (Larumbe) sold Lot No. 2139 to Petra Teves (Petra). On
27 February 1984, Petra executed a deed of sale over Lot No. 2139 in favor of Vicente Teves
(Vicente). On 20 February 1985, Vicente executed a pacto de retro sale over the land in favor of
Arturo Teves (Arturo). In 1992, Arturo sold Lot No. 2139 in favor of respondents’ father, Dr.
Monterroyo, by virtue of an oral contract. On 5 January 1995, Arturo executed a Deed of
Confirmation of Absolute Sale of Unregistered Land in favor of Dr. Monterroyo’s heirs.

Respondents alleged that Jose was not the owner of Lot No. 2139 and as such, he could not sell the
land to his children. They alleged that petitioners’ OCTs were null and void for having been procured
in violation of the Public Land Act. They further alleged that the Land Management Bureau had no
authority to issue the free patent titles because Lot No. 2139 was a private land.

The Ruling of the Trial Court

In its 2 February 1999 Decision, the trial court ruled, as follows:

WHEREFORE, judgment is rendered in favor of all the defendants and against the plaintiffs:

1. Dismissing the complaint;

2. Declaring Lot No. 2139, Iligan Cadastre 292, located at Panul-iran, Abuno, Iligan City to
have acquired the character of a private land over which the Land Management Bureau has
been divested of jurisdiction;

3. Declaring the defendants to be the owners and possessors of the said lot;

4. Declaring OCT Nos. P-1322 (a.f.) of Rogelio Pasiño, P-1318 (a.f.) of George Pasiño, P-
1317 (a.f.) of Lolita Pasiño, P-1321 (a.f.) of Josephine Pasiño and P-1319 (a.f.) of Rosalinda
Pasiño to be null and void for having been procured by fraud and for having been issued by
the Land Management Bureau which has been divested of jurisdiction over said lot;

5. Declaring the defendants to be entitled to the sum of ₱6,000.00 deposited with the Office
of the Clerk of Court under O.R. No. 1487777;

6. Dismissing the defendants’ counterclaim for attorney’s fees.

Costs against the plaintiffs.

SO ORDERED.12

The trial court ruled that as of January 1994, Lot No. 2139 had already acquired the character of a
private land by operation of law. Since Lot No. 2139 had already ceased to be a public land, the
Land Management Bureau had no power or authority to dispose of it by issuing free patent titles.

The trial court ruled that respondents’ counterclaim stands on the same footing as an independent
action. Thus, it could not be considered a collateral attack on petitioners’ titles. The trial court further
ruled that respondents filed their counterclaim within one year from the grant of petitioners’ titles,
which was the reglementary period for impugning a title.
The trial court ruled that the order for the issuance of a patent in favor of Laureano lapsed and
became functus officio when it was not registered with the Director of Deeds. The trial court ruled
that while Laureano was the original claimant of the entire 24 hectares, he ceded the right to
possession over half of the property, denominated as Lot No. 2139, to Larumbe sometime in 1947.
The trial court found that Laureano offered to sell half of the land to his tenant Gavino Quinaquin
(Gavino) but he did not have money. Later, Gavino learned from Larumbe that he (Larumbe)
acquired half of the land from Laureano. Gavino then started delivering the owner’s share of the
harvest to Larumbe. Laureano never contested Gavino’s action nor did he demand that Gavino
deliver to him the owner’s share of the harvest and not to Larumbe. When Lot No. 2139 was sold,
Gavino and his successors delivered the owner’s share of the harvest to Petra, Vicente, Arturo, Dr.
Monterroyo, and Dindo Monterroyo, successively. The trial court also found that the other tenants
had never given any share of the harvest to Jose. The trial court ruled that petitioners had failed to
present convincing evidence that they and their predecessors-in-interest were in possession of Lot
No. 2139 from 1947 to 1994 when they filed their application for free patent. The trial court ruled that
petitioners committed actual fraud when they misrepresented in their free patent applications that
they were in possession of the property continuously and publicly.

Petitioners appealed from the trial court’s Decision.

The Ruling of the Court of Appeals

In its 31 January 2003 Decision, the Court of Appeals affirmed the trial court’s Decision.

The Court of Appeals ruled that the trial court did not err in allowing respondents’ counterclaim
despite the non-appearance of Dr. Monterroyo, the original defendant, at the barangay conciliation
proceedings. The Court of Appeals ruled that petitioners themselves did not personally appear. They
were represented by their attorney-in-fact although they were all of legal age, which was a violation
of the Katarungang Pambarangay proceedings requiring the personal appearance of the parties.
Hence, the Court of Appeals ruled that there was never a valid conciliation proceeding. However,
while this would have been a ground for the dismissal of the complaint, the issue was deemed
waived because respondents did not raise it in their answer before the trial court.

The Court of Appeals ruled that the validity of petitioners’ titles could be attacked in a counterclaim.
The Court of Appeals ruled that respondents’ counterclaim was a compulsory counterclaim.

The Court of Appeals sustained the trial court’s ruling that the Land Management Bureau had been
divested of jurisdiction to grant the patent because the land already acquired the character of a
private land. While the homestead patent was issued in favor of Laureano, the issuance of patent
order became functus officio when it was not registered. The Court of Appeals further sustained the
trial court’s finding that respondents were in physical, open, public, adverse and continuous
possession of Lot No. 2139 in the concept of owner for at least 30 years prior to petitioners’
application for free patent titles over the land.

Petitioners filed a motion for reconsideration.

In its 5 August 2003 Resolution, the Court of Appeals denied petitioners’ motion for reconsideration.

Hence, the petition before this Court.

The Issue
Petitioners raised the sole issue of whether the Court of Appeals erred in sustaining the trial court’s
Decision declaring respondents as the rightful owners and possessors of Lot No. 2139.13

The Ruling of this Court

The petition has no merit.

Land Management Bureau Had No Jurisdiction

To Issue Free Patent Titles

In Director of Lands v. IAC,14 the Court ruled:

[A]lienable public land held by a possessor, continuously or through his predecessors-in-interest,

openly, continuously and exclusively for the prescribed statutory period (30 years under The Public
Land Act, as amended) is converted to private property by the mere lapse or completion of the
period, ipso jure.15

In Magistrado v. Esplana,16 the Court ruled that so long as there is a clear showing of open,
continuous, exclusive and notorious possession, and hence, a registrable possession, by present or
previous occupants, by any proof that would be competent and admissible, the property must be
considered to be private.

In this case, the trial court found that the preponderance of evidence favors respondents as the
possessors of Lot No. 2139 for over 30 years, by themselves and through their predecessors-in-
interest. The question of who between petitioners and respondents had prior possession of the
property is a factual question whose resolution is the function of the lower courts.17 When the factual
findings of both the trial court and the Court of Appeals are supported by substantial evidence, they
are conclusive and binding on the parties and are not reviewable by this Court.18 While the rule is
subject to exceptions, no exception exists in this case.

Respondents were able to present the original Deed of Absolute Sale, dated 10 July 1949, executed
by Larumbe in favor of Petra.19 Respondents also presented the succeeding Deeds of Sale showing
the transfer of Lot No. 2139 from Petra to Vicente20 and from Vicente to Arturo21 and the Deed of
Confirmation of Absolute Sale of Unregistered Real Property executed by Arturo in favor of
respondents.22 Respondents also presented a certification23 executed by P/Sr. Superintendent
Julmunier Akbar Jubail, City Director of Iligan City Police Command and verified from the Log Book
records by Senior Police Officer Betty Dalongenes Mab-Abo confirming that Andres Quinaquin made
a report that Jose, Rogelio and Luciana Pasiño, Lucino Pelarion and Nando Avilo forcibly took his
copra. This belied petitioners’ allegation that they were in possession of Lot No. 2139 and
respondents forcibly took possession of the property only in January 1993.

Considering that petitioners’ application for free patent titles was filed only on 8 January 1994, when
Lot No. 2139 had already become private land ipso jure, the Land Management Bureau had no
jurisdiction to entertain petitioners’ application.

Non-Registration of Homestead Patent Rendered it

Functus Officio

Once a homestead patent granted in accordance with law is registered, the certificate of title issued
by virtue of the patent has the force and effect of a Torrens title issued under the land registration
law.24 In this case, the issuance of a homestead patent in 1952 in favor of Laureano was not
registered. Section 103 of Presidential Decree No. 152925 mandates the registration of patents, and
registration is the operative act to convey the land to the patentee, thus:

Sec. 103. x x x x. The deed, grant, patent or instrument of conveyance from the Government to the
grantee shall not take effect as a conveyance or bind the land but shall operate only as a contract
between the Government and the grantee and as evidence of authority to the Register of Deeds to
make registration. It is the act of registration that shall be the operative act to affect and
convey the land, and in all cases under this Decree, registration shall be made in the office of the
Register of Deeds of the province or city where the land lies. The fees for registration shall be paid
by the grantee. After due registration and issuance of the certificate of title, such land shall be
deemed to be registered land to all intents and purposes under this Decree. (Emphasis supplied) 1avv phi1

Further, in this case, Laureano already conveyed Lot No. 2139 to Larumbe in 1947 before the
approval of his homestead application. In fact, Larumbe already sold the land to Petra in 1949, three
years before the issuance of the homestead patent in favor of Laureano. The trial court found that
since 1947, the tenants of Lot No. 2139 had been delivering the owner’s share of the harvest,
successively, to Larumbe, Petra, Vicente and Arturo Teves, Dr. Monterroyo and Dindo Monterroyo.
The trial court found no instance when the owner’s share of the harvest was delivered to Jose
Pasiño.

Hence, we sustain the trial court that the non-registration of Laureano’s homestead patent had
rendered it functus officio.

A Counterclaim is Not a Collateral Attack on the Title

It is already settled that a counterclaim is considered an original complaint and as such, the attack
on the title in a case originally for recovery of possession cannot be considered as a collateral attack
on the title.26 Development Bank of the Philippines v. Court of Appeals27 is similar to the case before
us insofar as petitioner in that case filed an action for recovery of possession against respondent
who, in turn, filed a counterclaim claiming ownership of the land. In that case, the Court ruled:

Nor is there any obstacle to the determination of the validity of TCT No. 10101. It is true that the
indefeasibility of torrens title cannot be collaterally attacked. In the instant case, the original
complaint is for recovery of possession filed by petitioner against private respondent, not an original
action filed by the latter to question the validity of TCT No. 10101 on which petitioner bases its right.
To rule on the issue of validity in a case for recovery of possession is tantamount to a collateral
attack. However, it should not [b]e overlooked that private respondent filed a counterclaim against
petitioner, claiming ownership over the land and seeking damages. Hence, we could rule on the
question of the validity of TCT No. 10101 for the counterclaim can be considered a direct attack on
the same. ‘A counterclaim is considered a complaint, only this time, it is the original defendant who
becomes the plaintiff... It stands on the same footing and is to be tested by the same rules as if it
were an independent action.’ x x x.28

As such, we sustain both the trial court and the Court of Appeals on this issue.

