G.R. No.

108121 May 10, 1994

HERMINIA L. RAMOS and HEIRS OF HERMINIO RAMOS, Petitioners, v. HON. COURT OF APPEALS,
SPOUSES HILARIO CELESTINO and LYDIA CELESTINO, Respondents.
Leven S. Puno for petitioners.chanrobles virtual law library
Fernandez & Olivas for private respondents.
DAVIDE, JR., J.:
Invoking Rule 45 of the Rules of Court, petitioners seek the review and reversal of the decision of the Court of
Appeals of 30 September 1991 1and its Resolution of 15 December 1992 2in CA-G.R. CV No. 26544. 3The
challenged decision affirmed the joint decision 4of Branch 95 of the Regional Trial
Court (RTC) of Quezon City in Civil Case No. Q-49272 and LRC Case
No. Q-3387(86), the dispositive portion of which reads as follows:
WHEREFORE, in LRC Case No. Q-3387 (86), the Court hereby renders judgment dismissing said case with the
petition and claims therein for lack of jurisdiction thereover; and in Civil Case No. Q-49272, the Court hereby
renders judgment dismissing defendant's counterclaim for lack of merit and declaring plaintiffs to be the lawful
owners of the subject parcel of land designated as Lot 25, Block 86 of the subdivision plan Psd-68807, with an area
of 400 square meters, more or less, situated in Sikatuna Village, Diliman, Quezon City, and covered by Transfer
Certificate of Title No. 204173 of the Registry of Deeds for Quezon City, as well as ordering defendants: (a) to
execute a deed of absolute sale in favor of plaintiffs, conveying and transferring the ownership of said parcel of
land; (b) to remove whatever improvements defendants have erected on said parcel of land; (c) to vacate said parcel
of land and deliver possession thereof to plaintiffs; and, (d) jointly and severally to pay plaintiffs the sum of
P20,000.00 as attorney's fees, as well as to pay the costs of suit. Further, finding no satisfactory warrant therefor, the
Court also hereby dismisses the rest of plaintiff's claims. 5chanrobles virtual law library
Civil Case No. Q-49272 was an action for reconveyance filed by the spouses Hilario and Lydia Celestino against
Herminia Ramos and the heirs of Herminio Ramos praying that the plaintiffs be declared the lawful owners of Lot
No. 25, Block 86 of the subdivision plan Psd-68807 located at Sikatuna Village, Diliman, Quezon City, and that the
defendants be ordered to execute a deed of absolute sale over the lot in favor of the plaintiffs, remove whatever
improvements they have constructed thereon, vacate the lot and deliver its possession to the plaintiffs, and to pay
actual, moral, and exemplary damages, attorney's fees, and the costs of the suit. 6LRC Rec. Case No. Q-3387(86)
was a petition to declare void the order issued on 22 August 1985 by Branch 104 of the RTC of Quezon City in LRC
Case No. Q-3150(85) 7ordering the cancellation of Transfer Certificate of Title (TCT) No. 204173 upon petition of
Herminia Ramos.chanroblesvirtualawlibrarychanrobles virtual law library
The facts, as found by the trial court and adopted by the respondent Court of Appeals, are as follows:
From the evidence adduced at the joint trial of these related cases, the Court finds that petitioner/plaintiff Lydia
Celestino (referred to as Lydia hereinafter), married to plaintiff Hilario Celestino, was employed in the economic
research department of the Central Bank of the Philippines from 1949 to 1983, while the late Herminio Ramos
(Herminio, hereinafter) - the deceased spouse of respondent/defendant Herminia L. Ramos (Herminia hereinafter)
and predecessor-in-interest of Herminia and the rest of defendants - was employed during his lifetime in the same
department of the Central Bank until his retirement sometime in 1972.chanroblesvirtualawlibrarychanrobles virtual
law library

Sometime in 1961, the now defunct People's Homesite & Housing Corporation (PHHC) awarded the rights to buy
certain parcels of land to employees of the Central Bank. As a Central Bank employee, Herminio was awarded the
rights to buy the parcel of land designated as Lot 25, Block 86 of the subdivision plan Psd-68807, with an area of
some 400 square meters, and situated in what is now known as Sikatuna Village in Diliman, Quezon City, For the
price of P3,800.00 payable in installments, Herminio then sold and transferred to Lydia his said rights to buy said
property, and Lydia paid said price in several installments, the last installment being paid on May 21, 1962 (Exhs. A
thru C). Having acquired the rights to buy the property, Lydia assumed the obligation of paying to the PHHC the
purchase price thereof. Thus, Lydia paid to the PHHC the monthly amortizations of P34.11 per month over a period
of some 10 years ending sometime in 1974 when she paid the last monthly amortization, thereby effecting the full
payment of the purchase of the subject land. During said period and thereafter, Lydia's friend, Cynthia Camacho,
who was then residing at the back of the subject property, acted as the property's caretaker for Lydia, even as Lydia
also had the land fenced.chanroblesvirtualawlibrarychanrobles virtual law library
When the corresponding transfer certificate of title - Transfer Certificate of Title (TCT) No. 204173 of the Registry
of Deeds for Quezon City - was issued after the full payment of the purchase price, the certificate was in the name of
"HERMINIO T. RAMOS, of legal age, Filipino, married to Herminia L. Ramos" (Exhs. 1-A & 6-A). Herminio and
Herminia knew of and consented to the delivery to Lydia of said title certificate's owner's duplicate copy (Exh. D,
also Exh. 1), and said copy since then has been in Lydia's possession and custody. On or about November 26, 1974,
Herminio, together with Herminia, executed in Lydia's favor an irrevocable special power of attorney (Exh. E), in
sum empowering Lydia to sell, mortgage, or lease the subject property and to dispose of the proceeds thereof in any
manner she wants. Said special power of attorney was executed upon the advice of a realty expert, one Isidro
Gonzales, as a practical means of giving assurance to Lydia that Herminio, together with his spouse Herminia, was
in good faith and recognized the existing implied trust relationship between them over the subject land, particularly
in view of the restriction annotated on the title certificate in sum to the effect that within one year from said
certificate's issuance no transfer or alienation of the property shall be made without the PHHC's written consent
(Exh. 1-B).chanroblesvirtualawlibrarychanrobles virtual law library
On August 22, 1985, Branch 104 of the Regional Trial Court of the National Capital Judicial Region in Quezon City
(referred to as RTC Branch 104 hereinafter) issued in its LTC Case No. Q-3150 (85) an Order (Exh. 9), in sum
cancelling and declaring null and void "the owner's duplicate copy of Transfer Certificate of Title No. 204173 that
was lost" and ordering the Register of Deeds of Quezon City "to issue, upon payment of the required fees, another
owner's duplicate copy which shall contain annotations in, and memorandum of the fact that it is issued in the place
of the lost certificate of title, in all respect be entitled to like faith and credit as the original duplicate for all purposes
of Presidential Decree No. 1529" and, accordingly, another owner's duplicate copy of TCT No. 204173, with a
memorandum of said order of RTC Branch 104 was issued by the Register of Deeds of Quezon City (Exhs. 6 and 6B). Said Order was issued upon Herminia's petition, in sum claiming that the original owner's duplicate copy was
lost and missing.chanroblesvirtualawlibrarychanrobles virtual law library
After having belatedly learned of the issuance of said Order of RTC Branch 104, Lydia on March 21, 1986 filed her
petition herein, docketed as LRC Case No. Q-3387 (86), in sum praying that said Order of August 22, 1985 in LRC
Case No. Q-3150 (85) be declared null and void and without legal effect and that the new owner's duplicate copy
issued and delivered to Herminia be cancelled, on the ground that Herminia secured such new owner's duplicate
copy thru fraud and misrepresentation because she well knew that the supposedly "lost" owner's duplicate copy was
in Lydia's possession and custody.chanroblesvirtualawlibrarychanrobles virtual law library
Sometimes later, after having verified that Herminio had passed away in the early part of 1985 and that Herminia
and his successors-in-interest were disputing the ownership of the subject property and building thereon, Lydia

together with her spouse Hilario Celestino filed the complaint herein, docketed as Civil Case No. Q-49272, engaging
the services of counsel for the prosecution thereof. 8chanrobles virtual law library
The trial court's decision is premised on the following findings and conclusion:
The Court, upon the evidence adduced, finds that an implied or resulting trust was created by operation of law when
the subject property was sold by the PHHC, with the legal title being vested in Herminio as the corresponding TCT
was issued in his name, but with the beneficial title, however, being vested in Lydia as she was the one who paid the
purchase price of the property out of her funds after Herminio had earlier sold and transferred to her his rights to buy
the property and she had fully paid him the purchase price for said rights; accordingly, it appearing that instead of
recognizing and abiding by said trust, Herminia and the other defendants (who as Herminio's successor-in-interest
merely stepped into his shoes upon his death) have repudiated the trust by claiming the property for themselves soon
after Herminio's death in 1985, Lydia and her spouse Hilario were fully warranted in bringing their said compliant
herein, seeking as it does, the enforcement of the trust thru defendants' execution of the corresponding conveyance
deed to the end that the true beneficial title may be reflected in the corresponding title certificate; and, again, since
it was because of defendant's unwarranted repudiation of the trust
that plaintiffs were compelled to bring their complaint in Civil Case
No. Q-49272 and engage their counsel's services therefor, the Court finds that aside from the principal relief sought
in the complaint and the costs, recovery by plaintiffs from defendants of the sum of P20,000.00) as reasonable
attorney's fees is just and equitable . . . .chanroblesvirtualawlibrarychanrobles virtual law library
The fact that Herminia knew of and consented to the subject transaction between Herminio and Lydia is amply
indicated by the special power of attorney, Exh. E, executed in Lydia's favor by Herminio and Herminia sometime
on November 26, 1974. No reasonable explanation can be gleaned from the evidence adduced for Herminio's and
Herminia's execution of said special power of attorney other than the fact that they recognized that it was Lydia who
paid the purchase price of the subject property to the PHHC out of her own funds and that she was the beneficial
owner thereof. Of course, Herminia would have the Court find that the signature appearing over her printed name in
Exh. E is not her signature. But, certainly, Herminia's bare claim cannot prevail against the notary public's certificate
in the acknowledgment portion of the document, in sum asserting that both Herminio and Herminia personally
appeared before the notary public, that they are the same persons who executed the special power of attorney, and
that they acknowledged to the notary public that they understood the contents of the document and that they
executed the same as their voluntary act and deed; and indeed, Herminia's specimen signatures (Exh. 2 thru 5),
presented at the trial, cannot properly be described as bearing no marked similarity, nay, identity, with the signature
appearing over her printed name Exh. E.chanroblesvirtualawlibrarychanrobles virtual law library
Then, again, the fact that Herminia apparently secured the tax declarations and paid the realty taxes and penalties on
the subject property only after Herminio's death in 1985 (Exhs. 7 thru 8-1), tends to indicate that Herminia herself
never regarded Herminio and herself as the subject property's owners in fee simple but, rather, merely as trustees for
Lydia - that is, until Herminia, together with the other defendants, repudiated the trust soon after Herminio's death in
1985. 9chanrobles virtual law library
The defendants appealed from the decision to the Court of Appeals which docketed the appeal as CA-G.R. CV No.
26544. In their belief, the defendants-appellants contended that the trial court erred in holding that (1) Herminia
Ramos knew of and consented to the transaction between her husband and Lydia Celestino as evidenced by the
special power of attorney; (2) the alleged special power of attorney showed that the Ramos spouses recognized that
it was Lydia Celestino who paid the purchase price of the lot to the PHHC out of her own funds; (3) an implied or
resulting trust was created when the property was sold by the People's Homesite and Housing Corporation (PHHC)
and issued to Herminio Ramos with the beneficial title vesting in Lydia Celestino since she was the one who paid

the purchase price out of her own funds; (4) the plaintiff's action for reconveyance had not prescribed or been barred
by laches; (5) the plaintiffs are the lawful owners of the lot, and the defendants are obligated
to execute a deed of absolute sale in favor of the former, remove their improvements on the lot, and vacate the
premises and deliver the possession of the lot to the former; and (6) attorney's fees are due the
plaintiffs. 10chanrobles virtual law library
In connection with the first three assigned errors, the appellants maintained in the alternative that even assuming for
the sake of argument that Herminio Ramos sold his rights over the lot in question to Lydia Celestino, the transaction
was unenforceable or void ab initio and no trust was created in view of the following considerations: the alleged sale
was not evidenced by any document, note, or memorandum as required by the Statute of Frauds (Article 1403(2) (e),
Civil Code); no document was introduced to prove the alleged express trust as required in Article 1443 of the Civil
Code; the transaction
in question did not give rise to an implied trust under the Civil Code; Lydia Celestino is not qualified to acquire the
lot in question from the PHHC, a fact she admitted in her testimony; the PHHC did not give its consent to the
alleged sale, contrary to the conditions annotated at the back of TCT No. 204173 to the effect that the vendee
(Herminio Ramos) cannot sell or encumber the said parcel of land or any part thereof without the written consent of
the PHHC; the cause, object, or purpose of the alleged transaction (sale of right over the lot) is contrary to law or the
public policy that the award of lands should only be to those who are not yet owners of land in Quezon City, or to
morals since the transaction circumvented the policy; and Herminio Ramos had no right to sell the land or any
portion thereof without the consent of his wife. 11chanrobles virtual law library
As aforestated, the Court of Appeals, in its Decision of 30 September 1991, affirmed the decision of the trial court.
In rejecting the appellants' first three assigned errors, it held that (a) the petitioners were unable to overcome the
presumption of the authenticity and genuineness of the special power of attorney, a public document duly
acknowledged before a notary public; 12(b) the Statute of Frauds applies only to executory contracts, while the action
instituted by the appellees was "for reconveyance based on resulting trust arising from a fully executed sale with
nothing left to be done except the formal execution
of the deed of conveyance"; "the documentary evidence showing the sale
of Herminia [sic] Ramos' right to purchase the lot is well-nigh conclusive"; 13
(c) neither the private respondents nor the trial court made any reference to an express trust under Article 1437 of the
Civil Code; what is present in this case is a resulting trust under Article 1448 14of the Civil Code wherein "the legal
title to the lot was taken and given to Herminia Ramos and Herminio Ramos; while the beneficial ownership thereof
remained with the plaintiff"; 15and
(d) "restriction of the sale of the property without the approval of the PHHC within one year from the issuance of the
title does not militate against and is not an element of a resulting trust." 16chanrobles virtual law library
As regards the fourth assigned error, the Court of Appeals ruled that the appellees' cause of action for reconveyance
had not yet prescribed for "the trust was a continuing and subsisting one" which the special power of attorney
recognized; the rule of prescription of implied or resulting trust does not apply where a fiduciary relation exists and
the trustee recognizes the trust; and if at
all, there was a repudiation of the trust, it "came about only after the death of Herminio when defendants tried to
claim the property for themselves in 1985." 17chanrobles virtual law library
The appellants then filed a Motion for Reconsideration and for Leave to Submit Additional Evidence, dwelling at
length on the admissibility and authenticity of the special power of attorney by reiterating that Herminia Ramos'
signature thereon is a forgery and alleging that the copy thereof was not admissible in evidence as it was a mere
photocopy and therefore not the best evidence; and that they were able to obtain a certification from the Clerk of
Court of the RTC of Manila that Atty. Ulpiano P. Mosalla, before whom the special power of attorney was

acknowledged, was not a duly commissioned notary public for and in the City of Manila. They further reiterated the
issues of prescription, the absence of marital consent on the part of Herminia Ramos to the sale of her husband's
right over the lot, and the disqualification of Lydia Celestino to purchase the lot. 18chanrobles virtual law library
In its Resolution of 15 December 1992, 19the Court of Appeals denied the aforesaid motion for reconsideration with
leave to submit additional evidence.chanroblesvirtualawlibrarychanrobles virtual law library
Hence this petition which was filed on 28 December 1992.chanroblesvirtualawlibrarychanrobles virtual law library
On 13 December 1993, after the submission of the comment to the petition, the reply thereon, and the rejoinder to
the latter, we gave due course to the petition and directed the parties to submit their simultaneous memoranda, which
they complied with.chanroblesvirtualawlibrarychanrobles virtual law library
Petitioners (defendants-appellants below) maintain that the Court of Appeals erred in holding that (a) petitioner
Herminia Ramos' signature on the special power of attorney is genuine; (b) there was an implied trust in this case;
and (c) the action for reconveyance had not yet prescribed.chanroblesvirtualawlibrarychanrobles virtual law library
As we see it, the second assigned error unravels the core and decisive issue in this case, i.e., the validity of the
transaction involving the lot in question between Herminio Ramos and Lydia Celestino. The petitioners reiterate
their thesis before the trial court and the Court of Appeals that no trust was established in this case because (1) there
is a restriction expressly imposed by the PHHC in the sale of the land to Herminio Ramos, to wit:
Within a period of one year from the issuance of TCT by virtue of this deed no transfer or alienation whatsoever of
the property subject thereof whether in whole or in part shall be made or registered w/out the written consent of the
vendor and such transfer or alienation may be made only in favor of person qualified to acquire land under the laws
of the Philippines. 20chanrobles virtual law library
and (2) even assuming arguendo that Herminio Ramos sold his rights over the lot, the sale was null and void for
being contrary to the public policy of awarding PHHC lots to Central Bank employees who are not residential
landowners. Private respondent Lydia Celestino, Herminio's vendee, was disqualified to acquire any PHHC lot
because she already owned a residential lot in Quezon City. This issue was raised in the petitioners' special and
affirmative defenses in their answer, 21but the trial court did not meet or resolve it squarely. It assumed that the
transaction was valid. The Court of Appeals likewise did not tackle this issue in its Decision of 30 September 1991
and Resolution of 15 December 1992. Just like the trial court, it merely assumed the validity of the
transaction.chanroblesvirtualawlibrarychanrobles virtual law library
The assumption, however, is without basis. As correctly pointed out by the petitioners, which the private respondents
failed to rebut, Lydia Celestino had candidly admitted in her testimony that although she was a Central Bank
employee, she was not qualified to acquire any PHHC lot under the agreement entered into between the PHHC and
the Central Bank because she is already the owner of a lot in Quezon City. Thus, on cross-examination she declared:
Q Mrs. witness, you stated that the lots what you call Central Bank Village were awarded to the employees of the
Central Bank but you were not one of the awardees. Why?chanrobles virtual law library
A I have here in Quezon City a property in my name and we are not allowed to get another
property.chanroblesvirtualawlibrarychanrobles virtual law library
Q So in other words, you are not qualified?chanrobles virtual law library

