Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 211972 July 22, 2015

WILSON GO and PETER GO, Petitioners,

vs.
THE ESTATE OF THE LATE FELISA TAMIO DE BUENA VENTURA, represented by
RESURRECCION A. BIHIS, RHEA A. BIHIS, and REGINA A. BIHIS; and
RESURRECCION A. BIHIS, RHEA A. BIHIS and REGINA A. BIHIS, in their personal
capacities, Respondents.

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

G.R. No. 212045

ELLA A. GUERRERO, DELFIN A. GUERRERO, JR. and LESTER ALVIN A.

GUERRERO, Petitioners,
vs.
THE ESTATE OF THE LATE FELISA TAMIO DE BUENA VENTURA, herein
represented by RESURRECION A. BIHIS, RHEA A. BIHIS and REGINA A. BIHIS, and
RESURRECION A. BIHIS, RHEA A. BIHIS and REGINA A. BIHIS, in their personal
capacities, Respondents.

DECISION

PERLAS-BERNABE, J.:

Assailed in these consolidated1 petitions for review on certiorari2 are the Decision3 dated
December 19, 2013 and the Resolution4 dated April 1, 2014 rendered by the Court of Appeals
(CA) in CA-G.R. CV No. 96697, which modified the Decision5 dated June 8, 2009 of the
Regional Trial Court of Quezon City, Branch 224 (RTC) in Civil Case No. Q-97-32515, and
thereby ordered: (a) the nullification of the Deed of Sale dated January 23, 1997 in favor of
Wilson Go (Wilson) and Peter Go (Peter), petitioners in G.R. No. 211972; (b) the reconveyance
of the disputed property to the Estate of Felisa Tamio; and (c) the cancellation of Transfer
Certificate of Title (TCT) No. N-1704 75, as well as the issuance of a new title in the name of the
Estate of Felisa Tamio by the Register of Deeds.

The Facts

On March 17, 1959, the late Felisa Tamio de Buenaventura (Felisa) purchased from Carmen
Zaragosa, Inc. a parcel of land with an area of 533 square meters, more or less, situated at Retiro
corner Kanlaon Streets, Sta. Mesa Heights, Quezon City (subject property) and, thus, TCT No.
45951/T-233 was issued in her name. Thereafter, she constructed a three-storey building thereon,
called D'Lourds Building, where she resided until her death on February 19, 1994.6 On February
10, 1960, Felisa supposedly sold the subject property to one of her daughters, Bella Guerrero
(Bella), the latter's husband, Delfin Guerrero, Sr. (Delfin, Sr.), and Felimon Buenaventura, Sr.
(Felimon, Sr.), Felisa's common-law husband.7 Bella, co-petitioner in G.R. No. 212045, and
Delfin, Sr. paid ₱15,000.00 as consideration therefor.8 Thus, TCT No. 45951/T-233 in the name
of Felisa was cancelled and TCT No. 498699 was issued in the names of Felimon, Sr. and Bella,
married to Delfin, Sr..
Sometime in 1968, Resurrecion A. Bihis10 (Resurrecion), the other daughter of Felisa, sister of
Bella, and respondent in both G.R. Nos. 211972 a nd 212045, began to occupy the second floor
of the D'Lourds Building and stayed therein until her death in 2007.11

As it appears that TCT No. 49869 in the names of Felimon, Sr. and Bella, married to Delfin, Sr.,
was irretrievably destroyed in the interim, Bella caused its reconstitution and was issued TCT
No. RT-74910 (49869),12 again registered in their names.

When Felisa died on February 19, 1994, she allegedly bequeathed, in a disputed last will and
testament, half of the subject property to Resurrecion and her daughters, Rhea A. Bihis (Rhea)
and Regina A. Bihis (Regina), corespondents in both G.R. Nos. 211972 and 212045
(collectively, the Bihis Family). Thus, on April 19, 1994, the Bihis Family caused the annotation
of an adverse claim on TCT No. RT-74910 (49869). Felisa's purported will likewise declared
Bella as the administrator of the subject property.13

On the strength of such appointment, Bella filed, on May 24, 1994, a petition for the probate of
Felisa's will. She was eventually appointed as the administratrix of the Estate of Felisa and, in an
inventory of Felisa's properties, Bella included the subject property as part of said estate.14

On January 22, 1997, the adverse claim of the Bihis Family was cancelled. The following day,
January 23, 1997, Felimon Buenaventura, Jr. (Felimon, Jr.) and Teresita Robles, a.k.a. Rosalina
Buenaventura Mariano15 (Teresita), apparently the heirs of Felimon, Sr. (Heirs of Felimon, Sr.),
executed a purported Extrajudicial Settlement of the Estate of Felimon Buenaventura, Sr., and
caused its annotation on TCT No. RT-74910 (49869). By virtue thereof, TCT No. RT-74910
(49869) was cancelled and TCT No. N-170416 was issued in the names of the Heirs of Felimon,
Sr., Bella, and her co-petitioners in G.R. No. 212045, Delfin A. Guerrero, Jr. (Delfin, Jr.) and
Lester Alvin A. Guerrero (Lester) (collectively, Bella, et al.).16

On the very same day, January 23, 1997, through a Deed of Sale of even date, the subject
property was sold to Wilson and Peter by Bella, et al. for the amount of ₱4,500,000.00, a
transaction completely unknown to Felisa's other heirs, the Bihis Family. Thus, TCT No. N-
170416 was cancelled and, in lieu thereof, TCT No. 170475 was issued in the names of Wilson
and Peter. Thereafter, Wilson and Peter filed ejectment cases against the occupants and/or
lessees of the subject property.17

In July 1997, the probate court revoked the appointment of Bella as administratrix of the Estate
of Felisa and eventually, granted letters of administration to Resurrecion.18 Hence, on October
17, 1997, herein respondents, the Estate of Felisa, as represented by the Bihis Family, and the
Bihis Family, in their personal capacities (collectively, respondents), filed a complaint for
reconveyance and damages before the RTC, docketed as Civil Case No. Q-97-32515, against
Bella, et al., Wilson, Peter, and the Register of Deeds of Quezon City, alleging that Felisa, during
her lifetime, merely entrusted the subject property to Felimon, Sr., Bella, and Delfin, Sr. for the
purpose of assisting Bella and Delfin, Sr. to obtain a loan and mortgage from the Government
Service Insurance System (GSIS). To facilitate the transaction, Felisa agreed to have the title
over the subject property transferred to Bella and Felimon, Sr. However, Felisa never divested
herself of her ownership over the subject property, as evidenced by her continuous residence
thereon, as well as her act of leasing several units to various tenants. In fact, in a letter19 dated
September 21, 1970 (September 21, 1970 letter) addressed to Delfin, Sr., Felisa reminded Bella,
Delfin, Sr., and Felimon, Sr. that the subject property was merely entrusted to them for Bella and
Delfin, Sr. to procure a loan from the GSIS.20 At the bottom of the letter, Bella's and Delfin, Sr.' s
signatures appear beside their names.21

Likewise, respondents alleged that Wilson and Peter were buyers in bad faith, as they were
aware of the facts and circumstances that would have warranted further inquiry into the validity
of the title of the sellers, Bella, et al. They averred that Wilson and Peter knew that the building
was occupied by individuals other than the sellers, as in fact, the Bihis Family was residing
therein.22
In their defense, Bella and Felimon, Jr. claimed that the subject property was owned by Bella and
(the late) Felimon, Sr., as evidenced by TCT No. RT-74910 (49869), which title was issued to
them as early as February 10, 1960. Such title has therefore subsisted for almost thirty seven (37)
years without having been voided or nullified by a court decree. Moreover, they have exercised
acts of ownership over the subject property, such as m01igaging the same and leasing the
building to third parties. Finally, they asserted that Bella's act of including the subject property in
the inventory of properties of the Estate of Felisa was merely because of inadvertence.23

For his part, Wilson claimed that when he and his brother, Peter, purchased the subject property
from Bella, et al. on January 23, 1997, he was not aware of the judicial settlement of the Estate
of Felisa. He testified that before they acquired the subject property, he verified the validity of
the title covering the same with the Registry of Deeds, and that a period of two (2) months had
lapsed before the sale was consummated because his lawyer advised him to request Bella to
cancel the encumbrance annotated on the title over the subject property. However, he asserted
that .his lawyer merely advised him to ask for the cancellation of the annotation but he was not
aware of the details surrounding the same. Eventually, the annotation was cancelled and that he
only knew that the subject property was included in the Estate of Felisa when herein respondents'
complaint before the RTC was filed. As such, he maintained that he and Peter were purchasers in
good faith.24

The RTC Ruling

In a Decision25 dated June 8, 2009, the RTC found that there was an implied trust between
Felisa, on the one hand, and Bella and Felimon, Sr., on the other, created by operation of law.
The RTC concluded that it was the intention of the late Felisa to merely entrust to Bella and
Felimon, Sr. the subject property for the sole purpose of using the same as collateral to secure a
loan with the GSIS. As such, while it is true that a title was issued in the names of Bella, Delfin,
Sr., and Felimon, Sr. by virtue of the sale of the subject property to them, it was clear that Felisa
never intended to relinquish her ownership over the subject property. In concluding so, the RTC
gave probative weight to the September 21, 1970 letter executed and signed by Felisa which not
only reminded Bella, Delfin, Sr., and Felimon, Sr. that the subject property was merely entrusted
to them for purposes of securing a loan from the GSIS, but also expressed Felisa's desire to have
the subject property divided equally among her heirs.26

However, the R TC held that reconveyance can no longer be effected since the subject property
had already been transferred to Wilson and Peter, whom it found to be purchasers in good faith.
The RTC found that through Wilson's testimony, they were able to disprove respondents'
allegation that they were aware of an infirmity in the title of the sellers when they acquired the
subject property.27

Consequently, as Bella, Delfin, Sr., and Felimon, Sr. were unjustly enriched at the expense of the
respondents who, as compulsory heirs, were also entitled to their share in the subject property,
the RTC directed Bella, et al. to pay plaintiffs, jointly and severally, the amounts of: (a)
₱2,000,000.00 as compensatory damages, representing half of the purchase price of the subject
property considering that reconveyance can no longer be granted; (b) ₱200,000.00 as moral
damages; (c) ₱100,000.00 as exemplary damages; and (d) ₱200,000.00 as attorney's fees.28

Dissatisfied, the following parties filed their separate appeals before the CA: the Estate of Felisa;
the Bihis Family; the Estate of Rosalinda B. Mariano;29 and Bella, Delfin, Jr., and Lester.30 The
CA simplified the issues raised in the separate appeals, as follows: (a) whether or not there was a
trust established by Felisa in favor of Bella, Delfin, Sr., and Felimon, Sr.; (b) whether or not the
action for reconveyance had already prescribed; and (c) whether or not Wilson and Peter are
purchasers in good faith.31

The CA Ruling
In a Decision32 dated December 19, 2013, the CA modified the RTC Decision, and thereby
ordered: (a) the nullification of the Deed of Sale dated January 23, 1997 in favor of Wilson and
Peter; ( b) the reconveyance of the disputed property to the Estate of Felisa; and (c) the
cancellation of TCT No. N-170475 in the name of Wilson and Peter, as well as the issuance of a
new title in the name of the Estate of Felisa by the Register of Deeds.33

In its ruling, the CA upheld the RTC's finding that an implied trust was constituted between
Felisa, during her lifetime, and Bella, Delfin, Sr., and Felimon, Sr. when the former sold the
subject property to the latter. Like the RTC, it gave substantial weight and credence to the
September 21, 1970 letter executed by Felisa which expressed her intention to convey the subject
property to Bella, Delfin, Sr., and Felimon, Sr. only for the purpose of obtaining a loan from the
GSIS. The CA similarly found that Felisa had not intended to relinquish her ownership over the
subject property in their favor, as evidenced not only by the said letter but also by her
contemporaneous and subsequent acts of ownership, i.e., leasing the building to tenants,
instituting ejectment suits, having business permits issued in her name, and including the subject
property in her last will and testament.34

Moreover, the CA ruled that the issuance of TCT No. 49869 in the names of Bella, Delfin, Sr.,
and Felimon, Sr. did not operate to vest ownership of the subject property upon them, as a
certificate of title is not equivalent to title. Hence, the presentation of TCT No. 49869 does not
conclusively prove their claim of ownership over the subject property.35

With respect to the issue of whether or not the action for reconveyance based on an implied trust
had already prescribed, the CA found that prescription has not set in. Citing jurisprudence, it held
that an action for reconveyance based on an implied trust prescribes in ten ( 10) years, to be
counted from the date of issuance of the Torrens title over the property. However, the rule
applies only when the claimant or the person enforcing the trust is not in possession of the
property. When the claimant is in actual possession of the property, the action for reconveyance,
which is effectively an action for quieting of title, is imprescriptible. In this case, it has been
indubitably established that the Bihis Family have been in actual possession of the subject
property; hence, their action for reconveyance is imprescriptible.36

Finally, with regard to the question of whether or not Wilson and Peter are purchasers in good
faith, the CA ruled in the negative. It took into consideration the admission made by Wilson that
he has knowledge of the adverse claim of the Bihis Family annotated on the title of the subject
property but denied knowledge of its contents. Likewise, he admitted that he directed his lawyer
to have the said annotation cancelled before purchasing the subject property. Records also show
that he knew that the Bihis Family have been occupying the second floor of the D'Lourds
Building. However, despite knowledge of the foregoing facts, he and his brother failed to make
the necessary inquiries as to the validity of the title of the sellers, Bella, et al. Consequently, he
and Peter cannot be considered as buyers in good faith.37

Wilson and Peter, Bella, Delfin, Jr., and Lester, Felimon, Jr., and the Estate of Rosalinda
Buenaventura Mariano filed separate motions for reconsideration,38 which were all denied in the
Resolution39 dated April 1, 2014; hence, these petitions.

The Issues Before the Court

The issues advanced for the Court's consideration are: (a) whether or not the CA erred in ruling
that there was an implied trust created between Felisa, on one hand, and Bella, Delfin, Sr., and
Felimon, Sr., on the other; (b) whether or not the action for reconveyance had not yet prescribed;
and (c) whether or not Wilson and Peter are purchasers in good faith.

The Court's Ruling

The petitions are bereft of merit.

The following facts are undisputed: in 1960, Felisa, as owner of the subject property, transferred
the same to her daughter Bella, married to Delfin, Sr., and Felimon, Sr. to assist them in
procuring a loan from the GSIS. In view thereof, her title over the property, TCT No. 45951/T-
233, was cancelled and a new one, TCT No. 49869, was issued in the names of Bella, married to
Delfin, Sr., and Felimon, Sr. After it was lost, TCT No. 49869 was reconstituted and TCT No.
RT-74910 (49869) was issued in their names.

Upon Felisa's death in 1994, the Bihis Family, Felisa's other heirs who have long been occupying
the subject property, caused the annotation of their adverse claim over the same on TCT No. RT-
74910 (49869). Subsequently, however, or on January 22, 1997, the said annotation was
cancelled, and the next day, the Heirs of Felimon, Sr. executed an Extrajudicial Settlement of his
estate and caused its annotation on said title. TCT No. RT-74910 (49869) was then cancelled and
TCT No. N-170416 was issued in the names of Bella, et al. Finally, by virtue of a Deed of Sale
dated January 23, 1997, the subject property was sold to Wilson and Peter, in whose names TCT
No. 170475 currently exists. Months later, or on October 17, 1997,40 the complaint for
reconveyance and damages, docketed as Civil Case No. Q-97-32515, was instituted.

From the foregoing factual milieu, the Court holds that: one, a trust was established between
Felisa, on the one hand, and Bella, Delfin, Sr., and Felimon, Sr., on the other, albeit not an
implied trust as concluded by the RTC and the CA but an express one; two, the present action for
reconveyance has not yet prescribed; and, three, Wilson and Peter are not purchasers in good
faith.

I.

Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in
another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary.1âwphi1 Trust relations between parties may either be express or
implied. An express trust is created by the intention of the trustor or of the parties, while an
implied trust comes into being by operation of law.41

Express trusts are created by direct and positive acts of the parties, by some writing or deed, or
will, or by words either expressly or impliedly evincing an intention to create a trust. Under
Article 1444 of the Civil Code, "[n]o particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended." It is possible to create a trust without
using the word "trust" or "trustee." Conversely, the mere fact that these words are used does not
necessarily indicate an intention to create a trust. The question in each case is whether the trustor
manifested an intention to create the kind of relationship which to lawyers is known as trust. It is
immaterial whether or not he knows that the relationship which he intends to create is called a
trust, and whether or not he knows the precise characteristics of the relationship which is called a
trust.42

Further, in the case of Tamayo v. Callejo,43 the Court recognized that a trust may have a
constructive or implied nature in the beginning, but the registered owner's subsequent express
acknowledgement in a public document of a previous sale of the property to another party
effectively converted the same into an express trust.44

In the present case, both the R TC and the CA found that an implied trust was established,
heavily giving credence, among others, to the September 21, 1970 letter executed by Felisa
during her lifetime, which partly reads:

Dear Delfin,

Ipinaaabot ko sa iyo ang sulat kong ito upang malaman mo ang aking nagiging damdamin.
Hinihiling ko sa iyo at ipinakikiusap sa iyo tungkol doon sa late at building ng D 'lourds.
Hindi naman kaila sa ivo kung papaano ko ito naisalin sa inyong pangalan nina Filemon C.
Buenaventura Sr., Bella Alvarez Guerrero at Delfin Guerrero Sr. Ang dahilan nito ay dahil sa
pag-utang sa GSIS.

Kaya gusto kong malaman mo na ito ay nagpapatotoo na ito ay sarili kong pag-aari at walang
sinumang nagbigay o tumulong sa akin sa lupang ito. At maski si Ka Fe ling mo ay walang
naibigay na pera dito.

Kaya hinihiling ko ang gusto kong mangyari sa ngayon ay maging kaparehong-kapareho ang
paghahati ng bawat isa sa anumang aking kabuhayan.

Kaya hinihiling ko sa iyo Delfin na kung maaari lamang ay ang lahat ng nakatala dito ay
pirmahan ninyo.

x x x x45 (Emphasis and underscoring supplied)

Beneath the letter appear the signatures of Bella and Delfin, and the signature of Felisa signing
as "MOMMY" as well.46

Taking the contents of the foregoing letter into consideration – the validity and due execution of
which were never put in issue, hence, indubitably established - the Court therefore differs from
the finding of the courts a quo that an implied trust was established; instead, the Court rules that
an express trust was duly proved in this case.

The words of Felisa in the above-quoted letter unequivocally and absolutely declared her
intention of transferring the title over the subject property to Bella, Delfin, Sr., and Felimon, Sr.
in order to merely accommodate them in securing a loan from the GSIS. She likewise stated
clearly that she was retaining her ownership over the subject property and articulated her wish to
have her heirs share equally therein. Hence, while in the beginning, an implied trust was merely
created between Felisa, as trustor, and Bella, Delfin, Sr., and Felimon, Sr., as both trustees and
beneficiaries, the execution of the September 21, 1970 letter settled, once and for all, the nature
of the trust established between them as an express one, their true intention irrefutably extant
thereon.

Bella's attempt to thwart the express trust established in this case by claiming that she affixed her
signature on the September 21, 1970 letter only "to appease" her mother, Felisa, and that she
could afford to sign the letter since the title covering the subject property was in their name as
owners anyway,47 does not hold water. As correctly ruled by the CA, citing Lee Tek Sheng v.
CA,48 the "[m]ere issuance of the certificate of title in the name of any person does not foreclose
the possibility that the real property may be under co-ownership with persons not named in the
ce1iificate or that the registrant may only be a trustee or that other parties may have acquired
interest subsequent to the issuance of the certificate of title,"49 as in this case.50 Registration does
not vest title; it is merely the evidence of such title.51 Moreover, the Court notes that even during
the proceedings before the RTC, Bella never denied the purpose for which the sale to them of the
subject property was effected. Instead, they relied heavily and anchored their defense on the
existence of their certificate of title covering the subject property, which, to reiterate, was
insufficient to prove their ownership over the same independent of the express trust.

In light of the foregoing, while the Court agrees with the RTC, as affirmed by the CA, that Bella,
Delfin, Sr., and Felimon, Sr. only hold the subject property in trust for Felisa, the Court however
finds that an express trust, not an implied one, was established in this case.

II.

Anent the issue of prescription, the Court finds that the action for reconveyance instituted by
respondents has not yet prescribed, following the jurisprudential rule that express trusts prescribe
in ten (10) years from the time the trust is repudiated.52
In this case, there was a repudiation of the express trust when Bella, as the remaining trustee,
sold the subject property to Wilson and Peter on January 23, 1997.53 As the complaint for
reconveyance and damages was filed by respondents on October 17, 1997,54 or only a few
months after the sale of the subject property to Wilson and Peter, it cannot be said that the same
has prescribed.

III.

Finally, with regard to the question of whether or not Wilson and Peter are purchasers of the
subject property in good faith, the Court concurs with the CA' s finding that they are not.

A purchaser in good faith is one who buys the property of another without notice that some other
person has a right to, or an interest in, such property and pays a full and fair price for the same at
the time of such purchase, or before he has notice of some other person's claim or interest in the
property.55 Corollary thereto, when a piece of land is in the actual possession of persons other
than the seller, the buyer must be wary and should investigate the rights of those in possession.
Without making such inquiry, one cannot claim that he is a buyer in good faith. When a man
proposes to buy or deal with realty, his duty is to read the public manuscript, that is, to look and
see who is there upon it and what his rights are. A want of caution and diligence, which an
honest man of ordinary prudence is accustomed to exercise in making purchases, is in
contemplation of law, a want of good faith. The buyer who has failed to know or discover that
the land sold to him is in adverse possession of another is a buyer in bad faith.56

In his testimony57 before the R TC, Wilson claimed to have verified the validity of the title
covering the subject property before the Registry of Deeds. However, he also admitted that two
(2) months had lapsed before the sale could be consummated because his lawyer advised him to
request Bella, one of the sellers, to cancel the encumbrance annotated on the title of the subject
property. He also claimed that he had no knowledge about the details of such annotation, and that
he was aware that individuals other than the sellers were in possession of the subject property.

As aptly concluded by the CA, such knowledge of the existence of an annotation on the title
covering the subject property and of the occupation thereof by individuals other than the sellers
negates any presumption of good faith on the part of Wilson and Peter when they purchased the
subject property. A person who deliberately ignores a significant fact which would create
suspicion in an otherwise reasonable man is not an innocent purchaser for value,58 as in this case.

WHEREFORE, the petitions are DENIED. The Decision dated December 19, 2013 and the
Resolution dated April 1, 2014 of the Court of Appeals in CA-G.R. CV No. 96697 are hereby
AFFIRMED.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice

WE CONCUR:

PRESBITERO J. VELASCO, JR.*

Associate Justice

LUCAS P. BERSAMIN**
JOSE PORTUGAL PEREZ
Associate Justice
Associate Justice
Acting Chairperson

MARVIC M.V.F. LEONEN***

Associate Justice
 ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
cases were assigned to the writer of the opinion of the Court's Division.

LUCAS P. BERSAMIN
Associate Justice
Acting Chairperson, First Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Acting Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the cases were assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Acting Chief Justice
G.R. No. 188639

SECURITIES AND EXCHANGE COMMISSION, Petitioner,

vs.
HON. REYNALDO M. LAIGO, in his capacity as Presiding Judge of the Regional Trial
Court, National Capital Judicial Region, Makati City, Branch 56, GLICERIA AYAD,
SAHLEE DELOS REYES and ANTONIO P. HUETE, JR., Respondents.

DECISION

MENDOZA, J.:

In this petition for certiorari1under Rule 65 of the Rules of Court, petitioner Securities and
Exchange Commission (SEC), through the Office of the Solicitor General (OSG), assails the
June 26, 2009 Order2 (June 26, 2009 Order) issued by respondent Judge Reynaldo M.
Laigo (Judge Laigo) of the Regional Trial Court, Branch 56, Makati City (RTC), in Sp. Proc. No.
M-6758,3 a petition for involuntary insolvency of Legacy Consolidated Plans,
Incorporated (Legacy), ordering the inclusion of the trust fund in its corporate assets to the
prejudice of the plan holders.

Factual Antecedents

Republic Act (R.A.) No. 8799, otherwise known as the Securities Regulation
Code (SRC), specifically Section 16 thereof, mandated the Securities and Exchange
Commission (SEC) to prescribe rules and regulations governing the pre-need industry. Pursuant
thereto, the SEC issued the corresponding New Rules on the Registration and Sale of Pre-
Need Plans (New Rules)4 to govern the pre-need industry prior to the enactment of R.A. No.
9829, otherwise known as the Pre-need Code of the Philippines (Pre-Need Code). It required
from the pre-need providers the creation of trust funds as a requirement for registration.

As defined in Rule 1.9 of the New Rules, " ‘Trust Fund’ means a fund set up from plan holders’
payments, separate and distinct from the paid-up capital of a registered pre-need company,
established with a trustee under a trust agreement approved by the SEC, to pay for the benefits as
provided in the pre-need plan."

Legacy, being a pre-need provider, complied with the trust fund requirement and entered into a
trust agreement with the Land Bank of the Philippines (LBP).

In mid-2000, the industry collapsed for a range of reasons. Legacy, like the others, was unable to
pay its obligations to the plan holders.