Principle of Constructive Trust Applies

Under the principle of constructive trust, registration of property by one person in his name, whether
by mistake or fraud, the real owner being another person, impresses upon the title so acquired the
character of a constructive trust for the real owner, which would justify an action for
reconveyance.29 In the action for reconveyance, the decree of registration is respected as
incontrovertible but what is sought instead is the transfer of the property wrongfully or erroneously
registered in another’s name to its rightful owner or to one with a better right.30 If the registration of
the land is fraudulent, the person in whose name the land is registered holds it as a mere trustee,
and the real owner is entitled to file an action for reconveyance of the property.31

In the case before us, respondents were able to establish that they have a better right to Lot No.
2139 since they had long been in possession of the property in the concept of owners, by
themselves and through their predecessors-in-interest. Hence, despite the irrevocability of the
Torrens titles issued in their names and even if they are already the registered owners under the
Torrens system, petitioners may still be compelled under the law to reconvey the property to
respondents.32

WHEREFORE, we DENY the petition. We AFFIRM the 31 January 2003 Decision and the 5 August
2003 Resolution of the Court of Appeals in CA-G.R. CV No. 63199. Costs against petitioners.

SO ORDERED.

G.R. No. L-24597 August 25, 1926

ROSARIO GAYONDATO, plaintiff-appellant,

vs.
THE TREASURER OF THE PHILIPPINE ISLANDS, ET AL., defendants-appellant.

Arroyo and Evangelista for appellant.

Office of the Solicitor-General Reyes for the Treasurer of the Philippine Islands.
No appearance for the other appellees.

OSTRAND, J.:

This action is brought to recover damages in the sum of P30,000 for the erroneous registration in the
name of the defendant Gasataya of three parcels of land situated in the municipality of Isabela,
Province of Occidental Negros, and of which the plaintiff was the owner at the time of the
registration.

There is practically no dispute as to the facts. The three parcels of land were formerly owned by one
Domingo Gayondato, who inherited them from his mother, Ramona Granada, in 1896. In 1899
Domingo married the defendant Adela Gasataya, with whom he had a child, the herein plaintiff, born
in October 1900. Upon the death of Domingo in the year 1902, Gabino Gasataya, the father of
Adela, took charge of the three parcels of land in question. In 1908 Adela married the defendant
Domingo Cuachon, and Gabino Gasataya thereupon turned over to them the possession of the land.

The three parcels were included in cadastral case No. 11 of the Court of First Instance of Occidental
Negros as lots Nos. 70, 364 and 375, and when that case came on for hearing in August, 1916, the
defendant Domingo Cuachon appeared on behalf of his wife and stepdaughter and filed claims for
the aforesaid lots by way of answers in which he stated that the lots were the property of "his with
Adela Gasataya and of her daughter, fifteen years of age." Notwithstanding this statement, the Court
of First Instance erroneously decreed the registration of the aforesaid lots in the name of Adela
Gasataya alone. Subsequently Adela, with the consent of her husband, mortgaged the property to
the National Bank and finally in the year 1920 sold it to the defendant Rodriguez for the sum of
P13,000, the purchaser, in addition thereto, assuming the liability for a mortgage of P8,000 to the
National Bank and for certain other debts amounting to over P4,000.
The complaint in the present case was filed on August 18, 1922, Adela Gasataya, Domingo
Cuachon, Francisco Rodriguez and the Insular Treasurer being made parties defendant. Upon the
facts above stated the trial court rendered judgment in favor of the plaintiff Rosario Gayondato,
ordering the defendants Adela Gasataya and Domingo Cuachon jointly and severally to indemnify
the said plaintiff in the sum of P35,000 and to pay the costs. The Insular Treasurer and Francisco
Rodriguez were absolved from the complaint. From this judgment the plaintiff appealed.

The sum and substance of the assignments of error is the court erred in absolving the Insular
Treasurer from the complaint, and in this we agree with the appellant. The court below appears to
have been under the impression that the liability of the assurance fund is confined to cases where
the erroneous registration is due to omission, mistake or malfeasance of the part of the employees
of the registration court. That this view is erroneous, is evident from the language of section 101 and
102 of the Land Registration Act, which read as follows:

SEC. 101. Any person who without negligence on his part sustains loss or damage through
any omission, mistake, or misfeasance of the clerk, or register of deeds, or of any examiner
of titles, or of any deputy or clerk of the register of deeds in the performance of their
respective duties under the provisions of this Act, and any person who is wrongfully deprived
of any land or any interest therein, without negligence on his part, through the bringing of the
same under the provisions of this Act or by the registration of any other person as owner of
such land, or by any mistake, omission or misdescription in any certificate or owner's
duplicate, or in any entry or memorandum in the register or other official book or by any
cancellation, and who by the provisions of this Act is barred or in any way precluded from
bringing an action for the recovery of such land or interest therein, or claim upon the same,
may bring in any court of competent jurisdiction an action against the Treasurer of the
Philippine Archipelago for the recovery of damages to be paid, out of the assurance fund.

SEC. 102. If such action be for recovery for loss or damage arising only through any
omission mistake, or misfeasance of the clerk or of the register of deeds, or of any examiner
of titles, or of any deputy or clerk of the register of deeds in the performance of their
respective duties under the provisions of this Act, then the Treasurer of the Philippine
Archipelago shall be the sole defendant to such action. But if such action be brought for loss
or damage arising only through the fraud or willful act of some person or persons other than
the clerk, the register of deeds, the examiners of titles, deputies and clerks, or arising jointly
through the fraud or wrongful act of such other person or persons and the omission, mistake,
or misfeasance of the clerk, the register of deeds, the examiners of titles, deputies, or clerks,
then such action shall be brought against both the Treasurer of the Philippine Archipelago
and such person or persons aforesaid. In all such actions where there are defendants other
than the Treasurer of the Philippine Archipelago and damages shall have been recovered,
no final judgment shall be entered against the Treasurer of the Philippine Archipelago until
execution against the other defendants shall be returned unsatisfied in whole or in part, and
the officer returning the execution ]shall certify that the amount still due upon the execution
cannot be collected except by application to the assurance fund. Thereupon the court having
jurisdiction of the action, being satisfied as to the truth of such return, may, upon proper
showing, order the amount of the execution and costs or so much thereof as remains unpaid,
to be paid by the Treasurer of the Philippine Archipelago out of the assurance fund. If shall
be the duty of the Attorney- General in person or by deputy to appear and defend all such
duties with the aid of the fiscal of the province in which the land lies or the city attorney of the
City of Manila as the case may be: Provided, however, That nothing in this Act shall be
construed to deprive the plaintiff of any action which he may have against any person for
such loss or damage or deprivation of land or of any estate or interest therein without joining
the Treasurer of the Philippine Archipelago as a defendant therein.
As the plaintiff-appellant was a minor at the time of the registration of the land and consequently no
negligence can be imputed to her, it is clear from the sections quoted that in the absence of special
circumstances to the contrary the assurance fund is secondarily liable for the damages suffered by
her through the wrongful registration.

But the Attorney-General in his brief for the Insular Treasurer raises the point that Domingo Cuachon
and Adela Gasataya prior to the registration must be considered to have held the property in trust
and for the benefit of the plaintiff; that the relation of trustee and cestui que trust was thus created;
and that the case therefore falls under section 106 of the Land Registration Act, which provides that
"the assurance fund shall not be liable to pay for any loss or damage or deprivation occasioned by a
breach of trust, whether express, implied, or constructive, by any registered owner who is a trustee,
or by the improper exercise of any sale in mortgage-foreclosure proceedings."

At first blush the Attorney-General's contention seems quite plausible. For want of better terms the
words "trust" and "trustee" are frequently used in a broad and popular sense so as to embrace a
large variety of relations. Thus if a person obtains legal title to property by fraud or concealment,
courts of equity will impress upon the title a so-called constructive trust in favor of the defrauded
party. The use of the word "trust" in this sense is not technically accurate: as Perry says, such trusts
"are not trusts at all in the strict and proper signification of the word "trust"; but as courts are agreed
in administering the same remedy in a certain class of frauds as are administered in fraudulent
breaches of trusts, and as courts and the profession have concurred in calling such frauds
constructive trusts, there can be no misapprehension in continuing the same phraseology, while a
change might lead to confusion and misunderstanding." (Perry on Trusts, 5th ed., sec. 166.)

If this is the kind of constructive trust referred to in section 106, supra, it must be conceded that the
plaintiff cannot recover damages from the assurance fund. But that such is not the case, becomes
quite apparent upon an examination of sections 101 and 102, above quoted, in which the right of
recovery from the assurance fund in cases of registration through fraud or wrongful acts is expressly
recognized and which, in our opinion, clearly show that the term trust as used in section 106 must be
taken in its technical and more restricted sense. Indeed, if it were to be regarded in its broadest
sense, the assurance fund would, under the conditions here prevailing, be of little or no value.

Bouvier defines a trust in its technical sense as "a right of property, real or personal, held by one
party for the benefit of another." In the present case we have this situation: The plaintiff was a minor
at the time of the registration of the land and had no legal guardian. It is true that her mother in
whose name the land was registered was the natural guardian of her person, but that guardianship
did not extend to the property of the minor and conferred no right to the administration of the same
(Palet vs. Aldecoa and Co., 15 Phil., 232; Ibañez de Aldecoa vs. Hongkong and Shanghai Banking
Corporation, 30 Phil., 228) and the plaintiff, being a minor and under disability, could not create a
technical trust of any kind. Applying Bouvier's definition to this estate of facts, it is clear that there
was no trust in its technical signification. The mother had no right of property or administration in her
daughter's estate and was nothing but a mere trespasser. The language of the New Jersey Court of
Chancery in the case of Henniger vs. Heald (30 Atlantic, 809), is therefore particularly apposite in
the present case.