A Yes, sir. 22
On further cross-examination, she elaborated on her disqualification. Thus:
ATTY. ESPONAS (continuing):
Q You previously testified that the reason you are not one of the awardees of a lot in that subdivision of the Central
Bank, the reason was you were not qualified, is it not?chanrobles virtual law library
A I was not qualified.chanroblesvirtualawlibrarychanrobles virtual law library
Q And the reason why you were not qualified is because you already own a properly in Quezon City, is it not?
chanrobles virtual law library
A I was only telling the truth. Yes.chanroblesvirtualawlibrarychanrobles virtual law library
Q And again the qualification in order to be qualified or be entitled to an award in that subdivision of the central
bank, you must not be an owner of a lot in Quezon City.
xxx xxx xxx
A Yes, sir, you must not be an owner.chanroblesvirtualawlibrarychanrobles virtual law library
Q And up to now you are an owner of a lot in Quezon City?chanrobles virtual law library
A Yes, the same house that I claimed then.
xxx xxx xxx
Q Up to now you are still not qualified to own a lot in that subdivision?
xxx xxx xxxchanrobles virtual law library
WITNESS:chanrobles virtual law library
I am not qualified up to now. 23chanrobles virtual law library
Her disqualification is the probable reason why she did not submit for approval by the PHHC the transfer in her
favor of Herminio Ramos' right to buy the lot in question. The PHHC's approval was necessary for the validity of
the transfer. In Ibay vs. Intermediate Appellate court, 24which also involved a transfer of the right of an awardee of a
PHHC lot to a party disqualified to acquire a PHHC lot, this Court stated:
There is no need to quibble on or belabor further this point. As squarely ruled by the respondent Court, Exhibit "1" is
not to be considered a deed of sale of the property but merely a transfer of Rosita Abando's rights as an applicant to
one-half (1/2) of the lot. This is so because at the date of its execution, Rosita was not yet the owner of the lot. The
document itself explicitly states that the PHHC is the registered owner of the property. The approval of the PHHC is
necessary for the transfer to be valid and effective. In the case at bar, not only did the transfer lack the requisite
approval, the same was categorically disapproved by the latter, per its letter of 15 February 1960, because petitioner,

under the policy of the PHHC, is no longer qualified to acquire another PHHC lot. Resolution
No. 82 of the PHHC, adopted by its Board of Directors on 23 May 1951, provided that "the sale of more than one lot
per person shall not be permitted." 25This policy is supported by the law. One of the purposes of the PHHC was to
acquire, develop, improve, subdivide, lease and sell lands and construct, lease and sell buildings or any interest
therein in the cities and populous towns in the Philippines with the object of providing decent housing for those who
may be found unable otherwise to provide themselves therewith.
The same awareness of the fatal flaw of the transfer is the most logical explanation why Lydia Celestino took no
further action to secure a new transfer certificate of title despite the fact that she had always been in the possession
of TCT No. 204173 which was issued to Herminio Ramos on 21 November 1974 yet. 26Instead of requiring
Herminio Ramos to execute a deed of sale in her favor and to obtain the PHHC's conformity thereto, she was
satisfied with the special power of attorney, executed five days after the issuance of the title, or on 26 November
1974, authorizing her to "SELL, MORTGAGE, LEASE, LET, or RENT" this lot. 27Such authority is inconsistent
with Lydia Celestino's claim for ownership because the grantor therein, Herminio Ramos, solemnly declared that he
is "the owner in fee simple" of the lot described in TCT No. 204173.chanroblesvirtualawlibrarychanrobles virtual
law library
Finally, it was only on 21 March 1986, more than fifteen years after Herminio Ramos allegedly sold to her his rights
over the lot and about
twelve years after the certificate of title on the lot was issued to Herminio Ramos, when Lydia Celestino first
publicly revealed, by filing LRC Case
NO. Q-3387(86), that Herminio sold to her his rights thereon. All these merely suggest that Lydia did everything to
hide her disqualification to own the lot until she could no longer avoid the dangerous precipice where she was
brought by her clandestine transaction with Herminio Ramos.chanroblesvirtualawlibrarychanrobles virtual law
library
The inevitable conclusion then is that Lydia Celestino, knowing of her disqualification to acquire a lot from the
PHHC at the subdivision reserved for qualified Central Bank employees, tried to get one through the backdoor.
Otherwise stated, she wanted to get indirectly that which she could not do so directly. Having acted with evident bad
faith, she did not come to court with clean hands when she asked for the reconveyance of the property on the basis
of a resulting trust under Article 1448 of the Civil Code.chanroblesvirtualawlibrarychanrobles virtual law library
A resulting trust is an "intent-enforcing" trust, based on a finding by the court that in view of the relationship of the
parties their acts express an intent to have a trust, even though they did not use language to that effect. The trust is
said to result in law from the acts of the parties. However, if the purpose of the payor of the consideration in having
title placed in the name of another was to evade some rule of the common or statute law, the courts will not assist the
payor in achieving his improper purpose by enforcing a resulting trust for him in accordance with the "clean hands"
doctrine. The court generally refuses to give aid to claims from rights arising out of an illegal transaction, such as
where the payor could not lawfully take title to land in his own name and he used the grantee as a mere dummy to
hold for him and enable him to evade the land
laws, 28e.g., an alien who is ineligible to hold title to land, who pays for it and has the title put in the name of a
citizen.chanroblesvirtualawlibrarychanrobles virtual law library
Otherwise stated, as an exception to the law on trusts, "[a] trust or a provision in the terms of a trust is invalid if the
enforcement of the trust or provision would be against public policy, even though its performance does not involve
the commission of a criminal or tortious act by the trustee." 29The parties must necessarily be subject to the same
limitations on allowable stipulations in ordinary contracts, i.e., their stipulations must not be contrary to law, morals,
good customs, public order, or public policy.30What the parties then cannot expressly provide in their contracts for

being contrary to law and public policy, they cannot impliedly or implicitly do so in the guise of a resulting
trust.chanroblesvirtualawlibrarychanrobles virtual law library
Although the contract should be voided for being contrary to public policy, we deem it equitable to allow the private
respondents to recover what they had paid for the land with legal interest thereon commencing from the date of the
filing of the complaint in Civil Case No. Q-49272. Thus, she is entitled to the return of the amount she had paid to
Herminio in the sum of P3,800.00 and the refund of the installments she had paid to the PHHC (P34.11 monthly for
a period of ten years), with legal interest thereon.chanroblesvirtualawlibrarychanrobles virtual law library
The foregoing discussions render unnecessary the resolution of the other issues raised by the
parties.chanroblesvirtualawlibrarychanrobles virtual law library
WHEREFORE, the instant petition is GRANTED and the respondent Court of Appeals' Decision of 30 September
1991 and Resolution of 17 December 1992 in CA-G.R. CV No. 26544 as well as the joint decision of the Regional
Trial Court of Quezon City, Branch 95, in Civil Case No. Q-49272 and LRC Case No. Q-3387(86) of 23 February
1990 are REVERSED and SET ASIDE. The latter two cases are ordered DISMISSED. However, the petitioners are
ordered to refund to the private respondents within thirty days from the finality of this decision the sum of P3,800.00
and all the installments the latter had paid to the PHHC for the purchase rice of the lot in question, with 6% per
annum interest thereon computed from the date of the filing of the complaint in Civil Case No. Q-49272 until
payment. Let a copy of this decision be furnished the National Housing Authority for its information and appropriate
action as it may deem necessary in the premises.chanroblesvirtualawlibrarychanrobles virtual law library
SO ORDERED.
Cruz, Bellosillo, Quiason and Kapunan, JJ., concur.

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COMMISSION ON AUDIT, respondent.

DECISION
CARPIO, J.:

The Case

In this special civil action for certiorari,[1] the Development Bank of the Philippines (DBP) seeks to
set aside COA Decision No. 98-403[2] dated 6 October 1998 (COA Decision) and COA Resolution No.
2000-212[3] dated 1 August 2000 issued by the Commission on Audit (COA). The COA affirmed Audit
Observation Memorandum (AOM) No. 93-2, [4] which disallowed in audit the dividends distributed under
the Special Loan Program (SLP) to the members of the DBP Gratuity Plan.

Antecedent Facts
The DBP is a government financial institution with an original charter, Executive Order No. 81, [5] as
amended by Republic Act No. 8523[6] (DBP Charter). The COA is a constitutional body with the
mandate to examine and audit all government instrumentalities and investment of public funds. [7]
The COA Decision sets forth the undisputed facts of this case as follows:
xxx [O]n February 20, 1980, the Development Bank of the Philippines (DBP) Board of Governors adopted
Resolution No. 794 creating the DBP Gratuity Plan and authorizing the setting up of a retirement fund to cover the
benefits due to DBP retiring officials and employees under Commonwealth Act No. 186, as amended. The Gratuity
Plan was made effective on June 17, 1967 and covered all employees of the Bank as of May 31, 1977.
On February 26, 1980, a Trust Indenture was entered into by and between the DBP and the Board of Trustees of the
Gratuity Plan Fund, vesting in the latter the control and administration of the Fund. The trustee, subsequently,
appointed the DBP Trust Services Department (DBP-TSD) as the investment manager thru an Investment
Management Agreement, with the end in view of making the income and principal of the Fund sufficient to meet the
liabilities of DBP under the Gratuity Plan.
In 1983, the Bank established a Special Loan Program availed thru the facilities of the DBP Provident Fund and
funded by placements from the Gratuity Plan Fund. This Special Loan Program was adopted as part of the benefit
program of the Bank to provide financial assistance to qualified members to enhance and protect the value of their
gratuity benefits because Philippine retirement laws and the Gratuity Plan do not allow partial payment of
retirement benefits. The program was suspended in 1986 but was revived in 1991 thru DBP Board Resolution No.
066 dated January 5, 1991.
Under the Special Loan Program, a prospective retiree is allowed the option to utilize in the form of a loan a portion
of his outstanding equity in the gratuity fund and to invest it in a profitable investment or undertaking. The
earnings of the investment shall then be applied to pay for the interest due on the gratuity loan which was initially
set at 9% per annum subject to the minimum investment rate resulting from the updated actuarial study. The excess
or balance of the interest earnings shall then be distributed to the investor-members.
Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total of P11,626,414.25 representing
the net earnings of the investments for the years 1991 and 1992. The payments were disallowed by the Auditor
under Audit Observation Memorandum No. 93-2 dated March 1, 1993, on the ground that the distribution of income
of the Gratuity Plan Fund (GPF) to future retirees of DBP is irregular and constituted the use of public funds for
private purposes which is specifically proscribed under Section 4 of P.D. 1445.[8]
AOM No. 93-2 did not question the authority of the Bank to set-up the [Gratuity Plan] Fund and have
it invested in the Trust Services Department of the Bank. [9] Apart from requiring the recipients of
the P11,626,414.25 to refund their dividends, the Auditor recommended that the DBP record in its books
as miscellaneous income the income of the Gratuity Plan Fund (Fund). The Auditor reasoned that the
Fund is still owned by the Bank, the Board of Trustees is a mere administrator of the Fund in the same
way that the Trust Services Department where the fund was invested was a mere investor and neither
can the employees, who have still an inchoate interest [i]n the Fund be considered as rightful owner of the
Fund.[10]

In a letter dated 29 July 1996, [11] former DBP Chairman Alfredo C. Antonio requested then COA
Chairman Celso D. Gangan to reconsider AOM No. 93-2. Chairman Antonio alleged that the express
trust created for the benefit of qualified DBP employees under the Trust Agreement [12] (Agreement)
dated 26 February 1980 gave the Fund a separate legal personality. The Agreement transferred legal title
over the Fund to the Board of Trustees and all earnings of the Fund accrue only to the Fund. Thus,
Chairman Antonio contended that the income of the Fund is not the income of DBP.
Chairman Antonio also asked COA to lift the disallowance of the P11,626,414.25 distributed as
dividends under the SLP on the ground that the latter was simply a normal loan transaction. He
compared the SLP to loans granted by other gratuity and retirement funds, like the GSIS, SSS and DBP
Provident Fund.

The Ruling of the Commission on Audit

On 6 October 1998, the COA en banc affirmed AOM No. 93-2, as follows:
The Gratuity Plan Fund is supposed to be accorded separate personality under the administration of the Board of
Trustees but that concept has been effectively eliminated when the Special Loan Program was adopted. xxx
The Special Loan Program earns for the GPF an interest of 9% per annum, subject to adjustment after actuarial
valuation. The investment scheme managed by the TSD accumulated more than that as evidenced by the payment
of P4,568,971.84 in 1991 and P7,057,442,41 in 1992, to the member-borrowers. In effect, the program is grossly
disadvantageous to the government because it deprived the GPF of higher investment earnings by the unwarranted
entanglement of its resources under the loan program in the guise of giving financial assistance to the availing
employees. xxx
Retirement benefits may only be availed of upon retirement. It can only be demanded and enjoyed when the
employee shall have met the last requisite, that is, actual retirement under the Gratuity Plan. During employment,
the prospective retiree shall only have an inchoate right over the benefits. There can be no partial payment or
enjoyment of the benefits, in whatever guise, before actual retirement. xxx
PREMISES CONSIDERED, the instant request for reconsideration of the disallowance amounting
to P11,626,414.25 has to be, as it is hereby, denied.[13]
In its Resolution of 1 August 2000, the COA also denied DBPs second motion for
reconsideration. Citing the Courts ruling in Conte v. COA,[14] the COA concluded that the SLP was
actually a supplementary retirement benefit in the guise of financial assistance, thus:
At any rate, the Special Loan Program is not just an ordinary and regular transaction of the Gratuity Plan Fund, as
the Bank innocently represents. xxx It is a systematic investment mix conveniently implemented in a special loan
program with the least participation of the beneficiaries, by merely filing an application and then wait for the
distribution of net earnings. The real objective, of course, is to give financial assistance to augment the value of the
gratuity benefits, and this has the same effect as the proscribed supplementary pension/retirement plan under Section
28 (b) of C(ommonwealth) A(ct) 186.
This Commission may now draw authority from the case of Conte, et al. v. Commission on Audit (264 SCRA 19
[1996]) where the Supreme Court declared that financial assistance granted to retiring employees constitute
supplementary retirement or pension benefits. It was there stated:
xxx Said Sec. 28 (b) as amended by R.A. 4968 in no uncertain terms bars the creation of any insurance or
retirement plan other than the GSIS for government officers and employees, in order to prevent the undue and
iniquitous proliferation of such plans. It is beyond cavil that Res. 56 contravenes the said provision of law and is

therefore, invalid, void and of no effect. To ignore this and rule otherwise would be tantamount to permitting every
other government office or agency to put up its own supplementary retirement benefit plan under the guise of such
financial assistance.[15]
Hence, the instant petition filed by DBP.

The Issues
The DBP invokes justice and equity on behalf of its employees because of prevailing economic
conditions. The DBP reiterates that the income of the Fund should be treated and recorded as separate
from the income of DBP itself, and charges that COA committed grave abuse of discretion:
1.
IN CONCLUDING THAT THE ADOPTION OF THE SPECIAL LOAN PROGRAM CONSTITUTES A
CIRCUMVENTION OF PHILIPPINE RETIREMENT LAWS;
2.
IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM IS GROSSLY DISADVANTAGEOUS
TO THE GOVERNMENT;
3.
IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM CONSTITUTES A SUPPLEMENTARY
RETIREMENT BENEFIT.[16]
The Office of the Solicitor General (OSG), arguing on behalf of the COA, questions the standing of
the DBP to file the instant petition. The OSG claims that the trustees of the Fund or the DBP employees
themselves should pursue this certiorari proceeding since they would be the ones to return the dividends
and not DBP.
The central issues for resolution are: (1) whether DBP has the requisite standing to file the instant
petition for certiorari; (2) whether the income of the Fund is income of DBP; and (3) whether the
distribution of dividends under the SLP is valid.

The Ruling of the Court

The petition is partly meritorious.

The standing of DBP to file this petition for certiorari

As DBP correctly argued, the COA en banc implicitly recognized DBPs standing when it ruled on
DBPs request for reconsideration from AOM No. 93-2 and motion for reconsideration from the Decision of
6 October 1998. The supposed lack of standing of the DBP was not even an issue in the COA Decision
or in the Resolution of 1 August 2000.
The OSG nevertheless contends that the DBP cannot question the decisions of the COA en
banc since DBP is a government instrumentality. Citing Section 2, Article IX-D of the Constitution, [17] the
OSG argued that:
Petitioner may ask the lifting of the disallowance by COA, since COA had not yet made a definitive and final ruling
on the matter in issue. But after COA denied with finality the motion for reconsideration of petitioner, petitioner,

being a government instrumentality, should accept COAs ruling and leave the matter of questioning COAs decision
with the concerned investor-members.[18]
These arguments do not persuade us.
Section 2, Article IX-D of the Constitution does not bar government instrumentalities from questioning
decisions of the COA. Government agencies and government-owned and controlled corporations have
long resorted to petitions for certiorari to question rulings of the COA. [19] These government entities filed
their petitions with this Court pursuant to Section 7, Article IX of the Constitution, which mandates that
aggrieved parties may bring decisions of the COA to the Court on certiorari.[20] Likewise, the Government
Auditing Code expressly provides that a government agency aggrieved by a COA decision, order or ruling
may raise the controversy to the Supreme Court on certiorari in the manner provided by law and the
Rules of Court.[21] Rule 64 of the Rules of Court now embodies this procedure, to wit:
SEC 2. Mode of review. A judgment or final order or resolution of the Commission on Elections and the
Commission on Audit may be brought by the aggrieved party to the Supreme Court on certiorari under Rule 65,
except as hereinafter provided.
The novel theory advanced by the OSG would necessarily require persons not parties to the present
case the DBP employees who are members of the Plan or the trustees of the Fund to avail
of certiorari under Rule 65. The petition for certiorari under Rule 65, however, is not available to any
person who feels injured by the decision of a tribunal, board or officer exercising judicial or quasi-judicial
functions. The person aggrieved under Section 1 of Rule 65 who can avail of the special civil action
of certiorari pertains only to one who was a party in the proceedings before the court a quo,[22] or in this
case, before the COA. To hold otherwise would open the courts to numerous and endless litigations.
[23]
Since DBP was the sole party in the proceedings before the COA, DBP is the proper party to avail of
the remedy of certiorari.
The real party in interest who stands to benefit or suffer from the judgment in the suit must prosecute
or defend an action.[24] We have held that interest means material interest, an interest in issue that the
decision will affect, as distinguished from mere interest in the question involved, or a mere incidental
interest.[25]
As a party to the Agreement and a trustor of the Fund, DBP has a material interest in the
implementation of the Agreement, and in the operation of the Gratuity Plan and the Fund as prescribed in
the Agreement. The DBP also possesses a real interest in upholding the legitimacy of the policies and
programs approved by its Board of Directors for the benefit of DBP employees. This includes the SLP
and its implementing rules, which the DBP Board of Directors confirmed.

The income of the Gratuity Plan Fund

The COA alleges that DBP is the actual owner of the Fund and its income, on the following grounds:
(1) DBP made the contributions to the Fund; (2) the trustees of the Fund are merely administrators; and
(3) DBP employees only have an inchoate right to the Fund.
The DBP counters that the Fund is the subject of a trust, and that the Agreement transferred legal
title over the Fund to the trustees. The income of the Fund does not accrue to DBP. Thus, such income
should not be recorded in DBPs books of account.[26]

A trust is a fiduciary relationship with respect to property which involves the existence of equitable
duties imposed upon the holder of the title to the property to deal with it for the benefit of another. [27] A
trust is either express or implied. Express trusts are those which the direct and positive acts of the parties
create, by some writing or deed, or will, or by words evincing an intention to create a trust. [28]
In the present case, the DBP Board of Governors (now Board of Directors) Resolution No. 794 and
the Agreement executed by former DBP Chairman Rafael Sison and the trustees of the Plan created an
express trust, specifically, an employees trust. An employees trust is a trust maintained by an employer
to provide retirement, pension or other benefits to its employees. [29] It is a separate taxable
entity[30] established for the exclusive benefit of the employees. [31]
Resolution No. 794 shows that DBP intended to establish a trust fund to cover the retirement
benefits of certain employees under Republic Act No. 1616 [32] (RA 1616). The principal and income of
the Fund would be separate and distinct from the funds of DBP. We quote the salient portions of
Resolution No. 794, as follows:
2.
Trust Agreement designed for in-house trustees of three (3) to be appointed by the Board of Governors and
vested with control and administration of the funds appropriated annually by the Board to be invested in selective
investments so that the income and principal of said contributions would be sufficient to meet the required
payments of benefits as officials and employees of the Bank retire under the Gratuity Plan; xxx
The proposed funding of the gratuity plan has decided advantages on the part of the Bank over the present
procedure, where the Bank provides payment only when an employee retires or on pay as you go basis:
1.
It is a definite written program, permanent and continuing whereby the Bank provides contributions to a
separate trust fund, which shall be exclusively used to meet its liabilities to retiring officials and employees;
and
2.
Since the gratuity plan will be tax qualified under the National Internal Revenue Code and RA 4917, the
Banks periodic contributions thereto shall be deductible for tax purposes and the earnings therefrom tax free.
[33]
(Emphasis supplied)
In a trust, one person has an equitable ownership in the property while another person owns the
legal title to such property, the equitable ownership of the former entitling him to the performance of
certain duties and the exercise of certain powers by the latter. [34] A person who establishes a trust is the
trustor. One in whom confidence is reposed as regards property for the benefit of another is the
trustee. The person for whose benefit the trust is created is the beneficiary.[35]
In the present case, DBP, as the trustor, vested in the trustees of the Fund legal title over the Fund
as well as control over the investment of the money and assets of the Fund. The powers and duties
granted to the trustees of the Fund under the Agreement were plainly more than just administrative, to wit:
1.
The BANK hereby vests the control and administration of the Fund in the TRUSTEES for the
accomplishment of the purposes for which said Fund is intended in defraying the benefits of the PLAN in
accordance with its provisions, and the TRUSTEES hereby accept the trust xxx
2.
The TRUSTEES shall receive and hold legal title to the money and/or property comprising the
Fund, and shall hold the same in trust for its beneficiaries, in accordance with, and for the uses and purposes stated
in the provisions of the PLAN.
3.
Without in any sense limiting the general powers of management and administration given to TRUSTEES by
our laws and as supplementary thereto, the TRUSTEES shall manage, administer, and maintain the Fund with full
power and authority:
xxx

b.