This resulted in Legacy being the subject of a petition for involuntary insolvency filed on
February 18, 2009 by private respondents in their capacity as plan holders. Through its
manifestation filed in the RTC, Legacy did not object to the proceedings. Accordingly, it was
declared insolvent by the RTC in its Order,5 dated April 27, 2009. The trial court also ordered
Legacy to submit an inventory of its assets and liabilities pursuant to Sections 15 and 16 of Act
No. 1956,6 otherwise known as the Insolvency Law, the applicable bankruptcy law at that time.

On May 15, 2009, the RTC ordered the SEC, being the pre-need industry’s regulator, to submit
the documents pertaining to Legacy’s assets and liabilities.

In its Manifestation with Evaluation, dated June 10, 2009, the SEC opposed the inclusion of the
trust fund in the inventory of corporate assets on the ground that to do so would contravene the
New Rules which treated trust funds as principally established for the exclusive purpose of
guaranteeing the delivery of benefits due to the planholders. It was of the position that the
inclusion of the trust fund in the insolvent’s estate and its being opened to claims by non-
planholders would contravene the purpose for its establishment.
On June 26, 2009, despite the opposition of the SEC, Judge Laigo ordered the insolvency
Assignee, Gener T. Mendoza (Assignee) to take possession of the trust fund. Judge Laigo viewed
the trust fund as Legacy’s corporate assets and, for said reason, included it in the insolvent’s
estate. Thus:

WHEREFORE, the Court rules as follows:

1. Directing the afore-named banks to report to Assignee, Gener T. Mendoza, whose address is at
c/o GNCA Holdings, Inc., Unit 322, 3/F, LRI design Center, 210 Nicanor Garcia St., Makati
City, the total funds as of today deposited to the insolvent debtor’s respective Trust Funds,
within five (5) days from receipt of this Order.

2. Subject funds can be withdrawn by the Assignee only upon Order of the Court for distribution
among the creditors who have officially filed their valid claims with this Court, and for all the
expenses to be incurred by the Assignee in the course of the discharge of his duties and
responsibilities as such Assignee.

3. Stopping the Securities and Exchange Commission (SEC) from further validating the claims
of planholders (now creditors) pertaining to their pre-need plans.

xxx xxx xxx

SO ORDERED.7

The RTC stated that the trust fund could be withdrawn by the Assignee to be used for the
expenses he would incur in the discharge of his functions and to be distributed among the
creditors who had officially filed their valid claims with the court.

The Present Petition

Intent on protecting the interest of the investing public and securing the trust fund exclusively for
the planholders, the SEC filed "this present recourse directly to this Honorable Court in
accordance with Section 5 (1),

Article VIII of the 1987 Constitution for the reason that the matters involve an issue
of transcendental importance to numerous hard-working Filipinos who had invested their
lifetime savings and hard-earned money in Legacy, hoping that through this pre-need company
they will be able to fulfill their dreams of providing a bright future for their children."8

The SEC’s Position

In essence, the SEC contends that Judge Laigo gravely abused his discretion in treating the trust
fund as part of the insolvency estate of Legacy. It argues that the trust fund should redound
exclusively to the benefit of the plan holders, who are the ultimate beneficial owners; that the
trust fund is held, managed and administered by the trustee bank to address and answer the
claims against the pre-need company by all its plan holders and/or beneficiaries; that to consider
the said fund as corporate assets is to open the floodgates to creditors of Legacy other than the
plan holders; and that, in issuing the order, Judge Laigo effectively allowed non-plan holders to
reach the trust fund in patent violation of the New Rules established to protect the pre-need
investors.

In its Memorandum,9 the SEC stressed that the setting-up of the trust funds effectively created a
demarcation line between the claims of Plan holders vis-à-vis those of the other creditors of
Legacy; that Legacy’s interest over the trust properties was only by virtue of it being
a trustor and not the owner; and that the SEC was authorized to validate claims of plan holders in
the exercise of its power as regulator of pre-need corporations.
Further, the SEC is of the position that Section 52 of the Pre-Need Code10 should be given
retroactive effect for being procedural in character.

Thus, the SEC raises the following

ISSUES

I.

Whether or not the Trust Funds of Legacy form part of its Corporate Assets.

II.

Whether or not respondent Trial Court Judge committed grave abuse of discretion
amounting to lack or excess of jurisdiction in issuing the herein assailed Order dated June
26, 2009.

III.

Whether or not the claims of planholders are to be treated differently from the claims of
other creditors of Legacy.

IV.

Whether or not Legacy retains ownership over the trust funds assets despite the execution
of trust agreements.

V.

Whether or not the insolvency court, presided by respondent Trial Court Judge, has the
authority to enjoin petitioner SEC from further validating the claims of Legacy’s
planholders and treating them as if they are ordinary creditors of Legacy.

VI.

Whether or not the provision of the Pre-need Code regarding liquidation is in the nature of
a procedural law that can be retroactively applied to the case at bar.11

Private Respondents’ position

In their Comment/Opposition,12 the private respondents, Glicera Ayad, Sahlee Delos Reyes and
Antonio P. Huerte, Jr. (private respondents), submit that nothing in the New Rules expressly
provided that the trust fund is excluded from the inventory of corporate assets which is required
to be submitted to the insolvency court; that the SEC’s interference in the insolvency
proceedings is incongruous to the legal system; and that under the provisions of the Insolvency
Law, all claims, including those against the trust funds should be filed in the liquidation
proceedings.13Hence, private respondents assert that no grave abuse of discretion was committed
by Judge Laigo in issuing the June 26, 2009 Order.

The Assignee’s Position

In his separate Comments on Petition14 and Memorandum,15 the Assignee contends that the trust
fund forms part of Legacy’s corporate assets for the following reasons: first, the insolvency court
has jurisdiction over all the claims against the insolvent and the trust fund forms part of the
company’s corporate assets. It cited Abrera v. College Assurance Plan,16 where the Court held
that claims arising from pre-need contracts should not be treated separately from other claims
against a pre-need company. As such, the claims over the trust fund, being claims against
Legacy, are necessarily lodged with the insolvency court. Second, the setting up of the trust fund
is a mere scheme to attain an administrative end, that is, the assurance that the benefits will be
delivered under the pre-need contracts.

Considering that Legacy is the debtor as regards such benefits, it is only through it, or through
the insolvency court, that the assets including the trust fund can be distributed to satisfy valid
claims. Third, though the trustee banks hold legal title over the funds, the real parties-in-interest
are the preneed companies as the terms of the trust agreement between Legacy and LBP (as
trustee) show this intent.

The Assignee also submits that no law authorized the SEC to interfere in the insolvency
proceedings because its authority under the SRC is only to regulate the sale of pre-need plans
and not to regulate the management of trust funds.

In sum, the Assignee interprets the June 26, 2009 Order in this wise: that the creditors, plan
holders or not, should first line up and file valid claims with the insolvency court and not get
entangled in the validation process of the SEC; and that once the plan holders have qualified,
they will be given preference in the distribution of the trust assets. Moreover, he proposes that if
the trust fund assets will not be enough to satisfy all claims, the plan holders can still join other
claimants and participate in the distribution of the other assets of the pre-need company.17

From the foregoing, the Court is called to determine whether Judge Laigo gravely abused his
discretion in:

1. Including the trust properties in the insolvent’s estate; and

2. Prohibiting the SEC from validating the claims filed by the plan holders against the
trust fund.

The Court’s Ruling

The overarching consideration in the legislative mandate to establish trust funds is the protection
of the interest of the planholders in the investment plans. The SRC provides in no uncertain
terms the intent to make such interests paramount above all else. Thus, it directed the SEC to
come up with rules and regulations to govern not only trust funds but the industry as a whole.
Pursuant to its mandate and delegated authority, the SEC came out with the New Rules, which
the Congress later on toughened through the enactment of the Pre-Need Code, carrying similar
protection but far more detailed in scope.

It is in this context that this Court rules to grant the petition filed by the SEC. The Court finds
that Judge Laigo gravely abused his discretion in treating the trust fund as assets that form part of
Legacy’s insolvency estate and in enjoining the SEC’s validation of the planholders’ claims
against the trust properties.

The Trust Fund is for the sole benefit

of the planholders and cannot be used

to satisfy the claims of other creditors

of Legacy

Section 30 of the Pre-Need Code clearly provides that the proceeds of trust funds shall redound
solely to the planholders. Section 30 reads:

Trust Fund
SECTION 30. Trust Fund. — To ensure the delivery of the guaranteed benefits and services
provided under a pre-need plan contract, a trust fund per pre-need plan category shall be
established. A portion of the installment payment collected shall be deposited by the pre-need
company in the trust fund, the amount of which will be as determined by the actuary based on
the viability study of the pre-need plan approved by the Commission. Assets in the trust fund
shall at all times remain for the sole benefit of the plan holders. At no time shall any part of
the trust fund be used for or diverted to any purpose other than for the exclusive benefit of the
plan holders. In no case shall the trust fund assets be used to satisfy claims of other creditors
of the pre-need company. The provision of any law to the contrary notwithstanding, in case of
insolvency of the pre-need company, the general creditors shall not be entitled to the trust fund.

Except for the payment of the cost of benefits or services, the termination values payable to the
plan holders, the insurance premium payments for insurance-funded benefits of memorial life
plans and other costs necessary to ensure the delivery of benefits or services to plan holders, no
withdrawal shall be made from the trust fund unless approved by the Commission. The benefits
received by the plan holders shall be exempt from all taxes and the trust fund shall not be held
liable for attachment, garnishment, levy or seizure by or under any legal or equitable processes
except to pay for the debt of the plan holder to the benefit plan or that arising from criminal
liability imposed in a criminal action.

[Emphases Supplied]

The Assignee argues that Legacy has retained a beneficial interest in the trust fund despite the
execution of the trust agreement and that the properties can be the subject of insolvency
proceedings. In this regard, the Assignee calls the Court’s attention to the trust agreement
provisions which supposedly refer to the interest of Legacy in the trust properties, to wit:

The TRUSTEE hereby undertakes to perform the functions and duties of a TRUSTEE provided
for in this Agreement with the utmost good faith, care and prudence required by a fiduciary
relation, being understood, however, that the COMPANY shall be solely and exclusive (sic)
responsible for (1) fulfilling the servi ferred to in the recital clauses, (ii) the settlement/payment
of claims of any person or firm availing of such services, (iii)compliance with all laws and
governmental regulations on pre-needplans, and (iv) submission of other data or information as
may beprescribed by the Commission.

xxx

xxx the Trustee shall from time to time on the written directions of the Company make payments
out of the Trust Fund to the Company. To the extent permitted by law, the Trustee shall be under
no liability for any payment made pursuant to the direction of the Company. Any
written direction of the Company shall constitute a certification that the distribution of payment
so directed is one which the Company is authorized to direct. From time to time and when
directed in writing by the Company, the Trustee shall pay monies from the Trust Fund in
amounts equal to the outstanding amount of the Trust Fund at any given time to defray the
Company’s obligations to the Plan holders under its preneed plan contract and provided further
that the company shall be reimbursed by the Trustee from the Trust Fund for whatever amounts
it has advanced to its beneficiaries.18 [Italics supplied]

To the Assignee, these "control" mechanisms are indicative of the interest of Legacy in the
enforcement of the trust fund because the agreement gives it the power to dictate on LBP the
fulfilment of the trust, such as the delivery of monies to it to facilitate the payment to the plan
holders.

The Court, however, sees it differently.

In the course of delving into the complex relationships created by the agreement and the existing
regulatory framework, this Court finds that Legacy’s claimed interest in the enforcement of the
trust and in the trust properties is mere apparent than real. Legacy is not a beneficiary.

First, it must be stressed that a person is considered as a beneficiary of a trust if there is a

manifest intention to give such a person the beneficial interest over the trust properties.19 This is
the considered opinion expressed in the Restatement of the Law of Trust (Restatement)20 which
Justice Vicente Abad Santos has described in his contribution to the Philippine Law Journal as
containing the more salient principles, doctrines and rules on the subject.21 Here, the terms of the
trust agreement plainly confer the status of beneficiary to the plan holders, not to Legacy. In the
recital clauses of the said agreement, Legacy bound itself to provide for the sound, prudent and
efficient management and administration of such portion of the collection "for the benefit and
account of the planholders,"22 through LBP (as the trustee).

This categorical declaration doubtless indicates that the intention of the trustor is to make the
planholders the beneficiaries of the trust properties, and not Legacy. It is clear that because the
beneficial ownership is vested in the planholders and the legal ownership in the trustee, LBP,
Legacy, as trustor, is left without any iota of interest in the trust fund. This is consistent with the
nature of a trust arrangement, whereby there is a separation of interests in the subject matter of
the trust, the beneficiary having an equitable interest, and the trustee having an interest which is
normally legal interest.23

Second, considering the fact that a mandated pre-need trust is one imbued with public interest,
the issue on who the beneficiary is must be determined on the basis of the entire regulatory
framework. Under the New Rules, it is unmistakable that the beneficial interest over the trust
properties is with the planholders. Rule 16.3 of the New Rules provides that : [n]o withdrawal
shall be made from the trust fund except for paying the benefits such as monetary consideration,
the cost of services rendered or property delivered, trust fees, bank charges and investment
expenses in the operation of the trust fund, termination values payable to the plan holders,
annuities, contributions of cancelled plans to the fund and taxes on trust funds.

Rule 17.1 also states that to ensure the liquidity of the trust fund to guarantee the delivery of the
benefits provided for under the plan contract and to obtain sufficient capital growth to meet the
growing actuarial reserve liabilities, all investments of the trust fund shall be limited to Fixed
Income Instruments, Mutual Funds, Equities, and Real Estate, subject to certain limitations.

Further, Rule 20.1 directs the trustee to exercise due diligence for the protection of the plan
holders guided by sound investment principles in the exclusive management and control over the
funds and its right, at any time, to sell, convert, invest, change, transfer, or otherwise change or
dispose of the assets comprising the funds. All these certainly underscore the importance of the
plan holders being recognized as the ultimate beneficiaries of the SEC-mandated trust.

This consistently runs in accord with the legislative intent laid down in Chapter IV of R.A. No.
8799, or the SRC, which provides for the establishment of trust funds for the payment of
benefits under such plans. Section 16 of the SRC provides:

SEC. 16. Pre-Need Plans. - No person shall sell or offer for sale to the public any pre-need plan
except in accordance with rules and regulations which the Commission shall prescribe. Such
rules shall regulate the sale of pre-need plans by, among other things, requiring the
registration of pre-need plans, licensing persons involved in the sale of pre-need plans, requiring
disclosures to prospective plan holders, prescribing advertising guidelines, providing for uniform
accounting system, reports and record keeping with respect to such plans, imposing capital,
bonding and other financial responsibility, and establishing trust funds for the payment of
benefits under such plans. [Emphasis supplied]
It is clear from Section 16 that the underlying congressional intent is to make the plan holders the
exclusive beneficiaries. It has been said that what is within the spirit is within the law even if it is
not within the letter of the law because the spirit prevails over the letter.24

This will by the legislature was fortified with the enactment of R.A. No. 9829 or the Pre-Need
Code in 2009.25 The Congress, because of the chaos confounding the industry at the time,
considered it necessary to provide a stronger legal framework so that no entity could claim that
the mandate and delegated authority of the SEC under the SRC was nebulous. The Pre-Need
Code cemented the regulatory framework governing the preneed industry with precise specifics
to ensure that the rights of the pre-need plan holders would be categorically defined and
protected. Similar provisions in the Pre-Need Code are the following:

SECTION 32. Terms and Conditions of a Trust Fund. — A trust fund must be established
separately for each type of pre-need plan with the trust department of a trust company, bank
or investment house doing business in the Philippines. No trust fund shall be established by a
pre-need company with an affiliate trust entity subject to Section 38 hereof.

The trust agreement shall be submitted to the Commission for approval before execution and
shall contain the following salient provisions, among others:

(a) The manner in which the trust fund is to be operated;

(b) Investment powers of the trustee with respect to trust deposits, including the
character and kind of investment;

(c) Auditing and settlement of accounts of the trustee with respect to the trust
fund;

(d) Basis upon which the trust fund may be terminated;

(e) Provisions for withdrawals from the trust fund;

(f) That the trustee shall submit to the power of the Commission to examine and
verify the trust fund;

(g) An undertaking by the trustee that it shall abide by the rules and regulations of
the Commission with respect to the trust fund; and

(h) An undertaking by the trustee that it shall submit such other data or
information as may be prescribed by the Commission.

SECTION 33. Responsibilities of the Trustee. — The trustee shall:

(a) Administer and manage the trust fund with utmost good faith, care and
prudence required by a fiduciary relationship;

(b) The trustee shall have the exclusive management and control over the funds
and the right at any time to sell, convert, invest, change, transfer or otherwise
change or dispose of the assets comprising the funds within the parameters
prescribed by the pre-need company and provided these parameters are compliant
with the Commission's regulations; and

(c) Not use the trust fund to invest in or extend any loan or credit accommodation
to the pre-need company, its directors, officers, stockholders, and related interests
as well as to persons or enterprises controlling, owned or controlled by, or under
common control with said company, its directors, officers, stockholders and
 related interests except for entities which are direct providers of pre-need
companies.

SECTION 34. Investment of the Trust Fund. — To ensure the liquidity of the trust fund to
guarantee the delivery of the benefits provided for under the plan contract and likewise obtain
sufficient capital growth to meet the growing actuarial reserve liabilities, all investments of the
trust fund/s of a pre-need company shall be limited to the following and subject to limitations, to
wit:

(a) Fixed income instruments. — These may be classified into short-term and
long-term instruments. The instrument is shortterm if the maturity period is three
hundred sixty-five (365) days or less. This category includes:

(1) Government securities which shall not be less than ten percent (10%)
of the trust fund amount;

(2) Savings/time deposits and unit investment trust funds maintained with
and managed by a duly authorized bank with satisfactory examination
rating as of the last examination by the BSP;

(3) Commercial papers duly registered with the SEC with a credit rating of
"1" for short-term and "AAA" for longterm based on the rating scale of an
accredited Philippine Rating Agency or its equivalent at the time of
investment.

The maximum exposure to long-term commercial papers shall not exceed

fifteen percent (15%) of the total trust fund amount while the exposure to
each commercial paper issuer shall not exceed ten percent (10%) of the
allocated amount; and

(4) Direct loans to corporations which are financially stable, profitable for
the last three (3) years and have a good track record of paying their
previous loans. These loans shall be fully secured by a real estate
mortgage up to the extent of sixty percent (60%) of the zonal valuation of
the property at the time the loan was granted.

The property shall be covered by a transfer certificate of title registered in the

name of the mortgagor and free from liens and encumbrances. The maximum
amount to be allocated for direct loans shall not exceed five percent (5%) of the
total trust fund amount while the amount to be granted to each corporate borrower
shall not exceed ten percent (10%) of the amount allocated.

The maximum term of the loan should be no longer than four (4) years.

Direct loans to planholders are exempt from the limitations set forth under this
section: Provided, That such loans to planholders shall not exceed ten percent
(10%) of the total trust fund amount.

(b) Equities. — Investments in equities shall be limited to stocks listed on the

main board of a local stock exchange.

Investments in duly registered collective investment instruments such as mutual

funds are allowed hereunder: Provided, That such funds are invested only in fixed
income instruments and blue chips securities, subject to the limitations prescribed
by laws, rules and regulations.
 These investments shall include stocks issued by companies that are financially
stable, actively traded, possess good track record of growth and have declared
dividends for the past three (3) years. Notwithstanding the prohibition against
transactions with directors, officers, stockholders and related interests, the trustee
may invest in equities of companies related to the trustee provided these
companies comply with the foregoing criteria provided in this paragraph for
equity investments.

The amount to be allocated for this purpose shall not exceed thirty percent (30%)
of the total trust fund while the investment in any particular issue shall not exceed
ten percent (10%) of the allocated amount. The investment shall be recorded at
the aggregate of the lower of cost or market.

Existing investments which are not in accordance herewith shall be disposed of

within three (3) years from the effectivity of this Act.

(c) Real Estate. — These shall include real estate properties located in strategic
areas of cities and first class municipalities.1âwphi1 The transfer certificate of
title (TCT) shall be in the name of the seller, free from liens and encumbrances
and shall be transferred in the name of the trustee in trust for the planholders
unless t r/transferor is the pre-need company wherein an annotation to the TCT
relative to the sale/transfer may be allowed. It shall be recorded at acquisition
cost.

However, the real estate shall be appraised every three (3) years by a licensed real estate
appraiser, accredited by the Philippine Association of Real Estate Appraisers, to reflect the
increase or decrease in the value of the property. In case the appraisal would result in an increase
in the value, only sixty percent (60%) of the appraisal increase is allowed to be recorded in the
books of the trust fund but in case of decline in value, the entire decline shall be recorded.
Appraisal increment should not be used to cover up the required monthly contribution to the trust
fund.

The total recorded value of the real estate investment shall not exceed ten percent (10%) of the
total trust fund amount of the pre-need company. In the event that the existing real estate
investment exceeds the aforesaid limit, the same shall be leveled off to the prescribed limit
within three (3) years from the effectivity of this Code.

Investment of the trust fund, which is not in accordance with the preceding paragraphs, shall not
be allowed unless the prior written approval of the Commission had been secured: Provided,
further, That no deposit or investment in any single entity shall exceed fifteen percent (15%) of
the total value of the trust fund: Provided, finally, That the Commission is authorized to adjust
the percentage allocation per category set forth herein not in excess of two percentage (2%)
points upward or downward and no oftener than once every five (5) years. The first adjustment
hereunder may be made no earlier than five (5) years from the effectivity of this Act. The pre-
need company shall not use the trust fund to extend any loan to or to invest in its directors,
stockholders, officers or its affiliates.

xxx

SECTION 36. Trust Fund Deficiencies. — Upon approval by the Commission of the pre-need
reserve computation submitted in the preceding section, any deficiency in the trust fund, when
compared to the reserve liabilities as reported in the pre-need reserve valuation report, shall be
funded by the pre-need company within sixty (60) days from such approval. Failure to cover the
deficiency in an appropriate manner within the time required shall subject the pre-need company
to the payment of a penalty, in addition to other remedies exercisable by the Commission, as
provided for in this Code. Any excess of the trust fund over the actuarial reserve liabilities may
be credited to future deposit requirements.
SECTION 37. Liquidity Reserve. — The trustee shall at all times maintain a liquidity reserve
which shall be sufficient to cover at least fifteen percent (15%) of the trust fund but in no case
less than one hundred twenty-five percent (125%) of the amount of the availing plans for the
succeeding year. For this purpose, the pr pany shall timely submit to the trustee a summary of
benefits payable for the succeeding year.

The following shall qualify as investments for the liquidity reserve:

(a) Loans secured by a hold-out on assignment or pledge deposits maintained

either with the trustee or other banks, or of deposit substitute of the trustee itself
or mortgage and chattel mortgage bonds issued by the trustee;

(b) Treasury notes or bills, other government securities or bonds, and such other
evidences or indebtedness or obligations the servicing and repayment of which
are fully guaranteed by the Republic of the Philippines;

(c) Repurchase agreements with any of those mentioned in Item "b" above, as
underlying instruments thereof; and

(d) Savings or time deposits with government-owned banks or commercial banks.

SECTION 38. Trustees. — Upon approval of the Commission or when the Commission
requires for the protection of plan holders, the pre-need company shall entrust the management
and administration of the trust fund to any reputable bank's trust department, trust company or
any entity authorized to perform trust functions in the Philippines: Provided, That no director
and/or officer of the pre-need company shall at the same time serve as director and/or officer of
the affiliate or related trust entity: Provided, further, That no trust fund shall be established by a
preneed company with a subsidiary, affiliate or related trust entity. However, such may be
allowed: Provided, That the following conditions are complied with:

(a) A written approval of the Commission has been previously obtained; and

(b) Public disclosure of the affiliation with the trust entity be included in all
materials in whatever form.

The Commission shall have the authority to prescribe appropriate rules that shall ensure that the
yield of the trust fund is maximized, consistent with the requirements of safety and liquidity.

[Italics Supplied]

"Under the principle of legislative approval of administrative interpretation by re-enactment, the

re-enactment of a statute, substantiallyunchanged (as in this case), is persuasive indication of the
adoption by Congress of a prior executive construction."26 Accordingly, where a statute is
susceptible of the meaning placed upon it by a ruling of the government agency charged with its
enforcement and the legislature thereafter reenacts the provisions without substantial change,
such action is to some extent confirmatory that the ruling carries out the legislative purpose.27

The Court cannot go against that legislative intent for it is the duty of this institution to read what
the law intends. It is a cardinal rule that, in seeking the meaning of the law, the first concern of
the judge should be to discover in its provisions the intent of the lawmaker. Unquestionably, the
law should never be interpreted in such a way as to cause injustice as this is never within the
legislative intent. An indispensable part of that intent, in fact, for we presume the good motives
of the legislature, is to render justice.28

To rule that Legacy has retained a beneficial interest in the trust fund is to perpetuate the
injustices being committed against the plan holders and violate not only the spirit of the trust
agreement but, more importantly, the lawmaker’s intent. If indeed Legacy had an interest that
could be reached by its creditors even during insolvency, the plan holders would be prejudiced as
they would be forced to share in the assets that would be distributed pro rata to all creditors,
whether plan holders or not. It would contradict the very purpose for which the trust was
mandated by the Congress in the first place.