In the case before us the title was acquired by Heald tortuously, or in violation of every well-
settled principle of law. It never was trust property. Strictly speaking, he was not a trustee,
any more than a trespasser or other wrongdoer. The wrongdoer who becomes possessed of
property under such circumstances has been styled a "trustee;" but this is for want of a better
term, and because he has no title to property, and really holds it for the true owner. It might
as well be said that, where two persons conspire to possess themselves of the personal
property of another when he brings trover for its recovery, they should be styled "trustees,"
 instead of "fort feasors," and should be permitted to claim the benefit of a lien for care or for
provender.

From what has been said it follows that the judgment absolving the Insular Treasurer from the
complaint must be reversed. We also note from the record that Adela Gasataya died March 1, 1923,
before the trial of the case and that an administrator of her estate was appointed. It was therefore
error to render judgment against her personally. It may further be noted that the measure of
damages applied by the court below, i. e. the full value of the land, is not strictly accurate. The
property was subject to a life estate of one-third in favor of Adela Gasataya as the widow of Domingo
Gayondato, the value of which must be deducted from the total value of the fee simple. It may also
be observed that the amount demanded in the complaint is only P30,000 and that the land was solid
to Francisco Rodriguez for but little more than P25,000. We are therefore of the opinion that the
damages awarded should be reduced to P25,000.

The judgment appealed from is reversed, and it is hereby ordered that the defendants Domingo
Cuachon and the estate of Adela Gasataya jointly and severally pay to the plaintiff the sum of
P25,000, with interest at the rate of 6 per cent per annum from August 18, 1922, the date of the filing
of the complaint, with the costs. It is further ordered that if the execution of this judgment is returned
unsatisfied in whole or in part and the officer returning the execution certifies that the amount upon
the execution cannot be collected except by application to the assurance fund and the court having
jurisdiction over the action shall be satisfied as to the truth of such return, said court shall order the
amount of the execution and costs, or so much thereof as remains unpaid, to be paid by the
Treasurer of the Philippine Archipelago out of the assurance fund. The complaint will stand
dismissed as to Francisco Rodriguez. No costs will be allowed. So ordered.

Avanceña, C. J., Street, Villamor, J

G.R. No. L-48309 January 30, 1943

EUSEBIA ESCOBAR, plaintiff-appellant,

vs.
RAMON LOCSIN, in his capacity as special administrator of the intestate estate of Juana
Ringor, defendant-appellee.

Eugenio S. Estayo for appellant.

Mariano Santa Romana for appellee.

BOCOBO, J.:

The complain in this case, which prays for the reconveyance of lot No. 692 of the Cuyapo cadastre
in Nueva Ecija, alleges that the plaintiff is the owner of said lot; and that in the course of the
cadastral proceedings, plaintiff being illiterate, asked Domingo Sumangil to claim the same for her
(plaintiff) but Sumangil committed a breach of trust by claiming the lot for himself, so it was
adjudicated in favor of Sumangil. The defendant is the special administrator of the estate of Juana
Ringor, to whom the parcel of land in question was assigned by partition in the intestate estate of
Domingo Sumangil and Honorata Duque.

The Court of First Instance of Nueva Ecija found that the plaintiff is the real owner of the lot which
she had acquired in 1914 by donation propter nuptias from Pablo Ringor; that plaintiff had since that
year been in possession of the land; and that the same had been decreed in the cadastral
proceedings in favor of Domingo Sumangil. The trial court, while recognizing that the plaintiff had the
equitable title and the defendant the legal title, nevertheless dismissed the complaint because the
period of one year provided for in section 38 of the Land Registration Act (No. 496) for the review of
a decree had elapsed, and the plaintiff had not availed herself of this remedy.

The trial court plainly erred. The complaint did not seek the review of the decree or the reopening of
the cadastral case, but the enforcement of a trust. Hence, section 38 of Act No. 496 does not apply.
The estate of Juana Ringor as the successor in interest of the trustee, Domingo Sumangil, is in
equity bound to execute a deed of conveyance of this lot to the cestui que trust, the plaintiff-
appellant. The remedy herein prayed for has been upheld by this Court in previous cases, one of
which is Severino vs. Severino (44 Phil., 343, year 1923) in which it was said among other things:

Turning to our own Land Registration Act. we find no indication there of an intention to cut
off, through the issuance of a decree of registration, equitable rights or remedies such as
those here in question. On the contrary, section 70 of the Act provides:

Registered lands and ownership therein, shall in all respects be subject to the same burdens
and incidents attached by law to unregistered land. Nothing contained in this Act shall in any
way be construed to relieve registered land or the owners thereof from any rights incident to
the relation of husband and wife, or from liability to attachment on mesne process or levy on
execution, or from liability to any lien of any description established by law on land and the
buildings thereon, or the interest of the owner in such land or buildings, or to change the laws
of descent, or the rights of partition between coparceners, joint tenants and other cotenants,
or the right to take the same by eminent domain, or to relieve such land from liability to be
appropriated in any lawful manner for the payment of debts, or to change or affect in any
other way any other rights or liabilities created by law and applicable to unregistered land,
except as otherwise expressly provided in this Act or in the amendments hereof.

SEC. 102 of the Act, after providing for actions for damages in which the Insular Treasurer,
as the custodian of the Assurance Fund is a party, contains the following proviso:

Provided, however, That nothing in this Act shall be construed to deprive the plaintiff of any
action which he may have against any person for such loss or damage or deprivation of land
or of any estate or interest therein without joining the Treasurer of the Philippine Archipelago
as a defendant therein.

That an action such as the present one is covered by this proviso can hardly admit of doubt.

A trust — such as that which was created between the plaintiff and Domingo Sumangil — is sacred
and inviolable. The Courts have therefore shielded fiduciary relations against every manner of
chicanery or detestable design cloaked by legal technicalities. The Torrens system was never
calculated to foment betrayal in the performance of a trust.

The judgment appealed from is hereby reverse, and the defendant is ordered to convey that lot in
question to the plaintiff within fifteen days from the entry of final judgment herein; and upon his
failure or refusal to do so, this judgment shall constitute sufficient authorization for the Register of
Deeds of Nueva Ecija, in lieu of a deed of conveyance, to transfer the certificate of title for said lot
No. 692 to the plaintiff Eusebia Escobar. The defendant shall pay the costs of both instances. So
ordered.

G.R. No. 179540 March 13, 2009

PERFECTA CAVILE, JOSE DE LA CRUZ and RURAL BANK OF BAYAWAN, INC., Petitioners,
vs.
JUSTINA LITANIA-HONG, accompanied and joined by her husband, LEOPOLDO HONG and
GENOVEVA LITANIA, Respondents.

DECISION

CHICO-NAZARIO, J.:

Before us is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, which seeks to
reverse and set aside the Decision2 dated 8 March 2007 and the Resolution3 dated 3 September
2007 of the Court of Appeals in CA-G.R. CV No. 66873. The assailed Decision of the appellate court
reversed and set aside the Decision4 dated 29 February 2000 of the Regional Trial Court (RTC) of
Negros Oriental, Branch 35, in Civil Case No. 6111, dismissing the complaint of respondents Justina
Litania-Hong, her husband Leopoldo Hong, and her sister Genoveva Litania; and declaring petitioner
spouses Perfecta Cavile and Jose de la Cruz to be the absolute owners of the parcels of land
subjects of this case. The assailed Resolution of the appellate court denied petitioner spouses’
Motion for Reconsideration of its decision.

The factual and procedural antecedents of the case proceed as follows:

On 5 April 1937, a Deed of Partition5 was entered into by the heirs of the spouses Bernardo Cavile
and Tranquilina Galon. Said heirs included the legitimate children of Bernardo and Tranquilina,
namely, (1) Susana Cavile, (2) Castor Cavile, and (3) Benedicta Cavile; as well as the children of
Bernardo by his previous marriages, specifically: (4) Simplicia Cavile, (5) Fortunato Cavile, and (6)
Vevencia Cavile.6 Subject of the Deed of Partition were several parcels of land situated in the
Municipality of Tolong, Negros Oriental, which were then covered by Tax Declarations No. 5615, No.
5729, No. 7143, No. 7421 and No. 7956, all under the name of Bernardo.

Of particular interest in this case are the lots covered by Tax Declarations No. 7421 and No. 7956.
The lot covered by Tax Declaration No. 7421 was described in the Deed of Partition as "bounded on
the North by Simplicio Cavile antes Roman Echaves, on the East by Rio Bayawan, on the South by
Riachuelo Napasu-an, and on the West by Riachuelo Napasu-an y Julian Calibug antes Francisco
Tacang." The lot covered by Tax Declaration No. 7956 was identified to be the one "bounded on the
North by Hilario Navaro, on the East by Silverio Yunting, on the South by Fortunato Cavile, and on
the West by Maximiano Balasabas."

In accordance with the Deed of Partition, the conjugal properties of Bernardo and Tranquilina were
divided into two parts. The first part, corresponding to Bernardo’s share, was further divided into six
equal shares and distributed among his six heirs. The second part, corresponding to Tranquilina’s
share, was subdivided only into three shares and distributed among her children with Bernardo, i.e.,
Susana, Castor, and Benedicta.

Also stated in the Deed of Partition was the sale by the other aforementioned legal heirs to their co-
heir Castor of their aliquot shares in the lots covered by Tax Declarations No. 7143, No. 7421, and
No. 7956; thus, making Castor the sole owner of the said properties. Similarly, the Deed of Partition
acknowledged the sale by all the legal heirs to Ulpiano Cavile of their respective shares in the lot
covered by Tax Declaration No. 5729, thus, transferring to the latter absolute ownership of said
parcel of land.

Thereafter, on 5 August 1960, Castor and Susana executed a Confirmation of Extrajudicial

Partition,7 whereby Castor recognized and confirmed that the lots covered by Tax Declarations No.
2039 and No. 2040 were the just and lawful shares of Susana in the properties left by their deceased
parents Bernardo and Tranquilina, and that Susana was in actual possession of the said properties.
According to the Confirmation of Extrajudicial Partition, the lot covered by Tax Declaration No. 2039
was "bounded on the North by Simplicio Cavile, on the East by Rio Bayawan, on the South by
Napasu-an, and on the West by Napasu-an Creek and Julian Calibog;" while the one covered by
Tax Declaration No. 2040 was "bounded on the North by Hilario Navvaro (sic), on the South by
Fortunato Cavile, on the East by Silverio Yunting, and on the West by Maximino (sic) Balasabas."

The descriptions of the lots covered by Tax Declarations No. 2039 and No. 2040 in the Confirmation
of Extrajudicial Partition were strikingly close to those of the lots covered by Tax Declarations No.
7421 and No. 7956, respectively, in the Deed of Partition.