To invest and reinvest at any time all or any part of the Fund in any real estate (situated within
the Philippines), housing project, stocks, bonds, mortgages, notes, other securities or property
which the said TRUSTEES may deem safe and proper, and to collect and receive all income and
profits existing therefrom;

c.

To keep and maintain accurate books of account and/or records of the Fund xxx.

d.

To pay all costs, expenses, and charges incurred in connection with the administration, preservation,
maintenance and protection of the Fund xxx to employ or appoint such agents or employees xxx.

e.

To promulgate, from time to time, such rules not inconsistent with the conditions of this Agreement
xxx.

f.

To do all acts which, in their judgment, are needful or desirable for the proper and
advantageous control and management of the Fund xxx.[36] (Emphasis supplied)

Clearly, the trustees received and collected any income and profit derived from the Fund, and they
maintained separate books of account for this purpose. The principal and income of the Fund will not
revert to DBP even if the trust is subsequently modified or terminated. The Agreement states that the
principal and income must be used to satisfy all of the liabilities to the beneficiary officials and employees
under the Gratuity Plan, as follows:
5.

The BANK reserves the right at any time and from time to time (1) to modify or amend in whole or
in part by written directions to the TRUSTEES, any and all of the provisions of this Trust
Agreement, or (2) to terminate this Trust Agreement upon thirty (30) days prior notice in writing
to the TRUSTEES; provided, however, that no modification or amendment which affects the
rights, duties, or responsibilities of the TRUSTEES may be made without the TRUSTEES
consent; and provided, that such termination, modification, or amendment prior to the
satisfaction of all liabilities with respect to eligible employees and their beneficiaries, does
not permit any part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of eligible employees and workers as provided
for in the PLAN. In the event of termination of this Trust Agreement, all cash, securities, and
other property then constituting the Fund less any amounts constituting accrued benefits to the
eligible employees, charges and expenses payable from the Fund, shall be paid over or delivered
by the TRUSTEES to the members in proportion to their accrued benefits.[37] (Emphasis supplied)

The resumption of the SLP did not eliminate the trust or terminate the transfer of legal title to the
Funds trustees. The records show that the Funds Board of Trustees approved the SLP upon the request
of the DBP Career Officials Association. [38] The DBP Board of Directors only confirmed the approval of the
SLP by the Funds trustees.
The beneficiaries or cestui que trust of the Fund are the DBP officials and employees who will retire
under Commonwealth Act No. 186[39] (CA 186), as amended by RA 1616. RA 1616 requires the
employer agency or government instrumentality to pay for the retirement gratuity of its employees who
rendered service for the required number of years. [40] The Government Service Insurance System Act of
1997[41] still allows retirement under RA 1616 for certain employees.
As COA correctly observed, the right of the employees to claim their gratuities from the Fund is still
inchoate. RA 1616 does not allow employees to receive their gratuities until they retire. However, this
does not invalidate the trust created by DBP or the concomitant transfer of legal title to the trustees. As
far back as in Government v. Abadilla,[42] the Court held that it is not always necessary that the cestui
que trust should be named, or even be in esse at the time the trust is created in his favor. It is enough
that the beneficiaries are sufficiently certain or identifiable. [43]

In this case, the GSIS Act of 1997 extended the option to retire under RA 1616 only to employees
who had entered government service before 1 June 1977. [44] The DBP employees who were in the service
before this date are easily identifiable. As of the time DBP filed the instant petition, DBP estimated that
530 of its employees could still retire under RA 1616. At least 60 DBP employees had already received
their gratuities under the Fund.[45]
The Agreement indisputably transferred legal title over the income and properties of the Fund to the
Funds trustees. Thus, COAs directive to record the income of the Fund in DBPs books of account as
the miscellaneous income of DBP constitutes grave abuse of discretion. The income of the Fund does
not form part of the revenues or profits of DBP, and DBP may not use such income for its own
benefit. The principal and income of the Fund together constitute the res or subject matter of the
trust. The Agreement established the Fund precisely so that it would eventually be sufficient to pay for
the retirement benefits of DBP employees under RA 1616 without additional outlay from DBP. COA itself
acknowledged the authority of DBP to set up the Fund. However, COAs subsequent directive would
divest the Fund of income, and defeat the purpose for the Funds creation.

The validity of the Special Loan Program

and the disallowance of P11,626,414.25
In disallowing the P11,626,414.25 distributed as dividends under the SLP, the COA relied primarily
on Republic Act No. 4968 (RA 4968) which took effect on 17 June 1967. RA 4968 added the following
paragraph to Section 28 of CA 186, thus:
(b) Hereafter no insurance or retirement plan for officers or employees shall be created by any employer. All
supplementary retirement or pension plans heretofore in force in any government office, agency, or instrumentality
or corporation owned or controlled by the government, are hereby declared inoperative or abolished: Provided, That
the rights of those who are already eligible to retire thereunder shall not be affected.
Even assuming, however, that the SLP constitutes a supplementary retirement plan, RA 4968 does
not apply to the case at bar. The DBP Charter, which took effect on 14 February 1986, expressly
authorizes supplementary retirement plans adopted by and effective in DBP, thus:
SEC. 34. Separation Benefits. All those who shall retire from the service or are separated therefrom on account
of the reorganization of the Bank under the provisions of this Charter shall be entitled to all gratuities and benefits
provided for under existing laws and/or supplementary retirement plans adopted by and effective in the
Bank: Provided, that any separation benefits and incentives which may be granted by the Bank subsequent to June
1, 1986, which may be in addition to those provided under existing laws and previous retirement programs of the
Bank prior to the said date, for those personnel referred to in this section shall be funded by the National
Government; Provided, further, that, any supplementary retirement plan adopted by the Bank after the effectivity of
this Chapter shall require the prior approval of the Minister of Finance.
xxx.
SEC. 37. Repealing Clause. All acts, executive orders, administrative orders, proclamations, rules and regulations
or parts thereof inconsistent with any of the provisions of this charter are hereby repealed or modified accordingly.
[46]
(Emphasis supplied)
Being a special and later law, the DBP Charter[47] prevails over RA 4968. The DBP originally
adopted the SLP in 1983. The Court cannot strike down the SLP now based on RA 4968 in view of the
subsequent DBP Charter authorizing the SLP.
Nevertheless, the Court upholds the COAs disallowance of the P11,626,414.25 in dividends
distributed under the SLP.

According to DBP Board Resolution No. 0036 dated 25 January 1991, the SLP allows a prospective
retiree to utilize in the form of a loan, a portion of their outstanding equity in the Gratuity Plan Fund and to
invest [the] proceeds in a profitable investment or undertaking. [48] The basis of the loanable amount was
an employees gratuity fund credit,[49] that is to say, what an employee would receive if he retired at the
time he availed of the loan.
In his letter dated 26 October 1983 proposing the confirmation of the SLP, then DBP Chairman Cesar
B. Zalamea stated that:
The primary objective of this proposal therefore is to counteract the unavoidable decrease in the value of the said
retirement benefits through the following scheme:
I. To allow a prospective retiree the option to utilize in the form of a loan, a portion of his standing
equity in the Gratuity Fund and to invest it in a profitable investment or undertaking. The income or
appreciation in value will be for his own account and should provide him the desired hedge against
inflation or erosion in the value of the peso. This is being proposed since Philippine retirement laws and
the Gratuity Plan do not allow partial payment of retirement benefits, even the portion already
earned, ahead of actual retirement.[50] (Emphasis supplied)
As Chairman Zalamea himself noted, neither the Gratuity Plan nor our laws on retirement allow the
partial payment of retirement benefits ahead of actual retirement. It appears that DBP sought to
circumvent these restrictions through the SLP, which released a portion of an employees retirement
benefits to him in the form of a loan. Certainly, the DBP did this for laudable reasons, to address the
concerns of DBP employees on the devaluation of their retirement benefits. The remaining question is
whether RA 1616 and the Gratuity Plan allow this scheme.
We rule that it is not allowed.
The right to retirement benefits accrues only upon certain prerequisites. First, the conditions
imposed by the applicable law in this case, RA 1616 must be fulfilled. [51] Second, there must be
actual retirement.[52] Retirement means there is a bilateral act of the parties, a voluntary agreement
between the employer and the employees whereby the latter after reaching a certain age agrees and/or
consents to severe his employment with the former.[53]
Severance of employment is a condition sine qua non for the release of retirement benefits.
Retirement benefits are not meant to recompense employees who are still in the employ of the
government. That is the function of salaries and other emoluments. [54]Retirement benefits are in the
nature of a reward granted by the State to a government employee who has given the best years of his
life to the service of his country.[55]
The Gratuity Plan likewise provides that the gratuity benefit of a qualified DBP employee shall only
be released upon retirement under th(e) Plan. [56] As the COA correctly pointed out, this means that
retirement benefits can only be demanded and enjoyed when the employee shall have met the last
requisite, that is, actual retirement under the Gratuity Plan. [57]
There was thus no basis for the loans granted to DBP employees under the SLP. The rights of the
recipient DBP employees to their retirement gratuities were still inchoate, if not a mere expectancy, when
they availed of the SLP. No portion of their retirement benefits could be considered as actually earned
or outstanding before retirement. Prior to retirement, an employee who has served the requisite number
of years is only eligible for, but not yet entitled to, retirement benefits.
The DBP contends that the SLP is merely a normal loan transaction, akin to the loans granted by the
GSIS, SSS and the DBP Provident Fund.
The records show otherwise.
In a loan transaction or mutuum, the borrower or debtor acquires ownership of the amount borrowed.
As the owner, the debtor is then free to dispose of or to utilize the sum he loaned, [59] subject to the
condition that he should later return the amount with the stipulated interest to the creditor. [60]
[58]

In contrast, the amount borrowed by a qualified employee under the SLP was not even released to
him. The implementing rules of the SLP state that:
The loan shall be available strictly for the purpose of investment in the following investment instruments:
a.

182 or 364-day term Time deposits with DBP

b.

182 or 364-day T-bills /CB Bills

c.

182 or 364-day term DBP Blue Chip Fund

The investment shall be registered in the name of DBP-TSD in trust for availee-investor for his sole risk and
account. Choice of eligible terms shall be at the option of availee-investor. Investments shall be commingled by
TSD and Participation Certificates shall be issued to each availee-investor.
xxx
IV. LOANABLE TERMS
xxx
e.
Allowable Investment Instruments Time Deposit DBP T-Bills/CB Bills and DBP Blue Chip
Fund. TSD shall purchase new securities and/or allocate existing securities portfolio of GPF depending on
liquidity position of the Fund xxx.
xxx
g.
Security The loan shall be secured by GS, Certificate of Time Deposit and/or BCF Certificate of
Participation which shall be registered in the name of DBP-TSD in trust for name of availee-investor and shall be
surrendered to the TSD for safekeeping.[61] (Emphasis supplied)
In the present case, the Fund allowed the debtor-employee to borrow a portion of his gratuity fund
credit solely for the purpose of investing it in certain instruments specified by DBP. The debtor-employee
could not dispose of or utilize the loan in any other way. These instruments were, incidentally, some of the
same securities where the Fund placed its investments. At the same time the Fund obligated the debtoremployee to assign immediately his loan to DBP-TSD so that the amount could be commingled with the
loans of other employees. The DBP-TSD the same department which handled and had custody of the
Funds accounts then purchased or re-allocated existing securities in the portfolio of the Fund to
correspond to the employees loans.
Simply put, the amount ostensibly loaned from the Fund stayed in the Fund, and remained under the
control and custody of the DBP-TSD. The debtor-employee never had any control or custody over the
amount he supposedly borrowed. However, DBP-TSD listed new or existing investments of the Fund
corresponding to the loan in the name of the debtor-employee, so that the latter could collect the interest
earned from the investments.
In sum, the SLP enabled certain DBP employees to utilize and even earn from their retirement
gratuities even before they retired. This constitutes a partial release of their retirement benefits, which is
contrary to RA 1616 and the Gratuity Plan. As we have discussed, the latter authorizes the release of
gratuities from the earnings and principal of the Fund only upon retirement.
The Gratuity Plan will lose its tax-exempt status if the retirement benefits are released prior to the
retirement of the employees. The trust funds of employees other than those of private employers are

qualified for certain tax exemptions pursuant to Section 60(B) formerly Section 53(b) of the National
Internal Revenue Code.[62] Section 60(B) provides:
Section 60. Imposition of Tax.
(A) Application of Tax. The tax imposed by this Title upon individuals shall apply to the income of estates or of
any kind of property held in trust, including:
xxx
(B) Exception. The tax imposed by this Title shall not apply to employees trust which forms part of a pension,
stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions
are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees
the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under
the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees
under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted
to, purposes other than for the exclusive benefit of his employees: xxx (Emphasis supplied)
The Gratuity Plan provides that the gratuity benefits of a qualified DBP employee shall be released
only upon retirement under th(e) Plan. If the earnings and principal of the Fund are distributed to DBP
employees prior to their retirement, the Gratuity Plan will no longer qualify for exemption under Section
60(B). To recall, DBP Resolution No. 794 creating the Gratuity Plan expressly provides that since the
gratuity plan will be tax qualified under the National Internal Revenue Code xxx, the Banks periodic
contributions thereto shall be deductible for tax purposes and the earnings therefrom tax free. If DBP
insists that its employees may receive the P11,626,414.25 dividends, the necessary consequence will be
the non-qualification of the Gratuity Plan as a tax-exempt plan.
Finally, DBP invokes justice and equity on behalf of its affected employees. Equity cannot supplant
or contravene the law.[63] Further, as evidenced by the letter of former DBP Chairman Zalamea, the DBP
Board of Directors was well aware of the proscription against the partial release of retirement benefits
when it confirmed the SLP. If DBP wants to enhance and protect the value of xxx (the) gratuity benefits
of its employees, DBP must do so by investing the money of the Fund in the proper and sound
investments, and not by circumventing restrictions imposed by law and the Gratuity Plan itself.
We nevertheless urge the DBP and COA to provide equitable terms and a sufficient period within
which the affected DBP employees may refund the dividends they received under the SLP. Since most of
the DBP employees were eligible to retire within a few years when they availed of the SLP, the refunds
may be deducted from their retirement benefits, at least for those who have not received their retirement
benefits.
WHEREFORE, COA Decision No. 98-403 dated 6 October 1998 and COA Resolution No. 2000-212
dated 1 August 2000 are AFFIRMED with MODIFICATION. The income of the Gratuity Plan Fund, held in
trust for the benefit of DBP employees eligible to retire under RA 1616, should not be recorded in the
books of account of DBP as the income of the latter.
SO ORDERED.
PERFECTO MACABABBAD, Jr.,* deceased, substituted by his heirs Sophia Macababbad,
Glenn M. Macababbad, Perfecto Vener M. Macababbad III and Mary Grace Macababbad,
and SPS. CHUA SENG LIN AND SAY UN AY, petitioners
vs.
FERNANDO G. MASIRAG, FAUSTINA G. MASIRAG, CORAZON G. MASIRAG,
LEONOR G. MASIRAG, and LEONCIO M. GOYAGOY, respondentFRANCISCA MASIRAG BACCAY,
PURA MASIRAG FERRER-MELAD, AND SANTIAGO MASIRAG, Intervenors- Respondents.
DECISION

BRION, J.:
Before us is the Petition for Review on Certiorari filed by Perfecto Macababbad, Jr.1 (Macababbad) and
the spouses Chua Seng Lin (Chua) and Say Un Ay (Say) (collectively called the petitioners), praying that
we nullify the Decision2 of the Court of Appeals (CA) and the Resolution3 denying the motion for
reconsideration that followed. The assailed decision reversed the dismissal Order 4 of the Regional Trial
Court (RTC), Branch 4, Tuguegarao City, Cagayan, remanding the case for further trial.
BACKGROUND
On April 28, 1999, respondents Fernando Masirag (Fernando), Faustina Masirag (Faustina), Corazon
Masirag (Corazon), Leonor Masirag (Leonor) and Leoncio Masirag Goyagoy (Leoncio) (collectively called
therespondents), filed with the RTC a complaint5 against Macababbad, Chua and Say.6 On May 10, 1999,
they amended their complaint to allege new matters.7 The respondents alleged that their complaint is an
action for:
quieting of title, nullity of titles, reconveyance, damages and attorneys fees 8 against the
defendants [petitioners here] x x x who cabal themselves in mala fides of badges of fraud dishonesty,
deceit, misrepresentations, bad faith, under the guise of purported instrument, nomenclature EXTRAJUDICIAL SETTLEMENT WITH SIMULTANEOUS SALE OF PORTION OF REGISTERED LAND (Lot
4144), dated December 3, 1967, a falsification defined and penalized under Art. 172 in relation to Art.
171, Revised Penal Code, by causing it to appear that persons (the plaintiffs herein[the respondents in
this case]) have participated in any act or proceeding when they (the plaintiffs herein [the respondents in
this case]) did not in fact so participate in the EXTRA-JUDICIAL SETTLEMENT WITH SIMULTANEOUS
SALE OF PORTION OF REGISTERED LAND (Lot 4144 covered by Original Certificate of Title No.
1946) [sic].9
The amended complaint essentially alleged the following: 10
The deceased spouses Pedro Masirag (Pedro) and Pantaleona Tulauan (Pantaleona) were the original
registered owners of Lot No. 4144 of the Cadastral Survey of Tuguegarao (Lot No. 4144), as evidenced
by Original Certificate of Title (OCT) No. 1946.11 Lot No. 4144 contained an area of 6,423 square meters.
Pedro and Pantaleona had eight (8) children, namely, Valeriano, Domingo, Pablo, Victoria, Vicenta, Inicio,
Maxima and Maria. Respondents Fernando, Faustina, Corazon and Leonor Masirag are the children of
Valeriano and Alfora Goyagoy, while Leoncio is the son of Vicenta and Braulio Goyagoy. The respondents
allegedly did not know of the demise of their respective parents; they only learned of the inheritance due
from their parents in the first week of March 1999 when their relative, Pilar Quinto, informed respondent
Fernando and his wife Barbara Balisi about it. They immediately hired a lawyer to investigate the matter.
The investigation disclosed that the petitioners falsified a document entitled Extra-judicial Settlement with
Simultaneous Sale of Portion of Registered Land (Lot 4144) dated December 3, 1967 12 (hereinafter
referred to as the extrajudicial settlement of estate and sale) so that the respondents were deprived of
their shares in Lot No. 4144. The document purportedly bore the respondents signatures, making them
appear to have participated in the execution of the document when they did not; they did not even know
the petitioners. The document ostensibly conveyed the subject property to Macababbad for the sum of
P1,800.00.13 Subsequently, OCT No. 1946 was cancelled and Lot No. 4144 was registered in the names
of its new owners under Transfer Certificate of Title (TCT) No. 13408, 14 presumably after the death of
Pedro and Pantaleona. However, despite the supposed sale to Macababbad, his name did not appear on
the face of TCT No. 13408.15 Despite his exclusion from TCT No. 13408, his Petition for another owners
duplicate copy of TCT No. 13408, filed in the Court of First Instance of Cagayan, was granted on July 27,
1982.16

Subsequently, Macababbad registered portions of Lot No. 4144 in his name and sold other portions to
third parties.17
On May 18, 1972, Chua filed a petition for the cancellation of TCT No. T-13408 and the issuance of a title
evidencing his ownership over a subdivided portion of Lot No. 4144 covering 803.50 square meters. On
May 23, 1972, TCT No. T-18403 was issued in his name.18
Based on these allegations, the respondents asked: (1) that the extrajudicial settlement of estate and sale
be declared null and void ab initio and without force and effect, and that Chua be ordered and directed to
execute the necessary deed of reconveyance of the land; if they refuse, that the Clerk of Court be
required to do so; (2) the issuance of a new TCT in respondents name and the cancellation of
Macababbads and Chuas certificates of title; and (3) that the petitioners be ordered to pay damages and
attorneys fees.
Macababbad filed a motion to dismiss the amended complaint on July 14, 1999, while Chua and Say filed
an Appearance with Motion to Dismiss on September 28, 1999.
On December 14, 1999, the RTC granted the motion of Francisca Masirag Baccay, Pura Masirag FerrerMelad, and Santiago Masirag for leave to intervene and to admit their complaint-in-intervention. The
motion alleged that they have common inheritance rights with the respondents over the disputed property.
THE RTC RULING
The RTC, after initially denying the motion to dismiss, reconsidered its ruling and dismissed the
complaint in its Order19 dated May 29, 2000 on the grounds that: 1) the action, which was filed 32
years after the property was partitioned and after a portion was sold to Macababbad, had already
prescribed; and 2) there was failure to implead indispensable parties, namely, the other heirs of
Pedro and Pantaleona and the persons who have already acquired title to portions of the subject
property in good faith.20
The respondents appealed the RTCs order dated May 29, 2000 to the CA on the following grounds:
I
THE COURT A QUO ERRED IN DISMISSING THE CASE
II
THE COURT A QUO ERRED IN INTERPRETING THE NATURE OF APPELLANTS CAUSE OF ACTION
AS THAT DESIGNATED IN THE COMPLAINTS TITLE AND NOT IN (SIC) THE ALLEGATIONS IN THE
COMPLAINT21
The petitioners moved to dismiss the appeal primarily on the ground that the errors the respondents
raised involved pure questions of law that should be brought before the Supreme Court via a petition for
review oncertiorari under Rule 45 of the Rules of Court. The respondents insisted that their appeal
involved mixed questions of fact and law and thus fell within the purview of the CAs appellate jurisdiction.
THE CA DECISION22
The CA ignored23 the jurisdictional issue raised by the petitioners in their motion to dismiss, took
cognizance of the appeal, and focused on the following issues: 1) whether the complaint stated a
cause of action; and 2) whether the cause of action had been waived, abandoned or extinguished.