Third, the perceived interest of Legacy, as touted by the Assignee, has simply no basis. It may
appear that Legacy under the agreement has control over the enforcement of the trust because of
its provisions stating that Legacy shall "solely and exclusive[ly] [be] responsible for fulfilling the
services referred to in the recital clauses and the settlement/payment of claims of any person or
firm availing of such services" and that "[a]ny written direction of the Company [to the trustee]
shall constitute a certification that the distribution of payment so directed is one which the
Company is authorized to direct"29 Such provisions, however, cannot be construed as Legacy
having retained a beneficial interest in the trust fund.

To begin with, the aforestated provisions refer solely to the delivery of the proceeds of the trust
from LBP to Legacy and then finally to the beneficiaries. In effect, Legacy merely agreed to
facilitate the payment of the benefits from the trust fund to the intended beneficiaries,
acting as a conduit or an agent of the trustee in the enforcement of the trust agreement.
Under the general principles of trust, a trustee, by the terms of the agreement may be
permitted to delegate to agents or to co-trustees or to other persons the administration of
the trust or the performance of act which could not otherwise be properly
delegated.30 Thus, by the terms of the trust, as in this case, a trustee may be authorized or permit
an agent to do acts such as the delivery of the benefits out of the trust fund.

The Court cannot subscribe either to the Assignee’s position that Legacy is a debtor of the
planholders relative to the trust fund. In trust, it is the trustee, and not the trustor, who owes
fiduciary duty to the beneficiary.

The Restatement is clear on this point. Section 170 thereof provides that the "trustee is under a
duty to the beneficiary to administer the trust solely in the interest of the beneficiary."31 Section
182 also states that the duty of a trustee is to pay income to the beneficiary.32 Thus, LBP is
tasked with the fiduciary duty to act for the benefit of the planholders as to matters within the
scope of the relation.33 Like a debtor, LBP owes the planholders the amounts due from the trust
fund. As to the planholders, as creditors, they can rightfully use equitable remedies against the
trustee for the protection of their interest in the trust fund and, in particular, their right to demand
the payment of what is due them from the fund. Verily, Legacy is out of the picture and exists
only as a representative of the trustee, LBP, with the limited role of facilitating the delivery of
the benefits of the trust fund to the beneficiaries – the planholders. The trust fund should not
revert to Legacy, which has no beneficial interest over it. Not being an asset of Legacy, the trust
fund is immune from its reach and cannot be included by the RTC in the insolvency estate.

In the end, the failure of Judge Laigo to consider the provisions of the SRC, the New Rules and
the law on trusts, that should have warranted the exclusion of the trust fund from the insolvency
estate of Legacy, constituted grave abuse of discretion. In treating the trust fund as forming part
of Legacy’s insolvency estate, Judge Laigo acted against what was contemplated by law. He
turned a blind eye to the will of the Congress as expressed through the SRC and the Pre-Need
Code. In the process, he endangered the claims of the planholders by allowing the probability
that they would be drastically reduced or dissipated. He should have acted prudently bearing in
mind that the establishment of the trust was precisely for the exclusive benefit of the plan
holders.

Enjoining the SEC from validating the

claims against the trust fund is grave
abuse of discretion for the insolvency
court has no authority to order the
reversion of properties that do not
form part of Legacy’s insolvent estate.
The Assignee cited Abrera v. College Assurance Plan34 (Abrera), where the Court held that
claims covered by rehabilitation proceedingsbefore the RTC should include all claims or
demands of whatever nature or character against a debtor or its property. At the heart of the
Assignee’s argument is that because the authority is with the RTC, the SEC has no right to
interfere in the insolvency proceedings.

It is an error for the Assignee to assume that the authority of the RTC extends to the claims
against the trust fund. Claims against the trust fund must be distinguished from claims against
Legacy. The claims against the trust fund are directed not against Legacy, but against LBP, the
trustee, being the debtor relative to the trust properties.

The Pre-Need Code is clear on this. It recognizes the distinction between claims against the pre-
need company and those against the trust fund.1âwphi1 Section 52 (b) states that liquidation
"proceedings in court shall proceed independently of proceedings in the Commission for the
liquidation of claims, and creditors of the pre-need company shall have no
personality whatsoever in the Commission proceedings to litigate their claims against the trust
funds." The reason why claims against the trust funds can proceed independently of the
proceedings in the courts is the fact that the latter is directed against a different person or entity.

Moreover, the Assignee must be reminded that the issue in Abrera is not similar to the question
raised here by the SEC. In the case at bench, the SEC questions the propriety of including the
trust fund in the inventory of Legacy’s corporate assets.

Jurisdiction over claims filed against

the trust fund

From the effectivity of the Pre-Need Code, it is the Insurance Commission (IC) that "shall have
the primary and exclusive power to adjudicate any and all claims involving pre-need plans."35

The transitory provisions of the Pre-Need Code, however, provide that "[n]otwithstanding
any provision to the contrary, all pending claims, complaints and cases (referring to pre-
need contract and trust claims) filed with the SEC shall be continued in its full and final
conclusion."36

The Pre-Need Code recognizes that the jurisdiction over pending claims against the trust funds
prior to its effectivity is vested with the SEC. Such authority can be easily discerned even from
the provisions of the SRC.

Section 4 thereof provides that despite the transfer of jurisdiction37 to the RTC of those matters
enumerated under Section 5 of P.D. No. 902-A,38 the SEC remains authorized to "exercise such
other powers as may be provided by law as well as those which may be implied from, or which
are necessary or incidental to the carrying out of, the express powers granted the
Commission39 to achieve the objectives and purposes of these laws."40 Relevant thereto is
Section 36.5 (b) of the SRC which states that:

The Commission may, having due regard to the public interest or the protection of investors,
regulate, supervise, examine, suspend or otherwise discontinue such and other similar funds
under such rules and regulations which the Commission may promulgate, and which may include
taking custody and management of the fund itself as well as investments in, and disbursements
from, the funds under such forms of control and supervision by the Commission as it may from
time to time require. The authority granted to the Commission under this subsection shall also
apply to all funds established for the protection of investors (which necessarily includes the trust
funds), whether established by the Commission or otherwise.41

Concomitantly, under the New Rules, the SEC "may, at its discretion, demand for the conversion
to cash or other near cash assets of the investments made by the Trustee to protect the interest of
the Planholders."42
Therefore, even prior to the transfer to the IC of matters pertaining to pre-need plans and trust
funds, the SEC had authority to regulate, manage, and hear all claims involving trust fund assets,
if in its discretion, public interest so required. Accordingly, all claims against the trust funds,
which have been pending before it, are clearly within the SEC’s authority to rule upon.

Pre-Need Code is curative and

remedial in character and,
therefore, can be applied
retroactively

Finally, it must be stressed that the primary protection accorded by the Pre-Need Code to the
plan holders is curative and remedial and, therefore, can be applied retroactively. The rule is that
where the provisions of a statute clarify an existing law and do not contemplate a change in that
law, the statute may be given curative, remedial and retroactive effect.43 To review, curative
statutes are those enacted to cure defects, abridge superfluities, and curb certain evils.44 As
stressed by the Court in Fabian v. Desierto,45

If the rule takes away a vested right, it is not procedural. If the rule creates a right such as the
right to appeal, it may be clarified as a substantive matter; but if it operates as a means
of implementing an existing right then the rule deals merely with procedure.

[Emphasis Supplied]

A reading of the Pre-Need Code immediately shows that its provisions operate merely in
furtherance of the remedy or confirmation of the right of the planholders to exclusively claim
against the trust funds as intended by the legislature. No new substantive right was created or
bestowed upon the plan holders. Section 52 of the Pre-Need Code only echoes and clarifies the
SRC’s intent to exclude from the insolvency proceeding trust fund assets that have been
established "exclusively for the benefit of plan holders." It was precisely enacted to foil the
tactic of taking undue advantage of any ambiguities in the New Rules.

Any doubt or reservation in this regard has been dispelled by the Pre- Need Code. Section 57
thereof provides that "[a]ny pre-need company who, at the time of the effectivity of this Code
has been registered and licensed to sell pre-need plans and similar contracts, shall be
considered registered and licensed under the provision of this Code and its implementing
rules and regulations and shall be subject to and governed by the provisions hereof xxx."
Thus, Legacy and all other existing pre-need companies cannot claim that the provisions of the
Pre- Need Code are not applicable to them and to the claims which accrued prior to the
enactment of the said law.

"[I]t has been said that a remedial statute must be so construed as to make it effect the evident
purpose for which it was enacted, so that if the reason of the statute extends to past
transactions, as well as to those in the future, then it will be so applied although the statute does
not in terms so direct..46 With the Pre-Need Code having the attribute of a remedial statute,
Legacy and all pre-need providers or their creditors cannot argue that it cannot be retroactively
applied.

Conclusion

In sum, improvidently ordering the inclusion of the trust fund in Legacy's insolvency estate
without regard to the avowed state policy of protecting the consumer of pre-need plans, as laid
down in the SRC, the New Rules, and the Pre-Need Code, constitutes grave abuse of discretion.
The R TC should have known, and ought to know, the overarching consideration the Congress
intended in requiring the establishment of trust funds - to uphold first and foremost the interest of
the plan holders.
The Court upholds its duty to protect the ordinary Filipino workers who are seeking a future for
their children through pre-need contracts. Their incredibly long wait is over as this is the moment
when their rightful and exclusive right to the trust funds, created primarily for them, is judicially
respected and affirmed.

WHEREFORE, the petition is GRANTED. The June 26, 2009 Order of the Regional Trial
Court, Branch 56, Makati City, is declared NULL and VOID.

The Securities and Exchange Commission is directed to process the claims of legitimate plan
holders with dispatch.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice

WE CONCUR:

ANTONIO T. CARPIO
Associate Justice
Chairperson

ARTURO D. BRION MARIO C. DEL CASTILLO

Associate Justice Associate Justice

MARVIC M.V.F. LEONEN

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

MARIA LOURDES P. A. SERENO

Chief Justice
 G.R. No. 197728, September 16, 2015

SPOUSES ARMANDO AND LORNA TRINIDAD, Petitioners,

vs. DONA* MARIE GLENN IMSON, Respondent.

DECISION

PERALTA, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court
seeking the reversal and setting aside of the Decision1 and Resolution of the Court of Appeals
(CA), dated December 22, 2010 and June 23, 2011,2 respectively, in CA-G.R. SP No. 110357.
The assailed CA Decision reversed and set aside the Decision3 dated June 19, 2009 of the
Regional Trial Court (RTC) of Pasig City, Branch 155, while the questioned CA Resolution
denied petitioners' Motion for Reconsideration.

The factual and procedural antecedents of the case are as follows:chanRoblesvirtualLawlibrary

On August 17, 2007, herein petitioners filed with the Metropolitan Trial Court (MeTC) of Pasig
City a Complaint4 for ejectment against herein respondent. In their Position Paper,5 petitioners
alleged that: they are the owners of a condominium unit, denominated as Unit 2203, which is
located at AIC Gold Tower, Emerald Avenue, Ortigas Center, Pasig City; they purchased the
condominum unit from three (3) Indian nationals who originally contracted to buy the said
property from the developer, AIC Realty Corporation (AIC), but had not fully paid for it yet;
petitioners' purchase was evidenced by a Deed of Assignment and Transfer of Rights6 dated June
13, 2002 and, later on, a Deed of Absolute Sale7 dated July 13, 2007 in the name of petitioner
Armando; at the time of petitioners' purchase of the subject condominium unit, the same was
being leased by respondent from the original owners; the period of lease was from April 1, 2002
to March 1, 2003; petitioners respected the contract of lease between respondent and the original
owners; however, since June 2002 up to the time of the filing of the complaint for ejectment,
respondent neither remitted nor consigned the monthly rentals due to petitioners for her
continued use of the condominium unit; the rental arrears amounted to a total of P2,130,000.00;
petitioners sent a letter of demand to respondent requiring that she, together with any and all
persons using the said unit with her approval, vacate the premises and pay her arrears;
respondent ignored petitioners' demand letter; petitioners tried to settle the case amicably but no
agreement was reached.

In her Answer with Compulsory Counterclaims,8 respondent countered that: she, indeed, entered
into a contract of lease with the original owners of the disputed condominium unit which was to
commence on April 1, 2002 and would end on March 1, 2003; sometime in June 2002, she
decided to purchase the unit; however, since she was then undergoing proceedings to annul her
previous marriage and thinking that her purchase of the subject property would disrupt the
property arrangements already agreed upon, she thought it best not to have the condominium unit
registered yet in her name; instead, she requested Armando Trinidad, who was her confidante, to
purchase the unit and register it under his name with the understanding that the said property
would actually be owned by respondent; Armando agreed without objection, which led to the
execution of the Deed of Assignment and Transfer of Rights in his name; payments for the
purchase price were made by respondent through cash and checks paid to the original owners
who acknowledged said payments; aside from paying the purchase price, respondent also paid
the real property taxes due on the condominium unit as well as the association dues, water bills,
common area real estate tax, building insurance and other charges billed by the developer;
having full trust in Armando, coupled with her hectic schedule, respondent did not bother to
transfer ownership of the subject unit in her name; since April 2002 up to the time of filing her
Answer, respondent has been in open and public possession of the subject property; in 2007,
while respondent was out of the country, Armando, without respondent's knowledge, annotated
his claim on the condominium certificate of title; he also executed a Deed of Absolute Sale in his
favor on July 13, 2007; as a result, respondent was surprised to receive a copy of petitioners'
demand letter and complaint.

On August 8, 2008, the MeTC of Pasig City, Branch 70, rendered its Decision9 dismissing
petitioners' complaint and ordering them to pay respondent the amount of P250,000.00 as
attorney's fees and cost of suit.

The MeTC found that respondent is the true owner of the subject property and that the true
intention of the parties is for Armando to hold the condominium unit in behalf of respondent
until the property could be placed in the latter's name.

Petitioners filed an appeal with the RTC of Pasig City.

On June 19, 2009, the RTC of Pasig City, Branch 155, rendered its Decision which reversed the
MeTC Decision. The dispositive portion of the RTC judgment reads, thus:

WHEREFORE, premises considered, the Decision dated August 8, 2008 rendered by the
Metropolitan Trial Court, Branch 70, Pasig City is hereby ordered REVERSED and SET
ASIDE and a new one ENTERED ordering the defendant-appellee [herein respondent] and all
persons claiming rights under her to vacate Unit 2203, AIC Gold Tower, Emerald Avenue,
Ortigas Center, Pasig City and to pay rental arrearages from July 13, 2007, at the rate of
P30,000.00 per month, until such arrearages shall have been fully paid and the premises vacated
and possession thereof restored to plaintiffs-appellants.

SO ORDERED.10
The RTC held that, by preponderance of evidence, the question of ownership is resolved in favor
of petitioners. The RTC held that the subject Deed of Assignment and Transfer of Rights and the
Deed of Absolute Sale in the name of Armando is superior to the evidence presented by
respondent, which merely consisted of bills of payments of association dues, utility bills, real
estate tax on the common areas and building insurance.

Aggrieved by the RTC Decision, respondent filed a petition for review with the CA.

On December 22, 2010, the CA promulgated its assailed Decision setting aside the RTC
judgment and ordering petitioners to return possession of the subject condominium unit to
respondent.

The CA ratiocinated that, based on the evidence adduced by the parties, respondent's claim of
ownership deserves more credence. The CA ruled that records of payment of the purchase price
of the subject property, through respondent's personal checks, acknowledgment of these
payments by the former owners by way of receipt and affidavit, and respondent's exercise of acts
of ownership prove that she is the owner of the disputed condominium unit and, thus, is entitled
to the possession thereof.

Petitioners filed a Motion for Reconsideration,11 but the CA denied it in its Resolution dated June
23, 2011.

Hence, the instant petition for review on certiorari, raising the following issues, to wit:
Do the pieces of evidence shown by the Respondent suffice to provisionally declare her as owner
of the subject condomunium unit?12

Does the evidence of the Respondent suffice to make an impression that it was the Respondent
who paid the consideration for the Deed of Assignment and Transfer of Rights?13

[Was there] an implied trust?14

The petition should be denied.

At the outset, the Court notes that both parties anchor their right to possess the disputed property
on their supposed ownership of the same. Thus, the courts are left with no recourse but to resolve
the issue of ownership for the sole purpose of determining as to who between the parties is
entitled to possess the subject condominium unit. However, as held by the CA, where the issue
of ownership is inseparably linked to that of possession, adjudication of the ownership issue is
not final and binding, but only for the purpose of resolving the issue of possession.15 The
adjudication of the issue of ownership is only provisional, and not a bar to an action between the
same parties involving title to the property.16

The resolution of the issue of ownership, however, would entail going into factual matters.
Settled is the rule that questions of fact are not reviewable in petitions for review
on certiorari under Rule 45 of the Rules of Court.17 Section 1 of Rule 45 states that petitions for
review on certiorari shall raise only questions of law which must be distinctly set forth.
Doubtless, in the instant case, the issue of whether respondent possesses the subject property as
owner, or whether she occupies the same as a lessee, is a question of fact. Thus, as a rule, it is not
reviewable.

Nonetheless, the Court has, at times, allowed exceptions from the abovementioned restriction.
Among the recognized exceptions are the following:
(a) When the findings are grounded entirely on speculation, surmises, or
conjectures;ChanRoblesVirtualawlibrary

(b) When the inference made is manifestly mistaken, absurd, or

impossible;ChanRoblesVirtualawlibrary

(c) When there is grave abuse of discretion;ChanRoblesVirtualawlibrary

(d) When the judgment is based on a misapprehension of facts;ChanRoblesVirtualawlibrary

(e) When the findings of facts are conflicting;ChanRoblesVirtualawlibrary

(f) When in making its findings the CA went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee;ChanRoblesVirtualawlibrary

(g) When the CA's findings are contrary to those of the trial court;ChanRoblesVirtualawlibrary

(h) When the findings are conclusions without citation of specific evidence on which they are
based;ChanRoblesVirtualawlibrary

(i) When the facts set forth in the petition as well as in the petitioners main and reply briefs are
not disputed by the respondent;ChanRoblesVirtualawlibrary

(j) When the findings of fact are premised on the supposed absence of evidence and contradicted
by the evidence on record; and

(k) When the CA manifestly overlooked certain relevant facts not disputed by the parties, which,
if properly considered, would justify a different conclusion.18
In the present case, the findings of fact of the MeTC and the CA are in conflict with those of the
RTC. It thus behooves this Court to look into the factual findings of the lower courts to
determine the nature of respondent's possession of the disputed property.

After a careful review of the records at hand, the Court finds that the petition must fail as it finds
no error in the findings of fact and conclusions of law of the CA and the MeTC that respondent
is, indeed, entitled to the possession of the subject property.
As earlier stated, petitioners relied heavily on the Deed of Assignment and Transfer of Rights as
well as the Deed of Absolute Sale, which were executed in Armando's favor, to prove their
ownership of the subject property. Having been notarized, they contend that these documents
outweigh all the pieces of evidence presented by respondent.

The Court is not persuaded.

It is true that the subject Deed of Assignment and Transfer of Rights and Deed of Absolute Sale
are notarized. It is well settled that a document acknowledged before a notary public is a public
document that enjoys the presumption of regularity.19 It is a prima facie evidence of the truth of
the facts stated therein and a conclusive presumption of its existence and due
execution.20However, the CA correctly held that the existence and due execution of these
documents are not in issue. Moreover, the presumption of truth of the facts stated in notarized
documents is merely prima facie, which means that this presumption can be overcome by clear
and convincing evidence.21 Hence, the truth of the facts stated in the disputed Deed of
Assignment and Transfer of Rights as well as the Deed of Absolute Sale may be rebutted by
evidence.

In the present case, what is being asserted by respondent is that the above documents do not
embody the true intent and agreement of the parties. To this end, respondent submitted sufficient
proof to refute the contents of the aforementioned documents and to establish the real intent of
the parties, to wit: (1) nine [9] checks drawn from the personal account of respondent, variously
dated from October 11, 2002 to June 11, 2003, each of which amounts to P416,666.67 and paid
to the order of Amarnath Hinduja;22(2) Acknowledgment Receipt recognizing the various
payments made by respondent to the former owners of the subject property;23(3) Real Property
Tax Receipts evidencing respondent's payment of the real estate taxes due on the property;24 (4)
Certification issued by AIC Golden Tower Condominium acknowledging respondent's regular
payment of association dues, water bills, common area real estate tax, building insurance and
other charges billed by AIC;25 (5) Affidavit executed by the former owners acknowledging the
supposed agreement of the parties that the condominium unit shall be purchased in the name of
Armando with the understanding that he will hold it in behalf of respondent until the same could
be placed in her name.26

The MeTC and the CA were one in holding that the foregoing pieces of evidence submitted by
respondent, coupled with the surrounding circumstances in this case, are sufficient to overcome
the prima facie presumption of the truth of the facts stated in the questioned Deed of Assignment
and Transfer of Rights and Deed of Absolute Sale. The Court agrees.

Indeed, petitioners failed to offer any credible explanation why payments of the purchase price
were made by respondent by using her personal checks if she is not, in fact, the buyer of the
property. Neither was there any justification why respondent paid the real property taxes due on
the property, as well as the utility bills, association dues, common area real estate tax and
building insurance. More importantly, petitioners also fell short in advancing a plausible
refutation why the former owners would execute an affidavit indicating therein that the
agreement among the parties is that the subject property shall be purchased in the name of
Armando with the understanding between the latter and respondent that Armando would hold the
property in respondent's behalf until it will be placed in her name, thus exposing themselves to
possible perjury charges, if such agreement is not really true.

In addition, if petitioners are the real owners of the subject condominium unit, why did they wait
until February 19, 2007,27 or almost four (4) years after the supposed expiration of respondent's
lease contract, to demand that she vacate the disputed premises and pay rentals. Moreover, as the
MeTC has noted, it was only in 2007 that Armando annotated his claim on the condominium
certificate of title, executed the subject Deed of Absolute Sale and requested certification of his
ownership from the developer.

Petitioners argue that under the Parole Evidence Rule, when the terms of an agreement have been
reduced to writing, it is considered as containing all the terms agreed upon and there can be, as
between the parties, no evidence of such terms other than the contents of the written
agreement.28Based on this rule, petitioners contend that since the former owners, as well as
respondent, are all parties to the Deed of Assignment and Transfer of Rights, they are bound by
the said Deed and they cannot allege terms which are not found within the said agreement.

The Court is not convinced.

The fact that the Deed of Assignment and Transfer of Rights was put in writing and notarized
does not accord it the quality of incontrovertibility otherwise provided by the Parole Evidence
Rule.29 The rule on parole evidence is not, as it were, ironclad. Thus, the second paragraph of
Section 9, Rule 130 of the Rules of Court provides the exceptions, to wit:
Section 9. Evidence of written agreements. - x x x

However, a party may present evidence to modify, explain or add to the terms of written
agreement if he puts in issue in his pleading:
(a) An intrinsic ambiguity, mistake or imperfection in the written
agreement;ChanRoblesVirtualawlibrary

(b) The failure of the written agreement to express the true intent and agreement of the
parties thereto;
(c) The validity of the written agreement; or

(d) The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.

The term "agreement" includes wills.30

As observed by the CA, respondent squarely put in issue in her Answer31 that the Deed of
Assignment and Transfer of Rights did not express the true intent of the parties. Hence, the
exception applies.

The Court is neither convinced by petitioners' argument that when ley bought the subject
property from its former owners, they stepped into the shoes of the latter who were the lessors of
respondent and that, as lessee, respondent is barred from contesting the title of her lessor or her
lessor's sjuccessor-in-interest, who are herein petitioners.

Article 1436 of the Civil Code provides that "[a] lessee or bailee is estopped from asserting title
to the thing leased or received, as against the lpssor or bailor." In addition, the conclusive
presumption found in Section 2(b), Rule 131 of the Rules of Court known as estoppel against
tenants provides as follows:
Sec. 2. Conclusive presumptions. — The following are instances of conclusive presumptions:
xxxx

(b) The tenant is not permitted to deny the title of his landlord at the time of the commencement
of the relation of landlord and tenant between them.

It is clear from the above-quoted provision that what a tenant is stopped from denying is the title
of his landlord at the time of the commencement of the landlord-tenant relation.32 If the title
asserted is one that is alleged to have been acquired subsequent to the commencement of that
relation, the presumption will not apply.33 Hence, the tenant may show that the landlord's title
has expired or been conveyed to another or himself; and he is not estopped to deny a claim for
rent, if he has been ousted or evicted by title paramount.34 In the present case, what respondent is
claiming is her title to the subject property which she acquired subsequent to the commencement
of the landlord-tenant relation between her and the former owners of the questioned
condominium unit. Thus, the presumption under Section 2 (b), Rule 131 of the Rules of Court
does not apply and respondent is not estopped from asserting title over the disputed property.
As to whether or not an implied trust was created in respondent's favor, the first sentence of
Article 1448 of the Civil Code provides that "[t]here is an implied trust when property is sold and
the legal estate is granted to one party but the price is paid by another for the purpose of having
the beneficial interest of the property." This is sometimes referred to as a purchase money
resulting trust, the elements of which are: (a) an actual payment of money, property or services,
or an equivalent, constituting valuable consideration; and (b) such consideration must be
furnished by the alleged beneficiary of a resulting trust.35 The principle of a resulting trust is
based on the equitable doctrine that valuable consideration, and not legal title, determines the
equitable title or interest and are presumed always to have been contemplated by the
parties.36 They arise from the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with legal title but is obligated in
equity to hold his legal title for the benefit of another.37

Intention - although only presumed, implied or supposed by law from the nature of the
transaction or from the facts and circumstances accompanying the transaction, particularly the
source of the consideration - is always an element of a resulting trust and may be inferred from
the acts or conduct of the parties rather than from direct expression of conduct.38 Certainly, intent
as an indispensable element, is a matter that necessarily lies in the evidence, that is, by evidence,
even circumstantial, of statements made by the parties at or before the time title
passes.39 Because an implied trust is neither dependent upon an express agreement nor required
to be evidenced by writing, Article 1457 of our Civil Code authorizes the admission of parole
evidence to prove their existence.40 Parole evidence that is required to establish the existence of
an implied trust necessarily has to be trustworthy and it cannot rest on loose, equivocal or
Indefinite declarations.41 In the instant petition, the Court finds no cogent reason to depart from
the findings of the MeTC and the CA that, under the circumstances of the case, the parole
evidence presented by respondent sufficiently proves that an implied trust was created in her
favor.