Fourteen years after the execution of the Confirmation of Extrajudicial Partition in 1960, respondents
filed on 23 December 1974 a Complaint for Reconveyance and Recovery of Property with Damages
before the RTC against Perfecta Cavile, the daughter of Castor, Jose de la Cruz, the husband of
Perfecta (hereinafter petitioner spouses), and the Rural Bank of Bayawan, Inc. The Complaint was
docketed as Civil Case No. 6111.8

Respondents averred in the Complaint that respondents Justina and Genoveva inherited two parcels
of land, covered by Tax Declarations No. 07408 and No. 07409 (subject lots),9 from their mother
Susana, who, in turn, inherited the same from her parents Bernardo and Tranquilina. Respondents
invoked the Confirmation of Extrajudicial Partition dated 5 August 1960 wherein Castor purportedly
recognized Susana’s ownership of the subject lots. Susana had enjoyed undisputed ownership and
possession of the subject lots, paying the realty taxes due and introducing improvements thereon.
Susana was even able to obtain a loan from the Rural Bank of Dumaguete City sometime in 1960,
mortgaging the subject lots as security for the same.

After Susana’s death in 1965, the subject lots were inherited by her daughters, respondents Justina
and Genoveva, who then assumed the mortgage thereon. However, respondents alleged that Castor
and petitioner spouses eventually intruded upon and excluded respondents from the subject lots.
When Castor died in 1968, petitioner spouses continued their unlawful occupancy of the subject lots,
planting on the same and harvesting the products. Respondents claimed that they exerted efforts to
settle the matter, but petitioner spouses stubbornly refused to accede. In 1974, prior to the filing of
the Complaint, respondents again sought an audience with petitioner spouses, yet the latter only
presented to them the Original Certificates of Title (OCTs) No. FV-4976,10 No. FV-4977,11 and No.
FV-497812 covering the subject lots, issued by the Registry of Deeds for the Province of Negros
Oriental, on 9 October 1962, in the name of petitioner Perfecta. Respondents were, thus,
constrained to institute Civil Case No. 6111 against petitioner spouses and the Rural Bank of
Bayawan, Inc., seeking the cancellation of the OCTs in the name of petitioner Perfecta or,
alternatively, the reconveyance by petitioner spouses of the subject lots to respondents, plus award
for damages. The Rural Bank of Bayawan, Inc. was impleaded as a defendant in the Complaint
since petitioner spouses mortgaged the subject lots in its favor as security for a loan in the amount of
₱42,227.50. However, the bank was later dropped as a party after the aforesaid loan was settled.

Petitioner spouses countered in their Answer to the Complaint that, by virtue of the Deed of Partition
dated 5 April 1937, the heirs of both Bernardo and Tranquilina took exclusive possession of their
respective shares in the inheritance. Castor fully possessed the lots covered by Tax Declarations
No. 7143, No. 7421 and No. 7956, after his co-heirs sold to him their shares therein. In 1962, Castor
sold to petitioner Perfecta the lots covered by Tax Declarations No. 7421 and No. 7956, which
corresponded to the subject lots in the Complaint. Following the sale, petitioner Perfecta took
possession of the subject lots and filed with the Bureau of Lands an application for the issuance of
title over the same. The Bureau issued free patent titles over the subject lots in favor of petitioner
Perfecta and, by virtue thereof, she was able to secure on 9 October 1962, OCTs No. FV-4976, No.
FV-4977, and No. FV-4978 in her name.
Petitioner spouses asserted that the Confirmation of Extrajudicial Partition dated 5 August 1960
involving the subject lots was a nullity since said properties were never owned nor adjudicated in
favor of Susana, respondents’ predecessor-in-interest. Castor and Susana executed the
Confirmation of Extrajudicial Partition merely to accommodate the latter who then needed security
for the loan she was trying to obtain from the Rural Bank of Dumaguete City. Respondents would not
be able to deny the said accommodation arrangement, given that neither Susana nor respondents
actually possessed the subject lots or applied for titles thereto. Respondents did not even know that
the subject lots were divided into three lots after a Government survey. If Susana and respondents
paid realty taxes for the subject lots, it was only to convince the Rural Bank of Dumaguete to renew
their loan from year to year, secured as it was by the mortgage on the subject lots. Thus, petitioner
spouses posited that no ownership could then be transferred to respondents after Susana’s death.

Trial in Civil Case No. 6111 thereafter ensued before the RTC.13

On 29 February 2000, the RTC promulgated its Decision, with the following dispositive portion:

WHEREFORE, premises considered, judgment is hereby rendered declaring [herein petitioner

spouses] as the absolute owners over the parcels of land in litigation. Consequently, [herein
respondents’] complaint is ordered dismissed. [Respondents’] counterclaim is likewise entered
dismissed for lack of merit.14

The RTC ruled that the petitioner spouses’ evidence was more worthy of credence in establishing
their ownership of the subject lots. As petitioner Perfecta testified before the RTC, Castor
immediately took possession of the subject lots after the Deed of Partition was executed in 1937.
This fact was supported by the unrebutted testimony of Luciana Navarra, petitioner Perfecta’s
cousin, who declared that her husband was petitioner Perfecta’s tenant on the subject lots since
1947 and that respondents never actually occupied the said properties. The RTC observed that it
was highly questionable and contrary to human experience that respondents waited nine long years
after their ejection from the subject lots in 1965 before taking any legal step to assert their rights over
the same.

The RTC further subscribed to the testimony of Perfecta that the Confirmation of Extrajudicial
Partition was executed by Castor solely to accommodate Susana, enabling her to obtain a bank loan
using the subject lots as collateral. It noted that Susana did not bother to apply for the issuance of
title to the subject lots in her name. Contrarily, it was Perfecta who applied for and obtained title to
the subject lots, which, surprisingly, respondents were not even aware of. The RTC found that the
contemporaneous and subsequent acts of the parties after the execution of the Confirmation of
Extrajudicial Partition evidently demonstrated their intention to merely accommodate Susana in her
loan application. Hence, the RTC concluded that the Confirmation of Extrajudicial Partition was a
simulated contract which was void and without any legal effect.

Without seeking a reconsideration of the above RTC Decision, respondents challenged the same by
way of appeal before the Court of Appeals, docketed as CA-G.R. CV No. 66873.

On 8 March 2007, the Court of Appeals rendered the assailed Decision in favor of respondents, the
decretal portion of which provides:

WHEREFORE, the assailed decision is REVERSED AND SET ASIDE and a new one entered
ORDERING [herein petitioner spouses] and/or their heirs, assigns and representatives as follows:

1. To reconvey to [herein respondents] the possession and title to the litigated parcels of
land.
 2. Upon reconveyance of the litigated properties, the Register of Deeds of Dumaguete City is
ordered to cancel Certificate of Title No. 4877 (sic), 4976 and 4978 and to issue a new
certificate to [respondents] or their successors in interest.

3. With costs against [petitioner spouses].15

The Court of Appeals agreed in the respondents’ contention that the Confirmation of Extrajudicial
Partition was not a simulated document. The said document should be entitled to utmost respect,
credence, and weight as it was executed by and between parties who had firsthand knowledge of
the Deed of Partition of 1937. Moreover, the Confirmation of Extrajudicial Partition constituted
evidence that was of the highest probative value against the declarant, Castor, because it was a
declaration against his proprietary interest. Other than petitioner Perfecta’s testimony, the appellate
court found no other proof extant in the records to establish that the Confirmation of Extrajudicial
Partition was a simulated document or that it did not express the true intent of the parties. The Court
of Appeals likewise highlighted the fact that Castor did not attempt to have the subject lots declared
in his name during his lifetime and that petitioner Perfecta herself admitted that she only started
paying real estate taxes for the subject lots in 1993. It was Susana and, later, her children,
respondents Justina and Genoveva, who had been paying for the realty taxes on the subject lots
since 1937.

Petitioner spouses filed a Motion for Reconsideration16 of the foregoing Decision, but it was denied
by the Court of Appeals in a Resolution17 dated 3 September 2007.

Petitioner spouses filed the instant Petition, raising the following issues for the Court’s consideration:

I.

WHETHER [OR NOT] THE HONORABLE COURT OF APPEALS ACTED IN ACCORDANCE WITH
LAW IN RULING THAT EXTRANEOUS EVIDENCE IN THE FORM OF AN AFFIDAVIT, THE
"CONFIRMATION OF EXTRAJUDICIAL PARTITION," MAY BE ADMITTED IN EVIDENCE TO
VARY THE TERMS OF A JUDICIALLY DECLARED VALID AGREEMENT ENTITLED "DEED OF
PARTITION"?

II.

WHETHER [OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED A LEGAL ERROR
IN NOT DISMISSING THE COMPLAINT ON THE GROUND OF RES JUDICATA?

III.

WHETHER [OR NOT] THE COMPLAINT FILED BY THE RESPONDENTS SHOULD BE

DISMISSED ON THE GROUND OF FORUM-SHOPPING?

IV.

WHETHER [OR NOT] THE FREE PATENT TITLES ISSUED TO THE PETITIONERS MAY BE
RECONVEYED TO THE RESPONDENTS?18

Essentially, the Court finds that the fundamental issue that must be settled in this case is who,
among the parties herein, have the better right to the subject lots.
The Court notes prefatorily that in resolving the present case, an examination of the respective
evidence of the parties must necessarily be undertaken. Although the jurisdiction of the Court in a
petition for review on certiorari under Rule 45 of the Rules of Court is limited to reviewing only errors
of law, we find that an exception19 to this rule is present in the instant case in that the Court of
Appeals made findings of fact which were contrary to those of the RTC.

Before proceeding, the Court further establishes as a foregone fact, there being no issue raised on
the matter, that the subject lots covered by Tax Declarations No. 07408 and No. 07409 described in
the Complaint in Civil Case No. 6111 are the very same lots covered by Tax Declarations No. 7956
and No. 7421 included in the Deed of Partition, and by Tax Declarations No. 2040 and No. 2039
subject of the Confirmation of Extrajudicial Partition.

Respondents, as plaintiffs before the RTC in Civil Case No. 6111, sought the reconveyance and
recovery of the subject lots purportedly illegally usurped by petitioner spouses who succeeded in
having the same titled in the name of petitioner Perfecta. Respondent Justina testified in open court
that the subject lots were inherited by her and co-respondent Genoveva’s mother, Susana, from their
grandparents, Bernardo and Tranquilina.20 As proof of Susana’s ownership of the subject lots,
respondents presented the Confirmation of Extrajudicial Partition executed on 5 August 1960 by
Castor and Susana. In said document, Castor ostensibly recognized and confirmed Susana’s
ownership and possession of the subject lots.21 Tax declarations22 covering the subject lots in the
names of Susana and respondents were also offered to the court a quo to lend support to
respondents’ claims of ownership.