The appellate court reversed and set aside the RTCs dismissal of the complaint. On the first issue,
it ruled that the complaint carve(d) out a sufficient and adequate cause of action xxx. One can read
through the verbosity of the initiatory pleading to discern that a fraud was committed by the defendants on
certain heirs of the original owners of the property and that, as a result, the plaintiffs were deprived of
interests that should have gone to them as successors-in-interest of these parties. A positive deception
has been alleged to violate legal rights. This is the ultimate essential fact that remains after all the clutter
is removed from the pleading. Directed against the defendants, there is enough to support a definitive
adjudication.24
On the second issue, the CA applied the Civil Code provision on implied trust, i.e., that a person who
acquires a piece of property through fraud is considered a trustee of an implied trust for the benefit of the
person from whom the property came. Reconciling this legal provision with Article 1409 (which defines
void contracts) and Article 1410 (which provides that an action to declare a contract null and void is
imprescriptible), the CA ruled that the respondents cause of action had not prescribed, because in
assailing the extrajudicial partition as void, the [respondents] have the right to bring the action unfettered
by a prescriptive period.25
THE PETITION FOR REVIEW ON CERTIORARI
The Third Division of this Court initially denied26 the petition for review on certiorari for the petitioners
failure to show any reversible error committed by the CA. However, it subsequently reinstated the petition.
In their motion for reconsideration, the petitioners clarified the grounds for their petition, as follows:
A. THE HONORABLE COURT OF APPEALS DID NOT HAVE JURISDICTION TO PASS UPON AND
RULE ON THE APPEAL TAKEN BY THE RESPONDENTS IN CA-GR CV NO. 68541. 27
In the alternative, ex abundanti cautela, the petitioners alleged other reversible errors summarized as
follows: 28

The RTC dismissal on the ground that indispensable parties were not impleaded has already
become final and executory because the CA did not pass upon this ground; 29

The respondents' argument that there was no failure to implead indispensable parties since the
other heirs of Pedro and Pantaleona who were not impleaded were not indispensable parties in
light of the respondents' admission that the extra-judicial settlement is valid with respect to the
other heirs who sold their shares to Perfecto Macababbad is erroneous because innocent
purchasers for value of portions of Lot 4144 who are also indispensable parties were not
impleaded; 30

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

The CA erred in saying that the Extra-judicial Partition was an inexistent and void contract
because it could not be said that none of the heirs intended to be bound by the contract. 32
The respondents argued in their Comment that:33

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

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

The respondents action is not for reconveyance. Rather, it is an action to declare the sale of their
respective shares null and void;

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

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

We find the petition devoid of merit.

Questions of Fact v. Questions of Law
A question of law arises when there is doubt as to what the law is on a certain state of facts while there is
a question of fact when the doubt arises as to the truth or falsity of the alleged facts. 34 A question of law
may be resolved by the court without reviewing or evaluating the evidence. 35 No examination of the
probative value of the evidence would be necessary to resolve a question of law.36 The opposite is true
with respect to questions of fact, which necessitate a calibration of the evidence. 37
The nature of the issues to be raised on appeal can be gleaned from the appellants notice of appeal filed
in the trial court and in his or her brief as appellant in the appellate court. 38 In their Notice of Appeal, the
respondents manifested their intention to appeal the assailed RTC order on legal grounds and on the
basis of the environmental facts.39 Further, in their Brief, the petitioners argued that the RTC erred in
ruling that their cause of action had prescribed and that they had slept on their rights. 40 All these indicate
that questions of facts were involved, or were at least raised, in the respondents appeal with the CA.
In Crisostomo v. Garcia,41 this Court ruled that prescription may either be a question of law or fact; it is a
question of fact when the doubt or difference arises as to the truth or falsity of an allegation of fact; it is a
question of law when there is doubt or controversy as to what the law is on a given state of facts. The test
of whether a question is one of law or fact is not the appellation given to the question by the party raising
the issue; the test is whether the appellate court can determine the issue raised without reviewing or
evaluating the evidence. Prescription, evidently, is a question of fact where there is a need to determine
the veracity of factual matters such as the date when the period to bring the action commenced to run. 42
Ingjug-Tiro v. Casals,43 instructively tells us too that a summary or outright dismissal of an action is not
proper where there are factual matters in dispute which require presentation and appreciation of
evidence. In this cited case whose fact situation is similar to the present case, albeit with a very slight and
minor variation, we considered the improvident dismissal of a complaint based on prescription and laches
to be improper because the following must still be proven by the complaining parties:
first, that they were the co-heirs and co-owners of the inherited property; second, that their co-heirs-coowners sold their hereditary rights thereto without their knowledge and consent; third, that forgery, fraud
and deceit were committed in the execution of the Deed of Extrajudicial Settlement and Confirmation of
Sale since Francisco Ingjug who allegedly executed the deed in 1967 actually died in 1963, hence, the
thumbprint found in the document could not be his; fourth, that Eufemio Ingjug who signed the deed of
sale is not the son of Mamerto Ingjug, and, therefore, not an heir entitled to participate in the disposition of
the inheritance; fifth, that respondents have not paid the taxes since the execution of the sale in 1965
until the present date and the land in question is still declared for taxation purposes in the name of
Mamerto Ingjug, the original registered owner, as of 1998; sixth,that respondents had not taken
possession of the land subject of the complaint nor introduced any improvement thereon;
and seventh, that respondents are not innocent purchasers for value.

As in Ingjug-Tiro, the present case involves factual issues that require trial on the merits. This situation
rules out a summary dismissal of the complaint.
Proper Mode of Appeal
Since the appeal raised mixed questions of fact and law, no error can be imputed on the respondents for
invoking the appellate jurisdiction of the CA through an ordinary appeal. Rule 41, Sec. 2 of the Rules of
Court provides:
Modes of appeal.
(a) Ordinary appeal - The appeal to the Court of Appeals in cases decided by the Regional Trial Court in
the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the court which
rendered the judgment or final order appealed from and serving a copy thereof upon the adverse party.
In Murillo v. Consul,44 this Court had the occasion to clarify the three (3) modes of appeal from decisions
of the RTC, namely: (1) ordinary appeal or appeal by writ of error, where judgment was rendered in a civil
or criminal action by the RTC in the exercise of original jurisdiction, covered by Rule 41; (2) petition for
review, where judgment was rendered by the RTC in the exercise of appellate jurisdiction, covered by
Rule 42; and (3) petition for review to the Supreme Court under Rule 45 of the Rules of Court. The first
mode of appeal is taken to the CA on questions of fact or mixed questions of fact and law. The second
mode of appeal is brought to the CA on questions of fact, of law, or mixed questions of fact and law. The
third mode of appeal is elevated to the Supreme Court only on questions of law.
Prescription
A ruling on prescription necessarily requires an analysis of the plaintiffs cause of action based on the
allegations of the complaint and the documents attached as its integral parts. A motion to dismiss based
on prescription hypothetically admits the allegations relevant and material to the resolution of this issue,
but not the other facts of the case.45
Unfortunately, both the respondents complaint and amended complaint are poorly worded, verbose, and
prone to misunderstanding. In addition, therefore, to the complaint, we deem it appropriate to consider the
clarifications made in their appeal brief by the petitioners relating to the intent of their complaint. We deem
this step appropriate since there were no matters raised for the first time on appeal and their restatement
was aptly supported by the allegations of the RTC complaint. The respondents argue in their Appellants
Brief that:
x x x Although reconveyance was mentioned in the title, reconveyance of which connotes that there was a
mistake in titling the land in question in the name of the registered owner indicated therein, but in the
allegations in the body of the allegations in the body of the instant complaint, it clearly appears that the
nature of the cause of action of appellants, [sic] they wanted to get back their respective shares in the
subject inheritance because they did not sell said shares to appellee Perfecto Macababbad as the
signatures purported to be theirs which appeared in the Extrajudicial Settlement with Simultaneous Sale
of Portion of Registered Land (Lot 4144) were forged.
As appellants represented 2 of the 8 children of the deceased original owners of the land in question who
were Pedro Masirag and Pantaleona Talauan, the sale is perfectly valid with respect to the other 6
children, and void ab initio with respect to the appellants.46
The respondents likewise argue that their action is one for the annulment of the extrajudicial settlement of
estate and sale bearing their forged signatures. They contend that their action had not yet prescribed
because an action to declare an instrument null and void is imprescriptible. In their Comment to the

petition for review, however, the respondents modified their position and argued that the sale to the
petitioners pursuant to the extrajudicial settlement of estate and sale was void because it was carried out
through fraud; thus, the appropriate prescription period is four (4) years from the discovery of fraud. Under
this argument, respondents posit that their cause of action had not yet prescribed because they only
learned of the extrajudicial settlement of estate and sale in March 1999; they filed their complaint the
following month.
The petitioners, on the other hand, argue that the relevant prescriptive period here is ten (10) years from
the date of the registration of title, this being an action for reconveyance based on an implied or
constructive trust.
We believe and so hold that the respondents amended complaint sufficiently pleaded a cause to declare
thenullity of the extrajudicial settlement of estate and sale, as they claimed in their amended complaint.
Without prejudging the issue of the merits of the respondents claim and on the assumption that the
petitioners already hypothetically admitted the allegations of the complaint when they filed a motion to
dismiss based on prescription, the transfer may be null and void if indeed it is established that
respondents had not given their consent and that the deed is a forgery or is absolutely fictitious. As the
nullity of the extrajudicial settlement of estate and sale has been raised and is the primary issue, the
action to secure this result will not prescribe pursuant to Article 1410 of the Civil Code.
Based on this conclusion, the necessary question that next arises is: What then is the effect of the
issuance of TCTs in the name of petitioners? In other words, does the issuance of the certificates of titles
convert the action to one of reconveyance of titled land which, under settled jurisprudence, prescribes in
ten (10) years?
Precedents say it does not; the action remains imprescriptible, the issuance of the certificates of titles
notwithstanding. Ingjug-Tiro is again instructive on this point:
Article 1458 of the New Civil Code provides: "By the contract of sale one of the contracting parties
obligates himself of transfer the ownership of and to deliver a determinate thing, and the other to pay
therefor a price certain in money or its equivalent." It is essential that the vendors be the owners of the
property sold otherwise they cannot dispose that which does not belong to them. As the Romans put it:
"Nemo dat quod non habet." No one can give more than what he has. The sale of the realty to
respondents is null and void insofar as it prejudiced petitioners' interests and participation
therein. At best, only the ownership of the shares of Luisa, Maria and Guillerma in the disputed
property could have been transferred to respondents.
Consequently, respondents could not have acquired ownership over the land to the extent of the shares
of petitioners. The issuance of a certificate of title in their favor could not vest upon them
ownership of the entire property; neither could it validate the purchase thereof which is null and
void. Registration does not vest title; it is merely the evidence of such title. Our land registration
laws do not give the holder any better title than what he actually has. Being null and void, the sale
to respondents of the petitioners' shares produced no legal effects whatsoever.
Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to the Extrajudicial
Settlement and Confirmation of Sale executed in 1967 would be fatal to the validity of the contract, if
proved by clear and convincing evidence. Contracting parties must be juristic entities at the time of the
consummation of the contract. Stated otherwise, to form a valid and legal agreement it is necessary that
there be a party capable of contracting and party capable of being contracted with. Hence, if any one
party to a supposed contract was already dead at the time of its execution, such contract is undoubtedly
simulated and false and therefore null and void by reason of its having been made after the death of the
party who appears as one of the contracting parties therein. The death of a person terminates contractual
capacity.

In actions for reconveyance of the property predicated on the fact that the conveyance
complained of was null and void ab initio, a claim of prescription of action would be unavailing.
"The action or defense for the declaration of the inexistence of a contract does not
prescribe." Neither could laches be invoked in the case at bar. Laches is a doctrine in equity and our
courts are basically courts of law and not courts of equity. Equity, which has been aptly described as
"justice outside legality," should be applied only in the absence of, and never against, statutory
law. Aequetas nunguam contravenit legis. The positive mandate of Art. 1410 of the New Civil; Code
conferring imprescriptibility to actions for declaration of the inexistence of a contract should preempt and
prevail over all abstract arguments based only on equity. Certainly, lachescannot be set up to resist the
enforcement of an imprescriptible legal right, and petitioners can validly vindicate their inheritance despite
the lapse of time.47
We have a similar ruling in Heirs of Rosa Dumaliang v. Serban.48
The respondents action is therefore imprescriptible and the CA committed no reversible error in so ruling.
Laches
Dismissal based on laches cannot also apply in this case, as it has never reached the presentation of
evidence stage and what the RTC had for its consideration were merely the parties pleadings. Laches is
evidentiary in nature and cannot be established by mere allegations in the pleadings. 49 Without solid
evidentiary basis, laches cannot be a valid ground to dismiss the respondents complaint.
Non-joinder of Indispensable parties is not a
Ground for a Motion to Dismiss
The RTC dismissed the respondents amended complaint because indispensable parties were not
impleaded. The respondents argue that since the extrajudicial settlement of estate and sale was valid with
respect to the other heirs who executed it, those heirs are not indispensable parties in this case. Innocent
purchasers for value to whom title has passed from Macababbad and the spouses Chua and Say are
likewise not indispensable parties since the titles sought to be recovered here are still under the name of
the petitioners
We also find the RTC dismissal Order on this ground erroneous.
Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is a
ground for the dismissal of an action, thus:
Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor non-joinder of parties is ground for
dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or
on its own initiative at any stage of the action and on such terms as are just. Any claim against a
misjoined party may be severed and proceeded with separately.
In Domingo v. Scheer,50 this Court held that the proper remedy when a party is left out is to implead the
indispensable party at any stage of the action. The court, either motu proprio or upon the motion of a
party, may order the inclusion of the indispensable party or give the plaintiff opportunity to amend his
complaint in order to include indispensable parties. If the plaintiff to whom the order to include the
indispensable party is directed refuses to comply with the order of the court, the complaint may be
dismissed upon motion of the defendant or upon the court's own motion. 51 Only upon unjustified failure or
refusal to obey the order to include or to amend is the action dismissed. 52
Rule 3, Sec. 7 of the Rules of Court defines indispensable parties as those who are parties in interest
without whom no final determination can be had of an action. 53 They are those parties who possess such

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

PENALBER VS. RAMOS

Facts: Petitioner operated a hardware store in a building along Bonifacio St., Tuguegarao, Cagayan,
which stood in a commercial lot owned by Maria Mendoza, from whom the petitioner rented the same. In
1982, petitioner allowed respondents to manage the store. In 1984, Mendoza put the Bonifacio property
for sale. Having no funds, Petitioner allegedly entered into a verbal agreement with respondents
stipulating that the latter shall buy the property in behalf of the petitioner and the consideration for the lot
shall be paid from the accumulated earnings of the store. On September 20, 1984, respondents returned
the management of the store to the petitioner with an inventory showing a difference of P116,946.15. The
petitioner then demanded from the respondents the reconveyance title of the property but the latter
refused. Petitioner argues that the respondents are mere trustees of the property and thus, are under
moral and legal obligation to reconvey the property to her. Petitioner further argues that the difference in
the inventory proves that such amount was used to pay for the purchase price of the property.
Respondents, on the other hand, contend that they have the full ownership of the property because they
paid for it out of their own funds. The petitioner filed a case before the RTC which rendered a judgment in
favor of the petitioner, which was later on reversed by the Court of Appeals.
Issue: Whether there is a valid and enforceable trust.
Held: No, the Court ruled that petitioners allegations as to the existence of an express trust agreement
with respondent spouses Ramos, supported only by her own and her son Johnsons testimonies, do not
hold water. A resulting difference of P116,946.15 in the beginning inventory of the stocks of the hardware
store and the second inventory thereof, by itself, is not conclusive proof that the said amount was used to
pay the purchase price of the Bonifacio property, such as would make it the property of petitioner held
merely in trust by respondent spouses Ramos.

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 "dueos absolutos de sus respectivas propiedadas, y podran
inmediatamente tomar posesion de sus bienes, en la forma como se han distribuido y llevado a cabo las
adjudicaciones" (page 20, Exh. 21).
The documentary evidence proves that in 1911 or prior to the death of Valentina Ignacio her two children,
Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens title, OCT No. 185 of the Registry of Deeds of
Pampanga, in their names for a forty-seven-hectare fishpond located at Sitio Calunuran, Lubao,
Pampanga (Exh. 14). It is also known as Lot No. 540 of the Hermosa cadastre because that part of Lubao
later became a part of Bataan.
The Calunuran fishpond is the bone of contention in this case.
Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had engaged in the fishpond business.
Where they obtained the capital is not shown in any documentary evidence. Plaintiffs' version is that
Valentin Salao and Alejandra Salao were included in that joint venture, that the funds used were the
earnings of the properties supposedly inherited from Manuel Salao, and that those earnings were used in
the acquisition of the Calunuran fishpond. There is no documentary evidence to support that theory.
On the other hand, the defendants contend that the Calunuran fishpond consisted of lands purchased by
Juan Y. Salao, Sr. and Ambrosia Salao in 1905, 1906, 1907 and 1908 as, shown in their Exhibits 8, 9, 10
and 13. But this point is disputed by the plaintiffs.
However, there can be no controversy as to the fact that after Juan Y. Salao, Sr. and Ambrosia Salao
secured a Torrens title for the Calunuran fishpond in 1911 they exercised dominical rights over it to the
exclusion of their nephew, Valentin Salao.