Finally, a trust, which derives its strength from the confidence one reposes on another, does not
lose that character simply because of what appears in a legal document.42 Applying this principle
to the present case, petitioner Armando, as trustee, cannot repudiate the trust by simply relying
on the questioned Deed of Assignment and Transfer of Rights and the Deed of Absolute Sale.

WHEREFORE, the instant petition is DENIED. The Decision and Resolution of the Court of
Appeals, dated December 22, 2010 and June 23, 2011, respectively, in CA-G.R. SP No. 110357,
are AFFIRMED.

SO ORDERED.chanroblesvirtuallawlibrary

Velasco, Jr., (Chairperson), Villarama, Jr., Perez,** and Jardeleza, JJ., concur.
 G.R. No. 182177 March 30, 2011

RICHARD JUAN, Petitioner,

vs.
GABRIEL YAP, SR., Respondent.

DECISION

CARPIO, J.:

The Case

This resolves the petition for review1 of the ruling2 of the Court of Appeals finding petitioner
Richard Juan as trustee of an implied trust over a mortgage contract in favor of respondent
Gabriel Yap, Sr.

The Facts

On 31 July 1995, the spouses Maximo and Dulcisima Cañeda (Cañeda spouses) mortgaged to
petitioner Richard Juan (petitioner), employee and nephew of respondent Gabriel Yap, Sr.
(respondent), two parcels of land in Talisay, Cebu to secure a loan of ₱1.68 million, payable
within one year. The Contract was prepared and notarized by Atty. Antonio Solon (Solon).

On 30 June 1998, petitioner, represented by Solon, sought the extrajudicial foreclosure of the
mortgage. Although petitioner and respondent participated in the auction sale, the properties
were sold to petitioner for tendering the highest bid of ₱2.2 million.3 No certificate of sale was
issued to petitioner, however, for his failure to pay the sale’s commission.4

On 15 February 1999, respondent and the Cañeda spouses executed a memorandum of

agreement (MOA) where (1) the Cañeda spouses acknowledged respondent as their "real
mortgagee-creditor x x x while Richard Juan [petitioner] is merely a trustee"5 of respondent; (2)
respondent agreed to allow the Cañeda spouses to redeem the foreclosed properties for ₱1.2
million; and (3) the Cañeda spouses and respondent agreed to initiate judicial action "either to
annul or reform the [Contract] or to compel Richard Juan to reconvey the mortgagee’s rights"6 to
respondent as trustor. Three days later, the Cañeda spouses and respondent sued petitioner in the
Regional Trial Court of Cebu City (trial court) to declare respondent as trustee of petitioner vis a
vis the Contract, annul petitioner’s bid for the foreclosed properties, declare the Contract
"superseded or novated" by the MOA, and require petitioner to pay damages, attorney’s fees and
the costs. The Cañeda spouses consigned with the trial court the amount of ₱1.68 million as
redemption payment.

In his Answer, petitioner insisted on his rights over the mortgaged properties. Petitioner also
counterclaimed for damages and attorney’s fees and the turn-over of the owner’s copy of the
titles for the mortgaged properties.

The Ruling of the Trial Court

The trial court ruled against respondent and his co-plaintiffs and granted reliefs to petitioner by
declaring petitioner the "true and real" mortgagee, ordering respondent to pay moral damages
and attorney’s fees, and requiring respondent to deliver the titles in question to petitioner.7 The
trial court, however, granted the Cañeda spouses’ prayer to redeem the property and accordingly
ordered the release of the redemption payment to petitioner. In arriving at its ruling, the trial
court gave primacy to the terms of the Contract, rejecting respondent’s theory in light of his
failure to assert beneficial interest over the mortgaged properties for nearly four years.
Respondent appealed to the Court of Appeals (CA), imputing error in the trial court’s refusal to
recognize a resulting trust between him and petitioner and in granting monetary reliefs to
petitioner.

Ruling of the Court of Appeals

The CA granted the petition, set aside the trial court’s ruling, declared respondent the Contract’s
mortgagee, directed the trial court to release the redemption payment to respondent, and ordered
petitioner to pay damages and attorney’s fees.8 The CA found the following circumstances
crucial in its concurrence with respondent’s theory, notwithstanding the terms of the Contract:
(1) Solon testified that he drew up the Contract naming petitioner as mortgagee upon instructions
of respondent; (2) Dulcisima Cañeda acknowledged respondent as the creditor from whom she
and her husband obtained the loan the Contract secured; and (3) respondent shouldered the
payment of the foreclosure expenses.9 Instead, however, of annulling the Contract, the CA held
that reformation was the proper remedy, with the MOA "serv[ing] as the correction done by the
parties to reveal their true intent."10

In this petition, petitioner prays for the reversal of the CA’s ruling. Petitioner relies on the terms
of the Contract, and argues that respondent’s proof of a resulting trust created in his favor is
weak. Petitioner also assails the award of damages to respondent for lack of basis.

On the other hand, respondent questions the propriety of this petition for raising only factual
questions, incompatible with the office of a petition for review on certiorari. Alternatively,
respondent argues that the pieces of parol evidence the CA used to anchor its ruling are more
than sufficient to prove the existence of an implied trust between him and petitioner.

The Issues

The petition raises the following questions:

1. Whether an implied trust arose between petitioner and respondent, binding petitioner to
hold the beneficial title over the mortgaged properties in trust for respondent; and

2. Whether respondent is entitled to collect damages.

The Ruling of the Court

We hold in the affirmative on both questions, and thus affirm the CA.

Conflicting Rulings Below Justify

Rule 45 Review

The question of the existence of an implied trust is factual,11 hence, ordinarily outside the
purview of a Rule 45 review of purely legal questions.12 Nevertheless, our review is justified by
the need to make a definitive finding on this factual issue in light of the conflicting rulings
rendered by the courts below.13

Implied Trust in Mortgage Contracts

An implied trust arising from mortgage contracts is not among the trust relationships the Civil
Code enumerates.14The Code itself provides, however, that such listing "does not exclude others
established by the general law on trust x x x."15 Under the general principles on trust, equity
converts the holder of property right as trustee for the benefit of another if the circumstances of
its acquisition makes the holder ineligible "in x x x good conscience [to] hold and enjoy
[it]."16 As implied trusts are remedies against unjust enrichment, the "only problem of great
importance in the field of constructive trusts is whether in the numerous and varying factual
situations presented x x x there is a wrongful holding of property and hence, a threatened unjust
enrichment of the defendant."17

Applying these principles, this Court recognized unconventional implied trusts in contracts
involving the purchase of housing units by officers of tenants’ associations in breach of their
obligations,18 the partitioning of realty contrary to the terms of a compromise agreement,19 and
the execution of a sales contract indicating a buyer distinct from the provider of the purchase
money.20 In all these cases, the formal holders of title were deemed trustees obliged to transfer
title to the beneficiaries in whose favor the trusts were deemed created. We see no reason to bar
the recognition of the same obligation in a mortgage contract meeting the standards for the
creation of an implied trust.

Parol Evidence Favor Respondent

The resolution of this appeal hinges on the appreciation of two conflicting sets of proofs –
petitioner’s (based on the mortgage contract) or respondent’s (based on parol evidence varying
the terms of the mortgage contract, allowed under the Civil Code21). After a review of the
records, we find no reason to reverse the ruling of the CA finding respondent’s case convincing.

In the first place, the Cañeda spouses acknowledged respondent as the lender from whom they
borrowed the funds secured by the Contract. They did so in the MOA22 and Dulcisima Cañeda
reiterated the concession on the stand.23True enough, when the Cañeda spouses sought an
extension of time within which to settle their loan, they directed their request not to petitioner but
to respondent who granted the extension.24 Petitioner, therefore, was a stranger to the loan
agreement, the principal obligation the Contract merely secured.

Secondly, Solon, the notary public who drew up and notarized the Contract, testified that he
placed petitioner’s name in the Contract as the mortgagor upon the instruction of
respondent.25 Respondent himself explained that he found this arrangement convenient because
at the time of the Contract’s execution, he was mostly abroad and could not personally attend to
his businesses in the country.26 Respondent disclosed that while away, he trusted petitioner, his
nephew by affinity and paid employee, to "take care of everything."27 This arrangement mirrors
that in Tigno v. Court of Appeals28 where the notary public who drew up a sales contract testified
that he placed the name of another person in the deed of sale as the vendee upon instructions of
the actual buyer, the source of the purchase money, who had to go abroad to attend to pressing
concerns. In settling the competing claims between the nominal buyer and the financier in Tigno,
we gave credence to the parol evidence of the latter and found the former liable to hold the
purchased property in trust of the actual buyer under an implied trust. No reason has been
proffered why we should arrive at a different conclusion here.1avvphi1

Lastly, it was respondent, not petitioner, who shouldered the payment of the foreclosure
expenses.29 Petitioner’s failure to explain this oddity, coupled with the fact that no certificate of
sale was issued to him (despite tendering the highest bid) for his non-payment of the
commission, undercuts his posturing as the real mortgagor.

Clearly then, petitioner holds title over the mortgaged properties only because respondent
allowed him to do so. The demands of equity and justice mandate the creation of an implied trust
between the two, barring petitioner from asserting proprietary claims antagonistic to his duties to
hold the mortgaged properties in trust for respondent. To arrive at a contrary ruling is to tolerate
unjust enrichment, the very evil the fiction of implied trust was devised to remedy.

Award of Damages Proper

Nor do we find reversible error in the CA’s award of moral and exemplary damages to
respondent. Respondent substantiated his claim for the former30 and the interest of deterring
breaches of trusts justifies the latter.
WHEREFORE, we DENY the petition. We AFFIRM the Decision dated 23 November 2007
and Resolution dated 6 March 2008 of the Court of Appeals.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR:

ANTONIO EDUARDO B. NACHURA

Associate Justice

DIOSDADO M. PERALTA ROBERTO A. ABAD

Associate Justice Associate Justice

JOSE C. MENDOZA
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice
 G.R. No. 166859 June 26, 2006

REPUBLIC OF THE PHILIPPINES, Petitioner,

vs.
SANDIGANBAYAN (FIRST DIVISION), EDUARDO M. COJUANGCO, JR.,
AGRICULTURAL CONSULTANCY SERVICES, INC., ARCHIPELAGO REALTY
CORP., BALENTE RANCH, INC., BLACK STALLON RANCH, INC., CHRISTENSEN
PLANTATION COMPANY, DISCOVERY REALTY CORP., DREAM PASTURES, INC.,
ECHO RANCH, INC., FAR EAST RANCH, INC., FILSOV SHIPPING COMPANY, INC.,
FIRST UNITED TRANSPORT, INC., HABAGAT REALTY DEVELOPMENT, INC.,
KALAWAKAN RESORTS, INC., KAUNLARAN AGRICULTURAL CORP., LABAYUG
AIR TERMINALS, INC., LANDAIR INTERNATIONAL MARKETING CORP., LHL
CATTLE CORPORATION, LUCENA OIL FACTORY, INC., MEADOW LARK
PLANTATIONS, INC., METROPLEX COMMODITIES, INC., MISTY MOUNTAIN
AGRICULTURAL CORP., NORTHEAST CONTRACT TRADERS, INC., NORTHERN
CARRIERS CORPORATION, OCEANSIDE MARITIME ENTERPRISES, INC., ORO
VERDE SERVICES, INC., PASTORAL FARMS, INC., PCY OIL MANUFACTURING
CORP., PHILIPPINE TECHNOLOGIES, INC., PRIMAVERA FARMS, INC., PUNONG-
BAYAN HOUSING DEVELOPMENT CORP., PURA ELECTRIC COMPANY INC.,
RADIO AUDIENCE DEVELOPERS INTEGRATED ORGANIZATION, INC., RADYO
PILIPINO CORPORATION, RANCHO GRANDE, INC., REDDEE DEVELOPERS,
INC., SAN ESTEBAN DEVELOPMENT CORP., SILVER LEAF PLANTATIONS, INC.,
SOUTHERN SERVICE TRADERS, INC., SOUTHERN STAR CATTLE CORP., SPADE
ONE RESORTS CORP., UNEXPLORED LAND DEVELOPERS, INC., VERDANT
PLANTATATIONS, INC., VESTA AGRICULTURAL CORP. AND WINGS RESORTS
CORPORATION, Respondents.

RESOLUTION

CARPIO MORALES, J.:

For resolution is the Urgent Motion for Issuance of Temporary Restraining Order and/or Writ of
Preliminary Injunction which was filed by petitioner, Republic of the Philippines, during the
pendency of its Petition for Certiorari before this Court challenging the denial by public
respondent, the Sandiganbayan, of its Motion for Partial Summary Judgment in Civil Case No.
0033-F (the civil case).

In support of its present urgent motion, petitioner pleads that the issue it raised in its Petition for
Certiorari — whether public respondent committed grave abuse of discretion in denying its
Motion for Partial Summary Judgment — must first be resolved, as a continuation of the
proceedings in the civil case by public respondent might be rendered unnecessary in the event
that its Petition before this Court is resolved in its favor.

The mere elevation of an interlocutory matter to this Court through a petition for Certiorari under
Rule 65 of the Rules of Court, like in the present case, does not by itself merit a suspension of
the proceedings before a public respondent, unless a temporary restraining order or a writ of
preliminary injunction has been issued against the public respondent. Rule 65, Section 7 of the
Rules of Court so provides:

SECTION 7. Expediting proceedings; injunctive relief. — The court in which the petition [for
Certiorari, Prohibition and Mandamus] is filed may issue orders expediting the proceedings, and
it may also grant a temporary restraining order or a writ of preliminary injunction for the
preservation of the rights of the parties pending such proceedings. The petition shall not interrupt
the course of the principal case unless a temporary restraining order or a writ of preliminary
injunction has been issued against the public respondent from further proceeding in the
case. (Emphasis and underscoring supplied)
The burden is thus on the petitioner in a petition for Certiorari, Prohibition and Mandamus to
show that there is a meritorious ground for the issuance of a temporary restraining order or writ
of preliminary injunction for the purpose of suspending the proceedings before the public
respondent.1 Essential for granting injunctive relief is the existence of an urgent necessity for the
writ in order to prevent serious damage.2

The Court finds that petitioner has failed to discharge the burden. The ground on which it bases
its urgent motion is the alleged futility of proceeding with the trial of the case. This assertion,
however, is speculative, anchored on the mere supposition that the petition would be decided in
its favor.

There is thus, in this case, a marked absence of any urgent necessity for the issuance of a
temporary restraining order or writ of preliminary injunction.

It is gathered though that even prior to the filing of the instant motion, public respondent
suspended the proceedings in the civil case, the absence of any temporary restraining order or
writ of preliminary injunction from this Court notwithstanding. Thus, petitioner brought to this
Court’s attention private respondents’ insistence to have the civil case set for trial by public
respondent, citing private respondents’ filing of a "Motion Reiterating Motion to Set Case for
Trial" dated June 27, 2005, "Second Motion Reiterating Motion to Set Case for Trial" dated
October 26, 2005, and "Manifestation and Motion Reiterating Motion to Set Case for Trial"
dated December 8, 2005.3

The earlier quoted Section 7 of Rule 65 provides the general rule that the mere pendency of a
special civil action for Certiorari commenced in relation to a case pending before a lower court
or court of origin does not stay the proceedings therein in the absence of a writ of preliminary
injunction or temporary restraining order.4

There are of course instances where even if there is no writ of preliminary injunction or
temporary restraining order issued by a higher court, it would be proper for a lower court or court
of origin to suspend its proceedings on the precept of judicial courtesy. As this Court explained
in Eternal Gardens Memorial Park v. Court of Appeals:5

Although this Court did not issue any restraining order against the Intermediate Appellate Court
to prevent it from taking any action with regard to its resolutions respectively granting
respondents' motion to expunge from the records the petitioner's motion to dismiss and denying
the latter's motion to reconsider such order, upon learning of the petition, the appellate court
should have refrained from ruling thereon because its jurisdiction was necessarily limited upon
the filing of a petition for certiorari with this Court questioning the propriety of the issuance of
the above-mentioned resolutions. Due respect for the Supreme Court and practical and ethical
considerations should have prompted the appellate court to wait for the final determination of
the petition before taking cognizance of the case and trying to render moot exactly what was
before this court x x x (Emphasis and underscoring supplied)

A reading of Eternal Gardens Memorial Park shows that the appellate court’s failure to observe
judicial courtesy which was frowned upon by this Court lay in its recall of its (the appellate
court’s) Orders expunging from the records the Motion to Dismiss filed by the therein petitioner,
which Orders were the orders being questioned before this Court via a petition for Certiorari and
Mandamus. Such act of the appellate court tended to render moot and academic the said petition.
No parity of circumstances obtains in the present case, however, where merely setting the case
for trial would not have the effect of rendering the present petition moot.

This Court explained, however, that the rule on "judicial courtesy" applies where "there is
a strong probability that the issues before the higher court would be rendered moot and moribund
as a result of the continuation of the proceedings in the lower court [or court of origin]".6
A final word. This Court takes notice that in most cases where its interlocutory orders are
challenged before this Court, public respondent, Sandiganbayan, suspends proceedings in the
cases in which these assailed interlocutory orders are issued despite the non-issuance by this
Court of a temporary restraining order or writ of preliminary injunction and the absence of a
strong probability that the issues raised before this Court would be rendered moot by a
continuation of the proceedings before it (Sandiganbayan).

WHEREFORE, the URGENT MOTION FOR ISSUANCE OF TEMPORARY

RESTRAINING ORDER AND/OR WRIT OF PRELIMINARY INJUNCTION filed by
petitioner REPUBLIC OF THE PHILIPPINES is DENIED.

The SANDIGANBAYAN is, however, ORDERED,in light of the foregoing discussion, to

continue the proceedings in Civil Case No. 0033-F, as well as in all other cases where its
interlocutory orders are on challenge before this Court but no Temporary Restraining Order or
Writ of Preliminary Injunction has been issued and there is no strong probability that the issues
raised before this Court would be rendered moot and moribund.

SO ORDERED.

CONCHITA CARPIO MORALES

Associate Justice

WE CONCUR:

ARTEMIO V. PANGANIBAN
Chief Justice

CONSUELO YNARES-
REYNATO S. PUNO
SANTIAGO
Associate Justice
Asscociate Justice

ANGELINA SANDOVAL-
LEONARDO A. QUISUMBING
GUTIERREZ
Associate Justice
Asscociate Justice

MA. ALICIA AUSTRIA-

ANTONIO T. CARPIO
MARTINEZ
Associate Justice
Asscociate Justice

RENATO C. CORONA ADOLFO S. AZCUNA

Associate Justice Asscociate Justice

ROMEO J. CALLEJO, SR. DANTE O. TINGA

Associate Justice Asscociate Justice

MINITA V. CHICO-NAZARIO CANCIO C. GARCIA

Associate Justice Asscociate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice
 CERTIFICATION

Pursuant to Article VIII, Section 13 of the Constitution, it is hereby certified that the conclusions
in the above Resolution were reached in consultation before the case was assigned to the writer
of the opinion of the Court.

ARTEMIO V. PANGANIBAN
Chief Justice
 G.R. No. 171805 May 30, 2011

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased), represented
by his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA; JOSE B. ENAD
(deceased), represented by his heirs; and RICARDO GABUYA (deceased), represented by
his heirs, Respondents.

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

G.R. No. 172021

MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court are two petitions for review on certiorari under Rule 45 of the Rules of Court
both seeking to annul and set aside the Decision1 dated September 29, 2005 as well as the
Resolution2 dated March 6, 2006 of the Court of Appeals in CA-G.R. CV No. 75744, entitled
"Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased) represented by his heirs,
Ramon A. Barcenilla (deceased) represented by his heirs, Rosario T. Barcenilla, Jose B. Enad
(deceased) represented by his heirs, and Ricardo Gabuya (deceased) represented by his heirs v.
Philippine National Bank, Jose Garrido and Register of Deeds of Cebu City." The September 29,
2005 Decision of the Court of Appeals set aside the Decision3 dated November 18, 1998 of the
Regional Trial Court (RTC) of Cebu City, Branch 17, in Civil Case No. CEB-21511.
Furthermore, it ordered the Philippine National Bank (PNB) to pay Merelo B. Aznar; Matias B.
Aznar III; Jose L. Aznar (deceased), represented by his heirs; Ramon A. Barcenilla (deceased),
represented by his heirs; Rosario T. Barcenilla; Jose B. Enad (deceased), represented by his
heirs; and Ricardo Gabuya (deceased), represented by his heirs (Aznar, et al.), the amount of
their lien based on the Minutes of the Special Meeting of the Board of Directors4 (Minutes) of
the defunct Rural Insurance and Surety Company, Inc. (RISCO) duly annotated on the titles of
three parcels of land, plus legal interests from the time of PNB’s acquisition of the subject
properties until the finality of the judgment but dismissing all other claims of Aznar, et al. On the
other hand, the March 6, 2006 Resolution of the Court of Appeals denied the Motion for
Reconsideration subsequently filed by each party.

The facts of this case, as stated in the Decision dated September 29, 2005 of the Court of
Appeals, are as follows:

In 1958, RISCO ceased operation due to business reverses. In plaintiffs’ desire to rehabilitate
RISCO, they contributed a total amount of ₱212,720.00 which was used in the purchase of the
three (3) parcels of land described as follows:

"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No. 3732)
situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an area
of SEVENTY[-]EIGHT THOUSAND ONE HUNDRED EIGHTY[-]FIVE SQUARE METERS
(78,185) more or less. x x x" covered by Transfer Certificate of Title No. 8921 in the name of
Rural Insurance & Surety Co., Inc.";

"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No. 3732),
situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx containing an area
of THREE HUNDRED TWENTY[-]NINE THOUSAND FIVE HUNDRED FORTY[-]SEVEN
SQUARE METERS (329,547), more or less. xxx" covered by Transfer Certificate of Title No.
8922 in the name of Rural Insurance & Surety Co., Inc." and

"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the District of
Lahug, City of Cebu, Island of Cebu. xxx containing an area of FIFTY[-]FIVE THOUSAND
SIX HUNDRED FIFTY[-]THREE (55,653) SQUARE METERS, more or less." covered by
Transfer Certificate of Title No. 24576 in the name of Rural Insurance & Surety Co., Inc."

After the purchase of the above lots, titles were issued in the name of RISCO. The amount
contributed by plaintiffs constituted as liens and encumbrances on the aforementioned properties
as annotated in the titles of said lots. Such annotation was made pursuant to the Minutes of the
Special Meeting of the Board of Directors of RISCO (hereinafter referred to as the "Minutes") on
March 14, 1961, pertinent portion of which states:

xxxx

3. The President then explained that in a special meeting of the stockholders previously called for
the purpose of putting up certain amount of ₱212,720.00 for the rehabilitation of the Company,
the following stockholders contributed the amounts indicated opposite their names:

CONTRIBUTED SURPLUS

MERELO B. AZNAR ₱50,000.00

MATIAS B. AZNAR 50,000.00
JOSE L. AZNAR 27,720.00
RAMON A. BARCENILLA 25,000.00
ROSARIO T. BARCENILLA 25,000.00
JOSE B. ENAD 17,500.00
RICARDO GABUYA 17,500.00

212,720.00

xxxx

And that the respective contributions above-mentioned shall constitute as their lien or interest on
the property described above, if and when said property are titled in the name of RURAL
INSURANCE & SURETY CO., INC., subject to registration as their adverse claim in pursuance
of the Provisions of Land Registration Act, (Act No. 496, as amended) until such time their
respective contributions are refunded to them completely.

x x x x"

Thereafter, various subsequent annotations were made on the same titles, including the Notice of
Attachment and Writ of Execution both dated August 3, 1962 in favor of herein defendant PNB,
to wit:

On TCT No. 8921 for Lot 3597:

Entry No. 7416-V-4-D.B. – Notice of Attachment – By the Provincial Sheriff of Cebu, Civil
Case No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff,
versus Iluminada Gonzales, et al., Defendants", attaching all rights, interest and participation of
the defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the two parcels of
land covered by T.C.T. Nos. 8921, Attachment No. 330 and 185.

Date of Instrument – August 3, 1962.

Date of Inscription – August 3, 1962, 3:00 P.M.

Entry No. 7417-V-4-D.B. – Writ of Execution – By the Court of First Instance of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to
make the sum of Seventy[-]One Thousand Three Hundred Pesos (₱71,300.00) plus interest etc.,
in connection with Civil Case No. 47725, File No. T-8021.

Date of Instrument – July 21, 1962.

Date of Inscription – August 3, 1962, 3:00 P.M.