On the other hand, to prove their entitlement to the subject lots, petitioner spouses presented before
the RTC the Deed of Partition23 entered into by the heirs of spouses Bernardo and Tranquilina on 5
April 1937. By virtue thereof, Castor acquired through sale the shares of his co-heirs in the subject
lots. Petitioner Perfecta testified before the trial court that right after the execution of said Deed, she
and her father, Castor, assumed possession of the subject lots, planting coconuts, rice, and corn
thereon.24 She additionally testified that realty taxes on the subject lots had since been paid by
Castor and, subsequently, by her.25 Possession of the subject lots by Castor and petitioner spouses
was corroborated by the testimony of Luciana Navarra, who insisted that respondents never
occupied the said lots.26 Finally, petitioner spouses presented OCTs No. FV-4976, No. FV-4977, and
No. FV-4978, covering the subject lots, issued by the Registry of Deeds for the Province of Negros
Oriental on 9 October 1962 in the name of petitioner Perfecta.

After a careful evaluation of the evidence adduced by the parties in the instant case, the Court rules
in favor of petitioner spouses.

At this point, let it be stated that the validity and due execution of the Deed of Partition executed in
1937 is not directly assailed in this case, thus, the Court need not pass upon the same. Under the
said Deed of Partition, the other heirs of Bernardo and Tranquilina clearly and unequivocally sold
their shares in the subject lots to Castor, petitioner Perfecta’s father. What appeared to be the clear
right of ownership of Castor over the subject lots was put in doubt by the execution of the
Confirmation of Extrajudicial Partition by Castor and his sister Susana in 1960. Respondents,
children and heirs of Susana, base their claim of ownership of the subject lots on the said document,
while petitioner spouses denounce the same to be simulated, executed for purposes other than to
transfer ownership of the subject lots, and cannot legally alter the terms of the previously duly
executed Deed of Partition.

As held by the Court of Appeals, the Confirmation of Extrajudicial Partition partakes of the nature of
an admission against a person’s proprietary interest.27 As such, the same may be admitted as
evidence against Castor and petitioner spouses, his successors-in-interest. The theory under which
declarations against interest are received in evidence, notwithstanding that they are hearsay, is that
the necessity of the occasion renders the reception of such evidence advisable and, further, that the
reliability of such declaration asserts facts which are against his own pecuniary or moral interest.28

Nevertheless, the Confirmation of Extrajudicial Partition is just one piece of evidence against
petitioner spouses. It must still be considered and weighed together with respondents’ other
evidence vis-à-vis petitioner spouses’ evidence. In civil cases, the party having the burden of proof
must establish his case by a preponderance of evidence. "Preponderance of evidence" is the weight,
credit, and value of the aggregate evidence on either side and is usually considered to be
synonymous with the term "greater weight of the evidence" or "greater weight of the credible
evidence." "Preponderance of evidence" is a phrase which, in the last analysis, means probability of
the truth. It is evidence which is more convincing to the court as worthy of belief than that which is
offered in opposition thereto.29 Rule 133, Section 1 of the Rules of Court provides the guidelines in
determining preponderance of evidence, thus:

In civil cases, the party having the burden of proof must establish his case by a preponderance of
evidence. In determining where the preponderance or superior weight of evidence on the issues
involved lies, the court may consider all the facts and circumstances of the case, the witnesses’
manner of testifying, their intelligence, their means and opportunity of knowing the facts to which
they are testifying, the nature of the facts to which they testify, the probability or improbability of their
testimony, their interest or want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number.

Herein, despite the admission made by Castor in the Confirmation of Extrajudicial Partition against
his own interest, the Court is still convinced that the evidence adduced by the petitioner spouses
preponderated over that of the respondents.

In analyzing the two vital documents in this case, the Court discerns that while the Deed of Partition
clearly explained how Castor came to fully own the subject lots, the Confirmation of Extrajudicial
Partition, even though confirming Susana’s ownership of the subject lots, failed to shed light on why
or how the said properties wholly pertained to her when her parents Bernardo and Tranquilina
clearly had other heirs who also had shares in the inheritance.

Other than the Confirmation of Extrajudicial Partition, respondents were only able to present as
evidence of their title to the subject lots tax declarations covering the same, previously, in the name
of Susana and, subsequently, in their own names. We find such tax declarations insufficient to
establish respondents’ ownership of the subject lots. That the disputed property has been declared
for taxation purposes in the name of any party does not necessarily prove ownership. Jurisprudence
is consistent that tax declarations are not conclusive evidence of ownership of the properties stated
therein. A disclaimer is even printed on the face of such tax declarations that they are "issued only in
connection with real property taxation [and] should not be considered as title to the property." At
best, tax declarations are indicia of possession in the concept of an owner.30 Conversely, non-
declaration of a property for tax purposes does not necessarily negate ownership.31

On the other hand, the Court is at a loss as to how the Court of Appeals failed to give due
consideration to the Torrens titles issued in the name of petitioner Perfecta when it rendered its
assailed Decision.

Sometime in 1962, petitioner Perfecta applied for and was granted by the Bureau of Lands free
patents over the subject lots. Pursuant thereto, Original Certificates of Title No. FV-4976, No. FV-
4977, and No. FV-4978, covering the subject lots, were issued by the Registry of Deeds for the
Province of Negros Oriental, on 9 October 1962, in the name of petitioner Perfecta. Given this
crucial fact, the Court pronounces that respondents’ Complaint for reconveyance of the subject lots
and damages filed only on 23 December 1974 is already barred.

A Torrens title issued on the basis of the free patents become as indefeasible as one which was
judicially secured upon the expiration of one year from date of issuance of the patent.32 However,
this indefeasibility cannot be a bar to an investigation by the State as to how such title has been
acquired, if the purpose of the investigation is to determine whether or not fraud has been committed
in securing the title. Indeed, one who succeeds in fraudulently acquiring title to public land should not
be allowed to benefit from it.33

On this matter, Section 101 of Commonwealth Act No. 14134 provides that all actions for the
reversion to the government of lands of the public domain or improvements thereon shall be
instituted by the Solicitor General or the officer acting in his stead, in the proper courts, in the name
of the Commonwealth [now Republic] of the Philippines. Such is the rule because whether the grant
of a free patent is in conformity with the law or not is a question which the government may raise, but
until it is so raised by the government and set aside, another claiming party may not question it. The
legality of the grant is a question between the grantee and the government.35 Thus, private parties,
like respondents in the instant case, cannot challenge the validity of the patent and the
corresponding title, as they had no personality to file the suit.

Although jurisprudence recognizes an exception to this case, the respondents may not avail
themselves of the same.

Verily, an aggrieved party may still file an action for reconveyance based on implied or constructive
trust, which prescribes in 10 years from the date of the issuance of the Certificate of Title over the
property, provided that the property has not been acquired by an innocent purchaser for value. An
action for reconveyance is one that seeks to transfer property, wrongfully or fraudulently registered
by another, to its rightful and legal owner.36 If the registered owner, be he the patentee or his
successor-in-interest to whom the free patent was transferred, knew that the parcel of land
described in the patent and in the Torrens title belonged to another, who together with his
predecessors-in-interest had been in possession thereof, and if the patentee and his successor-in-
interest were never in possession thereof, the true owner may bring an action to have the ownership
of or title to the land judicially settled. The court in the exercise of its equity jurisdiction, without
ordering the cancellation of the Torrens titled issued upon the patent, may direct the defendant, the
registered owner, to reconvey the parcel of land to the plaintiff who has been found to be the true
owner thereof.37

In the instant case, respondents brought the action for reconveyance of the subject lots before the
RTC only on 23 December 2004, or more than 12 years after the Torrens titles were issued in favor
of petitioner Perfecta on 9 October 1962. The remedy is, therefore, already time-barred.

And even if respondents’ Complaint was filed on time, the Court would still rule that respondents
failed to satisfactorily prove that they were in possession of the subject lots prior to the grant of free
patents and issuance of Torrens titles over the same in favor petitioner Perfecta. The bare testimony
of respondent Justina that Susana had been in the peaceful and undisturbed possession of the
subject lots since 1937 up to the time of her death in 1965 was entirely bereft of substantiation and
details. No information was provided as to how said possession of the subject lots was actually
exercised or demonstrated by Susana. In contrast, the possession of the subject lots by Castor, and
later on by petitioner spouses, was established not just by the testimony of petitioner Perfecta, but
was corroborated by the testimony of Luciana Navarra, whose husband was a tenant working on the
subject lots. Petitioner spouses possessed the subject lots by planting thereon coconuts, rice, and
corn - a claim which respondents were unable to refute.

Furthermore, respondents’ allegation that petitioner Perfecta committed fraud and breach of trust in
her free patent application is specious. The fact that the document evidencing the sale of the subject
lots by Castor to petitioner Perfecta was not presented does not automatically mean that said
contract was never in existence. Also undeserving of much consideration without sufficient proof is
respondents’ averment that the subject lots were private lands which could no longer be granted to
any person via free patent. Respondents ought to remember that mere allegation of fraud is not
enough. Specific, intentional acts to deceive and deprive another party of his right, or in some
manner injure him, must be alleged and proved.38 Also, the issuance by Bureau of Lands of free
patents over the subject property to petitioner Perfecta enjoys the presumption of regularity.

WHEREFORE, premises considered, the Petition for Review under Rule 45 of the Rules of Court is
hereby GRANTED. The assailed Decision dated 8 March 2007 and Resolution dated 3 September
2007 of the Court of Appeals in CA-G.R. CV No. 66873 are hereby REVERSED AND SET ASIDE.
The Decision dated 29 February 2000 of the RTC of Negros Oriental, Branch 35, in Civil Case No.
6111 is hereby REINSTATED. No costs.

SO ORDERED.

G.R. No. 161360 October 19, 2011

ESTRELLA TIONGCO YARED (Deceased) substituted by CARMEN M. TIONGCO a.k.a.

CARMEN MATILDE B. TIONGCO, Petitioner,
vs.
JOSE B. TIONGCO and ANTONIO G. DORONILA, JR., Respondents.