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

It is relevant to mention that on April 8, 1940 Ambrosia Salao donated to her grandniece, plaintiff Benita
Salao, three lots located at Barrio Dampalit with a total area of 5,832 square meters (Exit. L). As donee
Benita Salao signed the deed of donation.
On that occasion she could have asked Ambrosia Salao to deliver to her and to the children of her sister,
Victorina, the Calunuran fishpond if it were true that it was held in trust by Ambrosia as the share of
Benita's father in the alleged joint venture.
But she did not make any such demand. It was only after Ambrosia Salao's death that she thought of filing
an action for the reconveyance of the Calunuran fishpond which was allegedly held in trust and which had
become the sole property of Juan Salao y Santiago (Juani).
On September 30, 1944 or during the Japanese occupation and about a year before Ambrosia Salao's
death on September 14, 1945 due to senility (she was allegedly eighty-five years old when she died), she
donated her one-half proindiviso share in the two fishponds in question to her nephew, Juan S. Salao, Jr.
(Juani) At that time she was living with Juani's family. He was already the owner of the the other half of
the said fishponds, having inherited it from his father, Juan Y. Salao, Sr. (Banli) The deed of denotion
included other pieces of real property owned by Ambrosia. She reserved for herself the usufruct over the
said properties during her lifetime (Exh. 2 or M).
The said deed of donation was registered only on April 5, 1950 (page 39, Defendants' Record on Appeal).
The lawyer of Benita Salao and the Children of Victorina Salao in a letter dated January 26, 1951
informed Juan S. Salao, Jr. that his clients had a one-third share in the two fishponds and that when Juani
took possession thereof in 1945, he refused to give Benita and Victorina's children their one-third share of
the net fruits which allegedly amounted to P200,000 (Exh. K).
Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated that Valentin Salao did not
have any interest in the two fishponds and that the sole owners thereof his father Banli and his aunt
Ambrosia, as shown in the Torrens titles issued in 1911 and 1917, and that he Juani was the donee of
Ambrosia's one-half share (Exh. K-1).
Benita Salao and her nephews and niece filed their original complaint against Juan S. Salao, Jr. on
January 9, 1952 in the Court of First Instance of Bataan (Exh. 36). They amended their complaint on
January 28, 1955. They asked for the annulment of the donation to Juan S. Salao, Jr. and for the
reconveyance to them of the Calunuran fishpond as Valentin Salao's supposed one-third share in the 145
hectares of fishpond registered in the names of Juan Y. Salao, Sr. and Ambrosia Salao.
Juan S. Salao, Jr. in his answer pleaded as a defense the indefeasibility of the Torrens title secured by his
father and aunt. He also invoked the Statute of Frauds, prescription and laches. As counter-claims, he
asked for moral damages amounting to P200,000, attorney's fees and litigation expenses of not less than
P22,000 and reimbursement of the premiums which he has been paying on his bond for the lifting of the
receivership Juan S. Salao, Jr. died in 1958 at the age of seventy-one. He was substituted by his widow,
Mercedes Pascual and his six children and by the administrator of his estate.
In the intestate proceedings for the settlement of his estate the two fishponds in question were
adjudicated to his seven legal heirs in equal shares with the condition that the properties would remain
under administration during the pendency of this case (page 181, Defendants' Record on Appeal).
After trial the trial court in its decision consisting of one hundred ten printed pages dismissed the
amended complaint and the counter-claim. In sixty-seven printed pages it made a laborious recital of the
testimonies of plaintiffs' fourteen witnesses, Gregorio Marcelo, Norberto Crisostomo, Leonardo Mangali
Fidel de la Cruz, Dionisio Manalili, Ambrosio Manalili, Policarpio Sapno, Elias Manies Basilio Atienza,
Benita Salao, Emilio Cagui Damaso de la Pea, Arturo Alcuriza and Francisco Buensuceso, and the

testimonies of defendants' six witnesses, Marcos Galicia, Juan Galicia, Tiburcio Lingad, Doctor
Wenceslao Pascual, Ciriaco Ramirez and Pablo P. Salao. (Plaintiffs presented Regino Nicodemus as a
fifteenth witness, a rebuttal witness).
The trial court found that there was no community of property among Juan Y. Salao, Sr., Ambrosia Salao
and Valentin Salao when the Calunuran and Pinanganacan (Lewa) lands were acquired; that a coownership 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 thefideicommissa 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
asmatters of intent, or which are superinduced on the transaction by operation of law as matter of
equity,independently of the particular intention of the parties" (89 C.J.S. 724). They are ordinarily
subdivided into resulting and constructive trusts (89 C.J.S. 722).
"A resulting trust. is broadly defined as a trust which is raised or created by the act or construction of law,
but in its more restricted sense it is a trust raised by implication of law and presumed to have been
contemplated by the parties, the intention as to which is to be found in the nature of their transaction, but
not expressed in the deed or instrument of conveyance (89 C.J.S. 725). Examples of resulting trusts are
found in articles 1448 to 1455 of the Civil Code. (See Padilla vs. Court of Appeals, L-31569, September
28, 1973, 53 SCRA 168, 179; Martinez vs. Grao 42 Phil. 35).
On the other hand, a constructive trust is -a trust "raised by construction of law, or arising by operation of
law". In a more restricted sense and as contra-distinguished from a resulting trust, a constructive trust is
"a trust not created by any words, either expressly or impliedly evincing a direct intension to create a trust,
but by the construction of equity in order to satisfy the demands of justice." It does not arise "by
agreement or intention, but by operation of law." (89 C.J.S. 726-727).
Thus, "if property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes" (Art.
1456, Civil Code).

Or "if a person obtains legal title to property by fraud or concealment, courts of equity will impress upon
the title a so-called constructive trust in favor of the defrauded party". Such a constructive trust is not a
trust in the technical sense. (Gayondato vs. Treasurer of the P. I., 49 Phil. 244).
Not a scintilla of documentary evidence was presented by the plaintiffs to prove that there was an express
trust over the Calunuran fishpond in favor of Valentin Salao. Purely parol evidence was offered by them to
prove the alleged trust. Their claim that in the oral partition in 1919 of the two fishponds the Calunuran
fishpond was assigned to Valentin Salao is legally untenable.
It is legally indefensible because the terms of article 1443 of the Civil Code (already in force when the
action herein was instituted) are peremptory and unmistakable: parol evidence cannot be used to prove
an express trust concerning realty.
Is plaintiffs' massive oral evidence sufficient to prove an implied trust, resulting or constructive, regarding
the two fishponds?
Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust. The trial court's firm
conclusion that there was no community of property during the lifetime of Valentina; Ignacio or before
1914 is substantiated by defendants' documentary evidence. The existence of the alleged co-ownership
over the lands supposedly inherited from Manuel Salao in 1885 is the basis of plaintiffs' contention that
the Calunuran fishpond was held in trust for Valentin Salao.
But that co-ownership was not proven by any competent evidence. It is quite improbable because the
alleged estate of Manuel Salao was likewise not satisfactorily proven. The plaintiffs alleged in their
original complaint that there was a co-ownership over two hectares of land left by Manuel Salao. In their
amended complaint, they alleged that the co-ownership was over seven hectares of fishponds located in
Barrio Dampalit, Malabon, Rizal. In their brief they alleged that the fishponds, ricelands and saltbeds
owned in common in Barrio Dampalit had an area of twenty-eight hectares, of which sixteen hectares
pertained to Valentina Ignacio and eleven hectares represented Manuel Salao's estate.
They theorized that the eleven hectares "were, and necessarily, the nucleus, nay the very root, of the
property now in litigation (page 6, plaintiffs-appellants' brief). But the eleven hectares were not proven by
any trustworthy evidence. Benita Salao's testimony that in 1918 or 1919 Juan, Ambrosia, Alejandra and
Valentin partitioned twenty-eight hectares of lands located in Barrio Dampalit is not credible. As noted by
the defendants, Manuel Salao was not even mentioned in plaintiffs' complaints.
The 1919 partition of Valentina Ignacio's estate covered about seventeen hectares of fishponds and
ricelands (Exh. 21). If at the time that partition was made there were eleven hectares of land in Barrio
Dampalit belonging to Manuel Salao, who died in 1885, those eleven hectares would have been
partitioned in writing as in the case of the seventeen hectares belonging to Valentina Ignacio's estate.
It is incredible that the forty-seven-hectare Calunuran fishpond would be adjudicated to Valentin Salao
mere by by word of mouth. Incredible because for the partition of the seventeen hectares of land left by
Valentina Ignacio an elaborate "Escritura de Particion" consisting of twenty-two pages had to be executed
by the four Salao heirs. Surely, for the partition of one hundred 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, L23024, 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. 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 andsolutio 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 QuasiContracts." 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," 19the 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 quasicontracts, 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. L-45645 June 28, 1983

FRANCISCO A. TONGOY, for himself and as Judicial Administrator of the Estate of the Late Luis D.
Tongoy and Ma. Rosario Araneta Vda. de Tongoy, petitioners,
vs.
THE HONORABLE COURT OF APPEALS, MERCEDES T. SONORA, JUAN T. SONORA, JESUS T.

SONORA, TRINIDAD T. SONORA, RICARDO P. TONGOY, CRESENCIANO P. TONGOY, AMADO P.

TONGOY, and NORBERTO P. TONGOY, respondents.
MAKASIAR, J.:
This is a petition for certiorari, to review the decision of respondent Court of Appeals in CA-G.R. No.
45336-R, entitled "Mercedes T. Sonora, et al. versus Francisco A. Tongoy, et al.", promulgated on
December 3, 1975.
The antecedent facts which are not controverted are quoted in the questioned decision, as follows:
The case is basically an action for reconveyance respecting two (2) parcels of land in
Bacolod City. The first is Lot No. 1397 of the Cadastral Survey of Bacolod, otherwise
known as Hacienda Pulo, containing an area of 727,650 square meters and originally
registered under Original Certificate of Title No. 2947 in the names of Francisco Tongoy,
Jose Tongoy, Ana Tongoy, Teresa Tongoy and Jovita Tongoy in pro-indiviso equal shares.
Said co-owners were all children of the late Juan Aniceto Tongoy. The second is Lot No.
1395 of the Cadastral Survey of Bacolod, briefly referred to as Cuaycong property,
containing an area of 163,754 square meters, and formerly covered by Original
Certificate of Title No. 2674 in the name of Basilisa Cuaycong.
Of the original registered co-owners of Hacienda Pulo, three died without issue, namely:
Jose Tongoy, who died a widower on March 11, 1961; Ama Tongoy, who also died single
on February 6, 1957, and Teresa Tongoy who also died single on November 3, 1949. The
other two registered co-owners, namely, Francisco Tongoy and Jovita Tongoy, were
survived by children. Francisco Tongoy, who died on September 15, 1926, had six
children; Patricio D. Tongoy and Luis D. Tongoy by the first marriage; Amado P. Tongoy,
Ricardo P. Tongoy; Cresenciano P. Tongoy and Norberto P. Tongoy by his second wife
Antonina Pabello whom he subsequently married sometime after the birth of their
children. For her part, Jovita Tongoy (Jovita Tongoy de Sonora), who died on May 14,
1915, had four children: Mercedes T. Sonora, Juan T. Sonora, Jesus T. Sonora and
Trinidad T. Sonora.
By the time this case was commenced, the late Francisco Tongoy's aforesaid two
children by his first marriage, Patricio D. Tongoy and Luis D. Tongoy, have themselves
died. It is claimed that Patricio D. Tongoy left three acknowledged natural children named
Fernando, Estrella and Salvacion, all surnamed Tongoy. On the other hand, there is no
question that Luis D. Tongoy left behind a son, Francisco A. Tongoy, and a surviving
spouse, Ma. Rosario Araneta Vda. de Tongoy.
The following antecedents are also undisputed, though by no means equally submitted
as the complete facts, nor seen in Identical lights: On April 17, 1918, Hacienda Pulo was
mortgaged by its registered co-owners to the Philippine National Bank (PNB), Bacolod
Branch, as security for a loan of P11,000.00 payable in ten (10) years at 8% interest per
annum. The mortgagors however were unable to keep up with the yearly amortizations,
as a result of which the PNB instituted judicial foreclosure proceedings over Hacienda
Pulo on June 18, 1931. To avoid foreclosure, one of the co-owners and mortgagors, Jose
Tongoy, proposed to the PNB an amortization plan that would enable them to liquidate
their account. But, on December 23, 1932, the PNB Branch Manager in Bacolod advised
Jose Tongoy by letter that the latter's proposal was rejected and that the foreclosure suit
had to continue. As a matter of fact, the suit was pursued to finality up to the Supreme
Court which affirmed on July 31, 1935 the decision of the CFI giving the PNB the right to
foreclose the mortgage on Hacienda Pulo. In the meantime, Patricio D. Tongoy and Luis
Tongoy executed on April 29, 1933 a Declaration of Inheritance wherein they declared

themselves as the only heirs of the late Francisco Tongoy and thereby entitled to the
latter's share in Hacienda Pulo. On March 13, 1934, Ana Tongoy, Teresa Tongoy,
Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio Tongoy executed an
"Escritura de Venta" (Exh. 2 or Exh. W), which by its terms transferred for consideration
their rights and interests over Hacienda Pulo in favor of Luis D. Tongoy. Thereafter, on
October 23, 1935 and November 5, 1935, respectively, Jesus Sonora and Jose Tongoy
followed suit by each executing a similar "Escritura de Venta" (Exhs. 3 or DD and 5 or
AA) pertaining to their corresponding rights and interests over Hacienda Pulo in favor
also of Luis D. Tongoy. In the case of Jose Tongoy, the execution of the "Escritura de
Venta" (Exh. 5 or AA) was preceded by the execution on October 14, 1935 of an
Assignment of Rights (Exh. 4 or Z) in favor of Luis D. Tongoy by the Pacific Commercial
Company as judgment lien-holder (subordinate to the PNB mortgage) of Jose Tongoy's
share in Hacienda Pulo. On the basis of the foregoing documents, Hacienda Pulo was
placed on November 8, 1935 in the name of Luis D. Tongoy, married to Maria Rosario
Araneta, under Transfer Certificate of "Title No. 20154 (Exh. 20). In the following year, the
title of the adjacent Cuaycong property also came under the name of Luis D. Tongoy,
married to Maria Rosario Araneta, per Transfer Certificate of Title No. 21522, by virtue of
an "Escritura de Venta" (Exh. 6) executed in his favor by the owner Basilisa Cuaycong on
June 22, 1936 purportedly for P4,000.00. On June 26, 1936, Luis D. Tongoy executed a
real estate mortgage over the Cuaycong property in favor of the PNB, Bacolod Branch,
as security for loan of P4,500.00. Three days thereafter, on June 29, 1936, he also
executed a real estate mortgage over Hacienda Pulo in favor of the same bank to secure
an indebtedness of P21,000.00, payable for a period of fifteen (15) years at 8% per
annum. After two decades, on April 17, 1956, Luis D. Tongoy paid off all his obligations
with the PNB, amounting to a balance of P34,410.00, including the mortgage obligations
on the Cuaycong property and Hacienda Pulo. However, it was only on April 22, 1958
that a release of real estate mortgage was executed by the bank in favor of Luis D.
Tongoy. On February 5, 1966, Luis D. Tongoy died at the Lourdes Hospital in Manila,
leaving as heirs his wife Maria Rosario Araneta and his son Francisco A. Tongoy. Just
before his death, however, Luis D. Tongoy received a letter from Jesus T. Sonora, dated
January 26, 1966, demanding the return of the shares in the properties to the co-owners.
Not long after the death of Luis D. Tongoy, the case now before Us was instituted in the
court below on complaint filed on June 2, 1966 by Mercedes T. Sonora, Juan T. Sonora **
, Jesus T. Sonora, Trinidad T. Sonora, Ricardo P. Tongoy and Cresenciano P. Tongoy.
Named principally as defendants were Francisco A. Tongoy, for himself and as judicial
administrator of the estate of the late Luis D. Tongoy, and Maria Rosario Araneta Vda. de
Tongoy. Also impleaded as defendants, because of their unwillingness to join as plaintiffs
were Amado P. Tongoy, Norberto P. Tongoy ** and Fernando P. Tongoy. Alleging in sum
that plaintiffs and/or their predecessors transferred their interests on the two lots in
question to Luis D. Tongoy by means of simulated sales, pursuant to a trust arrangement
whereby the latter would return such interests after the mortgage obligations thereon had
been settled, the complaint prayed that 'judgment be rendered in favor of the plaintiffs
and against the defendants(a) Declaring that the HACIENDA PULO, Lot 1397-B-3 now covered by
T.C.T. No. 29152, Bacolod City, and the former Cuaycong property, Lot
1395 now covered by T.C.T. No. T-824 (RT-4049) (21522), Bacolod City,
as trust estate belonging to the plaintiffs and the defendants in the
proportion set forth in Par. 26 of this complaint;
(b) Ordering the Register of Deeds of Bacolod City to cancel T.C.T. No.
29152 and T.C.T. No. T-824 (RT-4049) (21522), Bacolod City, and to
issue new ones in the names of the plaintiffs and defendants in the

proportions set forth in Par. 26 thereof, based on the original area of

HACIENDA PULO;
(c) Ordering the defendants Francisco A. Tongoy and Ma. Rosario
Araneta Vda. de Tongoy to render an accounting to the plaintiffs of the
income of the above two properties from the year 1958 to the present
and to deliver to each plaintiff his corresponding share with legal interest
thereon from 1958 and until the same shall have been fully paid;
(d) Ordering the defendants Francisco Tongoy and Ma. Rosario Araneta
Vda. de Tongoy to pay to the plaintiffs as and for attorney's fees an
amount equivalent to twenty-four per cent (24%) of the rightful shares of
the plaintiffs over the original HACIENDA PULO and the Cuaycong
property, including the income thereof from 1958 to the present; and
(e) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Vda.
de Tongoy to pay the costs of this suit.
Plaintiffs also pray for such other and further remedies just and equitable in the premises.
Defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy filed separate
answers, denying in effect plaintiffs' causes of action, and maintaining, among others,
that the sale to Luis D. Tongoy of the two lots in question was genuine and for a valuable
consideration, and that no trust agreement of whatever nature existed between him and
the plaintiffs. As affirmative defenses, defendants also raised laches, prescription,
estoppel, and the statute of frauds against plaintiffs. Answering defendants counter
claimed for damages against plaintiffs for allegedly bringing an unfounded and malicious
complaint.
For their part, defendants Norberto Tongoy and Amado Tongoy filed an answer under
oath, admitting every allegation of the complaint. On the other hand, defendant Fernando
Tongoy originally joined Francisco A. Tongoy in the latter's answer, but after the case was
submitted and was pending decision, the former filed a verified answer also admitting
every allegation of the complaint.
Meanwhile, before the case went to trial, a motion to intervene as defendants was filed by
and was granted to Salvacion Tongoy and Estrella Tongoy, alleging they were sisters of
the full blood of Fernando Tongoy. Said intervenors filed an answer similarly admitting
every allegation of the complaint.
After trial on the merits, the lower court rendered its decision on October 15, 1968 finding
the existence of an implied trust in favor of plaintiffs, but at the same time holding their
action for reconveyance barred by prescription, except in the case of Amado P. Tongoy,
Ricardo P. Tongoy, Cresenciano P. Tongoy, and Norberto P. Tongoy, who were adjudged
entitled to reconveyance of their corresponding shares in the property left by their father
Francisco Tongoy having been excluded therefrom in the partition had during their
minority, and not having otherwise signed any deed of transfer over such shares. The
dispositive portion of the decision reads:
IN VIEW OF ALL THE FOREGOING considerations, judgment is hereby rendered
dismissing the complaint, with respect to Mercedes, Juan, Jesus and Trinidad, all
surnamed Sonora. The defendants Francisco Tongoy and Rosario Araneta Vda. de
Tongoy are hereby ordered to reconvey the proportionate shares of Ricardo P.,