Entry No. 7512-V-4-D.B. – Notice of Attachment – By the Provincial Sheriff of Cebu, Civil
Case Nos. IV-74065, 73929, 74129, 72818, in the Municipal Court of the City of Manila,
entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants",
attaching all rights, interests and participation of the defendants, to the parcels of land covered by
T.C.T. Nos. 8921 & 8922 Attachment No. 186, File No. T-8921.

Date of the Instrument – August 16, 1962.

Date of Inscription – August 16, 1962, 2:50 P.M.

Entry No. 7513-V-4-D.B. – Writ of Execution – By the Municipal Court of the City of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants, to
make the sum of Three Thousand Pesos (₱3,000.00), with interest at 12% per annum from July
20, 1959, in connection with Civil Case Nos. IV-74065, 73929, 74613 annotated above.

File No. T-8921

Date of the Instrument – August 11, 1962.

Date of the Inscription – August 16, 1962, 2:50 P.M.

On TCT No. 8922 for Lot 7380:

(Same as the annotations on TCT 8921)

On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court order):

Entry No. 1660-V-7-D.B. – Notice of Attachment – by the Provincial Sheriff of Cebu, Civil Case
No. 47725, Court of First Instance of Manila, entitled "Philippine National Bank, Plaintiff,
versus, Iluminada Gonzales, et al., Defendants", attaching all rights, interest, and participation of
the defendants Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of the parcel of land
herein described.

Attachment No. 330 & 185.

Date of Instrument – August 3, 1962.

Date of Inscription – August 3, 1962, 3:00 P.M.

Entry No. 1661-V-7-D.B. – Writ of Execution by the Court of First Instance of Manila
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the defendants to make
the sum of Seventy[-]One Thousand Three Hundred Pesos (₱71,300.00), plus interest, etc., in
connection with Civil Case No. 47725.

File No. T-8921.

Date of the Instrument – July 21, 1962.

Date of the Inscription – August 3, 1962 3:00 P.M.

Entry No. 1861-V-7-D.B. - Notice of Attachment – By the Provincial Sheriff of Cebu, Civil Case
Nos. IV-74065, 73929, 74129, 72613 & 72871, in the Municipal Court of the City of Manila,
entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als., Defendants",
attaching all rights, interest and participation of the defendants, to the parcel of land herein
described.

Attachment No. 186.

File No. T-8921.

Date of the Instrument – August 16, 1962.

Date of the Instription – August 16, 1962 2:50 P.M.

Entry No. 1862-V-7-D.B. – Writ of Execution – by the Municipal Court of Manila, commanding
the Provincial Sheriff of Cebu, of the lands and buildings of the Defendants, to make the sum of
Three Thousand Pesos (P3,000.00), with interest at 12% per annum from July 20, 1959, in
connection with Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871 annotated above.

File No. T-8921.

Date of the Instrument – August 11, 1962.

Date of the Inscription – August 16, 1962 at 2:50 P.M.

As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being the lone
and highest bidder of the three (3) parcels of land known as Lot Nos. 3597 and 7380, covered by
T.C.T. Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and Lot No. 1328-C
covered by T.C.T. No. 24576 situated at Cebu City, for the amount of Thirty-One Thousand Four
Hundred Thirty Pesos (P31,430.00). Thereafter, a Final Deed of Sale dated May 27, 1991 in
favor of the Philippine National Bank was also issued and Transfer Certificate of Title No. 24576
for Lot 1328-C (corrected to 1323-C) was cancelled and a new certificate of title, TCT 119848
was issued in the name of PNB on August 26, 1991.

This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of their
supposed title to the subject properties, declaratory relief, cancellation of TCT and reconveyance
with temporary restraining order and preliminary injunction. Plaintiffs alleged that the
subsequent annotations on the titles are subject to the prior annotation of their liens and
encumbrances. Plaintiffs further contended that the subsequent writs and processes annotated on
the titles are all null and void for want of valid service upon RISCO and on them, as
stockholders. They argued that the Final Deed of Sale and TCT No. 119848 are null and void as
these were issued only after 28 years and that any right which PNB may have over the properties
had long become stale.

Defendant PNB on the other hand countered that plaintiffs have no right of action for quieting of
title since the order of the court directing the issuance of titles to PNB had already become final
and executory and their validity cannot be attacked except in a direct proceeding for their
annulment. Defendant further asserted that plaintiffs, as mere stockholders of RISCO do not
have any legal or equitable right over the properties of the corporation. PNB posited that even if
plaintiff’s monetary lien had not expired, their only recourse was to require the reimbursement or
refund of their contribution.51awphi1

Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings6 on October 5,
1998. Thus, the trial court rendered the November 18, 1998 Decision, which ruled against PNB
on the basis that there was an express trust created over the subject properties whereby RISCO
was the trustee and the stockholders, Aznar, et al., were the beneficiaries or the cestui que trust.
The dispositive portion of the said ruling reads:

WHEREFORE, judgment is hereby rendered as follows:

a) Declaring the Minutes of the Special Meeting of the Board of Directors of RISCO
approved on March 14, 1961 (Annex "E," Complaint) annotated on the titles to subject
properties on May 15, 1962 as an express trust whereby RISCO was a mere trustee and
the above-mentioned stockholders as beneficiaries being the true and lawful owners of
Lots 3597, 7380 and 1323;

b) Declaring all the subsequent annotations of court writs and processes, to wit: Entry No.
7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-D.B., and 7513-V-4-D.B. in TCT No. 8921
for Lot 3597 and TCT No. 8922 for Lot 7380; Entry No. 1660-V-7-D.B., Entry No.
1661-V-7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-D.B., Entry No. 4329-V-
7-D.B., Entry No. 3761-V-7-D.B. and Entry No. 26522 v. 34, D.B. on TCT No. 24576
for Lot 1323-C, and all other subsequent annotations thereon in favor of third persons, as
null and void;

c) Directing the Register of Deeds of the Province of Cebu and/or the Register of Deeds
of Cebu City, as the case may be, to cancel all these annotations mentioned in paragraph
b) above the titles;

d) Directing the Register of Deeds of the Province of Cebu to cancel and/or annul TCTs
Nos. 8921 and 8922 in the name of RISCO, and to issue another titles in the names of the
plaintiffs; and

e) Directing Philippine National Bank to reconvey TCT No. 119848 in favor of the
plaintiffs.7

PNB appealed the adverse ruling to the Court of Appeals which, in its September 29, 2005
Decision, set aside the judgment of the trial court. Although the Court of Appeals agreed with the
trial court that a judgment on the pleadings was proper, the appellate court opined that the
monetary contributions made by Aznar, et al., to RISCO can only be characterized as a loan
secured by a lien on the subject lots, rather than an express trust. Thus, it directed PNB to pay
Aznar, et al., the amount of their contributions plus legal interest from the time of acquisition of
the property until finality of judgment.lawphil The dispositive portion of the decision reads:

WHEREFORE, premises considered, the assailed Judgment is hereby SET ASIDE.

A new judgment is rendered ordering Philippine National Bank to pay plaintiffs-appellees the
amount of their lien based on the Minutes of the Special Meeting of the Board of Directors duly
annotated on the titles, plus legal interests from the time of appellants’ acquisition of the subject
properties until the finality of this judgment.

All other claims of the plaintiffs-appellees are hereby DISMISSED.8

Both parties moved for reconsideration but these were denied by the Court of Appeals. Hence,
each party filed with this Court their respective petitions for review on certiorari under Rule 45
of the Rules of Court, which were consolidated in a Resolution9 dated October 2, 2006.
In PNB’s petition, docketed as G.R. No. 171805, the following assignment of errors were raised:

THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE

TRIAL COURT THAT A JUDGMENT ON THE PLEADINGS WAS WARRANTED
DESPITE THE EXISTENCE OF GENUINE ISSUES OF FACTS ALLEGED IN
PETITIONER PNB’S ANSWER.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

RIGHT OF RESPONDENTS TO REFUND OR REPAYMENT OF THEIR
CONTRIBUTIONS HAD NOT PRESCRIBED AND/OR THAT THE MINUTES OF
THE SPECIAL MEETING OF THE BOARD OF DIRECTORS OF RISCO
CONSTITUTED AS AN EFFECTIVE ADVERSE CLAIM.

III

THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE DISMISSAL OF

THE COMPLAINT ON GROUNDS OF RES JUDICATA AND LACK OF CAUSE OF
ACTION ALLEGED BY PETITIONER IN ITS ANSWER.10

On the other hand, Aznar, et al.’s petition, docketed as G.R. No. 172021, raised the following
issue:

THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS

MADE BY THE STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED BY
THEIR LIEN OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND,
RATHER THAN AN EXPRESS TRUST.11

Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the pleadings
was not proper because its Answer,12 which it filed during the trial court proceedings of this case,
tendered genuine issues of fact since it did not only deny material allegations in Aznar, et al.’s
Complaint13 but also set up special and affirmative defenses. Furthermore, PNB maintains that,
by virtue of the trial court’s judgment on the pleadings, it was denied its right to present evidence
and, therefore, it was denied due process.

The contention is meritorious.

The legal basis for rendering a judgment on the pleadings can be found in Section 1, Rule 34 of
the Rules of Court which states that "[w]here an answer fails to tender an issue, or otherwise
admits the material allegations of the adverse party’s pleading, the court may, on motion of that
party, direct judgment on such pleading. x x x."

Judgment on the pleadings is, therefore, based exclusively upon the allegations appearing in the
pleadings of the parties and the annexes, if any, without consideration of any evidence
aliunde.14 However, when it appears that not all the material allegations of the complaint were
admitted in the answer for some of them were either denied or disputed, and the defendant has
set up certain special defenses which, if proven, would have the effect of nullifying plaintiff’s
main cause of action, judgment on the pleadings cannot be rendered.15

In the case at bar, the Court of Appeals justified the trial court’s resort to a judgment on the
pleadings in the following manner:

Perusal of the complaint, particularly, Paragraph 7 thereof reveals:

"7. That in their desire to rehabilitate RISCO, the above-named stockholders contributed a total
amount of Ph₱212,720.00 which was used in the purchase of the above-described parcels of
land, which amount constituted liens and encumbrances on subject properties in favor of the
above-named stockholders as annotated in the titles adverted to above, pursuant to the Minutes
of the Special Meeting of the Board of Directors of RISCO approved on March 14, 1961, a copy
of which is hereto attached as Annex "E".

On the other hand, defendant in its Answer, admitted the aforequoted allegation with the
qualification that the amount put up by the stockholders was "used as part payment" for the
properties. Defendant further averred that plaintiff’s liens and encumbrances annotated on the
titles issued to RISCO constituted as "loan from the stockholders to pay part of the purchase
price of the properties" and "was a personal obligation of RISCO and was thus not a claim
adverse to the ownership rights of the corporation." With these averments, We do not find error
on the part of the trial court in rendering a judgment on the pleadings. For one, the qualification
made by defendant in its answer is not sufficient to controvert the allegations raised in the
complaint. As to defendants’ contention that the money contributed by plaintiffs was in fact a
"loan" from the stockholders, reference can be made to the Minutes of the Special Meeting of the
Board of Directors, from which plaintiffs-appellees anchored their complaint, in order to
ascertain the true nature of their claim over the properties. Thus, the issues raised by the parties
can be resolved on the basis of their respective pleadings and the annexes attached thereto and do
not require further presentation of evidence aliunde.16

However, a careful reading of Aznar, et al.’s Complaint and of PNB’s Answer would reveal that
both parties raised several claims and defenses, respectively, other than what was cited by the
Court of Appeals, which requires the presentation of evidence for resolution, to wit:

Complaint (Aznar, et al.) Answer (PNB)

11. That these subsequent annotations on the titles
of the properties in question are subject to the
prior annotation of liens and encumbrances of the
above-named stockholders per Entry No. 458-V-
7-D.B. inscribed on TCT No. 24576 on May 15,
1962 and per Entry No. 6966-V-4-D.B. on TCT
No. 8921 and TCT No. 8922 on May 15, 1962;
12. That these writs and processes annotated on
the titles are all null and void for total want of
valid service upon RISCO and the above-named
stockholders considering that as early as
sometime in 1958, RISCO ceased operations as
earlier stated, and as early as May 15, 1962, the
liens and encumbrances of the above-named
stockholders were annotated in the titles of subject
properties;
13. That more particularly, the Final Deed of Sale
(Annex "G") and TCT No. 119848 are null and
void as these were issued only after 28 years and
5 months (in the case of the Final Deed of Sale)
and 28 years, 6 months and 29 days (in the case of
TCT 119848) from the invalid auction sale on
December 27, 1962, hence, any right, if any,
which PNB had over subject properties had long
become stale;
14. That plaintiffs continue to have possession of
subject properties and of their corresponding
10) Par. 11 is denied as the loan from
the stockholders to pay part of the
purchase price of the properties was a
personal obligation of RISCO and
was thus not a claim adverse to the
ownership rights of the corporation;
11) Par. 12 is denied as in fact notice
to RISCO had been sent to its last
known address at Plaza Goite,
Manila;
12) Par. 13 is denied for no law
requires the final deed of sale to be
executed immediately after the end of
the redemption period. Moreover,
another court of competent
jurisdiction has already ruled that
PNB was entitled to a final deed of
sale;
13) Par. 14 is denied as plaintiffs are
not in actual possession of the land
 titles, but they never received any process and if they were, their possession was
concerning the petition filed by PNB to have TCT as trustee for the creditors of RISCO
24576 over Lot 1323-C surrendered and/or like PNB;
cancelled;
15. That there is a cloud created on the 14) Par. 15 is denied as the court
aforementioned titles of RISCO by reason of the orders directing the issuance of titles
annotate writs, processes and proceedings caused to PNB in lieu of TCT 24576 and
by Jose Garrido and PNB which were apparently TCT 8922 are valid judgments which
valid or effective, but which are in truth and in cannot be set aside in a collateral
fact invalid and ineffective, and prejudicial to said proceeding like the instant case.18
titles and to the rights of the plaintiffs, which
should be removed and the titles quieted.17

Furthermore, apart from refuting the aforecited material allegations made by Aznar, et al., PNB
also indicated in its Answer the special and affirmative defenses of (a) prescription; (b) res
judicata; (c) Aznar, et al., having no right of action for quieting of title; (d) Aznar, et al.’s lien
being ineffective and not binding to PNB; and (e) Aznar, et al.’s having no personality to file the
suit.19

From the foregoing, it is indubitably clear that it was error for the trial court to render a judgment
on the pleadings and, in effect, resulted in a denial of due process on the part of PNB because it
was denied its right to present evidence. A remand of this case would ordinarily be the
appropriate course of action. However, in the interest of justice and in order to expedite the
resolution of this case which was filed with the trial court way back in 1998, the Court finds it
proper to already resolve the present controversy in light of the existence of legal grounds that
would dispose of the case at bar without necessity of presentation of further evidence on the
other disputed factual claims and defenses of the parties.

A thorough and comprehensive scrutiny of the records would reveal that this case should be
dismissed because Aznar, et al., have no title to quiet over the subject properties and their true
cause of action is already barred by prescription.

At the outset, the Court agrees with the Court of Appeals that the agreement contained in the
Minutes of the Special Meeting of the RISCO Board of Directors held on March 14, 1961 was a
loan by the therein named stockholders to RISCO. We quote with approval the following
discussion from the Court of Appeals Decision dated September 29, 2005:

Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim, showed that
their contributions shall constitute as "lien or interest on the property" if and when said
properties are titled in the name of RISCO, subject to registration of their adverse claim under
the Land Registration Act, until such time their respective contributions are refunded to them
completely.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation
shall control. When the language of the contract is explicit leaving no doubt as to the intention of
the drafters thereof, the courts may not read into it any other intention that would contradict its
plain import.

The term lien as used in the Minutes is defined as "a discharge on property usually for the
payment of some debt or obligation. A lien is a qualified right or a proprietary interest which
may be exercised over the property of another. It is a right which the law gives to have a debt
satisfied out of a particular thing. It signifies a legal claim or charge on property; whether real or
personal, as a collateral or security for the payment of some debt or obligation." Hence, from
the use of the word "lien" in the Minutes, We find that the money contributed by plaintiffs-
appellees was in the nature of a loan, secured by their liens and interests duly annotated on the
titles. The annotation of their lien serves only as collateral and does not in any way vest
ownership of property to plaintiffs.20 (Emphases supplied.)

We are not persuaded by the contention of Aznar, et al., that the language of the subject Minutes
created an express trust.

Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in
another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. Trust relations between parties may either be express or implied. An
express trust is created by the intention of the trustor or of the parties. An implied trust comes
into being by operation of law.21

Express trusts, sometimes referred to as direct trusts, are intentionally created by the direct and
positive acts of the settlor or the trustor - by some writing, deed, or will or oral declaration. It is
created not necessarily by some written words, but by the direct and positive acts of the
parties.22 This is in consonance with Article 1444 of the Civil Code, which states that "[n]o
particular words are required for the creation of an express trust, it being sufficient that a trust is
clearly intended."

In other words, the creation of an express trust must be manifested with reasonable certainty and
cannot be inferred from loose and vague declarations or from ambiguous circumstances
susceptible of other interpretations.23

No such reasonable certitude in the creation of an express trust obtains in the case at bar. In fact,
a careful scrutiny of the plain and ordinary meaning of the terms used in the Minutes does not
offer any indication that the parties thereto intended that Aznar, et al., become beneficiaries
under an express trust and that RISCO serve as trustor.

Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the properties at
issue because they have no legal and/or equitable rights over the properties that are derived from
the previous registered owner which is RISCO, the pertinent provision of the law is Section 2 of
the Corporation Code (Batas Pambansa Blg. 68), which states that "[a] corporation is an artificial
being created by operation of law, having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence."

As a consequence thereof, a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected.24 Thus, we had previously
ruled in Magsaysay-Labrador v. Court of Appeals25 that the interest of the stockholders over the
properties of the corporation is merely inchoate and therefore does not entitle them to intervene
in litigation involving corporate property, to wit:

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent, remote,

conjectural, consequential and collateral. At the very least, their interest is purely inchoate, or in
sheer expectancy of a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after payment of the corporate
debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of the
corporation, it does not vest the owner thereof with any legal right or title to any of the property,
his interest in the corporate property being equitable or beneficial in nature. Shareholders are in
no legal sense the owners of corporate property, which is owned by the corporation as a distinct
legal person.26

In the case at bar, there is no allegation, much less any proof, that the corporate existence of
RISCO has ceased and the corporate property has been liquidated and distributed to the
stockholders. The records only indicate that, as per Securities and Exchange Commission (SEC)
Certification27 dated June 18, 1997, the SEC merely suspended RISCO’s Certificate of
Registration beginning on September 5, 1988 due to its non-submission of SEC required reports
and its failure to operate for a continuous period of at least five years.

Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the Minutes which, at most, is merely evidence
of a loan agreement between them and the company. There is no indication or even a suggestion
that the ownership of said properties were transferred to them which would require no less that
the said properties be registered under their names. For this reason, the complaint should be
dismissed since Aznar, et al., have no cause to seek a quieting of title over the subject properties.

At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to RISCO.
Unfortunately, the right to seek repayment or reimbursement of their contributions used to
purchase the subject properties is already barred by prescription.

Section 1, Rule 9 of the Rules of Court provides that when it appears from the pleadings or the
evidence on record that the action is already barred by the statute of limitations, the court shall
dismiss the claim, to wit:

Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed
waived. However, when it appears from the pleadings or the evidence on record that the court
has no jurisdiction over the subject matter, that there is another action pending between the same
parties for the same cause, or that the action is barred by a prior judgment or by statute of
limitations, the court shall dismiss the claim. (Emphasis supplied.)

In Feliciano v. Canoza,28 we held:

We have ruled that trial courts have authority and discretion to dismiss an action on the ground
of prescription when the parties’ pleadings or other facts on record show it to be indeed time-
barred x x x; and it may do so on the basis of a motion to dismiss, or an answer which sets up
such ground as an affirmative defense; or even if the ground is alleged after judgment on the
merits, as in a motion for reconsideration; or even if the defense has not been asserted at all, as
where no statement thereof is found in the pleadings, or where a defendant has been declared in
default. What is essential only, to repeat, is that the facts demonstrating the lapse of the
prescriptive period, be otherwise sufficiently and satisfactorily apparent on the record;
either in the averments of the plaintiffs complaint, or otherwise established by the
evidence.29 (Emphasis supplied.)

The pertinent Civil Code provision on prescription which is applicable to the issue at hand is
Article 1144(1), to wit:

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

1. Upon a written contract;

2. Upon an obligation created by law;

3. Upon a judgment. (Emphasis supplied.)

Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,30 we held that the term
"written contract" includes the minutes of the meeting of the board of directors of a corporation,
which minutes were adopted by the parties although not signed by them, to wit:

Coming now to the question of prescription raised by defendant Lepanto, it is contended by the
latter that the period to be considered for the prescription of the claim regarding participation in
the profits is only four years, because the modification of the sharing embodied in the
management contract is merely verbal, no written document to that effect having been presented.
This contention is untenable. The modification appears in the minutes of the special meeting of
the Board of Directors of Lepanto held on August 21, 1940, it having been made upon the
authority of its President, and in said minutes the terms of modification had been specified. This
is sufficient to have the agreement considered, for the purpose of applying the statute of
limitations, as a written contract even if the minutes were not signed by the parties (3 A.L.R., 2d,
p. 831). It has been held that a writing containing the terms of a contract if adopted by two
persons may constitute a contract in writing even if the same is not signed by either of the parties
(3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned agreement the terms of
which are embodied in a document unconditionally accepted by both parties is a written contract
(Corbin on Contracts, Vol. I, p. 85).31

Applied to the case at bar, the Minutes which was approved on March 14, 1961 is considered as
a written contract between Aznar, et al., and RISCO for the reimbursement of the contributions
of the former. As such, the former had a period of ten (10) years from 1961 within which to
enforce the said written contract. However, it does not appear that Aznar, et al., filed any action
for reimbursement or refund of their contributions against RISCO or even against PNB. Instead
the suit that Aznar, et al., brought before the trial court only on January 28, 1998 was one to
quiet title over the properties purchased by RISCO with their contributions. It is unmistakable
that their right of action to claim for refund or payment of their contributions had long
prescribed. Thus, it was reversible error for the Court of Appeals to order PNB to pay Aznar, et
al., the amount of their liens based on the Minutes with legal interests from the time of PNB’s
acquisition of the subject properties.

In view of the foregoing, it is unnecessary for the Court to pass upon the other issues raised by
the parties.

WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of merit.
The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed as Civil Case
No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

PRESBITERO J. VELASCO, JR. DIOSDADO M. PERALTA*

Associate Justice Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice
 G.R. No. 140528 December 7, 2011

MARIA TORBELA, represented by her heirs, namely: EULOGIO TOSINO, husband and
children: CLARO, MAXIMINO, CORNELIO, OLIVIA and CALIXTA, all surnamed
TOSINO, APOLONIA TOSINO VDA. DE RAMIREZ and JULITA TOSINO DEAN;
PEDRO TORBELA, represented by his heirs, namely: JOSE and DIONISIO, both
surnamed TORBELA; EUFROSINA TORBELA ROSARIO, represented by her heirs,
namely: ESTEBAN T. ROSARIO, MANUEL T. ROSARIO, ROMULO T. ROSARIO and
ANDREA ROSARIO-HADUCA; LEONILA TORBELA TAMIN; FERNANDO
TORBELA, represented by his heirs, namely: SERGIO T. TORBELA, EUTROPIA T.
VELASCO, PILAR T. ZULUETA, CANDIDO T. TORBELA, FLORENTINA T.
TORBELA and PANTALEON T. TORBELA; DOLORES TORBELA TABLADA;
LEONORA TORBELA AGUSTIN, represented by her heirs, namely: PATRICIO,
SEGUNDO, CONSUELO and FELIX, all surnamed AGUSTIN; and SEVERINA
TORBELA ILDEFONSO, Petitioners,
vs.
SPOUSES ANDRES T. ROSARIO and LENA DUQUE-ROSARIO and BANCO
FILIPINO SAVINGS AND MORTGAGE BANK, Respondents.

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

G.R. No. 140553

LENA DUQUE-ROSARIO, Petitioner,

vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Presently before the Court are two consolidated Petitions for Review on Certiorari under Rule 45
of the Rules of Court, both assailing the Decision1 dated June 29, 1999 and Resolution2 dated
October 22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.

The petitioners in G.R. No. 140528 are siblings Maria Torbela,3 Pedro Torbela,4 Eufrosina
Torbela Rosario,5 Leonila Torbela Tamin, Fernando Torbela,6 Dolores Torbela Tablada, Leonora
Torbela Agustin,7 and Severina Torbela Ildefonso (Torbela siblings).

The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario), who was married to,
but now legally separated from, Dr. Andres T. Rosario (Dr. Rosario). Dr. Rosario is the son of
Eufrosina Torbela Rosario and the nephew of the other Torbela siblings.

The controversy began with a parcel of land, with an area of 374 square meters, located in
Urdaneta City, Pangasinan (Lot No. 356-A). It was originally part of a larger parcel of land,
known as Lot No. 356 of the Cadastral Survey of Urdaneta, measuring 749 square meters, and
covered by Original Certificate of Title (OCT) No. 16676,8 in the name of Valeriano Semilla
(Valeriano), married to Potenciana Acosta. Under unexplained circumstances, Valeriano gave
Lot No. 356-A to his sister Marta Semilla, married to Eugenio Torbela (spouses Torbela). Upon
the deaths of the spouses Torbela, Lot No. 356-A was adjudicated in equal shares among their
children, the Torbela siblings, by virtue of a Deed of Extrajudicial Partition9 dated December 3,
1962.