DECISION

VILLARAMA, JR., J.:

Before us on appeal by way of a petition for review on certiorari under Rule 45 is the Court of
Appeals (CA) August 28, 2003 Decision1 which dismissed petitioner Estrella Tiongco Yared’s appeal
and affirmed the Decision2 of the Regional Trial Court (RTC), Branch 26, of Iloilo City, dismissing
petitioner’s complaint for annulment of affidavit of adjudication, deeds of sale and Transfer
Certificates of Title (TCTs), reconveyance and damages. Also assailed is the appellate court’s
November 27, 2003 Resolution3 denying petitioner’s motion for reconsideration.

The factual antecedents, as culled from the records, follow:

Matilde, Jose, Vicente, and Felipe, all surnamed Tiongco, were born to Atanacio and Maria Luis
Tiongco. Together they were known as the Heirs of Maria Luis de Tiongco.

The present dispute involves three parcels of land namely, Lots 3244, 3246 and 1404, all located in
Iloilo City. Lots 3244 and 1404 used to be covered by Original Certificates of Title (OCTs) Nos. 484
and 1482, respectively, in the names of Matilde (wife of Vicente Rodriguez), Jose (married to
Carmen Sonora), Vicente (married to Ursula Casador), and Felipe (married to Sabina Montelibano),
each in ¼ undivided share, while Lot 3246 used to be covered by OCT No. 368 in the name of "Heirs
of Maria Luis de Tiongco."4
While all of the Heirs of Maria Luis de Tiongco have died, they were survived by their children and
descendants. Among the legitimate children of Jose were petitioner and Carmelo Tiongco, the father
of respondent Jose B. Tiongco.5

Sometime in 1965, petitioner built her house on Lot 14046 and sustained herself by collecting rentals
from the tenants of Lots 3244 and 3246. In 1968, petitioner, as one of the heirs of Jose, filed an
adverse claim affecting all the rights, interest and participation of her deceased father on the
disputed lots, but the adverse claim was annotated only on OCT No. 484 and OCT No. 1482,
respectively covering Lots 3244 and 1404.7

In 1983, respondent Jose prohibited petitioner from collecting rentals from the tenants of Lots 3244
and 3246. In December 1983, respondent Jose filed a suit for recovery of possession with
preliminary injunction against several tenants of Lots 3244 and 3246 wherein he obtained a
judgment in his favor.8 Respondent Jose also filed a case for unlawful detainer with damages against
petitioner as she was staying on Lot 1404. While the RTC, Branch 33, of Iloilo City ruled in
respondent Jose’s favor, the CA reversed the RTC’s decision and ruled in favor of petitioner.9 As
such, respondent Jose never took possession of the properties.

In 1988, when petitioner inquired at the Office of the Register of Deeds of Iloilo City, she discovered
that respondent Jose had already executed an Affidavit of Adjudication10 dated April 17, 1974,
declaring that he is the only surviving heir of the registered owners and adjudicating unto himself
Lots 3244, 3246 and 1404. Consequently, the OCTs of the aforementioned lots were cancelled, and
in place thereof, the Register of Deeds of Iloilo City issued TCT No. T-37195 for Lot 3244, TCT No.
T-4665 for Lot 3246, and TCT No. T-37193 for Lot 1404, all in the name of respondent Jose.11

Based on the records with the Register of Deeds, it also appears that on May 10, 1974, the same
day when the TCTs covering Lots 3244 and 1404 were issued, respondent Jose sold the said lots to
Catalino Torre. TCT Nos. T-37195 and T-37193 were thus cancelled and TCT Nos. T-37196 and T-
37194 were issued in the name of Catalino Torre.12

Similarly, the records of the Register of Deeds showed that Lot 3246 was likewise disposed of by
respondent Jose. On March 30, 1979, or barely two days after obtaining TCT No. T-4665,
respondent Jose sold Lot 3246 to respondent Antonio G. Doronila, Jr. who was issued TCT No. T-
4666 which cancelled TCT No. T-4665. Catalino Torre also sold Lots 3244 and 1404 on the same
date to Doronila who was issued the corresponding new TCTs.13 However, just a few days later, or
on April 2, 1979, Doronila sold Lot 1404 back to respondent Jose. Lots 3244 and 3246 were also
sold back to respondent on January 17, 1980.14

On October 2, 1990, petitioner filed a complaint before the court a quo against her nephew
respondent Jose and respondent Antonio G. Doronila, Jr. Petitioner argued that respondent Jose
knowingly and wilfully made untruthful statements in the Affidavit of Adjudication because he knew
that there were still other living heirs entitled to the said properties.15 Petitioner claimed that the
affidavit was null and void ab initio and as such, it did not transmit or convey any right of the original
owners of the properties. Any transfer whatsoever is perforce likewise null and void.16 Moreover, the
petitioner averred that since respondent Jose executed said documents through fraud, bad faith,
illegal manipulation and misrepresentation, Lots 3244 and 1404 should be reconveyed to its original
registered owners and Lot 3246 to the heirs of Maria Luis de Tiongco subject to subsequent partition
among the heirs.17 Petitioner also posited that granting for the sake of argument that the affidavit of
adjudication was simply voidable, respondent Jose became a trustee by constructive trust of the
property for the benefit of the petitioner.18
Respondent Jose, for his part, argued that the petitioner’s father, Jose, was not an heir of Maria Luis
de Tiongco but an heir of Maria Cresencia de Loiz y Gonzalez vda. De Tiongco. Respondent Jose
claimed that he was the only legitimate son and that while it was true that he has two other siblings,
he refused to acknowledge them because they are illegitimate.19 Respondent Jose denied that the
series of sales of the properties was fraudulent. He claimed that Lot 3244 was bought by the City of
Iloilo from its own auction sale for tax delinquency and was merely resold to him. Respondent Jose
averred that he has been paying real property taxes on the said properties for more than ten (10)
years and that petitioner collected rentals from Lots 3244 and 3246 only because he allowed her.20

After trial, the Iloilo City RTC ruled in favor of respondent Jose. The court a quo ruled that
prescription has set in since the complaint was filed only on October 2, 1990 or some sixteen (16)
years after respondent Jose caused to be registered the affidavit of adjudication on May 10, 1974.21

Aggrieved, petitioner appealed to the CA22 which, however, sustained the trial court’s ruling. The CA
agreed with the trial court that an action for reconveyance can indeed be barred by prescription.
According to the CA, when an action for reconveyance is based on fraud, it must be filed within four
years from discovery of the fraud, and such discovery is deemed to have taken place from the
issuance of the original certificate of title. On the other hand, an action for reconveyance based on
an implied or constructive trust prescribes in ten (10) years from the date of issuance of the original
certificate of title or transfer certificate of title. For the rule is that the registration of an instrument in
the Office of the Register of Deeds constitutes constructive notice to the whole world and therefore
the discovery of fraud is deemed to have taken place at the time of registration.23

Petitioner filed a motion for reconsideration of the above ruling, but the CA as aforesaid, denied
petitioner’s motion. Hence, the present petition for review on certiorari.

Petitioner raised the following arguments in the petition, to wit:

A. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE LOWER COURT

THAT THE AFFIDAVIT OF ADJUDICATION EXECUTED BY RESPONDENT JOSE B.
TIONGCO, WHO IS A LAWYER AND IS AWARE OF ITS NULLITY, IS MERELY
VOIDABLE; ON THE CONTRARY, SAID DOCUMENT IS A COMPLETE NULLITY
BECAUSE RESPONDENT JOSE B. TIONGCO HAS MALICIOUSLY AND IN BAD FAITH
ADJUDICATED IN FAVOR OF HIMSELF THE PROPERTIES IN QUESTION OVER WHICH
HE, AS A LAWYER, KNOWS HE HAS NO RIGHTS WHATSOEVER AND HE ALSO
KNOWS HAS BEEN IN POSSESSION OF THE PETITIONER AND HER
PREDECESSORS-IN-INTEREST UNTIL THE PRESENT.

B. THE HONORABLE COURT OF APPEALS ERRED IN AFFIRMING THE DISMISSAL OF

PETITIONER’S COMPLAINT BY THE LOWER COURT ON THE GROUND OF
PRESCRIPTION BECAUSE THE RESPONDENT JOSE B. TIONGCO’S AFFIDAVIT OF
ADJUDICATION, BEING A TOTAL NULLITY, THE ACTION TO DECLARE SUCH NULLITY
AND OF THOSE SUBSEQUENT TRANSACTIONS ARISING FROM SAID ADJUDICATION
DOES NOT PRESCRIBE, ESPECIALLY BECAUSE IN THIS CASE THE PETITIONER AND
HER PREDECESSORS-IN-INTEREST HAVE ALWAYS BEEN IN POSSESSION OF THE
LOTS IN QUESTION AND RESPONDENT JOSE B. TIONGCO HAS NEVER BEEN IN
POSSESSION THEREOF.24

C. FURTHER, EVEN IF ARGUENDO, THE AFFIDAVIT OF ADJUDICATION IS VOIDABLE,

THE HONORABLE COURT OF APPEALS STILL ERRED IN AFFIRMING THE DISMISSAL
OF THE COMPLAINT BY THE LOWER COURT ON THE GROUND OF PRESCRIPTION
BECAUSE THE RESPONDENT, JOSE B. TIONGCO, BEING A LAWYER AND BEING
 AWARE OF PETITIONER’S OWNERSHIP OF THE LOTS IN QUESTION, THE SAID
AFFIDAVIT OF ADJUDICATION MAKES THE RESPONDENT AN IMPLIED TRUSTEE
THEREOF FOR THE PETITIONER AND THE ACTION FOR RECONVEYANCE BASED ON
TRUST DOES NOT PRESCRIBE SO LONG AS THE BENEFICIARY LIKE THE
PETITIONER HAS BEEN IN ACTUAL PHYSICAL POSSESSION OF THE PROPERTY
SUBJECT THEREOF, AS HELD IN THE CASE OF VDA. DE CABRERA VS. COURT OF
APPEALS (267 SCRA 339).25

The only issue in this case is who has a better right over the properties.

The petition is meritorious.