Cresenciano P., Amado P., and Norberto P., all surnamed Tongoy in Hda. Pulo and the
Cuaycong property. Without damages and costs.
SO ORDERED.
Upon motion of plaintiffs, the foregoing dispositive portion of the decision was
subsequently clarified by the trial court through its order of January 9, 1969 in the
following tenor:
Considering the motion for clarification of decision dated November 7,
1968 and the opposition thereto, and with the view to avoid further
controversy with respect to the share of each heir, the dispositive portion
of the decision is hereby clarified in the sense that, the proportionate
legal share of Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P.
Tongoy and the heirs of Norberto P. Tongoy, in Hda. Pulo and Cuaycong
property consist of 4/5 of the whole trust estate, leaving 1/5 of the same
to the heirs of Luis D. Tongoy.
SO ORDERED. (pp. 157-166, Vol. I, rec.).
Both parties appealed the decision of the lower court to respondent appellate court. Plaintiffs-appellants
Mercedes T. Sonora, Jesus T. Sonora, Trinidad T. Sonora and the heirs of Juan T. Sonora questioned the
lower court's decision dismissing their complaint on ground of prescription, and assailed it insofar as it
held that the agreement created among the Tongoy-Sonora family in 1931 was an implied, and not an
express, trust; that their action had prescribed; that the defendants-appellants were not ordered to render
an accounting of the fruits and income of the properties in trust; and that defendants were not ordered to
pay the attorney's fees of plaintiffs- appellants. For their part, defendants-appellants Francisco A. Tongoy
and Ma. Rosario Araneta Vda. de Tongoy not only refuted the errors assigned by plaintiffs-appellants, but
also assailed the findings that there was preponderance of evidence in support of the existence of an
implied trust; that Ricardo P. Tongoy, Amado P. Tongoy and Norberto P. Tongoy are the legitimate halfbrothers of the late Luis D. Tongoy; that their shares in Hacienda Pulo and Cuaycong property should be
reconveyed to them by defendants-appellants; and that an execution was ordered pending appeal.
On December 3, 1975, respondent court rendered the questioned decision, the dispositive portion of
which is as follows:
WHEREFORE, judgment is hereby rendered modifying the judgment and Orders
appealed from by ordering Maria Rosario Araneta Vda. de Tongoy and Francisco A.
Tongoy.
1) To reconvey to Mercedes T. Sonora, Juan T. Sonora (as substituted and represented
by his heirs), Jesus T. Sonora and Trinidad T. Sonora each a 7/60th portion of both
Hacienda Pulo and the Cuaycong property, based on their original shares;
2) To reconvey to Ricardo P. Tongoy, Cresenciano P. Tongoy, Amado P. Tongoy and
Norberto P. Tongoy as substituted and represented by his heirs each a 14/135th portion
of both Hacienda Pulo and the Cuaycong property, also based on their original shares;
provided that the 12 hectares already reconveyed to them by virtue of the Order for
execution pending appeal of the judgment shall be duly deducted;
3) To render an accounting to the parties named in pars. 1 and 2 above with respect to
the income of Hacienda Pulo and the Cuaycong property from May 5, 1958 up to the time
the reconveyances as herein directed are made; and to deliver or pay to each of said

parties their proportionate shares of the income, if any, with legal interest thereon from
the date of filing of the complaint in this case, January 26, 1966, until the same is paid;
4) To pay unto the parties mentioned in par. 1 above attorney's fees in the sum of P
20,000.00; and
5) To pay the costs.
SO ORDERED (pp. 207-208, Vol. 1, rec.).
Petitioners Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy (defendants-appellants) have
come before Us on petition for review on certiorari with the following assignments of errors (pp. 23-24,
Brief for Petitioners):
I. The Court of Appeals erred in finding that there was a trust constituted on Hacienda Pulo.
II. The Court of Appeals erred in finding that the purchase price for the Cuaycong property was paid by
Jose Tongoy and that said property was also covered by a trust in favor of respondents.
III. Conceding, for the sake of argument, that respondents have adequately proven an implied trust in
their favor, the Court of Appeals erred in not finding that the rights of respondents have prescribed, or are
barred by laches.
IV. The Court of Appeals erred in finding that the respondents Tongoy are the legitimated children of
Francisco Tongoy.
V. Granting arguendo that respondents Tongoy are the legitimated children of Francisco Tongoy, the Court
of Appeals erred in not finding that their action against petitioners has prescribed.
VI. The Court of Appeals erred in ordering petitioners to pay attorney's fees of P 20,000.00.
VII. The Court of Appeals erred in declaring that execution pending appeal in favor of respondents
Tongoys was justified.
I
It appears to US that the first and second errors assigned by petitioners are questions of fact which are
beyond OUR power to review.
Thus, as found by the respondent Court of Appeals:
xxx xxx xxx
We shall consider first the appeal interposed by plaintiffs-appellants. The basic issues
underlying the disputed errors raised suggest themselves as follows: 1) whether or not
the conveyance respecting the questioned lots made in favor of Luis D. Tongoy in 1934
and 1935 were conceived pursuant to a trust agreement among the parties; 2) if so,
whether the trust created was an express or implied trust; and 3) if the trust was not an
express trust, whether the action to enforce it has prescribed.
The first two issues indicated above will be considered together as a matter of logical
necessity, being so closely interlocked. To begin with, the trial court found and ruled that

the transfers made in favor of Luis D. Tongoy were clothed with an implied trust, arriving
at this conclusion as follows:
The Court finds that there is preponderance of evidence in support of the
existence of constructive, implied or tacit trust. The hacienda could have
been leased to third persons and the rentals would have been sufficient
to liquidate the outstanding obligation in favor of the Philippine National
Bank. But the co-owners agreed to give the administration of the property
to Atty. Luis D. Tongoy, so that the latter can continue giving support to
the Tongoy-Sonora family and at the same time, pay the amortization in
favor of the Philippine National Bank, in the same manner that Jose
Tongoy did. And of course, if the administration is successful, Luis D.
Tongoy would benefit with the profits of the hacienda. Simulated deeds of
conveyance in favor of Luis D. Tongoy were executed to facilitate and
expedite the transaction with the Philippine National Bank. Luis D.
Tongoy supported the Tongoy-Sonora family, defrayed the expenses of
Dr. Jesus Sonora and Atty. Ricardo P. Tongoy, in their studies. Luis
Tongoy even gave Sonoras their shares in the "beneficacion" although
the "beneficacion" were included in the deeds of sale. The amount of
consideration of the one-fifth (15) share of Jose Tongoy is one hundred
(P 100,00) pesos only. Likewise the consideration of the sale of the
interests of the Pacific Commercial Company is only P100.00 despite the
fact that Jose Tongoy paid in full his indebtedness in favor of said
company. The letter of Luis D. Tongoy dated November 5, 1935 (Exhibit
'BB-1') is very significant, the tenor of which is quoted hereunder:
Dear Brother Jose:
Herewith is the deed which the bank sent for us to sign. The bank made
me pay the Pacific the sum of P100.00 so as not to sell anymore the land
in public auction. This deed is for the purpose of dispensing with the
transfer of title to the land in the name of the bank, this way we will avoid
many expenses.
Yours,
Luis D. Tongoy
Jose Tongoy signed the deed because he incurred the obligation with the Pacific and paid
it. In releasing the second mortgage, Luis Tongoy paid only P100.00 and the deed was in
favor of Luis Tongoy. This was done in order "to avoid many expenses " of both Jose and
Luis as obviously referred to in the word "WE".
Those two transactions with nominal considerations are irrefutable and palpable evidence
of the existence of constructive or implied trust.
Another significant factor in support of the existence of constructive trust is the fact that in
1933-34, when proposals for amicable settlement with the Philippine National Bank were
being formulated and considered, Luis D. Tongoy was yet a neophite (sic) in the practice
of law, and he was still a bachelor. It was proven that it was Jose Tongoy, the
administrator of Hda. Pulo, who provided for his expenses when he studied law, when he
married Maria Araneta, the latter's property were leased and the rentals were not
sufficient to cover all the considerations stated in the deeds of sale executed by the coowners of Hda. Pulo, no matter how inadequate were the amounts so stated. These

circumstances fortified the assertion of Judge Arboleda that Luis D. Tongoy at that time
was in no condition to pay the purchase price of the property sold,
But the Court considers the evidence of execution of express trust agreement insufficient.
Express trust agreement was never mentioned in the plaintiffs' pleadings nor its existence
asserted during the pre-trial hearings. It was only during the trial on the merits when Atty.
Eduardo P. Arboleda went on to testify that he prepared the deed of trust agreement.
Indeed the most formidable weapon the plaintiff could have used in destroying the
"impregnable walls of the defense castle consisting of public documents" is testimony of
Atty. Eduardo P. Arboleda. He is most qualified and in a knowable position to testify as to
the truth of the existence of the trust agreement, because he was not only the partner of
the late Luis D. Tongoy in their practice of law especially during the time he prepared
and/or notarized the deeds of sale but he was also his colleague in the City Council. But
however forceful would be the impact of his testimony, it did not go beyond the
establishment of constructive or implied trust agreement. In the first place, if it is true that
written trust agreement was prepared by him and signed by Luis D. Tongoy for the
security of the vendor, why is it that only two copies of the agreement were prepared, one
copy furnished Jose Tongoy and the other kept by Luis Tongoy, instead of making five
copies and furnished copy to each co-owner, or at least one copy would have been kept
by him? Why is it that when Atty. Arboleda invited Mrs. Maria Rosario Araneta Vda. de
Tongoy and her son to see him in his house, Atty. Arboleda did not reveal or mention the
fact of the existence of a written trust agreement signed by the late Luis D. Tongoy? The
revelation of the existence of a written trust agreement would have been a vital and
controlling factor in the amicable settlement of the case, which Atty. Arboleda would have
played an effective role as an unbiased mediator. Why did not Atty. Arboleda state the
precise context of the written agreement; its form and the language it was written,
knowing as he should, the rigid requirements of proving the contents of a lost document.
It is strange that when Mrs. Maria Rosario Araneta Vda. de Tongoy and her son were in
the house of Atty. Arboleda, in compliance with his invitation for the supposed friendly
settlement of the case, Atty. Arboleda did not even submit proposals for equitable
arbitration of the case. On the other hand, according to Mrs. Tongoy, Mrs. Arboleda
intimated her desire to have Atty. Arboleda be taken in. The Court refuses to believe that
Judge Arboleda was aware of the alleged intimations of Mrs. Arboleda, otherwise he
would not have tolerated or permitted her to indulge in such an embarrassing and
uncalled for intrusion. The plaintiffs evidently took such ungainly insinuations with levity
so much so that they did not think it necessary to bring Mrs. Arboleda to Court to refute
this fact.
The parties, on either side of this appeal take issue with the conclusion that there was an
implied trust, one side maintaining that no trust existed at all, the other that the trust was
an express trust.
To begin with, We do not think the trial court erred in its ultimate conclusion that the
transfers of the two lots in question made in favor of the late Luis D. Tongoy by his coowners in 1933 and 1934 created an implied trust in favor of the latter. While, on one
hand, the evidence presented by plaintiffs-appellants to prove an express trust
agreement accompanying the aforesaid transfers of the lots are incompetent, if not
inadequate, the record bears sufficiently clear and convincing evidence that the transfers
were only simulated to enable Luis D. Tongoy to save Hacienda Pulo from foreclosure for
the benefit of the co-owners, including himself. Referring in more detail to the evidence
on the supposed express trust, it is true that plaintiffs- appellants Jesus T. Sonora,
Ricardo P. Tongoy, Mercedes T. Sonora and Trinidad T. Sonora have testified with some
vividness on the holding of a family conference in December 1931 among the co-owners
of Hacienda Pulo to decide on steps to be taken vis-a-vis the impending foreclosure of

the hacienda by the PNB upon the unpaid mortgage obligation thereon. Accordingly, the
co-owners had agreed to entrust the administration and management of Hacienda Pulo
to Luis D. Tongoy who had newly emerged as the lawyer in the family. Thereafter, on the
representation of Luis D. Tongoy that the bank wanted to deal with only one person it
being inconvenient at time to transact with many persons, specially when some had to be
out of town the co-owners agreed to make simulated transfers of their participation in
Hacienda Pulo to him. As the evidence stands, even if the same were competent, it does
not appear that there was an express agreement among the co-owners for Luis D.
Tongoy to hold Hacienda Pulo in trust, although from all the circumstances just indicated
such a trust may be implied under the law (Art. 1453, Civil Code; also see Cuaycong vs.
Cuaycong, L-21616, December 11, 1967, 21 SCRA 1192, 1197-1198). But, whatever may
be the nature of the trust suggested in the testimonies adverted to, the same are
incompetent as proof thereof anent the timely objections of defendants-appellees to the
introduction of such testimonial evidence on the basis of the survivorship rule. The
witnesses being themselves parties to the instant case, suing the representatives of the
deceased Luis D. Tongoy upon a demand against the latter's estate, said witnesses are
barred by the objections of defendants-appellees from testifying on matters of fact
occurring before the death of the deceased (Sec. 20[a], Rule 130), more particularly
where such occurrences consist of verbal agreements or statements made by or in the
presence of the deceased.
Neither has the existence of the alleged contra-documento-- by which Luis D. Tongoy
supposedly acknowledged the transfers to be simulated and bound himself to return the
shares of his co-owners after the mortgage on the Hacienda had been discharged-been
satisfactorily established to merit consideration as proof of the supposed express trust.
We can hardly add to the sound observations of the trial court in rejecting the evidence to
the effect as insufficient, except to note further that at least plaintiffs-appellants Mercedes
T. Sonora and Trinidad T. Sonora have testified having been apprised of the document
and its contents when Luis D. Tongoy supposedly delivered one copy to Jose Tongoy.
And yet as the trial court noted, no express trust agreement was ever mentioned in
plaintiffs-appellants' pleadings or at the pre-trial.
Nevertheless, there is on record enough convincing evidence not barred by the
survivorship rule, that the transfers made by the co-owners in favor of Luis D. Tongoy
were simulated and that an implied or resulting trust thereby came into existence, binding
the latter to make reconveyance of the co-owners' shares after the mortgage
indebtedness on Hacienda Pulo has been discharged. Thus it appears beyond doubt that
Hacienda Pulo has been the source of livelihood to the co-owners and their dependents,
when the subject transfers were made. It is most unlikely that all of the several other coowners should have come at the same time to one mind about disposing of their
participation in the hacienda, when the same counted so much in their subsistence and
self-esteem. Only extreme necessity would have forced the co-owners to act in unison
towards earnestly parting with their shares, taking into account the meager
considerations mentioned in the deeds of transfer which at their most generous gave to
each co-owner only P2,000.00 for a 1/5 part of the hacienda. As it appears to Us, the
impending foreclosure on the mortgage for P11,000.00 could not have created such
necessity. Independent of testimony to the effect, it is not hard to surmise that the
hacienda could have been leased to others on terms that would have satisfied the
mortgage obligation. Moreover, as it turned out, the PNB was amenable, and did actually
accede, to a restructuring of the mortgage loan in favor of Luis D. Tongoy, thereby saving
the hacienda from foreclosure. As a matter of fact, the co-owners must have been posted
on the attitude of the bank regarding the overdue mortgage loan, and its willingness to
renew or restructure the same upon certain conditions. Under such circumstances, it is
more reasonable to conclude that there was no compelling reason for the other coowners to sell out their birthrights to Luis D. Tongoy, and that the purported transfers

were, as claimed by them in reality simulated pursuant to the suggestion that the bank
wanted to deal with only one person. In fact, as recited in the Escritura de Venta (Exh.
AA) executed between Luis. D. Tongoy and Jose Tongoy, it appears that the series of
transfers made in favor of the former by the co-owners of Hacienda Pulo followed and
was made pursuant to a prior arrangement made with the PNB by Luis D. Tongoy to
redeem the shares or participation of his co-owners. That this was readily assented to in
the anxiety to save and preserve Hacienda Pulo for all its co-owners appears very likely
anent undisputed evidence that the said co-owners had been used to entrusting the
management thereof to one among them, dating back to the time of Francisco Tongoy
who once acted as administrator, followed by Jose Tongoy, before Luis D. Tongoy himself
took over the hacienda.
Strongly supported the theory that the transfers were only simulated to enable Luis D.
Tongoy (to) have effective control and management of the hacienda for the benefit of all
the co-owners is preponderant evidence to the effect that he was in no financial condition
at the time to purchase the hacienda. Witness Eduardo Arboleda who was a law partner
of Luis D. Tongoy when the transfers were made, and who is not a party in this case,
emphatically testified that Luis D. Tongoy could not have produced the money required
for the purchase from his law practice then. On the other hand, the suggestion that his
wife Ma. Rosario Araneta had enough income from her landed properties to sufficiently
augment Luis D. Tongoy's income from his practice is belied by evidence that such
properties were leased, and the rentals collected in advance, for eleven (11) crop years
beginning 1931 (Exh. EEE), when they were not yet married.
The financial incapacity of Luis D. Tongoy intertwines, and together gains strength, with
proof that the co-owners as transferors in the several deeds of sale did not receive the
considerations stated therein. In addition to the testimony of the notary public, Eduardo P.
Arboleda, that no consideration as recited in the deeds of transfer were ever paid in his
presence, all the transferors who testified including Jesus T. Sonora, Mercedes T. Sonora
and Trinidad T. Sonora-all denied having received the respective considerations allegedly
given them. While said transferors are parties in this case, it has been held that the
survivorship rule has no application where the testimony offered is to the effect that a
thing did not occur (Natz vs. Agbulos, CA-G.R. No. 4098-R, January 13, 1951; Mendoza
v. C. Vda. de Goitia, 54 Phil. 557, cited by Mora, Comments on the Rules of Court, 1970
ed., Vol. 5, p. 174).
Also of some significance is the fact that the deeds of transfer executed by Ana Tongoy,
Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora, and Patricio Tongoy
(Exh. W) as well as that by Jesus Sonora (Exh. DD) did not even bother to clarify whether
Luis D. Tongoy as transferee of his co-owners' share was assuming the indebtedness
owing to the PNB upon the mortgage on Hacienda Pulo. In an honest-to-goodness sale,
it would have been most unlikely that the transferors would have paid no attention to this
detail, least of all where, as in this case, the transfers were apparently prompted by the
inability of the co-owners to discharge the mortgage obligation and were being pressed
for payment.
Furthermore, the tenor of the letter from Luis D. Tongoy to Jose Tongoy, dated November
5, 1935 (Exhibit Bb-1), as heretofore quoted with portions of the decision on appeal, is
very revealing of the fact that the steps taken to place Hacienda Pulo in the name of Luis
D. Tongoy were made for the benefit not only of himself but for the other co-owners as
well. Thus, the letter ends with the clause-"this way we will avoid many expenses.
Finally, it is not without significance that the co-owners and their dependents continued to
survive apparently from the sustenance from Hacienda Pulo for a long time following the
alleged transfers in favor of Luis D. Tongoy. In fact, it does not appear possible that Jesus

T. Sonora and Ricardo P. Tongoy could have finished medicine and law, respectively,
without support from Luis D. Tongoy as administrator of the common property.
All the foregoing, considered together, constitute clear and convincing evidence that the
transfers made in favor of Luis D. Tongoy by his co- owners were only simulated, under
circumstances giving rise to an implied or resulting trust whereby Luis D. Tongoy is bound
to hold title in trust for the benefit of his co-owners (cf. de Buencamino, et al. vs. De
Matias, et al., L-19397, April 30, 1966, 16 SCRA 849)" [pp. 170-181, Vol. I, rec.].
The Court of Appeals found enough convincing evidence not barred by the aforecited survivorship rule to
the effect that the transfers made by the co- owners in favor of Luis D. Tongoy were simulated.
All these findings of fact, as a general rule, are conclusive upon US and beyond OUR power to review. It
has been well-settled that the jurisdiction of the Supreme Court in cases brought to IT from the Court of
Appeals is limited to reviewing and revising errors of law imputed to it, its findings of fact being conclusive
as a matter of general principle (Chan vs. C.A., 33 SCRA 737, 744; Alquiza vs. Alquiza, 22 SCRA 494,
497).
The proofs submitted by petitioners do not place the factual findings of the Court of Appeals under any of
the recognized exceptions to the aforesaid general rule.
I
The initial crucial issue therefore is-whether or not the rights of herein respondents over subject
properties, which were the subjects of simulated or fictitious transactions, have already prescribed.
The negative answer to the aforesaid query is found in Articles 1409 and 1410 of the New Civil Code.
Said provisions state thus:
Art. 1409. The following contracts are inexistent and void from the beginning:
xxx xxx xxx
2) Those which are absolutely simulated or fictitious;
xxx xxx xxx
These contracts cannot be ratified. Neither can the right to set up the defense of illegality
be waived (emphasis supplied).
Art. 1410. The action or defense for the declaration of the inexistence of a contract does
not prescribe.
The characteristic of simulation is the fact that the apparent contract is not really desired nor intended to
produce legal effects nor in any way alter the juridical situation of the parties. Thus, where a person, in
order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he does
not really intend to divest himself of his title and control of the property; hence, the deed of transfer is but
a sham. This characteristic of simulation was defined by this Court in the case of Rodriguez vs.
Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908.
A void or inexistent contract is one which has no force and effect from the very beginning, as if it had
never been entered into, and which cannot be validated either by time or by ratification (p. 592, Civil Code
of the Philippines, Vol. IV, Tolentino, 1973 Ed.).