On December 12, 1964, the Torbela siblings executed a Deed of Absolute Quitclaim10 over Lot
No. 356-A in favor of Dr. Rosario. According to the said Deed, the Torbela siblings "for and in
consideration of the sum of NINE PESOS (₱9.00) x x x transfer[red] and convey[ed] x x x unto
the said Andres T. Rosario, that undivided portion of THREE HUNDRED SEVENTY-FOUR
square meters of that parcel of land embraced in Original Certificate of Title No. 16676 of the
land records of Pangasinan x x x."11 Four days later, on December 16, 1964, OCT No. 16676 in
Valeriano’s name was partially cancelled as to Lot No. 356-A and TCT No. 5275112 was issued
in Dr. Rosario’s name covering the said property.

Another Deed of Absolute Quitclaim13 was subsequently executed on December 28, 1964, this
time by Dr. Rosario, acknowledging that he only borrowed Lot No. 356-A from the Torbela
siblings and was already returning the same to the latter for ₱1.00. The Deed stated:

That for and in consideration of the sum of one peso (₱1.00), Philippine Currency and the fact
that I only borrowed the above described parcel of land from MARIA TORBELA, married to
Eulogio Tosino, EUFROSINA TORBELA, married to Pedro Rosario, PEDRO TORBELA,
married to Petra Pagador, LEONILA TORBELA, married to Fortunato Tamen, FERNANDO
TORBELA, married to Victoriana Tablada, DOLORES TORBELA, widow, LEONORA
TORBELA, married to Matias Agustin and SEVERINA TORBELA, married to Jorge Ildefonso,
x x x by these presents do hereby cede, transfer and convey by way of this ABSOLUTE
QUITCLAIM unto the said Maria, Eufrosina, Pedro, Leonila, Fernando, Dolores, Leonora and
Severina, all surnamed Torbela the parcel of land described above.14 (Emphasis ours.)

The aforequoted Deed was notarized, but was not immediately annotated on TCT No. 52751.

Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development
Bank of the Philippines (DBP) on February 21, 1965 in the sum of ₱70,200.00, secured by a
mortgage constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751 on
September 21, 1965 as Entry No. 243537.15 Dr. Rosario used the proceeds of the loan for the
construction of improvements on Lot No. 356-A.

On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an Affidavit of Adverse Claim,16 on
behalf of the Torbela siblings. Cornelio deposed in said Affidavit:

3. That ANDRES T. ROSARIO later quitclaimed his rights in favor of the former owners
by virtue of a Deed of Absolute Quitclaim which he executed before Notary Public
Banaga, and entered in his Notarial Registry as Dec. No. 43; Page No. 9; Book No. I;
Series of 1964;

4. That it is the desire of the parties, my aforestated kins, to register ownership over the
above-described property or to perfect their title over the same but their Deed could not
be registered because the registered owner now, ANDRES T. ROSARIO mortgaged the
property with the DEVELOPMENT BANK OF THE PHILIPPINES, on September 21,
1965, and for which reason, the Title is still impounded and held by the said bank;

5. That pending payment of the obligation with the DEVELOPMENT BANK OF THE
PHILIPPINES or redemption of the Title from said bank, I, CORNELIO T. TOSINO, in
behalf of my mother MARIA TORBELA-TOSINO, and my Aunts EUFROSINA
TORBELA, LEONILA TORBELA-TAMEN, DOLORES TORBELA, LEONORA
TORBELA-AGUSTIN, SEVERINA TORBELA-ILDEFONSO, and my Uncles PEDRO
TORBELA and FERNANDO, also surnamed TORBELA, I request the Register of Deeds
of Pangasinan to annotate their adverse claim at the back of Transfer Certificate of Title
No. 52751, based on the annexed document, Deed of Absolute Quitclaim by ANDRES T.
ROSARIO, dated December 28, 1964, marked as Annex "A" and made a part of this
Affidavit, and it is also requested that the DEVELOPMENT BANK OF THE
PHILIPPINES be informed accordingly.17

The very next day, on May 17, 1967, the Torbela siblings had Cornelio’s Affidavit of Adverse
Claim dated May 16, 1967 and Dr. Rosario’s Deed of Absolute Quitclaim dated December 28,
1964 annotated on TCT No. 52751 as Entry Nos. 27447118 and 274472,19 respectively.
The construction of a four-storey building on Lot No. 356-A was eventually completed. The
building was initially used as a hospital, but was later converted to a commercial building. Part
of the building was leased to PT&T; and the rest to Mrs. Andrea Rosario-Haduca, Dr. Rosario’s
sister, who operated the Rose Inn Hotel and Restaurant.

Dr. Rosario was able to fully pay his loan from DBP. Under Entry No. 520197 on TCT No.
5275120 dated March 6, 1981, the mortgage appearing under Entry No. 243537 was cancelled per
the Cancellation and Discharge of Mortgage executed by DBP in favor of Dr. Rosario and
ratified before a notary public on July 11, 1980.

In the meantime, Dr. Rosario acquired another loan from the Philippine National Bank (PNB)
sometime in 1979-1981. Records do not reveal though the original amount of the loan from
PNB, but the loan agreement was amended on March 5, 1981 and the loan amount was increased
to ₱450,000.00. The loan was secured by mortgages constituted on the following properties: (1)
Lot No. 356-A, covered by TCT No. 52751 in Dr. Rosario’s name; (2) Lot No. 4489, with an
area of 1,862 square meters, located in Dagupan City, Pangasinan, covered by TCT No. 24832;
and (3) Lot No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters, located in Nancayasan,
Urdaneta, Pangasinan, covered by TCT No. 104189.21 The amended loan agreement and
mortgage on Lot No. 356-A was annotated on TCT No. 52751 on March 6, 1981 as Entry No.
520099.22

Five days later, on March 11, 1981, another annotation, Entry No. 520469,23 was made on TCT
No. 52751, canceling the adverse claim on Lot No. 356-A under Entry Nos. 274471-274472, on
the basis of the Cancellation and Discharge of Mortgage executed by Dr. Rosario on March 5,
1981. Entry No. 520469 consisted of both stamped and handwritten portions, and exactly reads:

Entry No. 520469. Cancellation of Adverse Claim executed by Andres Rosario in favor of same.
The incumbrance/mortgage appearing under Entry No. 274471-72 is now cancelled as per
Cancellation and Discharge of Mortgage Ratified before Notary Public Mauro G.
Meris on March 5, 1981: Doc. No. 215; Page No. 44; Book No. 1; Series Of 1981.

Lingayen, Pangasinan, 3-11, 19981

[Signed: Pedro dela Cruz]

Register of Deeds 24

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario), acquired a
third loan in the amount of ₱1,200,000.00 from Banco Filipino Savings and Mortgage Bank
(Banco Filipino). To secure said loan, the spouses Rosario again constituted mortgages on Lot
No. 356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. The mortgage on Lot No. 356-A was
annotated on TCT No. 52751 as Entry No. 53328325 on December 18, 1981. Since the
construction of a two-storey commercial building on Lot No. 5-F-8-C-2-B-2-A was still
incomplete, the loan value thereof as collateral was deducted from the approved loan amount.
Thus, the spouses Rosario could only avail of the maximum loan amount of ₱830,064.00 from
Banco Filipino.

Because Banco Filipino paid the balance of Dr. Rosario’s loan from PNB, the mortgage on Lot
No. 356-A in favor of PNB was cancelled per Entry No. 53347826 on TCT No. 52751 dated
December 23, 1981.

On February 13, 1986, the Torbela siblings filed before the Regional Trial Court (RTC) of
Urdaneta, Pangasinan, a Complaint for recovery of ownership and possession of Lot No. 356-A,
plus damages, against the spouses Rosario, which was docketed as Civil Case No. U-4359. On
the same day, Entry Nos. 593493 and 593494 were made on TCT No. 52751 that read as
follows:
Entry No. 593494 – Complaint – Civil Case No. U-4359 (For: Recovery of Ownership and
Possession and Damages. (Sup. Paper).

Entry No. 593493 – Notice of Lis Pendens – The parcel of land described in this title is subject to
Lis Pendens executed by Liliosa B. Rosario, CLAO, Trial Attorney dated February 13, 1986.
Filed to TCT No. 52751

February 13, 1986-1986 February 13 – 3:30 p.m.

(SGD.) PACIFICO M. BRAGANZA

Register of Deeds27

The spouses Rosario afterwards failed to pay their loan from Banco Filipino. As of April 2,
1987, the spouses Rosario’s outstanding principal obligation and penalty charges amounted to
₱743,296.82 and ₱151,524.00, respectively.28

Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489, and
Lot No. 5-F-8-C-2-B-2-A. During the public auction on April 2, 1987, Banco Filipino was the
lone bidder for the three foreclosed properties for the price of ₱1,372,387.04. The Certificate of
Sale29 dated April 2, 1987, in favor of Banco Filipino, was annotated on TCT No. 52751 on
April 14, 1987 as Entry No. 610623.30

On December 9, 1987, the Torbela siblings filed before the RTC their Amended
Complaint,31 impleading Banco Filipino as additional defendant in Civil Case No. U-4359 and
praying that the spouses Rosario be ordered to redeem Lot No. 356-A from Banco Filipino.

The spouses Rosario instituted before the RTC on March 4, 1988 a case for annulment of
extrajudicial foreclosure and damages, with prayer for a writ of preliminary injunction and
temporary restraining order, against Banco Filipino, the Provincial Ex Officio Sheriff and his
Deputy, and the Register of Deeds of Pangasinan. The case was docketed as Civil Case No. U-
4667. Another notice of lis pendens was annotated on TCT No. 52751 on March 10, 1988 as
Entry No. 627059, viz:

Entry No. 627059 – Lis Pendens – Dr. Andres T. Rosario and Lena Duque Rosario, Plaintiff
versus Banco Filipino, et. al. Civil Case No. U-4667 or Annulment of ExtraJudicial Foreclosure
of Real Estate Mortgage – The parcel of land described in this title is subject to Notice of Lis
Pendens subscribed and sworn to before Notary Public Mauro G. Meris, as Doc. No. 21; Page
No. 5; Book 111; S-1988. March 7, 1988-1988 March 10, 1:00 p.m.

(SGD.) RUFINO M. MORENO, SR.

Register of Deeds32

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990, the
RTC issued an Order33 dismissing without prejudice Civil Case No. U-4667 due to the spouses
Rosario’s failure to prosecute.

Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino, but their
efforts were unsuccessful. Upon the expiration of the one-year redemption period in April 1988,
the Certificate of Final Sale34and Affidavit of Consolidation35 covering all three foreclosed
properties were executed on May 24, 1988 and May 25, 1988, respectively.

On June 7, 1988, new certificates of title were issued in the name of Banco Filipino, particularly,
TCT No. 165812 for Lot No. 5-F-8-C-2-B-2-A and TCT No. 165813 for Lot No. 356-A .36

The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint37 for
annulment of the Certificate of Final Sale dated May 24, 1988, judicial cancelation of TCT No.
165813, and damages, against Banco Filipino, the Ex Officio Provincial Sheriff, and the Register
of Deeds of Pangasinan, which was docketed as Civil Case No. U-4733.

On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta City a Petition for the
issuance of a writ of possession. In said Petition, docketed as Pet. Case No. U-822, Banco
Filipino prayed that a writ of possession be issued in its favor over Lot No. 5-F-8-C-2-B-2-A and
Lot No. 356-A, plus the improvements thereon, and the spouses Rosario and other persons
presently in possession of said properties be directed to abide by said writ.

The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822. The
Decision38 on these three cases was promulgated on January 15, 1992, the dispositive portion of
which reads:

WHEREFORE, judgment is rendered:

1. Declaring the real estate mortgage over Lot 356-A covered by TCT 52751 executed by
Spouses Andres Rosario in favor of Banco Filipino, legal and valid;

2. Declaring the sheriff’s sale dated April 2, 1987 over Lot 356-A covered by TCT 52751
and subsequent final Deed of Sale dated May 14, 1988 over Lot 356-A covered by TCT
No. 52751 legal and valid;

3. Declaring Banco Filipino the owner of Lot 356-A covered by TCT No. 52751 (now
TCT 165813);

4. Banco Filipino is entitled to a Writ of Possession over Lot 356-A together with the
improvements thereon (Rose Inn Building). The Branch Clerk of Court is hereby ordered
to issue a writ of possession in favor of Banco Filipino;

5. [The Torbela siblings] are hereby ordered to render accounting to Banco Filipino the
rental they received from tenants of Rose Inn Building from May 14, 1988;

6. [The Torbela siblings] are hereby ordered to pay Banco Filipino the sum of ₱20,000.00
as attorney’s fees;

7. Banco Filipino is hereby ordered to give [the Torbela siblings] the right of first refusal
over Lot 356-A. The Register of Deeds is hereby ordered to annotate the right of [the
Torbela siblings] at the back of TCT No. 165813 after payment of the required fees;

8. Dr. Rosario and Lena Rosario are hereby ordered to reimburse [the Torbela siblings]
the market value of Lot 356-A as of December, 1964 minus payments made by the
former;

9. Dismissing the complaint of [the Torbela siblings] against Banco Filipino, Pedro
Habon and Rufino Moreno in Civil Case No. U-4733; and against Banco Filipino in Civil
Case No. U-4359.39

The RTC released an Amended Decision40 dated January 29, 1992, adding the following
paragraph to the dispositive:

Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-C-2-[B]-2-A of the subdivision

plan (LRC) Psd-122471, covered by Transfer Certificate of Title 104189 of the Registry of
Deeds of Pangasinan[.]41

The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before the Court of
Appeals. Their appeal was docketed as CA-G.R. CV No. 39770.
In its Decision42 dated June 29, 1999, the Court of Appeals decreed:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with

modification. Items No. 6 and 7 of the appealed decision are DELETED. Item No. 8 is modified
requiring [Dr. Rosario] to pay [the Torbela siblings] actual damages, in the amount of
₱1,200,000.00 with 6% per annum interest from finality of this decision until fully paid. [Dr.
Rosario] is further ORDERED to pay [the Torbela siblings] the amount of ₱300,000.00 as moral
damages; ₱200,000.00 as exemplary damages and ₱100,000.00 as attorney’s fees.

Costs against [Dr. Rosario].43

The Court of Appeals, in a Resolution44 dated October 22, 1999, denied the separate Motions for
Reconsideration of the Torbela siblings and Dr. Rosario.

The Torbela siblings come before this Court via the Petition for Review in G.R. No. 140528,
with the following assignment of errors:

First Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING

THAT THE REGISTRATION OF THE DEED OF ABSOLUTE QUITCLAIM
EXECUTED BY [DR. ANDRES T. ROSARIO] IN FAVOR OF THE [TORBELA
SIBLINGS] DATED DECEMBER 28, 1964 AND THE REGISTRATION OF THE
NOTICE OF ADVERSE CLAIM EXECUTED BY THE [TORBELA SIBLINGS],
SERVE AS THE OPERATIVE ACT TO CONVEY OR AFFECT THE LAND AND
IMPROVEMENTS THEREOF IN SO FAR AS THIRD PERSONS ARE
CONCERNED.

Second Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

THE SUBJECT PROPERTY COVERED BY T.C.T. NO. 52751 IS CLEAN AND
FREE, DESPITE OF THE ANNOTATION OF ENCUMBRANCES OF THE NOTICE
OF ADVERSE CLAIM AND THE DEED OF ABSOLUTE QUITCLAIM APPEARING
AT THE BACK THEREOF AS ENTRY NOS. 274471 AND 274472, RESPECTIVELY.

Third Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

THE NOTICE OF ADVERSE CLAIM OF THE [TORBELA SIBLINGS] UNDER
ENTRY NO. 274471 WAS VALIDLY CANCELLED BY THE REGISTER OF DEEDS,
IN THE ABSENCE OF A PETITION DULY FILED IN COURT FOR ITS
CANCELLATION.

Fourth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE BANK IS A
MORTGAGEE IN GOOD FAITH.

Fifth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING

THAT THE FILING OF A CIVIL CASE NO. U-4359 ON DECEMBER 9, 1987,
IMPLEADING RESPONDENT BANCO FILIPINO AS ADDITIONAL PARTY
DEFENDANT, TOLL OR SUSPEND THE RUNNING OF THE ONE YEAR PERIOD
OF REDEMPTION.
 Sixth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING

THAT THE OWNERSHIP OVER THE SUBJECT PROPERTY WAS
PREMATURELY CONSOLIDATED IN FAVOR OF RESPONDENT BANCO
FILIPINO SAVINGS AND MORTGAGE BANK.

Seventh Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

THE SUBJECT PROPERTY IS AT LEAST WORTH ₱1,200,000.00.45

The Torbela siblings ask of this Court:

WHEREFORE, in the light of the foregoing considerations, the [Torbela siblings] most
respectfully pray that the questioned DECISION promulgated on June 29, 1999 (Annex "A",
Petition) and the RESOLUTION dated October 22, 1999 (Annex "B", Petition) be REVERSED
and SET ASIDE, and/or further MODIFIED in favor of the [Torbela siblings], and another
DECISION issue ordering, among other reliefs, the respondent Banco Filipino to reconvey back
Lot No. 356-A, covered by T.C.T. No. 52751, in favor of the [Torbela siblings] who are the
actual owners of the same.

The [Torbela siblings] likewise pray for such other reliefs and further remedies as may be
deemed just and equitable under the premises.46

Duque-Rosario, now legally separated from Dr. Rosario, avers in her Petition for Review in G.R.
No. 140553 that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A were registered in her name, and
she was unlawfully deprived of ownership of said properties because of the following errors of
the Court of Appeals:

THE HON. COURT OF APPEALS PATENTLY ERRED IN NOT FINDING THAT

THE PERIOD TO REDEEM THE PROPERTY HAS NOT COMMENCED, HENCE,
THE CERTIFICATE OF SALE, THE CONSOLIDATION OF OWNERSHIP BY
[BANCO FILIPINO], ARE NULL AND VOID.

THE COURT OF APPEALS PATENTLY ERRED IN REFUSING TO RULE THAT

THE FILING OF THE COMPLAINT BEFORE THE COURT A QUO BY THE
[TORBELA SIBLINGS] HAD ALREADY BEEN PRESCRIBED.47

Duque-Rosario prays that the appealed decision of the Court of Appeals be reversed and set
aside, and that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A be freed from all obligations and
encumbrances and returned to her.

Review of findings of fact by the RTC and the Court of Appeals warranted.

A disquisition of the issues raised and/or errors assigned in the Petitions at bar unavoidably
requires a re-evaluation of the facts and evidence presented by the parties in the court a quo.

In Republic v. Heirs of Julia Ramos,48 the Court summed up the rules governing the power of
review of the Court:

Ordinarily, this Court will not review, much less reverse, the factual findings of the Court of
Appeals, especially where such findings coincide with those of the trial
court.http://sc.judiciary.gov.ph/jurisprudence/2010/february2010/169481.htm - _ftn The findings
of facts of the Court of Appeals are, as a general rule, conclusive and binding upon this Court,
since this Court is not a trier of facts and does not routinely undertake the re-examination of the
evidence presented by the contending parties during the trial of the case.

The above rule, however, is subject to a number of exceptions, such as (1) when the inference
made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse of discretion;
(3) when the finding is grounded entirely on speculations, surmises, or conjectures; (4) when the
judgment of the Court of Appeals is based on misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both parties; (7) when the
findings of the Court of Appeals are contrary to those of the trial court; (8) when the findings of
fact are conclusions without citation of specific evidence on which they are based; (9) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and
which, if properly considered, would justify a different conclusion; and (10) when the findings of
fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.49

As the succeeding discussion will bear out, the first, fourth, and ninth exceptions are extant in
these case.

Barangay conciliation was not a pre-requisite to the institution of Civil Case No. U-4359.

Dr. Rosario contends that Civil Case No. U-4359, the Complaint of the Torbela siblings for
recovery of ownership and possession of Lot No. 356-A, plus damages, should have been
dismissed by the RTC because of the failure of the Torbela siblings to comply with the prior
requirement of submitting the dispute to barangay conciliation.

The Torbela siblings instituted Civil Case No. U-4359 on February 13, 1986, when Presidential
Decree No. 1508, Establishing a System of Amicably Settling Disputes at the Barangay Level,
was still in effect.50 Pertinent provisions of said issuance read:

Section 2. Subject matters for amicable settlement. The Lupon of each barangay shall have
authority to bring together the parties actually residing in the same city or municipality for
amicable settlement of all disputes except:

1. Where one party is the government, or any subdivision or instrumentality thereof;

2. Where one party is a public officer or employee, and the dispute relates to the
performance of his official functions;

3. Offenses punishable by imprisonment exceeding 30 days, or a fine exceeding ₱200.00;

4. Offenses where there is no private offended party;

5. Such other classes of disputes which the Prime Minister may in the interest of justice
determine upon recommendation of the Minister of Justice and the Minister of Local
Government.

Section 3. Venue. Disputes between or among persons actually residing in the same barangay
shall be brought for amicable settlement before the Lupon of said barangay. Those involving
actual residents of different barangays within the same city or municipality shall be brought in
the barangay where the respondent or any of the respondents actually resides, at the election of
the complainant. However, all disputes which involved real property or any interest therein shall
be brought in the barangay where the real property or any part thereof is situated.

The Lupon shall have no authority over disputes:

 1. involving parties who actually reside in barangays of different cities or municipalities,
except where such barangays adjoin each other; and

2. involving real property located in different municipalities.

xxxx

Section 6. Conciliation, pre-condition to filing of complaint. – No complaint, petition, action or

proceeding involving any matter within the authority of the Lupon as provided in Section 2
hereof shall be filed or instituted in court or any other government office for adjudication unless
there has been a confrontation of the parties before the Lupon Chairman or the Pangkat and no
conciliation or settlement has been reached as certified by the Lupon Secretary or the Pangkat
Secretary, attested by the Lupon or Pangkat Chairman, or unless the settlement has been
repudiated. x x x. (Emphases supplied.)

The Court gave the following elucidation on the jurisdiction of the Lupong Tagapayapa in
Tavora v. Hon. Veloso51 :

The foregoing provisions are quite clear. Section 2 specifies the conditions under which the
Lupon of a barangay "shall have authority" to bring together the disputants for amicable
settlement of their dispute: The parties must be "actually residing in the same city or
municipality." At the same time, Section 3 — while reiterating that the disputants must be
"actually residing in the same barangay" or in "different barangays" within the same city or
municipality — unequivocably declares that the Lupon shall have "no authority" over disputes
"involving parties who actually reside in barangays of different cities or municipalities," except
where such barangays adjoin each other.

Thus, by express statutory inclusion and exclusion, the Lupon shall have no jurisdiction over
disputes where the parties are not actual residents of the same city or municipality, except where
the barangays in which they actually reside adjoin each other.

It is true that immediately after specifying the barangay whose Lupon shall take cognizance of a
given dispute, Sec. 3 of PD 1508 adds:

"However, all disputes which involve real property or any interest therein shall be brought in the
barangay where the real property or any part thereof is situated."

Actually, however, this added sentence is just an ordinary proviso and should operate as such.

The operation of a proviso, as a rule, should be limited to its normal function, which is to restrict
or vary the operation of the principal clause, rather than expand its scope, in the absence of a
clear indication to the contrary.

"The natural and appropriate office of a proviso is . . . to except something from the enacting
clause; to limit, restrict, or qualify the statute in whole or in part; or to exclude from the scope of
the statute that which otherwise would be within its terms." (73 Am Jur 2d 467.)

Therefore, the quoted proviso should simply be deemed to restrict or vary the rule on venue
prescribed in the principal clauses of the first paragraph of Section 3, thus: Although venue is
generally determined by the residence of the parties, disputes involving real property shall be
brought in the barangay where the real property or any part thereof is situated, notwithstanding
that the parties reside elsewhere within the same city/municipality.52 (Emphases supplied.)

The original parties in Civil Case No. U-4359 (the Torbela siblings and the spouses Rosario) do
not reside in the same barangay, or in different barangays within the same city or municipality,
or in different barangays of different cities or municipalities but are adjoining each other. Some
of them reside outside Pangasinan and even outside of the country altogether. The Torbela
siblings reside separately in Barangay Macalong, Urdaneta, Pangasinan; Barangay Consolacion,
Urdaneta, Pangasinan; Pangil, Laguna; Chicago, United States of America; and Canada. The
spouses Rosario are residents of Calle Garcia, Poblacion, Urdaneta, Pangasinan. Resultantly, the
Lupon had no jurisdiction over the dispute and barangay conciliation was not a pre-condition for
the filing of Civil Case No. U-4359.

The Court now looks into the merits of Civil Case No. U-4359.

There was an express trust between the Torbela siblings and Dr. Rosario.

There is no dispute that the Torbela sibling inherited the title to Lot No. 356-A from their
parents, the Torbela spouses, who, in turn, acquired the same from the first registered owner of
Lot No. 356-A, Valeriano.

Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12, 1964 in
which they transferred and conveyed Lot No. 356-A to Dr. Rosario for the consideration of
₱9.00. However, the Torbela siblings explained that they only executed the Deed as an
accommodation so that Dr. Rosario could have Lot No. 356-A registered in his name and use
said property to secure a loan from DBP, the proceeds of which would be used for building a
hospital on Lot No. 356-A – a claim supported by testimonial and documentary evidence, and
borne out by the sequence of events immediately following the execution by the Torbela siblings
of said Deed. On December 16, 1964, TCT No. 52751, covering Lot No. 356-A, was already
issued in Dr. Rosario’s name. On December 28, 1964, Dr. Rosario executed his own Deed of
Absolute Quitclaim, in which he expressly acknowledged that he "only borrowed" Lot No. 356-
A and was transferring and conveying the same back to the Torbela siblings for the consideration
of ₱1.00. On February 21, 1965, Dr. Rosario’s loan in the amount of ₱70,200.00, secured by a
mortgage on Lot No. 356-A, was approved by DBP. Soon thereafter, construction of a hospital
building started on Lot No. 356-A.

Among the notable evidence presented by the Torbela siblings is the testimony of Atty. Lorenza
Alcantara (Atty. Alcantara), who had no apparent personal interest in the present case. Atty.
Alcantara, when she was still a boarder at the house of Eufrosina Torbela Rosario (Dr. Rosario’s
mother), was consulted by the Torbela siblings as regards the extrajudicial partition of Lot No.
356-A. She also witnessed the execution of the two Deeds of Absolute Quitclaim by the Torbela
siblings and Dr. Rosario.

In contrast, Dr. Rosario presented TCT No. 52751, issued in his name, to prove his purported
title to Lot No. 356-A. In Lee Tek Sheng v. Court of Appeals,53 the Court made a clear
distinction between title and the certificate of title:

The certificate referred to is that document issued by the Register of Deeds known as the
Transfer Certificate of Title (TCT). By title, the law refers to ownership which is represented by
that document. Petitioner apparently confuses certificate with title. Placing a parcel of land under
the mantle of the Torrens system does not mean that ownership thereof can no longer be
disputed. Ownership is different from a certificate of title. The TCT is only the best proof of
ownership of a piece of land. Besides, the certificate cannot always be considered as conclusive
evidence of ownership. Mere issuance of the certificate of title in the name of any person does
not foreclose the possibility that the real property may be under co-ownership with persons not
named in the certificate or that the registrant may only be a trustee or that other parties may have
acquired interest subsequent to the issuance of the certificate of title. To repeat, registration is not
the equivalent of title, but is only the best evidence thereof. Title as a concept of ownership
should not be confused with the certificate of title as evidence of such ownership although both
are interchangeably used. x x x.54 (Emphases supplied.)

Registration does not vest title; it is merely the evidence of such title. Land registration laws do
not give the holder any better title than what he actually has.55 Consequently, Dr. Rosario must
still prove herein his acquisition of title to Lot No. 356-A, apart from his submission of TCT No.
52751 in his name.

Dr. Rosario testified that he obtained Lot No. 356-A after paying the Torbela siblings
₱25,000.00, pursuant to a verbal agreement with the latter. The Court though observes that Dr.
Rosario’s testimony on the execution and existence of the verbal agreement with the Torbela
siblings lacks significant details (such as the names of the parties present, dates, places, etc.) and
is not corroborated by independent evidence.

In addition, Dr. Rosario acknowledged the execution of the two Deeds of Absolute Quitclaim
dated December 12, 1964 and December 28, 1964, even affirming his own signature on the latter
Deed. The Parol Evidence Rule provides that when the terms of the agreement have been
reduced into writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.56 Dr. Rosario may not modify, explain, or add to the terms in
the two written Deeds of Absolute Quitclaim since he did not put in issue in his pleadings (1) an
intrinsic ambiguity, mistake, or imperfection in the Deeds; (2) failure of the Deeds to express the
true intent and the agreement of the parties thereto; (3) the validity of the Deeds; or (4) the
existence of other terms agreed to by the Torbela siblings and Dr. Rosario after the execution of
the Deeds.57

Even if the Court considers Dr. Rosario’s testimony on his alleged verbal agreement with the
Torbela siblings, the Court finds the same unsatisfactory. Dr. Rosario averred that the two Deeds
were executed only because he was "planning to secure loan from the Development Bank of the
Philippines and Philippine National Bank and the bank needed absolute quitclaim[.]"58 While Dr.
Rosario’s explanation makes sense for the first Deed of Absolute Quitclaim dated December 12,
1964 executed by the Torbela siblings (which transferred Lot No. 356-A to Dr. Rosario for
₱9.00.00), the same could not be said for the second Deed of Absolute Quitclaim dated
December 28, 1964 executed by Dr. Rosario. In fact, Dr. Rosario’s Deed of Absolute Quitclaim
(in which he admitted that he only borrowed Lot No. 356-A and was transferring the same to the
Torbela siblings for ₱1.00.00) would actually work against the approval of Dr. Rosario’s loan by
the banks. Since Dr. Rosario’s Deed of Absolute Quitclaim dated December 28, 1964 is a
declaration against his self-interest, it must be taken as favoring the truthfulness of the contents
of said Deed.59

It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over Lot
No. 356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr. Rosario's
admission in the said Deed that he merely borrowed Lot No. 356-A is deemed conclusive upon
him. Under Article 1431 of the Civil Code, "[t]hrough estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as against the
person relying thereon."60 That admission cannot now be denied by Dr. Rosario as against the
Torbela siblings, the latter having relied upon his representation.

Considering the foregoing, the Court agrees with the RTC and the Court of Appeals that Dr.
Rosario only holds Lot No. 356-A in trust for the Torbela siblings.

Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in
another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary. Trust relations between parties may either be express or implied. An
express trust is created by the intention of the trustor or of the parties, while an implied trust
comes into being by operation of law.61

Express trusts are created by direct and positive acts of the parties, by some writing or deed, or
will, or by words either expressly or impliedly evincing an intention to create a trust. Under
Article 1444 of the Civil Code, "[n]o particular words are required for the creation of an express
trust, it being sufficient that a trust is clearly intended."62It is possible to create a trust without
using the word "trust" or "trustee." Conversely, the mere fact that these words are used does not
necessarily indicate an intention to create a trust. The question in each case is whether the trustor
manifested an intention to create the kind of relationship which to lawyers is known as trust. It is
immaterial whether or not he knows that the relationship which he intends to create is called a
trust, and whether or not he knows the precise characteristics of the relationship which is called a
trust.63

In Tamayo v. Callejo,64 the Court recognized that a trust may have a constructive or implied
nature in the beginning, but the registered owner’s subsequent express acknowledgement in a
public document of a previous sale of the property to another party, had the effect of imparting to
the aforementioned trust the nature of an express trust. The same situation exists in this case.
When Dr. Rosario was able to register Lot No. 356-A in his name under TCT No. 52751 on
December 16, 1964, an implied trust was initially established between him and the Torbela
siblings under Article 1451 of the Civil Code, which provides:

ART. 1451. When land passes by succession to any person and he causes the legal title to be put
in the name of another, a trust is established by implication of law for the benefit of the true
owner.

Dr. Rosario’s execution of the Deed of Absolute Quitclaim on December 28, 1964, containing
his express admission that he only borrowed Lot No. 356-A from the Torbela siblings, eventually
transformed the nature of the trust to an express one. The express trust continued despite Dr.
Rosario stating in his Deed of Absolute Quitclaim that he was already returning Lot No. 356-A
to the Torbela siblings as Lot No. 356-A remained registered in Dr. Rosario’s name under TCT
No. 52751 and Dr. Rosario kept possession of said property, together with the improvements
thereon.

The right of the Torbela siblings to recover Lot No. 356-A has not yet prescribed.

The Court extensively discussed the prescriptive period for express trusts in the Heirs of Maximo
Labanon v. Heirs of Constancio Labanon,65 to wit:

On the issue of prescription, we had the opportunity to rule in Bueno v. Reyes that unrepudiated
written express trusts are imprescriptible:

"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 Justice J.B.L. Reyes in J.M. Tuason 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
prescribed in 10 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 v. Gorricho, L-11229,
March 29, 1958, however, the continuing or subsisting trusts contemplated in section 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 principle was amplified in Escay v. Court of Appeals this way: "Express trusts prescribe 10
years from the repudiation of the trust (Manuel Diaz, et al. vs. Carmen Gorricho et al., 54 O.G. p.
8429, Sec. 40, Code of Civil Procedure)."

In the more recent case of Secuya v. De Selma, we again ruled that the prescriptive period for the
enforcement of an express trust of ten (10) years starts upon the repudiation of the trust by the
trustee.66
To apply the 10-year prescriptive period, which would bar a beneficiary’s action to recover in an
express trust, the repudiation of the trust must be proven by clear and convincing evidence and
made known to the beneficiary.67 The express trust disables the trustee from acquiring for his
own benefit the property committed to his management or custody, at least while he does not
openly repudiate the trust, and makes such repudiation known to the beneficiary or cestui que
trust. For this reason, the old Code of Civil Procedure (Act 190) declared that the rules on
adverse possession do not apply to "continuing and subsisting" (i.e., unrepudiated) trusts. In an
express trust, the delay of the beneficiary is directly attributable to the trustee who undertakes to
hold the property for the former, or who is linked to the beneficiary by confidential or fiduciary
relations. The trustee's possession is, therefore, not adverse to the beneficiary, until and unless
the latter is made aware that the trust has been repudiated.68

Dr. Rosario argues that he is deemed to have repudiated the trust on December 16, 1964, when
he registered Lot No. 356-A in his name under TCT No. 52751, so when on February 13, 1986,
the Torbela siblings instituted before the RTC Civil Case No. U-4359, for the recovery of
ownership and possession of Lot No. 356-A from the spouses Rosario, over 21 years had passed.
Civil Case No. U-4359 was already barred by prescription, as well as laches.

The Court already rejected a similar argument in Ringor v. Ringor69 for the following reasons:

A trustee who obtains a Torrens title over a property held in trust for him by another cannot
repudiate the trust by relying on the registration. A Torrens Certificate of Title in Jose’s name
did not vest ownership of the land upon him. The Torrens system does not create or vest title. It
only confirms and records title already existing and vested. It does not protect a usurper from the
true owner. The Torrens system was not intended to foment betrayal in the performance of a
trust. It does not permit one to enrich himself at the expense of another. Where one does not have
a rightful claim to the property, the Torrens system of registration can confirm or record nothing.
Petitioners cannot rely on the registration of the lands in Jose’s name nor in the name of the
Heirs of Jose M. Ringor, Inc., for the wrong result they seek. For Jose could not repudiate a trust
by relying on a Torrens title he held in trust for his co-heirs. The beneficiaries are entitled to
enforce the trust, notwithstanding the irrevocability of the Torrens title. The intended trust must
be sustained.70 (Emphasis supplied.)

In the more recent case of Heirs of Tranquilino Labiste v. Heirs of Jose Labiste,71 the Court
refused to apply prescription and laches and reiterated that:

[P]rescription and laches will run only from the time the express trust is repudiated. The Court
has held that for acquisitive prescription to bar the action of the beneficiary against the trustee in
an express trust for the recovery of the property held in trust it must be shown that: (a) the trustee
has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b)
such positive acts of repudiation have been made known to the cestui que trust, and (c) the
evidence thereon is clear and conclusive. Respondents cannot rely on the fact that the Torrens
title was issued in the name of Epifanio and the other heirs of Jose. It has been held that a trustee
who obtains a Torrens title over property held in trust by him for another cannot repudiate the
trust by relying on the registration. The rule requires a clear repudiation of the trust duly
communicated to the beneficiary. The only act that can be construed as repudiation was when
respondents filed the petition for reconstitution in October 1993. And since petitioners filed their
complaint in January 1995, their cause of action has not yet prescribed, laches cannot be
attributed to them.72 (Emphasis supplied.)

It is clear that under the foregoing jurisprudence, the registration of Lot No. 356-A by Dr.
Rosario in his name under TCT No. 52751 on December 16, 1964 is not the repudiation that
would have caused the 10-year prescriptive period for the enforcement of an express trust to run.

The Court of Appeals held that Dr. Rosario repudiated the express trust when he acquired
another loan from PNB and constituted a second mortgage on Lot No. 356-A sometime in 1979,
which, unlike the first mortgage to DBP in 1965, was without the knowledge and/or consent of
the Torbela siblings.

The Court only concurs in part with the Court of Appeals on this matter.

For repudiation of an express trust to be effective, the unequivocal act of repudiation had to be
made known to the Torbela siblings as the cestuis que trust and must be proven by clear and
conclusive evidence. A scrutiny of TCT No. 52751 reveals the following inscription:

Entry No. 520099

Amendment of the mortgage in favor of PNB inscribed under Entry No. 490658 in the sense that
the consideration thereof has been increased to PHILIPPINE PESOS Four Hundred Fifty
Thousand Pesos only (₱450,000.00) and to secure any and all negotiations with PNB, whether
contracted before, during or after the date of this instrument, acknowledged before Notary Public
of Pangasinan Alejo M. Dato as Doc. No. 198, Page No. 41, Book No. 11, Series of 1985.

Date of Instrument March 5, 1981

Date of Inscription March 6, 198173

Although according to Entry No. 520099, the original loan and mortgage agreement of Lot No.
356-A between Dr. Rosario and PNB was previously inscribed as Entry No. 490658, Entry No.
490658 does not actually appear on TCT No. 52751 and, thus, it cannot be used as the reckoning
date for the start of the prescriptive period.

The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-A to
PNB on March 6, 1981 when the amended loan and mortgage agreement was registered on TCT
No. 52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole
world74 that Lot No. 356-A was mortgaged by Dr. Rosario to PNB as security for a loan, the
amount of which was increased to ₱450,000.00. Hence, Dr. Rosario is deemed to have
effectively repudiated the express trust between him and the Torbela siblings on March 6, 1981,
on which day, the prescriptive period for the enforcement of the express trust by the Torbela
siblings began to run.

From March 6, 1981, when the amended loan and mortgage agreement was registered on TCT
No. 52751, to February 13, 1986, when the Torbela siblings instituted before the RTC Civil Case
No. U-4359 against the spouses Rosario, only about five years had passed. The Torbela siblings
were able to institute Civil Case No. U-4359 well before the lapse of the 10-year prescriptive
period for the enforcement of their express trust with Dr. Rosario.

Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or neglect, for
an unreasonable and unexplained length of time, to do that which by exercising due diligence
could or should have been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either has abandoned
it or declined to assert it. As the Court explained in the preceding paragraphs, the Torbela
siblings instituted Civil Case No. U-4359 five years after Dr. Rosario’s repudiation of the
express trust, still within the 10-year prescriptive period for enforcement of such trusts. This does
not constitute an unreasonable delay in asserting one's right. A delay within the prescriptive
period is sanctioned by law and is not considered to be a delay that would bar relief. Laches
apply only in the absence of a statutory prescriptive period.75

Banco Filipino is not a mortgagee and buyer in good faith.

Having determined that the Torbela siblings are the true owners and Dr. Rosario merely the
trustee of Lot No. 356-A, the Court is next faced with the issue of whether or not the Torbela
siblings may still recover Lot No. 356-A considering that Dr. Rosario had already mortgaged Lot
No. 356-A to Banco Filipino, and upon Dr. Rosario’s default on his loan obligations, Banco
Filipino foreclosed the mortgage, acquired Lot No. 356-A as the highest bidder at the foreclosure
sale, and consolidated title in its name under TCT No. 165813. The resolution of this issue
depends on the answer to the question of whether or not Banco Filipino was a mortgagee in good
faith.

Under Article 2085 of the Civil Code, one of the essential requisites of the contract of mortgage
is that the mortgagor should be the absolute owner of the property to be mortgaged; otherwise,
the mortgage is considered null and void. However, an exception to this rule is the doctrine of
"mortgagee in good faith." Under this doctrine, even if the mortgagor is not the owner of the
mortgaged property, the mortgage contract and any foreclosure sale arising therefrom are given
effect by reason of public policy. This principle is based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title, as buyers or mortgagees, are not required to
go beyond what appears on the face of the title. This is the same rule that underlies the principle
of "innocent purchasers for value." The prevailing jurisprudence is that a mortgagee has a right
to rely in good faith on the certificate of title of the mortgagor to the property given as security
and in the absence of any sign that might arouse suspicion, has no obligation to undertake further
investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a valid
title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled to
protection.76

On one hand, the Torbela siblings aver that Banco Filipino is not a mortgagee in good faith
because as early as May 17, 1967, they had already annotated Cornelio’s Adverse Claim dated
May 16, 1967 and Dr. Rosario’s Deed of Absolute Quitclaim dated December 28, 1964 on TCT
No. 52751 as Entry Nos. 274471-274472, respectively.

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because per
Section 70 of Presidential Decree No. 1529, otherwise known as the Property Registration
Decree, the notice of adverse claim, registered on May 17, 1967 by the Torbela siblings under
Entry Nos. 274471-274472 on TCT No. 52751, already lapsed after 30 days or on June 16, 1967.
Additionally, there was an express cancellation of Entry Nos. 274471-274472 by Entry No.
520469 dated March 11, 1981. So when Banco Filipino approved Dr. Rosario’s loan for
₱1,200,000.00 and constituted a mortgage on Lot No. 356-A (together with two other properties)
on December 8, 1981, the only other encumbrance on TCT No. 52751 was Entry No. 520099
dated March 6, 1981, i.e., the amended loan and mortgage agreement between Dr. Rosario and
PNB (which was eventually cancelled after it was paid off with part of the proceeds from Dr.
Rosario’s loan from Banco Filipino). Hence, Banco Filipino was not aware that the Torbela
siblings’ adverse claim on Lot No. 356-A still subsisted.

The Court finds that Banco Filipino is not a mortgagee in good faith. Entry Nos. 274471-274472
were not validly cancelled, and the improper cancellation should have been apparent to Banco
Filipino and aroused suspicion in said bank of some defect in Dr. Rosario’s title.

The purpose of annotating the adverse claim on the title of the disputed land is to apprise third
persons that there is a controversy over the ownership of the land and to preserve and protect the
right of the adverse claimant during the pendency of the controversy. It is a notice to third
persons that any transaction regarding the disputed land is subject to the outcome of the
dispute.77

Adverse claims were previously governed by Section 110 of Act No. 496, otherwise known as
the Land Registration Act, quoted in full below:

ADVERSE CLAIM

SEC. 110. Whoever claims any part or interest in registered land adverse to the registered owner,
arising subsequent to the date of the original registration, may, if no other provision is made in
this Act for registering the same, make a statement in writing setting forth fully his alleged right
or interest, and how or under whom acquired, and a reference to the volume and page of the
certificate of title of the registered owner, and a description of the land in which the right or
interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimant’s residence, and
designate a place at which all notices may be served upon him. This statement shall be entitled to
registration as an adverse claim, and the court, upon a petition of any party in interest, shall grant
a speedy hearing upon the question of the validity of such adverse claim and shall enter such
decree therein as justice and equity may require. If the claim is adjudged to be invalid, the
registration shall be cancelled. If in any case the court after notice and hearing shall find that a
claim thus registered was frivolous or vexatious, it may tax the adverse claimant double or treble
costs in its discretion.

Construing the aforequoted provision, the Court stressed in Ty Sin Tei v. Lee Dy Piao78 that
"[t]he validity or efficaciousness of the [adverse] claim x x x may only be determined by the
Court upon petition by an interested party, in which event, the Court shall order the immediate
hearing thereof and make the proper adjudication as justice and equity may warrant. And it is
ONLY when such claim is found unmeritorious that the registration thereof may be cancelled."
The Court likewise pointed out in the same case that while a notice of lis pendens may be
cancelled in a number of ways, "the same is not true in a registered adverse claim, for it may be
cancelled only in one instance, i.e., after the claim is adjudged invalid or unmeritorious by the
Court x x x;" and "if any of the registrations should be considered unnecessary or superfluous, it
would be the notice of lis pendens and not the annotation of the adverse claim which is more
permanent and cannot be cancelled without adequate hearing and proper disposition of the
claim."

With the enactment of the Property Registration Decree on June 11, 1978, Section 70 thereof
now applies to adverse claims:

SEC. 70. Adverse claim. – Whoever claims any part or interest in registered land adverse to the
registered owner, arising subsequent to the date of the original registrations, may, if no other
provision is made in this Decree for registering the same, make a statement in writing setting
forth fully his alleged right, or interest, and how or under whom acquired, a reference to the
number of the certificate of title of the registered owner, the name of the registered owner, and a
description of the land in which the right or interest is claimed.

The statement shall be signed and sworn to, and shall state the adverse claimant’s residence, and
a place at which all notices may be served upon him. This statement shall be entitled to
registration as an adverse claim on the certificate of title. The adverse claim shall be effective for
a period of thirty days from the date of registration. After the lapse of said period, the annotation
of adverse claim may be cancelled upon filing of a verified petition therefor by the party in
interest: Provided, however, that after cancellation, no second adverse claim based on the same
ground shall be registered by the same claimant.

Before the lapse of thirty days aforesaid, any party in interest may file a petition in the Court of
First Instance where the land is situated for the cancellation of the adverse claim, and the court
shall grant a speedy hearing upon the question of the validity of such adverse claim, and shall
render judgment as may be just and equitable. If the adverse claim is adjudged to be invalid, the
registration thereof shall be ordered cancelled. If, in any case, the court, after notice and hearing,
shall find that the adverse claim thus registered was frivolous, it may fine the claimant in an
amount not less than one thousand pesos nor more than five thousand pesos, in its discretion.
Before the lapse of thirty days, the claimant may withdraw his adverse claim by filing with the
Register of Deeds a sworn petition to that effect. (Emphases supplied.)

In Sajonas v. Court of Appeals,79 the Court squarely interpreted Section 70 of the Property
Registration Decree, particularly, the new 30-day period not previously found in Section 110 of
the Land Registration Act, thus:
In construing the law aforesaid, care should be taken that every part thereof be given effect and a
construction that could render a provision inoperative should be avoided, and inconsistent
provisions should be reconciled whenever possible as parts of a harmonious whole. For taken in
solitude, a word or phrase might easily convey a meaning quite different from the one actually
intended and evident when a word or phrase is considered with those with which it is associated.
In ascertaining the period of effectivity of an inscription of adverse claim, we must read the law
in its entirety. Sentence three, paragraph two of Section 70 of P.D. 1529 provides:

"The adverse claim shall be effective for a period of thirty days from the date of registration."

At first blush, the provision in question would seem to restrict the effectivity of the adverse claim
to thirty days. But the above provision cannot and should not be treated separately, but should be
read in relation to the sentence following, which reads:

"After the lapse of said period, the annotation of adverse claim may be cancelled upon filing of a
verified petition therefor by the party in interest."

If the rationale of the law was for the adverse claim to ipso facto lose force and effect after the
lapse of thirty days, then it would not have been necessary to include the foregoing caveat to
clarify and complete the rule. For then, no adverse claim need be cancelled. If it has been
automatically terminated by mere lapse of time, the law would not have required the party in
interest to do a useless act.

A statute's clauses and phrases must not be taken separately, but in its relation to the statute's
totality. Each statute must, in fact, be construed as to harmonize it with the pre-existing body of
laws. Unless clearly repugnant, provisions of statutes must be reconciled. The printed pages of
the published Act, its history, origin, and its purposes may be examined by the courts in their
construction. x x x.

xxxx

Construing the provision as a whole would reconcile the apparent inconsistency between the
portions of the law such that the provision on cancellation of adverse claim by verified petition
would serve to qualify the provision on the effectivity period. The law, taken together, simply
means that the cancellation of the adverse claim is still necessary to render it ineffective,
otherwise, the inscription will remain annotated and shall continue as a lien upon the property.
For if the adverse claim has already ceased to be effective upon the lapse of said period, its
cancellation is no longer necessary and the process of cancellation would be a useless ceremony.

It should be noted that the law employs the phrase "may be cancelled," which obviously
indicates, as inherent in its decision making power, that the court may or may not order the
cancellation of an adverse claim, notwithstanding such provision limiting the effectivity of an
adverse claim for thirty days from the date of registration. The court cannot be bound by such
period as it would be inconsistent with the very authority vested in it. A fortiori, the limitation on
the period of effectivity is immaterial in determining the validity or invalidity of an adverse
claim which is the principal issue to be decided in the court hearing. It will therefore depend
upon the evidence at a proper hearing for the court to determine whether it will order the
cancellation of the adverse claim or not.

To interpret the effectivity period of the adverse claim as absolute and without qualification
limited to thirty days defeats the very purpose for which the statute provides for the remedy of an
inscription of adverse claim, as the annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property where the registration of such
interest or right is not otherwise provided for by the Land Registration Act or Act 496 (now P.D.
1529 or the Property Registration Decree), and serves as a warning to third parties dealing with
said property that someone is claiming an interest or the same or a better right than the registered
owner thereof.
The reason why the law provides for a hearing where the validity of the adverse claim is to be
threshed out is to afford the adverse claimant an opportunity to be heard, providing a venue
where the propriety of his claimed interest can be established or revoked, all for the purpose of
determining at last the existence of any encumbrance on the title arising from such adverse
claim. This is in line with the provision immediately following:

"Provided, however, that after cancellation, no second adverse claim shall be registered by the
same claimant."

Should the adverse claimant fail to sustain his interest in the property, the adverse claimant will
be precluded from registering a second adverse claim based on the same ground.