The Court agrees with the CA’s disquisition that an action for reconveyance can indeed be barred by
prescription. In a long line of cases decided by this Court, we ruled that an action for reconveyance
based on implied or constructive trust must perforce prescribe in ten (10) years from the issuance of
the Torrens title over the property.26

However, there is an exception to this rule. In the case of Heirs of Pomposa Saludares v. Court of
Appeals,27 the Court reiterating the ruling in Millena v. Court of Appeals,28 held that there is but one
instance when prescription cannot be invoked in an action for reconveyance, that is, when the
plaintiff is in possession of the land to be reconveyed. In Heirs of Pomposa Saludares,29 this Court
explained that the Court in a series of cases,30 has permitted the filing of an action for reconveyance
despite the lapse of more than ten (10) years from the issuance of title to the land and declared that
said action, when based on fraud, is imprescriptible as long as the land has not passed to an
innocent buyer for value. But in all those cases, the common factual backdrop was that the
registered owners were never in possession of the disputed property. The exception was based on
the theory that registration proceedings could not be used as a shield for fraud or for enriching a
person at the expense of another.

In Alfredo v. Borras,31 the Court ruled that prescription does not run against the plaintiff in actual
possession of the disputed land because such plaintiff has a right to wait until his possession is
disturbed or his title is questioned before initiating an action to vindicate his right. His undisturbed
possession gives him the continuing right to seek the aid of a court of equity to determine the nature
of the adverse claim of a third party and its effect on his title. The Court held that where the plaintiff
in an action for reconveyance remains in possession of the subject land, the action for reconveyance
becomes in effect an action to quiet title to property, which is not subject to prescription.

The Court reiterated such rule in the case of Vda. de Cabrera v. Court of Appeals,32 wherein we
ruled that the imprescriptibility of an action for reconveyance based on implied or constructive trust
applies only when the plaintiff or the person enforcing the trust is not in possession of the property.
In effect, the action for reconveyance is an action to quiet the property title, which does not
prescribe.

Similarly, in the case of David v. Malay33 the Court held that there was no doubt about the fact that
an action for reconveyance based on an implied trust ordinarily prescribes in ten (10) years. This
rule assumes, however, that there is an actual need to initiate that action, for when the right of the
true and real owner is recognized, expressly or implicitly such as when he remains undisturbed in his
possession, the statute of limitation would yet be irrelevant. An action for reconveyance, if
nonetheless brought, would be in the nature of a suit for quieting of title, or its equivalent, an action
that is imprescriptible. In that case, the Court reiterated the ruling in Faja v. Court of Appeals34 which
we quote:
x x x There is settled jurisprudence that one who is in actual possession of a piece of land claiming
to be owner thereof may wait until his possession is disturbed or his title is attacked before taking
steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a
continuing right to seek the aid of a court of equity to ascertain and determine the nature of the
adverse claim of a third party and its effect on his own title, which right can be claimed only by one
who is in possession. No better situation can be conceived at the moment for Us to apply this rule on
equity than that of herein petitioners whose mother, Felipa Faja, was in possession of the litigated
property for no less than 30 years and was suddenly confronted with a claim that the land she had
been occupying and cultivating all these years, was titled in the name of a third person. We hold that
in such a situation the right to quiet title to the property, to seek its reconveyance and annul any
certificate of title covering it, accrued only from the time the one in possession was made aware of a
claim adverse to his own, and it is only then that the statutory period of prescription commences to
run against such possessor. 1avvphi1

In this case, petitioner’s possession was disturbed in 1983 when respondent Jose filed a case for
recovery of possession.35 The RTC of Iloilo City ruled in respondent Jose’s favor but the CA on
November 28, 1991, during the pendency of the present controversy with the court a quo, ruled in
favor of petitioner.36 Petitioner never lost possession of the said properties, and as such, she is in a
position to file the complaint with the court a quo to protect her rights and clear whatever doubts has
been cast on her title by the issuance of TCTs in respondent Jose’s name.

The Court further observes that the circuitous sale transactions of these properties from respondent
Jose to Catalino Torre, then to Antonio Doronila, Jr., and back again to respondent Jose were quite
unusual. However, this successive transfers of title from one hand to another could not cleanse the
illegality of respondent Jose’s act of adjudicating to himself all of the disputed properties so as to
entitle him to the protection of the law as a buyer in good faith. Respondent Jose himself admitted
that there exists other heirs of the registered owners in the OCTs. Even the RTC found that "[t]hese
allegations contained in the Affidavit of Adjudication executed by defendant Jose B. Tiongco are
false because defendant Jose B. Tiongco is not the only surviving heir of Jose Tiongco, Matilde
Tiongco, Vicente Tiongco and Felipe Tiongco as the latters have other children and grandchildren
who are also their surviving heirs."37

In the case of Sandoval v. Court of Appeals,38 the Court defined an innocent purchaser for value as
one who buys property of another, without notice that some other person has a right to, or interest in,
such property and pays a full and fair price for the same, at the time of such purchase, or before he
has notice of the claim or interest of some other persons in the property. He is one who buys the
property with the belief that the person from whom he receives the thing was the owner and could
convey title to the property. A purchaser can not close his eyes to facts which should put a
reasonable man on his guard and still claim that he acted in good faith.

And while it is settled that every person dealing with a property registered under the Torrens title
need not inquire further but only has to rely on the title, this rule has an exception. The exception is
when the party has actual knowledge of facts and circumstances that would impel a reasonably
cautious man to make such inquiry or when the purchaser has some knowledge of a defect or the
lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the
status of the title of the property in litigation. The presence of anything which excites or arouses
suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the
vendor appearing on the face of said certificate. One who falls within the exception can neither be
denominated an innocent purchaser for value nor a purchaser in good faith and hence does not
merit the protection of the law.39
In this case, when the subject properties were sold to Catalino Torre and subsequently to Doronila,
respondent Jose was not in possession of the said properties. Such fact should have put the
vendees on guard and should have inquired on the interest of the respondent Jose regarding the
subject properties.40 But regardless of such defect on transfer to third persons, the properties again
reverted back to respondent Jose. Respondent Jose cannot claim lack of knowledge of the defects
surrounding the cancellation of the OCTs over the properties and benefit from his fraudulent actions.
The subsequent sale of the properties to Catalino Torre and Doronila will not cure the nullity of the
certificates of title obtained by respondent Jose on the basis of the false and fraudulent Affidavit of
Adjudication.

WHEREFORE, the petition for review on certiorari is GRANTED. The August 28, 2003 Decision and
November 27, 2003 Resolution of the Court of Appeals in CA-G.R. CV No. 44794 are hereby
REVERSED and SET ASIDE. The Register of Deeds of Iloilo City is ordered to RESTORE Original
Certificates of Title Nos. 484, 1482, and 368, respectively covering Lots 3244, 1404 and 3246, under
the name/s of the registered original owners thereof.

Furthermore, respondent Atty. Jose B. Tiongco is ORDERED to SHOW CAUSE, within ten (10) days
from notice hereof, why he should not be sanctioned as a member of the bar for executing the April
17, 1974 Affidavit of Adjudication and registering the same with the Register of Deeds.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 169901 August 3, 2011

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
CIRIACO JUMAMOY and HEIRS OF ANTONIO GO PACE, represented by ROSALIA
PACE, Respondents.

DECISION

DEL CASTILLO, J.:

A PARTY enters into an agreement or contract with an eye to reap benefits therefrom or be relieved
of an oppressive economic condition. The other party likewise assumes that the agreement would be
advantageous to him. But just like in any other human undertaking, the end-result may not be as
sweet as expected.

The problem could not be resolved by any other means but to litigate.

Courts, however, are not defenders of bad bargains. At most, they only declare the rights and
obligations of the parties to the contract in order to preserve sanctity of the same.

We are confronted in this case with this legal predicament.1

This Petition for Review on Certiorari assails the February 28, 2005 Decision2 of the Court of
Appeals (CA) in CA-G.R. CV No. 73743 which dismissed petitioner Philippine National Bank’s
(PNB’s) appeal from the July 30, 2001 Decision3 of the Regional Trial Court (RTC), Branch 18, Digos
City, Davao del Sur. Said Decision of the RTC ordered PNB to reconvey to respondent Ciriaco
Jumamoy (Ciriaco) a portion of the parcel of land subject of this case.

Likewise assailed in this petition is the September 28, 2005 Resolution4 of the CA denying PNB’s
Motion for Reconsideration.

Factual Antecedents

On December 27, 1989, the RTC, Branch 19, of Digos City, Davao del Sur, rendered a Decision5 in
Civil Case No. 2514 (a case for Reconveyance and Damages), ordering the exclusion of 2.5002
hectares from Lot 13521. The trial court found that said 2.5002 hectares which is part of Lot 13521,
a 13,752-square meter parcel of land covered by Original Certificate of Title (OCT) No. P-
49526 registered in the name of Antonio Go Pace (Antonio) on July 19, 1971 actually pertains to
Sesinando Jumamoy (Sesinando), Ciriaco’s predecessor-in-interest. The RTC found that said
2.5002-hectare lot was erroneously included in Antonio’s free patent application which became the
basis for the issuance of his OCT. It then ordered the heirs of Antonio (the Paces [represented by
Rosalia Pace (Rosalia)]) to reconvey said portion to Ciriaco. In so ruling, the RTC acknowledged
Ciriaco’s actual and exclusive possession, cultivation, and claim of ownership over the subject lot
which he acquired from his father Sesinando, who occupied and improved the lot way back in the
early 1950s.7

The December 27, 1989 RTC Decision became final and executory but the Deed of
Conveyance8 issued in favor of Ciriaco could not be annotated on OCT No. P-4952 since said title
was already cancelled. Apparently, Antonio and his wife Rosalia mortgaged Lot 13521 to PNB as
security for a series of loans dated February 25, 1971, April 26, 1972, and May 11, 1973.9 After
Antonio and Rosalia failed to pay their obligation, PNB foreclosed the mortgage on July 14,
198610 and title to Lot 13521 was transferred to PNB under Transfer Certificate of Title (TCT) No.T-
23063. Moreover, the Deed of Conveyance could not be annotated at the back of OCT No. P-4952
because PNB was not impleaded as a defendant in Civil Case No. 2514.

Thus, in February 1996, Ciriaco filed the instant complaint against PNB and the Paces for
Declaration of Nullity of Mortgage, Foreclosure Sale, Reconveyance and Damages,11 docketed as
Civil Case No. 3313 and raffled to Branch 18 of RTC, Digos City, Davao del Sur.

In his complaint, Ciriaco averred that Antonio could not validly mortgage the entire Lot 13521 to PNB
as a portion thereof consisting of 2.5002 hectares belongs to him (Ciriaco), as already held in Civil
Case No. 2514. He claimed that PNB is not an innocent mortgagee/purchaser for value because
prior to the execution and registration of PNB’s deed of sale with the Register of Deeds, the bank
had prior notice that the disputed lot is subject of a litigation. It would appear that during the
pendency of Civil Case No. 2514, a notice of lis pendens was annotated at the back of OCT No. P-
4952 as Entry No. 16554712 on November 28, 1988.