Avoid contract produces no effect whatsoever either against or in favor of anyone; hence, it does not
create, modify or extinguish the juridical relation to which it refers (p. 594, Tolentino, supra).
The following are the most fundamental characteristics of void or inexistent contracts:
1) As a general rule, they produce no legal effects whatsoever in accordance with the principle "quod
nullum est nullum producit effectum."
2) They are not susceptible of ratification.
3) The right to set up the defense of inexistence or absolute nullity cannot be waived or renounced.
4) The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible.
5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are not
directly affected (p. 444, Comments and Jurisprudence on Obligations and Contracts, Jurado, 1969 Ed.;
emphasis supplied).
The nullity of these contracts is definite and cannot be cured by ratification. The nullity is permanent, even
if the cause thereof has ceased to exist, or even when the parties have complied with the contract
spontaneously (p. 595, Tolentino, supra).
In Eugenio vs. Perdido, et al., No. L-7083, May 19, 1955, 97 Phil. 41, this Court thus reiterated:
Under the existing classification, such contract would be "inexisting" and the "action or
defense for declaration' of such inexistence "does not prescribe' (Art. 14 10 New Civil
Code). While it is true that this is a new provision of the New Civil Code, it is nevertheless
a principle recognized since Tipton vs. Velasco, 6 Phil. 67 that "mere lapse of time cannot
give efficacy to contracts that are null and void.
Consistently, this Court held that 11 where the sale of a homestead is nun and void, the action to recover
the same does not prescribe because mere lapse of time cannot give efficacy to the contracts that are
null and void and inexistent" (Angeles, et al. vs. Court of Appeals, et al., No. L-11024, January 31, 1958,
102 Phil. 1006).
In the much later case of Guiang vs. Kintanar (Nos. L-49634-36, July 25, 1981, 106 SCRA 49), this Court
enunciated thus:
It is of no consequence, pursuant to the same article, that petitioners, the Guiang
spouses, executed on August 21, 1975, apparently in ratification of the impugned
agreement, the deeds of sale covering the two lots already referred to and that petitioners
actually received in part or in whole the money consideration stipulated therein, for
according to the same Article 1409, contracts contemplated therein, as the one We are
dealing with, "cannot be ratified nor the defense of its illegality be waived." Neither it it
material, much less decisive, that petitioners had not earlier judicially moved to have the
same annulled or set aside. Under Article 1410 of the Civil Code, (t)he action or defense
for declaration of the inexistence of a contract does not prescribe.
Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy were from the very beginning
absolutely simulated or fictitious, since the same were made merely for the purpose of restructuring the
mortgage over the subject properties and thus preventing the foreclosure by the PNB.

Considering the law and jurisprudence on simulated or fictitious contracts as aforestated, the within action
for reconveyance instituted by herein respondents which is anchored on the said simulated deeds of
transfer cannot and should not be barred by prescription. No amount of time could accord validity or
efficacy to such fictitious transactions, the defect of which is permanent.
There is no implied trust that was generated by the simulated transfers; because being fictitious or
simulated, the transfers were null and void ab initio-from the very beginning and thus vested no rights
whatsoever in favor of Luis Tongoy or his heirs. That which is inexistent cannot give life to anything at all.
II
But even assuming arguendo that such an implied trust exists between Luis Tongoy as trustee and the
private respondents as cestui que trust, still the rights of private respondents to claim reconveyance is not
barred by prescription or laches.
Petitioners maintain that, even conceding that respondents have adequately proven an implied trust in
their favor, their rights have already prescribed, since actions to enforce an implied trust created under the
old Civil Code prescribes in ten years.
Under Act No. 190, whose statute of limitation would apply if there were an implied trust
as in this case, the longest period of extinctive prescription was only ten years (Salao vs.
Salao, 70 SCRA 84; Diaz vs. Gorricho and Aguado, 103 Phil. 261, 226).
On the other hand, private respondents contend that prescription cannot operate against the cestui
que trust in favor of the trustee, and that actions against a trustee to recover trust property held by him
are imprescriptible (Manalang vs. Canlas, 50 OG 1980). They also cite other pre-war cases to bolster this
contention, among which are: Camacho vs. Municipality of Baliwag, 28 Phil. 46; Uy vs. Cho Jan Ling, 19
Phil. 202 [pls. see pp. 258-259, Brief for Respondents, p. 398, rec.]. They further allege that possession of
a trustee is, in law, possession of thecestui que trust and, therefore, it cannot be a good ground for title by
prescription (Laguna vs. Levantino, 71 Phil. 566; Cortez vs. Oliva, 33 Phil. 480, cited on p. 261, Brief for
Respondents, supra).
The rule now obtaining in this jurisdiction is aptly discussed in the case of Bueno vs. Reyes (27 SCRA
1179, 1183), where the Court through then Mr. Justice Makalintal, held:
While there are some decisions which hold that an action upon a trust is imprescriptible,
without distinguishing between express and implied trusts, the better rule, as laid down
by this Court in other decisions, is that prescription does supervene where the trust is
merely an implied one. The reason has been expressed by Mr. Justice J.B.L. Reyes
in J.M. Tuazon and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows:
Under Section 40 of the Old Code of Civil Procedure, all actions for recovery of real
property prescribe in ten years, excepting only actions based on continuing or subsisting
trusts that were considered by section 38 as imprescriptible. As held in the case of Diaz
vs. Gorricho, L-11229, March 29, 1958, however, the continuing or subsisting trusts
contemplated in Sec. 38 of the Code of Civil Procedure referred only to express
unrepudiated trusts, and did not include constructive trusts (that are imposed by law)
where no fiduciary relation exists and the trustee does not recognize the trust at all.
This doctrine has been reiterated in the latter case of Escay vs. C.A. (61 SCRA 370, 387), where WE held
that implied or constructive trusts prescribe in ten years. "The prescriptibility of an action for
reconveyance based on implied or constructive trust, is now a settled question in this jurisdiction. It
prescribes in ten years" (Boaga vs. Soler, et al., 2 SCRA 755; J.M. Tuazon and Co., Inc. vs. Magdangal,
4 SCRA 88, special attention to footnotes).

Following such proposition that an action for reconveyance such as the instant case is subject to
prescription in ten years, both the trial court and respondent appellate court are correct in applying the
ten-year prescriptive period.
The question, however, is, from what time should such period be counted?
The facts of the case at bar reveal that the title to Hacienda Pulo was registered in the name of Luis D.
Tongoy with the issuance of TCT No. 20154 on November 8, 1935; that the title to the adjacent Cuaycong
property was transferred to Luis D. Tongoy with the issuance of TCT No. 21522 on June 22, 1936. The
properties were mortgaged in the year 1936 by said Luis D. Tongoy for P4,500.00 and P 21,000.00,
respectively, for a period of fifteen years; that the mortgage obligations to the PNB were fully paid on April
17, 1956; that the release of mortgage was recorded in the Registry of Deeds on May 5, 1958; and that
the case for reconveyance was filed in the trial court on June 2, 1966.
Considering that the implied trust resulted from the simulated sales which were made for the purpose of
enabling the transferee, Luis D. Tongoy, to save the properties from foreclosure for the benefit of the coowners, it would not do to apply the theory of constructive notice resulting from the registration in the
trustee's name. Hence, the ten-year prescriptive period should not be counted from the date of
registration in the name of the trustee, as contemplated in the earlier case of Juan vs. Zuiga (4 SCRA
1221). Rather, it should be counted from the date of recording of the release of mortgage in the Registry
of Deeds, on which date May 5, 1958 the cestui que trust were charged with the knowledge of the
settlement of the mortgage obligation, the attainment of the purpose for which the trust was constituted.
Indeed, as respondent Court of Appeals had correctly held:
... as already indicated, the ten-year prescriptive period for bringing the action to enforce
the trust or for reconveyance of plaintiffs-appellants" shares should be toned from the
registration of the release of the mortgage obligation, since only by that time could
plaintiffs-appellants be charged with constructive knowledge of the liquidation of the
mortgage obligations, when it became incumbent upon them to expect and demand the
return of their shares, there being no proof that plaintiffs-appellants otherwise learned of
the payment of the obligation earlier. More precisely then the prescriptive period should
be reckoned from May 5, 1958 when the release of the mortgage was recorded in the
Registry of Deeds, which is to say that the present complaint was still filed within the
period on June 4, 1966 (p. 35 of questioned Decision, on p. 191, rec.).
Consequently, petitioner Francisco A. Tongoy as successor-in-interest and/or administrator of the estate
of the late Luis D. Tongoy, is under obligation to return the shares of his co-heirs and co-owners in the
subject properties and, until it is done, to render an accounting of the fruits thereof from the time that the
obligation to make a return arose, which in this case should be May 5, 1958, the date of registration of the
document of release of mortgage.
Hence, WE find no evidence of abuse of discretion on the part of respondent Court of Appeals when it
ordered such accounting from May 5, 1958, as well as the imposition of legal interest on the fruits and
income corresponding to the shares that should have been returned to the private respondents, from the
date of actual demand which has been determined to have been made on January 26, 1966 by the
demand letter (Exh. TT) of respondent Jesus T. Sonora to deceased Luis D. Tongoy.
III
With respect to the award of attorney's fees in the sum of P20,000.00, the same appears to have been
properly made, considering that private respondents were unnecessarily compelled to litigate (Flordelis
vs. Mar, 114 SCRA 41; Sarsosa Vda. de Barsobin vs. Cuenco, 113 SCRA 547; Phil. Air Lines vs. C.A.,
106 SCRA 393). As pointed out in the questioned decision of the Court of Appeals:

As for the claim for attorney's fees, the same appears to be well taken in the light of the findings WE have
made considering that prevailing plaintiffs- appellants were forced to litigate to enforce their rights, and
that equity under all the circumstances so dictate, said plaintiffs-appellants should recover attorney's fees
in a reasonable amount. We deem P20,000.00 adequate for the purpose (p. 36 of Decision, p. 151, rec.).
IV
The remaining assignement of error dwells on the question of whether or not respondents Amado,
Ricardo, Cresenciano and Norberto, all surnamed Tongoy, may be considered legitimated by virtue of the
marriage of their parents, Francisco Tongoy and Antonina Pabello, subsequent to their births and shortly
before Francisco died on September 15, 1926. Petitioners maintain that since the said respondents were
never acknowledged by their father, they could not have been legitimated by the subsequent marriage of
their parents, much less could they inherit from the estate of their father, the predecessor-in-interest of
Luis D. Tongoy, who is admittedly the half brother of the said respondents.
Both the trial court and the respondent appellate court have found overwhelming evidence to sustain the
following conclusions: that Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy and Norberto P.
Tongoy were born illegitimate to Antonina Pabello on August 19, 1910 (Exh. A), August 12,1914 (Exh. B),
December 1, 1915 (Exhs. C and C- 1) and August 4, 1922 (Exh. D), respectively; that Francisco Tongoy
was their father; that said Francisco Tongoy had before them two legitimate children by his first wife,
namely, Luis D. Tongoy and Patricio D. Tongoy; that Francisco Tongoy and Antonina Pabello were
married sometime before his death on September 15, 1926 (Exh. H); that shortly thereafter, Luis D.
Tongoy and Patricio D. Tongoy executed an Extra-Judicial Declaration of Heirs, leaving out their halfbrothers Amado, Ricardo, Cresenciano, and Norberto, who were then still minors; that respondents
Amado, Ricardo, Cresenciano and Norberto were known and accepted by the whole clan as children of
Francisco; that they had lived in Hacienda Pulo with their parents, but when they went to school, they
stayed in the old family home at Washington Street, Bacolod, together with their grandmother, Agatona
Tongoy, as well as with the Sonoras and with Luis and Patricio Tongoy; that everybody in Bacolod knew
them to be part of the Tongoy-Sonora clan; and that Luis D. Tongoy as administrator of Hacienda Pulo,
also spent for the education of Ricardo Tongoy until he became a lawyer; and that even petitioners admit
the fact that they were half-brothers of the late Luis D. Tongoy.
The bone of contention, however, hinges on the absence of an acknowledgment through any of the
modes recognized by the Old Civil Code (please see Articles 131 and 135 of the Old Civil Code), such
that legitimation could not have taken place in view of the provisions of Art. 121 of the same Code which
states that "children shall be considered legitimated by a subsequent marriage only when they have been
acknowledged by the parents before or after the celebration thereof."
Of course, the overwhelming evidence found by respondent Court of Appeals conclusively shows that
respondents Amado, Ricardo, Cresenciano and Norberto have been in continuous possession of the
status of natural, or even legitimated, children. Still, it recognizes the fact that such continuous possession
of status is not,per se, a sufficient acknowledgment but only a ground to compel recognition (Alabat vs.
Alabat, 21 SCRA 1479; Pua vs. Chan, 21 SCRA 753; Larena vs. Rubio, 43 Phil. 1017).
Be that as it may, WE cannot but agree with the liberal view taken by respondent Court of Appeals when it
said:
... It does seem equally manifest, however, that defendants-appellants stand on a purely
technical point in the light of the overwhelming evidence that appellees were natural
children of Francisco Tongoy and Antonina Pabello, and were treated as legitimate
children not only by their parents but also by the entire clan. Indeed, it does not make
much sense that appellees should be deprived of their hereditary rights as undoubted
natural children of their father, when the only plausible reason that the latter could have
had in mind when he married his second wife Antonina Pabello just over a month before

his death was to give legitimate status to their children. It is not in keeping with the more
liberal attitude taken by the New Civil Code towards illegitimate children and the more
compassionate trend of the New Society to insist on a very literal application of the law in
requiring the formalities of compulsory acknowledgment, when the only result is to
unjustly deprive children who are otherwise entitled to hereditary rights. From the very
nature of things, it is hardly to be expected of appellees, having been reared as legitimate
children by their parents and treated as such by everybody, to bring an action to compel
their parents to acknowledge them. In the hitherto cited case of Ramos vs.
Ramos, supra, the Supreme Court showed the way out of patent injustice and inequity
that might result in some cases simply because of the implacable insistence on the
technical amenities for acknowledgment. Thus, it held
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 implied that they were acknowledged. Obviously,
defendants Agustin Ramos and Granada Ramos and the late Jose 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 2666 [3], New Civil Code). [Ramos vs.
Ramos, supra].
With the same logic, estoppel should also operate in this case in favor of appellees,
considering, as already explained in detail, that they have always been treated as
acknowledged and legitimated children of the second marriage of Francisco Tongoy, not
only by their presumed parents who raised them as their children, but also by the entire
Tongoy-Sonora clan, including Luis D. Tongoy himself who had furnished sustenance to
the clan in his capacity as administrator of Hacienda Pulo and had in fact supported the
law studies of appellee Ricardo P. Tongoy in Manila, the same way he did with Jesus T.
Sonora in his medical studies. As already pointed out, even defendants-appellants have
not questioned the fact that appellees are half-brothers of Luis D. Tongoy. As a matter of
fact, that are really children of Francisco Tongoy and Antonina Pabello, and only the
technicality that their acknowledgment as natural children has not been formalized in any
of the modes prescribed by law appears to stand in the way of granting them their
hereditary rights. But estoppel, as already indicated, precludes defendants-appellants
from attacking appellees' status as acknowledged natural or legitimated children of
Francisco Tongoy. In addition to estoppel, this is decidedly one instance when technicality
should give way to conscience, equity and justice (cf. Vda. de Sta. Ana vs. Rivera, L22070, October 29, 1966,18 SCRA 588) [pp. 196-198, Vol. 1, rec.].
It is time that WE, too, take a liberal view in favor of natural children who, because they enjoy the
blessings and privileges of an acknowledged natural child and even of a legitimated child, found it rather
awkward, if not unnecessary, to institute an action for recognition against their natural parents, who,
without their asking, have been showering them with the same love, care and material support as are
accorded to legitimate children. The right to participate in their father's inheritance should necessarily
follow.
The contention that the rights of the said respondents Tongoys have prescribed, is without merit. The
death of Francisco Tongoy having occurred on September 15, 1926, the provisions of the Spanish Civil
Code is applicable to this case, following the doctrine laid down in Villaluz vs. Neme (7 SCRA 27) where
this Court, through Mr. Justice Paredes, held:
Considering that Maria Rocabo died (on February 17, 1937) during the regime of the
Spanish Civil Code, the distribution of her properties should be governed by said Code,

wherein it is provided that between co-heirs, the act to demand the partition of the
inheritance does not prescribe (Art. 1965 [Old Civil Code]; Baysa, et al. vs. Baysa, 53 Off.
Gaz. 7272). Verily, the 3 living sisters were possessing the property as administratices of
the other co-heirs, plaintiffs-appellants herein, who have the right to vindicate their
inheritance regardless of the lapse of time (Sevilla vs. De los Angeles, L- 7745, 51 Off.
Gaz. 5590, and cases cited therein).
Even following the more recent doctrine enunciated in Gerona vs. de Guzman (11 SCRA 153) that "an
action for reconveyance of real property based upon a constructive or implied trust, resulting from fraud,
may be barred by the statute of limitations" (Candelaria vs. Romero, L-12149, Sept. 30, 1960; Alzona vs.
Capunita, L-10220, Feb. 28, 1962)", and that "the action therefor may be filed within four years from the
discovery of the fraud x x x", said period may not be applied to this case in view of its peculiar
circumstances. The registration of the properties in the name of Luis D. Tongoy on November 8, 1935
cannot be considered as constructive notice to the whole world of the fraud.
It will be noted that the foreclosure on the original mortgage over Hacienda Pulo was instituted by PNB as
early as June 18, 1931, from which time the members of the Tongoy-Sonora clan had been in constant
conference to save the property. At that time all the respondents-Tongoys were still minors (except
Amado, who was already 23 years old then), so that there could be truth to the allegation that their
exclusion in the Declaration of Inheritance executed by Patricio and Luis Tongoy on April 29, 1933 was
made to facilitate matters-as part of the general plan arrived at after the family conferences to transfer the
administration of the property to the latter. The events that followed were obviously in pursuance of such
plan, thus:
March 13, 1934 An Escritura de Venta (Exh. 2 or W) was executed in favor of Luis D.
Tongoy by Ana Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora
and Patricio Tongoy, transferring their rights and interests over Hacienda Pulo to the
former.
October 23, 1935 An Escritura de Venta (Exh. 3 or DD) was executed by Jesus
Sonora, likewise transferring his rights and interests over Hacienda Pulo to Luis D.
Tongoy;
November 5, 1935 An Escritura de Venta (Exh. 5 or AA) was also executed by Jose
Tongoy in favor of Luis D. Tongoy for the same purpose; (Note: This was preceded by the
execution on October 14, 1935 of an Assignment of Rights [4 or Z) in favor of Luis D.
Tongoy by the Pacific Commercial Company as judgment lien-holder [subordinate of the
PNB mortgage] of Jose Tongoy on Hacienda Pulo
November 5, 1935 Hacienda Pulo was placed in the name of Luis D. Tongoy married
to Ma. Rosario Araneta with the issuance of TCT 20154 (Exh. 20);
June 22, 1936 An Escritura de Venta was executed by Basilisa Cuaycong over the
Cuaycong property in favor of Luis D. Tongoy, thereby resulting in the issuance of TCT
No. 21522 in the name of Luis D. Tongoy married to Ma. Rosario Araneta;
June 26, 1936 Luis D. Tongoy executed a real estate mortgage over the Cuaycong
property in favor of the PNB to secure a loan of P4,500.00; and
June 29, 1936 Luis D. Tongoy executed a real estate mortgage over Hacienda Pulo to
secure a loan of P21,000.00 payable for fifteen years.
When the mortgages were constituted, respondents Cresenciano Tongoy and Norberto Tongoy were still
minors, while respondent Amado Tongoy became of age on August 19, 1931, and Ricardo Tongoy

attained majority age on August 12, 1935. Still, considering that such transfer of the properties in the
name of Luis D. Tongoy was made in pursuance of the master plan to save them from foreclosure, the
said respondents were precluded from doing anything to assert their rights. It was only upon failure of the
herein petitioner, as administrator and/or successor-in-interest of Luis D. Tongoy, to return the properties
that the prescriptive period should begin to run.
As above demonstrated, the prescriptive period is ten year-from the date of recording on May 5, 1958 of
the release of mortgage in the Registry of Deeds.
WHEREFORE, THE JUDGMENT APPEALED FROM IS HEREBY AFFIRMED IN TOTO.
SO ORDERED.