The Paces did not file any answer and were declared in default.13 Meanwhile PNB filed its Amended
Answer14 denying for lack of knowledge and information Ciriaco’s claim of ownership and reliance on
the judgment in Civil Case No. 2514. It argued that it is a mortgagee and a buyer in good faith since
at the time of the mortgage, Antonio’s certificate of title was "clean" and "devoid of any adverse
annotations." PNB also filed a cross-claim against the Paces.

Instead of having a full-blown trial, Ciriaco and PNB opted to submit the case for decision based on
their respective memoranda.

Ruling of the Regional Trial Court

In its July 30, 2001 Decision,15 the RTC ordered the partial nullification of the mortgage and the
reconveyance of the subject lot claimed by Ciriaco. The RTC found that PNB was not a
mortgagee/purchaser in good faith because it failed to take the necessary steps to protect its interest
such as sending a field inspector to the area to determine the real owner, its occupants, its
improvements and its boundaries.

The dispositive portion of the RTC Decision reads:

WHEREFORE, it is hereby ordered that defendant PNB shall reconvey, by the proper instrument of
reconveyance, that portion of the land owned and claimed by plaintiff CIRIACO JUMAMOY.

The claim for damages by all the parties are hereby DISMISSED for lack of proper basis.

SO ORDERED.16

PNB filed a Motion for Reconsideration.17 It argued that the trial court erred in finding that it is not an
innocent mortgagee for value due to its alleged failure to send its field inspector to the area
considering that such matter was never alleged in Ciriaco’s complaint. PNB claimed that Ciriaco
merely stated in his complaint that the bank is not an innocent mortgagee for value because it had
already constructive notice that the subject land is under litigation by virtue of the notice of lis
pendens already annotated on Antonio’s title when PNB consolidated in its name the title for Lot
13521. PNB however argued that at the time of the constitution and registration of the mortgage in
1971, Antonio’s title was clean as the notice of lis pendens was annotated only in 1988. And since
there was no cause to arouse suspicion, it may rely on the face of the Torrens title. As for its cross-
claim against the heirs of Antonio, PNB prayed that a hearing be set.

Ciriaco filed an Opposition to the Motion for Reconsideration.18 He insisted that PNB cannot validly
claim that it is an innocent mortgagee based on its reliance on Antonio’s Torrens title because when
it first granted Antonio’s loan application, the subject property was still untitled and unregistered.

On January 7, 2002, the RTC denied PNB’s motion for reconsideration.19

PNB thus filed its appeal with the CA.

Ruling of the Court of Appeals

In its Decision of February 28, 2005,20 the CA affirmed the RTC’s ruling that PNB is not an innocent
mortgagee/purchaser. The CA reiterated that the business of a bank or a financial institution is
imbued with public interest thus it is obliged to exercise extraordinary prudence and care by looking
beyond what appears on the title. The CA pointed out that in this case, PNB failed to prove that it
conducted an investigation on the real condition of the mortgaged property. Had the bank done so, it
could have discovered that Ciriaco had possession of the disputed lot for quite some time. Moreover,
the CA held that PNB could not validly claim that it merely relied on the face of a "clean" Torrens title
because when the disputed lot was first mortgaged in 1971, the same was still an untitled and
unregistered land. It likewise ruled that Ciriaco’s action for reconveyance is based on implied trust
and is imprescriptible because the land has always been in his possession.

Anent PNB’s cross-claim against the Paces, the CA gave due course thereto and ordered the
records remanded to the RTC for further proceedings.

The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, herein appeal is hereby DISMISSED and the decision of the
trial court is hereby AFFIRMED with MODIFICATION, giving due course to the cross-claim of the
defendant-appellant PNB against the Heirs of ANTONIO GO PACE as represented by ROSALIA
PACE. Accordingly, let the entire records of this case be remanded to the lower court for further
proceedings of the said cross-claim.

SO ORDERED.21

PNB moved for a reconsideration.22 However, the CA sustained its ruling in a Resolution23 dated
September 28, 2005.

Hence, this petition.

Issues

PNB ascribed upon the CA the following errors:

A. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S DECISION IN

DECLARING THAT PNB FAILED TO QUALIFY AS AN INNOCENT MORTGAGEE FOR
VALUE IN THE ABSENCE OF EVIDENCE TO ESTABLISH THIS FACT.

B. THE COURT OF APPEALS ERRED IN ORDERING THE PARTIAL NULLIFICATION OF

THE REAL ESTATE MORTGAGE EXECUTED IN FAVOR OF PNB IN DISREGARD OF
THE LAW AND ESTABLISHED JURISPRUDENCE ON THE MATTER.

C. THE COURT OF APPEALS ERRED IN ORDERING THE PARTIAL NULLIFICATION OF

PNB’S TITLE CONTRARY TO THE LAW AND ESTABLISHED JURISPRUDENCE ON THE
MATTER.

D. THE COURT OF APPEALS ERRED IN DENYING PNB’S MOTION FOR

RECONSIDERATION AND SUSTAINING RESPONDENT JUMAMOY’S INVOCATION OF
THE RULING OF THE SUPREME COURT IN SPOUSES FLORENTINO AND FRANCISCA
TOMAS VS. PNB (98 SCRA 280) INSTEAD OF THE LANDMARK CASE OF LILIA Y.
GONZALES VS. IAC AND RURAL BANK OF PAVIA, INC. (157 SCRA 587) WHICH IS THE
ONE APPLICABLE TO THE INSTANT CASE.

E. THE COURT OF APPEALS ERRED IN ORDERING PNB TO RECONVEY THE

PORTION OF LAND CLAIMED BY RESPONDENT JUMAMOY NOTWITHSTANDING THE
FACT THAT IT IS APPARENT FROM THE COMPLAINT THAT RESPONDENT
JUMAMOY’S ACTION FOR RECONVEYANCE IS ALREADY BARRED BY
PRESCRIPTION.24

In essence, PNB contends that the lower courts grievously erred in declaring that it is not an
innocent mortgagee/purchaser for value. PNB also argues that Ciriaco’s complaint is barred by
prescription. TCT No. T-23063 was issued on March 23, 1990, while Ciriaco filed his complaint only
six years thereafter. Thus, the one-year period to nullify PNB’s certificate of title had lapsed, making
PNB’s title indefeasible. Moreover, PNB claims that an action for reconveyance prescribes in four
years if based on fraud, or, 10 years if based on an implied trust, both to be counted from the
issuance of OCT No. P-4952 in July 1971 which constitutes as a constructive notice to the whole
world. Either way, Ciriaco’s action had already prescribed since it took him 17 years to file his first
complaint for reconveyance in Civil Case No. 2514 and around 23 years to file his second complaint
in Civil Case No. 3313.

Our Ruling

We deny the petition.

PNB is not an innocent purchaser/ mortgagee for value.

Undoubtedly, our land registration statute extends its protection to an innocent purchaser for value,
defined as "one who buys the property of another, without notice that some other person has a right
or interest in such property and pays the full price for the same, at the time of such purchase or
before he has notice of the claims or interest of some other person in the property."25 An "innocent
purchaser for value" includes an innocent lessee, mortgagee, or other encumbrancer for value .26

Here, we agree with the disposition of the RTC and the CA that PNB is not an innocent purchaser for
value. As we have already declared:

A banking institution is expected to exercise due diligence before entering into a mortgage contract.
The ascertainment of the status or condition of a property offered to it as security for a loan must be
a standard and indispensable part of its operations.27 (Emphasis ours.)

PNB’s contention that Ciriaco failed to allege in his complaint that PNB failed to take the necessary
precautions before accepting the mortgage is of no moment. It is undisputed that the 2.5002-hectare
portion of the mortgaged property has been adjudged in favor of Ciriaco’s predecessor-in-interest in
Civil Case No. 2514. Hence, PNB has the burden of evidence that it acted in good faith from the time
the land was offered as collateral. However, PNB miserably failed to overcome this burden. There
was no showing at all that it conducted an investigation; that it observed due diligence and prudence
by checking for flaws in the title; that it verified the identity of the true owner and possessor of the
land; and, that it visited subject premises to determine its actual condition before accepting the same
as collateral.

Both the CA and the trial court correctly observed that PNB could not validly raise the defense that it
relied on Antonio’s clean title. The land, when it was first mortgaged, was then unregistered under
our Torrens system. The first mortgage was on February 25, 197128 while OCT No. P-4952 was
issued on July 19, 1971. Since the Paces offered as collateral an unregistered land, with more
reason PNB should have proven before the RTC that it had verified the status of the property by
conducting an ocular inspection before granting Antonio his first loan. Good faith which is a question
of fact could have been proven in the proceedings before the RTC, but PNB dispensed with the trial
proper and let its opportunity to dispute factual allegations pass. Had PNB really taken the
necessary precautions, it would have discovered that a large portion of Lot 13521 is occupied by
Ciriaco.

Ciriaco’s action for reconveyance is inprescriptible.

Also, the incontrovertibility of a title does not preclude a rightful claimant to a property from seeking
other remedies because it was never the intention of the Torrens system to perpetuate fraud. As
explained in Vda. de Recinto v. Inciong:29

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

"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."30 An action for reconveyance based on implied trust prescribes in 10 years as it is an
obligation created by law,31 to be counted from the date of issuance of the Torrens title over the
property.32 This rule, however, applies only when the plaintiff or the person enforcing the trust is not
in possession of the property. 1avv phi 1

In Vda. de Cabrera v. Court of Appeals,33 we said that there is no prescription when in an action for
reconveyance, the claimant is in actual possession of the property because this in effect is an action
for quieting of title:

[S]ince if a person claiming to be the owner thereof is in actual possession of the property, as the
defendants are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title
to the property, does not prescribe. The reason for this is that one who is in actual possession of a
piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is
attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed
possession gives him a continuing right to seek the aid of a court of equity to ascertain and
determine the nature of the adverse claim of a third party and its effect on his own title, which right
can be claimed only by one who is in possession.34

In Ciriaco’s case, as it has been judicially established that he is in actual possession of the property
he claims as his and that he has a better right to the disputed portion, his suit for reconveyance is in
effect an action for quieting of title. Hence, petitioner’s defense of prescription against Ciriaco does
not lie.

WHEREFORE, the petition is DENIED. The February 28, 2005 Decision and September 28, 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 73743 are hereby AFFIRMED.

SO ORDERED.