G.R. No. L-52064 December 26, 1984

JULIANA CARAGAY-LAYNO, Assisted by Her Husband, BENITO LAYNO, petitioner,
vs.
HONORABLE COURT OF APPEALS and SALVADOR ESTRADA as Administrator of the Estate of
the Deceased, MARIANO DE VERA, respondents.
MELENCIO-HERRERA, J.:
Respondent Appellate Court, then the Court of Appeal, affirmed in toto the judgment of the former Court
of First Instance of Pangasinan, Branch III, at Dagupan adjudging private respondent entitled to recover
possession of a parcel of land and ordering petitioners, as defendants below, to vacate the premises.
Petitioners, as paupers, now seek a reversal of that judgment.

It was established by a relocation survey that the Disputed Portion is a 3,732 square-meter-area of a
bigger parcel of sugar and coconut land (Lot No. 1, Psu-24206 [Case No. 44, GLRO Rec. No. 117]), with
a total area of 8,752 square meters, situated at Calasiao, Pangasinan. The entire parcel is covered by
Original Certificate of Title No. 63, and includes the adjoining Lots 2 and 3, issued on 11 September 1947
in the name of Mariano M. DE VERA, who died in 1951 without issue. His intestate estate was
administered first by his widow and later by her nephew, respondent Salvador Estrada.
Petitioner, JULIANA Caragay, and the decedent, Mariano DE VERA, were first cousins, "both orphans,
who lived together under one roof in the care of a common aunt."
As Administratrix, DE VERA's widow filed in Special Proceedings No. 4058 of the former Court of First
Instance of Pangasinan, Branch III, an Inventory of all properties of the deceased, which included "a
parcel of land in the poblacion of Calasiao, Pangasinan, containing an area of 5,417 square meters, more
or less, and covered by Tax Declaration No. 12664."
Because of the discrepancy in area mentioned in the Inventory as 5,147 square meters (as filed by the
widow), and that in the title as 8,752 square meters, ESTRADA repaired to the Disputed Property and
found that the northwestern portion, subsequently surveyed to be 3,732 square meters, was occupied by
petitioner-spouses Juliana Caragay Layno and Benito Layno. ESTRADA demanded that they vacate the
Disputed Portion since it was titled in the name of the deceased DE VERA, but petitioners refused
claiming that the land belonged to them and, before them, to JULIANA's father Juan Caragay.
ESTRADA then instituted suit against JULIANA for the recovery of the Disputed Portion (Civil Case No. D2007), which she resisted, mainly on the ground that the Disputed Portion had been fraudulently or
mistakenly included in OCT No. 63, so that an implied or constructive trust existed in her favor. She then
counterclaimed for reconveyance of property in the sense that title be issued in her favor.
After hearing, the Trial Court rendered judgment ordering JULIANA to vacate the Disputed Portion.
On appeal respondent Appellate Court affirmed the Decision in toto.
Before us, JULIANA takes issue with the following finding of respondent Court:
Although Section 102 of Act 496 allows a Petition to compel a Trustee to reconvey a
registered land to the cestui que trust (Severino vs. Severino, 44 Phil 343; Escobar vs.
Locsin, 74 PhiL 86) this remedy is no longer available to Juliana Caragay. Mariano de
Vera's land, Lot 1, Psu-24206, was registered on September 11, 1947 (Exhibit"C") and it
was only on March 28, 1967 when the defendants filed their original answer that Caragay
sought the reconveyance to her of the 3,732 square meters. Thus, her claim for
reconveyance based on implied or constructive trust has prescribed after 10 years
(Banaga vs. Soler, L-15717, June 30,1961; J.M. Tuason & Co. vs. Magdangal, L-15539,
Jan. 30, 1962; Alzona vs. Capunitan, 4 SCRA 450). In other words, Mariano de Vera's
Original Certificate of Title No. 63 (Exhibit "C") has become indefeasible. 1
We are constrained to reverse.
The evidence discloses that the Disputed Portion was originally possessed openly, continuously and
uninterruptedly in the concept of an owner by Juan Caragay, the deceased father of JULIANA, and had
been declared in his name under Tax Declaration No. 28694 beginning with the year 1921 (Exhibit "2-C"),
later revised by Tax Declaration No. 2298 in 1951 (Exhibit "2-B"). Upon the demise of her father in 1914,
JULIANA adjudicated the property to herself as his sole heir in 1958 (Exhibit "4"), and declared it in her
name under Tax Declaration No. 22522 beginning with the year 1959 (Exhibit "2-A"), later cancelled by
TD No. 3539 in 1966 (Exhibit "2"). Realty taxes were also religiously paid from 1938 to 1972 (Exhibits "3A" to "3-H"). Tacking the previous possession of her father to her own, they had been in actual open,

continuous and uninterrupted possession in the concept of owner for about forty five (45) years, until said
possession was disturbed in 1966 when ESTRADA informed JULIANA that the Disputed Portion was
registered in Mariano DE VERA's name.
To substantiate her claim of fraud in the inclusion of the Disputed Portion in OCT No. 63, JULIANA, an
unlettered woman, declared that during his lifetime, DE VERA, her first cousin, and whom she regarded
as a father as he was much older, borrowed from her the Tax Declaration of her land purportedly to be
used as collateral for his loan and sugar quota application; that relying on her cousin's assurances, she
acceded to his request and was made to sign some documents the contents of which she did not even
know because of her ignorance; that she discovered the fraudulent inclusion of the Disputed Portion in
OCT No. 63 only in 1966 when ESTRADA so informed her and sought to eject them.
Of significance is the fact, as disclosed by the evidence, that for twenty (20) years from the date of
registration of title in 1947 up to 1967 when this suit for recovery of possession was instituted, neither the
deceased DE VERA up to the time of his death in 1951, nor his successors-in-interest, had taken steps to
possess or lay adverse claim to the Disputed Portion. They may, therefore be said to be guilty of laches
as would effectively derail their cause of action. Administrator ESTRADA took interest in recovering the
said portion only when he noticed the discrepancy in areas in the Inventory of Property and in the title.
Inasmuch as DE VERA had failed to assert any rights over the Disputed Portion during his lifetime, nor
did he nor his successors-in-interest possess it for a single moment: but that, JULIANA had been in
actual, continuous and open possession thereof to the exclusion of all and sundry, the inescapable
inference is, fraud having been unsubstantiated, that it had been erroneously included in OCT No. 63.
The mistake is confirmed by the fact that deducting 3,732 sq. ms., the area of the Disputed Portion from
8,752 sq. ms., the area of Lot 1 in OCT No. 63, the difference is 5,020 sq. ms., which closely
approximates the area of 5,147 sq. ms., indicated in the Inventory of Property of DE VERA. In fact, the
widow by limiting the area in said Inventory to only 5,147 sq. ms., in effect, recognized and admitted that
the Disputed Portion of 3,132 sq. ms., did not form part of the decedent's estate.
The foregoing conclusion does not necessarily wreak havoc on the indefeasibility of a Torrens title. For,
mere possession of a certificate of title under the Torrens System is not conclusive as to the holder's true
ownership of all the property described therein for he does not by virtue of said certificate alone become
the owner of the land illegally included. 2 A Land Registration Court has no jurisdiction to decree a lot to
persons who have never asserted any right of ownership over it.
... Obviously then, the inclusion of said area in the title of Lot No. 8151 is void and of no
effect for a land registration Court has no jurisdiction to decree a lot to persons who have
put no claim in it and who have never asserted any right of ownership over it. The Land
Registration Act as well as the Cadastral Act protects only the holders of a title in good
faith and does not permit its provisions to be used as a shield for the commission of
fraud, or that one should enrich himself at the expense of another. 3
JULIANA, whose property had been wrongfully registered in the name of another, but which had not yet
passed into the hands of third parties, can properly seek its reconveyance.
The remedy of the landowner 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. 4
Prescription cannot be invoked against JULIANA for the reason that as lawful possessor and owner of the
Disputed Portion, her cause of action for reconveyance which, in effect, seeks to quiet title to the property,

falls within settled jurisprudence that an action to quiet title to property in one's possession is
imprescriptible. 5 Her undisturbed possession over a period of fifty two (52) years gave her a continuing
right to seek the aid of a Court of equity to determine the nature of the adverse claim of a third party and
the effect on her own title. 6
Besides, under the circumstances, JULIANA's right to quiet title, to seek reconveyance, and to annul
OCT. No. 63 accrued only in 1966 when she was made aware of a claim adverse to her own. It was only
then that the statutory period of prescription may be said to have commenced to run against her, following
the pronouncement in Faja vs. Court of Appeals, supra, a case almost Identical to this one.
... Inasmuch as it is alleged in paragraph 3 of Frial's complaint, that Felipa Faja has been
in possession of the property since 1945 up to the present for a period of 30 years, her
cause of action for reconveyance, which in effect seeks to quiet her title to the property,
falls within that rule. If at all, the period of prescription began to run against Felipa Faja
only from the time she was served with copy of the complaint in 1975 giving her notice
that the property she was occupying was titled in the name of Indalecio Frial. 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.
WHEREFORE, the judgment under review is hereby REVERSED and SET ASIDE, and another one
entered ordering private respondent Salvador Estrada, as Administrator of the Estate of the Deceased,
Mariano de Vera, to cause the segregation of the disputed portion of 3,732 square meters forming part of
Lot No. 1, Psu-24206, Case No. 44, GLRO Rec. No. 117, presently occupied by petitioner Juliana
Caragay-Layno, and to reconvey the same to said petitioner. After the segregation shall have been
accomplished, the Register of Deeds of Pangasinan is hereby ordered to issue a new certificate of title
covering said 3,732 sq. m. portion in favor of petitioner, and another crtificate of title in favor of the Estate
of the deceased, Mariano de Vera covering the remaining portion of 5,0520 square meters. No costs.SO
ORDERED
G.R. No. L-44546 January 29, 1988
RUSTICO ADILLE, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO, DOMINGO
ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents.

SARMIENTO, J.:
In issue herein are property and property rights, a familiar subject of controversy and a wellspring of
enormous conflict that has led not only to protracted legal entanglements but to even more bitter

consequences, like strained relationships and even the forfeiture of lives. It is a question that likewise
reflects a tragic commentary on prevailing social and cultural values and institutions, where, as one
observer notes, wealth and its accumulation are the basis of self-fulfillment and where property is held as
sacred as life itself. "It is in the defense of his property," says this modern thinker, that one "will mobilize
his deepest protective devices, and anybody that threatens his possessions will arouse his most
passionate enmity." 1
The task of this Court, however, is not to judge the wisdom of values; the burden of reconstructing the
social order is shouldered by the political leadership-and the people themselves.
The parties have come to this Court for relief and accordingly, our responsibility is to give them that relief
pursuant to the decree of law.
The antecedent facts are quoted from the decision 2 appealed from:
xxx xxx xxx
... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi City
with an area of some 11,325 sq. m. originally belonged to one Felisa Alzul as her own
private property; she married twice in her lifetime; the first, with one Bernabe Adille, with
whom she had as an only child, herein defendant Rustico Adille; in her second marriage
with one Procopio Asejo, her children were herein plaintiffs, now, sometime in 1939,
said Felisa sold the property in pacto de retro to certain 3rd persons, period of
repurchase being 3 years, but she died in 1942 without being able to redeem and after
her death, but during the period of redemption, herein defendant repurchased, by himself
alone, and after that, he executed a deed of extra-judicial partition representing himself to
be the only heir and child of his mother Felisa with the consequence that he was able to
secure title in his name alone also, so that OCT. No. 21137 in the name of his mother was
transferred to his name, that was in 1955; that was why after some efforts of compromise
had failed, his half-brothers and sisters, herein plaintiffs, filed present case for partition
with accounting on the position that he was only a trustee on an implied trust when he
redeemed,-and this is the evidence, but as it also turned out that one of plaintiffs,
Emeteria Asejo was occupying a portion, defendant counterclaimed for her to vacate that,

Well then, after hearing the evidence, trial Judge sustained defendant in his position that
he was and became absolute owner, he was not a trustee, and therefore, dismissed case
and also condemned plaintiff occupant, Emeteria to vacate; it is because of this that
plaintiffs have come here and contend that trial court erred in:
I. ... declaring the defendant absolute owner of the property;
II. ... not ordering the partition of the property; and
III. ... ordering one of the plaintiffs who is in possession of the portion of the property to
vacate the land, p. 1 Appellant's brief.
which can be reduced to simple question of whether or not on the basis of evidence and law, judgment
appealed from should be maintained. 3
xxx xxx xxx

The respondent Court of appeals reversed the trial Court, 4 and ruled for the plaintiffs-appellants, the
private respondents herein. The petitioner now appeals, by way of certiorari, from the Court's decision.
We required the private respondents to file a comment and thereafter, having given due course to the
petition, directed the parties to file their briefs. Only the petitioner, however, filed a brief, and the private
respondents having failed to file one, we declared the case submitted for decision.
The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the property
held in common?
Essentially, it is the petitioner's contention that the property subject of dispute devolved upon him upon
the failure of his co-heirs to join him in its redemption within the period required by law. He relies on the
provisions of Article 1515 of the old Civil Article 1613 of the present Code, giving the vendee a retro the
right to demand redemption of the entire property.
There is no merit in this petition.
The right of repurchase may be exercised by a co-owner with aspect to his share alone. 5 While the
records show that the petitioner redeemed the property in its entirety, shouldering the expenses therefor,
that did not make him the owner of all of it. In other words, it did not put to end the existing state of coownership.
Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement from
the remaining co-owners. 6 There is no doubt that redemption of property entails a necessary expense.
Under the Civil Code:
ART. 488. Each co-owner shall have a right to compel the other co-owners to contribute
to the expenses of preservation of the thing or right owned in common and to the taxes.
Any one of the latter may exempt himself from this obligation by renouncing so much of
his undivided interest as may be equivalent to his share of the expenses and taxes. No
such waiver shall be made if it is prejudicial to the co-ownership.
The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under
Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by
one co-heir or co-owner of the property in its totality does not vest in him ownership over it. Failure on the
part of all the co-owners to redeem it entitles the vendee a retro to retain the property and consolidate title
thereto in his name. 7But the provision does not give to the redeeming co-owner the right to the entire
property. It does not provide for a mode of terminating a co-ownership.
Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name
terminate the existing co-ownership. While his half-brothers and sisters are, as we said, liable to him for
reimbursement as and for their shares in redemption expenses, he cannot claim exclusive right to the
property owned in common. Registration of property is not a means of acquiring ownership. It operates as
a mere notice of existing title, that is, if there is one.
The petitioner must then be said to be a trustee of the property on behalf of the private respondents. The
Civil Code 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.

We agree with the respondent Court of Appeals that fraud attended the registration of the property. The
petitioner's pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he
executed preliminary to the registration thereof betrays a clear effort on his part to defraud his brothers
and sisters and to exercise sole dominion over the property. The aforequoted provision therefore applies.
It is the view of the respondent Court that the petitioner, in taking over the property, did so either on behalf
of his co-heirs, in which event, he had constituted himself a negotiorum gestor under Article 2144 of the
Civil Code, or for his exclusive benefit, in which case, he is guilty of fraud, and must act as trustee, the
private respondents being the beneficiaries, under the Article 1456. The evidence, of course, points to the
second alternative the petitioner having asserted claims of exclusive ownership over the property and
having acted in fraud of his co-heirs. He cannot therefore be said to have assume the mere management
of the property abandoned by his co-heirs, the situation Article 2144 of the Code contemplates. In any
case, as the respondent Court itself affirms, the result would be the same whether it is one or the other.
The petitioner would remain liable to the Private respondents, his co-heirs.
This Court is not unaware of the well-established principle that prescription bars any demand on property
(owned in common) held by another (co-owner) following the required number of years. In that event, the
party in possession acquires title to the property and the state of co-ownership is ended . 8 In the case at
bar, the property was registered in 1955 by the petitioner, solely in his name, while the claim of the private
respondents was presented in 1974. Has prescription then, set in?
We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have
been preceded by repudiation (of the co-ownership). The act of repudiation, in turn is subject to certain
conditions: (1) a co-owner repudiates the co-ownership; (2) such an act of repudiation is clearly made
known to the other co-owners; (3) the evidence thereon is clear and conclusive, and (4) he has been in
possession through open, continuous, exclusive, and notorious possession of the property for the period
required by law. 9
The instant case shows that the petitioner had not complied with these requisites. We are not convinced
that he had repudiated the co-ownership; on the contrary, he had deliberately kept the private
respondents in the dark by feigning sole heirship over the estate under dispute. He cannot therefore be
said to have "made known" his efforts to deny the co-ownership. Moreover, one of the private
respondents, Emeteria Asejo, is occupying a portion of the land up to the present, yet, the petitioner has
not taken pains to eject her therefrom. As a matter of fact, he sought to recover possession of that portion
Emeteria is occupying only as a counterclaim, and only after the private respondents had first sought
judicial relief.
It is true that registration under the Torrens system is constructive notice of title, 10 but it has likewise been
our holding that the Torrens title does not furnish a shield for fraud. 11 It is therefore no argument to say
that the act of registration is equivalent to notice of repudiation, assuming there was one, notwithstanding
the long-standing rule that registration operates as a universal notice of title.
For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over the
estate registered in 1955. While actions to enforce a constructive trust prescribes in ten
years, 12 reckoned from the date of the registration of the property, 13 we, as we said, are not prepared to
count the period from such a date in this case. We note the petitioner's sub rosa efforts to get hold of the
property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of
extrajudicial settlement that he is "the only heir and child of his mother Feliza with the consequence that
he was able to secure title in his name also." 14 Accordingly, we hold that the right of the private
respondents commenced from the time they actually discovered the petitioner's act of
defraudation. 15 According to the respondent Court of Appeals, they "came to know [of it] apparently only
during the progress of the litigation." 16 Hence, prescription is not a bar.

Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a motion to
dismiss or in the answer otherwise it is deemed waived, 17 and here, the petitioner never raised that
defense. 18 There are recognized exceptions to this rule, but the petitioner has not shown why they apply.
WHEREFORE, there being no reversible error committed by the respondent Court of Appeals, the petition
is DENIED. The Decision sought to be reviewed is hereby AFFIRMED in toto. No pronouncement as to
costs.
SO ORDERED,

Adille vs CA
Facts:
Felisa Alzul owned a certain property in Albay. She was married twice in her life time. First
with Bernabe Adille, with whom she begot a son, Rustico Adille. Second with Procopio Asejo,
with whom she begot Emeteria, Teodorica, Domingo, Josefa, and Santiago. She sold said
property in pacto de retro to 3rdpersons but she died before the redemption period expired.
Rustico, representing himself as the only heir and child of Felisa, repurchased the said
property and secured a title in his own name. His siblings then filed a case for partition on
the basis that Rustico was only a trustee on an implied trust when he redeemed the
property.
Issue:
W/N there was an implied trust
Held:
Yes.
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.
We agree with the respondent Court of Appeals that fraud attended the registration of the
property. The petitioners pretension that he was the sole heir to the land in the affidavit of
extrajudicial settlement he executed preliminary to the registration thereof betrays a clear
effort on his part to defraud his brothers and sisters and to exercise sole dominion over the
property. The aforequoted provision therefore applies.