It was held that "validity or efficaciousness of the claim may only be determined by the Court
upon petition by an interested party, in which event, the Court shall order the immediate hearing
thereof and make the proper adjudication as justice and equity may warrant. And it is only when
such claim is found unmeritorious that the registration of the adverse claim may be cancelled,
thereby protecting the interest of the adverse claimant and giving notice and warning to third
parties."80 (Emphases supplied.)

Whether under Section 110 of the Land Registration Act or Section 70 of the Property
Registration Decree, notice of adverse claim can only be cancelled after a party in interest files a
petition for cancellation before the RTC wherein the property is located, and the RTC conducts a
hearing and determines the said claim to be invalid or unmeritorious.

No petition for cancellation has been filed and no hearing has been conducted herein to
determine the validity or merit of the adverse claim of the Torbela siblings. Entry No. 520469
cancelled the adverse claim of the Torbela siblings, annotated as Entry Nos. 274471-774472,
upon the presentation by Dr. Rosario of a mere Cancellation and Discharge of Mortgage.

Regardless of whether or not the Register of Deeds should have inscribed Entry No. 520469 on
TCT No. 52751, Banco Filipino could not invoke said inscription in support of its claim of good
faith. There were several things amiss in Entry No. 520469 which should have already aroused
suspicions in Banco Filipino, and compelled the bank to look beyond TCT No. 52751 and
inquire into Dr. Rosario’s title. First, Entry No. 520469 does not mention any court order as basis
for the cancellation of the adverse claim. Second, the adverse claim was not a mortgage which
could be cancelled with Dr. Rosario’s Cancellation and Discharge of Mortgage. And third, the
adverse claim was against Dr. Rosario, yet it was cancelled based on a document also executed
by Dr. Rosario.

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted in good faith under the belief
that there was no defect in the title of the vendor or mortgagor. His mere refusal to believe that
such defect exists, or his willful closing of his eyes to the possibility of the existence of a defect
in the vendor's or mortgagor's title, will not make him an innocent purchaser or mortgagee for
value, if it afterwards develops that the title was in fact defective, and it appears that he had such
notice of the defects as would have led to its discovery had he acted with the measure of
precaution which may be required of a prudent man in a like situation.81

While the defective cancellation of Entry Nos. 274471-274472 by Entry No. 520469 might not
be evident to a private individual, the same should have been apparent to Banco Filipino. Banco
Filipino is not an ordinary mortgagee, but is a mortgagee-bank, whose business is impressed with
public interest. In fact, in one case, 82 the Court explicitly declared that the rule that persons
dealing with registered lands can rely solely on the certificate of title does not apply to banks. In
another case,83 the Court adjudged that unlike private individuals, a bank is expected to exercise
greater care and prudence in its dealings, including those involving registered lands. A banking
institution is expected to exercise due diligence before entering into a mortgage contract. The
ascertainment of the status or condition of a property offered to it as security for a loan must be a
standard and indispensable part of its operations.

Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser in good faith
at the foreclosure sale of Lot No. 356-A. Hence, the right of the Torbela siblings over Lot No.
356-A is superior over that of Banco Filipino; and as the true owners of Lot No. 356-A, the
Torbela siblings are entitled to a reconveyance of said property even from Banco Filipino.

Nonetheless, the failure of Banco Filipino to comply with the due diligence requirement was not
the result of a dishonest purpose, some moral obliquity, or breach of a known duty for some
interest or ill will that partakes of fraud that would justify damages.84

Given the reconveyance of Lot No. 356-A to the Torbela siblings, there is no more need to
address issues concerning redemption, annulment of the foreclosure sale and certificate of sale
(subject matter of Civil Case No. U-4733), or issuance of a writ of possession in favor of Banco
Filipino (subject matter of Pet. Case No. U-822) insofar as Lot No. 356-A is concerned. Such
would only be superfluous. Banco Filipino, however, is not left without any recourse should the
foreclosure and sale of the two other mortgaged properties be insufficient to cover Dr. Rosario’s
loan, for the bank may still bring a proper suit against Dr. Rosario to collect the unpaid balance.

The rules on accession shall govern the improvements on Lot No. 356-A and the rents thereof.

The accessory follows the principal. The right of accession is recognized under Article 440 of the
Civil Code which states that "[t]he ownership of property gives the right by accession to
everything which is produced thereby, or which is incorporated or attached thereto, either
naturally or artificially."

There is no question that Dr. Rosario is the builder of the improvements on Lot No. 356-A. The
Torbela siblings themselves alleged that they allowed Dr. Rosario to register Lot No. 356-A in
his name so he could obtain a loan from DBP, using said parcel of land as security; and with the
proceeds of the loan, Dr. Rosario had a building constructed on Lot No. 356-A, initially used as a
hospital, and then later for other commercial purposes. Dr. Rosario supervised the construction
of the building, which began in 1965; fully liquidated the loan from DBP; and maintained and
administered the building, as well as collected the rental income therefrom, until the Torbela
siblings instituted Civil Case No. U-4359 before the RTC on February 13, 1986.

When it comes to the improvements on Lot No. 356-A, both the Torbela siblings (as landowners)
and Dr. Rosario (as builder) are deemed in bad faith. The Torbela siblings were aware of the
construction of a building by Dr. Rosario on Lot No. 356-A, while Dr. Rosario proceeded with
the said construction despite his knowledge that Lot No. 356-A belonged to the Torbela siblings.
This is the case contemplated under Article 453 of the Civil Code, which reads:

ART. 453. If there was bad faith, not only on the part of the person who built, planted or sowed
on the land of another, but also on the part of the owner of such land, the rights of one and the
other shall be the same as though both had acted in good faith.

It is understood that there is bad faith on the part of the landowner whenever the act was done
with his knowledge and without opposition on his part. (Emphasis supplied.)

When both the landowner and the builder are in good faith, the following rules govern:

ART. 448. The owner of the land on which anything has been built, sown or planted in good
faith, shall have the right to appropriate as his own the works, sowing or planting, after payment
of the indemnity provided for in articles 546 and 548, or to oblige the one who built or planted to
pay the price of the land, and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is considerably more than that of the
building or trees. In such case, he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper indemnity. The parties shall agree upon
the terms of the lease and in case of disagreement, the court shall fix the terms thereof.

ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in
good faith may retain the thing until he has been reimbursed therefor.

Useful expenses shall be refunded only to the possessor in good faith with the same right of
retention, the person who has defeated him in the possession having the option of refunding the
amount of the expenses or of paying the increase in value which the thing may have acquired by
reason thereof.

ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in
good faith; but he may remove the ornaments with which he has embellished the principal thing
if it suffers no injury thereby, and if his successor in the possession does not prefer to refund the
amount expended.

Whatever is built, planted, or sown on the land of another, and the improvements or repairs made
thereon, belong to the owner of the land. Where, however, the planter, builder, or sower has
acted in good faith, a conflict of rights arises between the owners and it becomes necessary to
protect the owner of the improvements without causing injustice to the owner of the land. In
view of the impracticability of creating what Manresa calls a state of "forced co-ownership," the
law has provided a just and equitable solution by giving the owner of the land the option to
acquire the improvements after payment of the proper indemnity or to oblige the builder or
planter to pay for the land and the sower to pay the proper rent. It is the owner of the land who is
allowed to exercise the option because his right is older and because, by the principle of
accession, he is entitled to the ownership of the accessory thing.85

The landowner has to make a choice between appropriating the building by paying the proper
indemnity or obliging the builder to pay the price of the land. But even as the option lies with the
landowner, the grant to him, nevertheless, is preclusive. He must choose one. He cannot, for
instance, compel the owner of the building to remove the building from the land without first
exercising either option. It is only if the owner chooses to sell his land, and the builder or planter
fails to purchase it where its value is not more than the value of the improvements, that the
owner may remove the improvements from the land. The owner is entitled to such remotion only
when, after having chosen to sell his land, the other party fails to pay for the same.86

This case then must be remanded to the RTC for the determination of matters necessary for the
proper application of Article 448, in relation to Article 546, of the Civil Code. Such matters
include the option that the Torbela siblings will choose; the amount of indemnity that they will
pay if they decide to appropriate the improvements on Lot No. 356-A; the value of Lot No. 356-
A if they prefer to sell it to Dr. Rosario; or the reasonable rent if they opt to sell Lot No. 356-A to
Dr. Rosario but the value of the land is considerably more than the improvements. The
determination made by the Court of Appeals in its Decision dated June 29, 1999 that the current
value of Lot No. 356-A is ₱1,200,000.00 is not supported by any evidence on record.

Should the Torbela siblings choose to appropriate the improvements on Lot No. 356-A, the
following ruling of the Court in Pecson v. Court of Appeals87 is relevant in the determination of
the amount of indemnity under Article 546 of the Civil Code:

Article 546 does not specifically state how the value of the useful improvements should be
determined. The respondent court and the private respondents espouse the belief that the cost of
construction of the apartment building in 1965, and not its current market value, is sufficient
reimbursement for necessary and useful improvements made by the petitioner. This position is,
however, not in consonance with previous rulings of this Court in similar cases. In Javier vs.
Concepcion, Jr., this Court pegged the value of the useful improvements consisting of various
fruits, bamboos, a house and camarin made of strong material based on the market value of the
said improvements. In Sarmiento vs. Agana, despite the finding that the useful improvement, a
residential house, was built in 1967 at a cost of between eight thousand pesos (₱8,000.00) to ten
thousand pesos (₱10,000.00), the landowner was ordered to reimburse the builder in the amount
of forty thousand pesos (₱40,000.00), the value of the house at the time of the trial. In the same
way, the landowner was required to pay the "present value" of the house, a useful improvement,
in the case of De Guzman vs. De la Fuente, cited by the petitioner.

The objective of Article 546 of the Civil Code is to administer justice between the parties
involved. In this regard, this Court had long ago stated in Rivera vs. Roman Catholic Archbishop
of Manila that the said provision was formulated in trying to adjust the rights of the owner and
possessor in good faith of a piece of land, to administer complete justice to both of them in such
a way as neither one nor the other may enrich himself of that which does not belong to him.
Guided by this precept, it is therefore the current market value of the improvements which
should be made the basis of reimbursement. A contrary ruling would unjustly enrich the private
respondents who would otherwise be allowed to acquire a highly valued income-yielding four-
unit apartment building for a measly amount. Consequently, the parties should therefore be
allowed to adduce evidence on the present market value of the apartment building upon which
the trial court should base its finding as to the amount of reimbursement to be paid by the
landowner.88(Emphases supplied.)

Still following the rules of accession, civil fruits, such as rents, belong to the owner of the
building.89 Thus, Dr. Rosario has a right to the rents of the improvements on Lot No. 356-A and
is under no obligation to render an accounting of the same to anyone. In fact, it is the Torbela
siblings who are required to account for the rents they had collected from the lessees of the
commercial building and turn over any balance to Dr. Rosario. Dr. Rosario’s right to the rents of
the improvements on Lot No. 356-A shall continue until the Torbela siblings have chosen their
option under Article 448 of the Civil Code. And in case the Torbela siblings decide to
appropriate the improvements, Dr. Rosario shall have the right to retain said improvements, as
well as the rents thereof, until the indemnity for the same has been paid.90

Dr. Rosario is liable for damages to the Torbela siblings.

The Court of Appeals ordered Dr. Rosario to pay the Torbela siblings ₱300,000.00 as moral
damages; ₱200,000.00 as exemplary damages; and ₱100,000.00 as attorney’s fees.

Indeed, Dr. Rosario’s deceit and bad faith is evident when, being fully aware that he only held
Lot No. 356-A in trust for the Torbela siblings, he mortgaged said property to PNB and Banco
Filipino absent the consent of the Torbela siblings, and caused the irregular cancellation of the
Torbela siblings’ adverse claim on TCT No. 52751. Irrefragably, Dr. Rosario’s betrayal had
caused the Torbela siblings (which included Dr. Rosario’s own mother, Eufrosina Torbela
Rosario) mental anguish, serious anxiety, and wounded feelings. Resultantly, the award of moral
damages is justified, but the amount thereof is reduced to ₱200,000.00.

In addition to the moral damages, exemplary damages may also be imposed given that Dr.
Rosario’s wrongful acts were accompanied by bad faith. However, judicial discretion granted to
the courts in the assessment of damages must always be exercised with balanced restraint and
measured objectivity. The circumstances of the case call for a reduction of the award of
exemplary damages to ₱100,000.00.

As regards attorney's fees, they may be awarded when the defendant's act or omission has
compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest.
Because of Dr. Rosario’s acts, the Torbela siblings were constrained to institute several cases
against Dr. Rosario and his spouse, Duque-Rosario, as well as Banco Filipino, which had lasted
for more than 25 years. Consequently, the Torbela siblings are entitled to an award of attorney's
fees and the amount of ₱100,000.00 may be considered rational, fair, and reasonable.

Banco Filipino is entitled to a writ of possession for Lot No. 5-F-8-C-2-B-2-A.

The Court emphasizes that Pet. Case No. U-822, instituted by Banco Filipino for the issuance of
a writ of possession before the RTC of Urdaneta, included only Lot No. 5-F-8-C-2-B-2-A and
Lot No. 356-A (Lot No. 4489, the third property mortgaged to secure Dr. Rosario’s loan from
Banco Filipino, is located in Dagupan City, Pangasinan, and the petition for issuance of a writ of
possession for the same should be separately filed with the RTC of Dagupan City). Since the
Court has already granted herein the reconveyance of Lot No. 356-A from Banco Filipino to the
Torbela siblings, the writ of possession now pertains only to Lot No. 5-F-8-C-2-B-2-A.

To recall, the Court of Appeals affirmed the issuance by the RTC of a writ of possession in favor
of Banco Filipino. Dr. Rosario no longer appealed from said judgment of the appellate court.
Already legally separated from Dr. Rosario, Duque-Rosario alone challenges the writ of
possession before this Court through her Petition in G.R. No. 140553.

Duque-Rosario alleges in her Petition that Lot No. 5-F-8-C-2-B-2-A had been registered in her
name under TCT No. 104189. Yet, without a copy of TCT No. 104189 on record, the Court
cannot give much credence to Duque-Rosario’s claim of sole ownership of Lot No. 5-F-8-C-2-B-
2-A. Also, the question of whether Lot No. 5-F-8-C-2-B-2-A was the paraphernal property of
Duque-Rosario or the conjugal property of the spouses Rosario would not alter the outcome of
Duque-Rosario’s Petition.

The following facts are undisputed: Banco Filipino extrajudicially foreclosed the mortgage
constituted on Lot No. 5-F-8-C-2-B-2-A and the two other properties after Dr. Rosario defaulted
on the payment of his loan; Banco Filipino was the highest bidder for all three properties at the
foreclosure sale on April 2, 1987; the Certificate of Sale dated April 2, 1987 was registered in
April 1987; and based on the Certificate of Final Sale dated May 24, 1988 and Affidavit of
Consolidation dated May 25, 1988, the Register of Deeds cancelled TCT No. 104189 and issued
TCT No. 165812 in the name of Banco Filipino for Lot No. 5-F-8-C-2-B-2-A on June 7, 1988.

The Court has consistently ruled that the one-year redemption period should be counted not from
the date of foreclosure sale, but from the time the certificate of sale is registered with the
Registry of Deeds.91 No copy of TCT No. 104189 can be found in the records of this case, but
the fact of annotation of the Certificate of Sale thereon was admitted by the parties, only
differing on the date it was made: April 14, 1987 according to Banco Filipino and April 15, 1987
as maintained by Duque-Rosario. Even if the Court concedes that the Certificate of Sale was
annotated on TCT No. 104189 on the later date, April 15, 1987, the one-year redemption period
already expired on April 14, 1988.92 The Certificate of Final Sale and Affidavit of Consolidation
were executed more than a month thereafter, on May 24, 1988 and May 25, 1988, respectively,
and were clearly not premature.

It is true that the rule on redemption is liberally construed in favor of the original owner of the
property. The policy of the law is to aid rather than to defeat him in the exercise of his right of
redemption.93 However, the liberal interpretation of the rule on redemption is inapplicable herein
as neither Duque-Rosario nor Dr. Rosario had made any attempt to redeem Lot No. 5-F-8-C-2-B-
2-A. Duque-Rosario could only rely on the efforts of the Torbela siblings at redemption, which
were unsuccessful. While the Torbela siblings made several offers to redeem Lot No. 356-A, as
well as the two other properties mortgaged by Dr. Rosario, they did not make any valid tender of
the redemption price to effect a valid redemption. The general rule in redemption is that it is not
sufficient that a person offering to redeem manifests his desire to do so. The statement of
intention must be accompanied by an actual and simultaneous tender of payment. The
redemption price should either be fully offered in legal tender or else validly consigned in court.
Only by such means can the auction winner be assured that the offer to redeem is being made in
good faith.94 In case of disagreement over the redemption price, the redemptioner may preserve
his right of redemption through judicial action, which in every case, must be filed within the one-
year period of redemption. The filing of the court action to enforce redemption, being equivalent
to a formal offer to redeem, would have the effect of preserving his redemptive rights and
"freezing" the expiration of the one-year period.95 But no such action was instituted by the
Torbela siblings or either of the spouses Rosario.
Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-F-8-C-2-B-
2-A in favor of Banco Filipino by invoking the pendency of Civil Case No. U-4359, the Torbela
siblings’ action for recovery of ownership and possession and damages, which supposedly tolled
the period for redemption of the foreclosed properties. Without belaboring the issue of Civil
Case No. U-4359 suspending the redemption period, the Court simply points out to Duque-
Rosario that Civil Case No. U-4359 involved Lot No. 356-A only, and the legal consequences of
the institution, pendency, and resolution of Civil Case No. U-4359 apply to Lot No. 356-A alone.

Equally unpersuasive is Duque-Rosario’s argument that the writ of possession over Lot No. 5-F-
8-C-2-B-2-A should not be issued given the defects in the conduct of the foreclosure sale (i.e.,
lack of personal notice to Duque-Rosario) and consolidation of title (i.e., failure to provide
Duque-Rosario with copies of the Certificate of Final Sale).

The right of the purchaser to the possession of the foreclosed property becomes absolute upon
the expiration of the redemption period. The basis of this right to possession is the purchaser's
ownership of the property. After the consolidation of title in the buyer's name for failure of the
mortgagor to redeem, the writ of possession becomes a matter of right and its issuance to a
purchaser in an extrajudicial foreclosure is merely a ministerial function.961avvphi1

The judge with whom an application for a writ of possession is filed need not look into the
validity of the mortgage or the manner of its foreclosure. Any question regarding the validity of
the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a writ of
possession. Regardless of whether or not there is a pending suit for the annulment of the
mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without
prejudice, of course, to the eventual outcome of the pending annulment case. The issuance of a
writ of possession in favor of the purchaser in a foreclosure sale is a ministerial act and does not
entail the exercise of discretion.97

WHEREFORE, in view of the foregoing, the Petition of the Torbela siblings in G.R. No. 140528
is GRANTED, while the Petition of Lena Duque-Rosario in G.R. No. 140553 is DENIED for
lack of merit. The Decision dated June 29, 1999 of the Court of Appeals in CA-G.R. CV No.
39770, which affirmed with modification the Amended Decision dated January 29, 1992 of the
RTC in Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822, is AFFIRMED WITH
MODIFICATIONS, to now read as follows:

(1) Banco Filipino is ORDERED to reconvey Lot No. 356-A to the Torbela siblings;

(2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT No. 165813 in the
name of Banco Filipino and to issue a new certificate of title in the name of the Torbela
siblings for Lot No. 356-A;

(3) The case is REMANDED to the RTC for further proceedings to determine the facts
essential to the proper application of Articles 448 and 546 of the Civil Code, particularly:
(a) the present fair market value of Lot No. 356-A; (b) the present fair market value of the
improvements thereon; (c) the option of the Torbela siblings to appropriate the
improvements on Lot No. 356-A or require Dr. Rosario to purchase Lot No. 356-A; and
(d) in the event that the Torbela siblings choose to require Dr. Rosario to purchase Lot
No. 356-A but the value thereof is considerably more than the improvements, then the
reasonable rent of Lot No. 356-A to be paid by Dr. Rosario to the Torbela siblings;

(4) The Torbela siblings are DIRECTED to submit an accounting of the rents of the
improvements on Lot No. 356-A which they had received and to turn over any balance
thereof to Dr. Rosario;

(5) Dr. Rosario is ORDERED to pay the Torbela siblings ₱200,000.00 as moral damages,
₱100,000.00 as exemplary damages, and ₱100,000.00 as attorney’s fees; and
 (6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A, covered
by TCT No. 165812. The RTC Branch Clerk of Court is ORDERED to issue a writ of
possession for the said property in favor of Banco Filipino.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the
above Decision had been reached in consultation before the case was assigned to the writer of the
opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice
 G.R. No. 175073 August 15, 2011

ESTATE OF MARGARITA D. CABACUNGAN, represented by LUZ LAIGO-

ALI, Petitioner,
vs.
MARILOU LAIGO, PEDRO ROY LAIGO, STELLA BALAGOT and SPOUSES MARIO
B. CAMPOS AND JULIA S. CAMPOS, Respondents.

CARPIO,* J.,

BRION,**

SERENO,***JJ.

DECISION

PERALTA, J.:

This Petition for Review under Rule 45 of the Rules of Court assails the October 13, 2006
Decision1 of the Court of Appeals in CA-G.R. CV No. 72371. The assailed decision affirmed the
July 2, 2001 judgment2 rendered by the Regional Trial Court of La Union, Branch 33 in Civil
Case No. 1031-BG – a complaint for annulment of sale of real property, recovery of ownership
and possession, cancellation of tax declarations and damages filed by Margarita
Cabacungan,3 represented by her daughter, Luz Laigo-Ali against Marilou Laigo and Pedro Roy
Laigo, respondents herein, and against Estella Balagot,4 and the spouses Mario and Julia
Campos.

The facts follow.

Margarita Cabacungan (Margarita) owned three parcels of unregistered land in Paringao and in
Baccuit, Bauang, La Union, each measuring 4,512 square meters, 1,986 square meters and 3,454
square meters. The properties were individually covered by tax declaration all in her
name.5 Sometime in 1968, Margarita’s son, Roberto Laigo, Jr. (Roberto), applied for a non-
immigrant visa to the United States, and to support his application, he allegedly asked Margarita
to transfer the tax declarations of the properties in his name.6 For said purpose, Margarita,
unknown to her other children, executed an Affidavit of Transfer of Real Property whereby the
subject properties were transferred by donation to Roberto.7 Not long after, Roberto’s visa was
issued and he was able to travel to the U.S. as a tourist and returned in due time. In 1979, he
adopted respondents Pedro Laigo (Pedro) and Marilou Laigo (Marilou),8 and then he married
respondent Estella Balagot.

In July 1990, Roberto sold the 4,512 sq m property in Baccuit to the spouses Mario and Julia
Campos for ₱23,000.00.9 Then in August 1992, he sold the 1,986 sq m and 3,454 sq m lots in
Paringao, respectively, to Marilou for ₱100,000.00 and to Pedro for ₱40,000.00.10 Allegedly,
these sales were not known to Margarita and her other children.11

It was only in August 1995, at Roberto’s wake, that Margarita came to know of the sales as told
by Pedro himself.12In February 1996, Margarita, represented by her daughter, Luz, instituted the
instant complaint for the annulment of said sales and for the recovery of ownership and
possession of the subject properties as well as for the cancellation of Ricardo’s tax declarations.
Margarita admitted having accommodated Roberto’s request for the transfer of the properties to
his name, but pointed out that the arrangement was only for the specific purpose of supporting
his U.S. visa application. She emphasized that she never intended to divest herself of ownership
over the subject lands and, hence, Roberto had no right to sell them to respondents and the
Spouses Campos. She likewise alleged that the sales, which were fictitious and simulated
considering the gross inadequacy of the stipulated price, were fraudulently entered into by
Roberto. She imputed bad faith to Pedro, Marilou and the Spouses Campos as buyers of the lots,
as they supposedly knew all along that Roberto was not the rightful owner of the
properties.13 Hence, she principally prayed that the sales be annulled; that Roberto’s tax
declarations be cancelled; and that the subject properties be reconveyed to her.14

The Spouses Campos advanced that they were innocent purchasers for value and in good faith,
and had merely relied on Roberto’s representation that he had the right to sell the property; and
that, hence, they were not bound by whatever agreement entered by Margarita with her son. They
posited that the alleged gross inadequacy of the price would not invalidate the sale absent a
vitiation of consent or proof of any other agreement. Further, they noted that Margarita’s claim
was already barred by prescription and laches owing to her long inaction in recovering the
subject properties. Finally, they believed that inasmuch as Roberto had already passed away,
Margarita must have, instead, directed her claim against his estate.15

In much the same way, Marilou and Pedro,16 who likewise professed themselves to be buyers in
good faith and for value, believed that Margarita’s cause of action had already been barred by
laches, and that even assuming the contrary, the cause of action was nevertheless barred by
prescription as the same had accrued way back in 1968 upon the execution of the affidavit of
transfer by virtue of which an implied trust had been created. In this regard, they emphasized that
the law allowed only a period of ten (10) years within which an action to recover ownership of
real property or to enforce an implied trust thereon may be brought, but Margarita merely let it
pass.17

On February 3, 1999, prior to pre-trial, Margarita and the Spouses Campos amicably entered into
a settlement whereby they waived their respective claims against each other.18 Margarita died
two days later and was forthwith substituted by her estate.19 On February 8, 1999, the trial court
rendered a Partial Decision20 approving the compromise agreement and dismissing the complaint
against the Spouses Campos. Forthwith, trial on the merits ensued with respect to Pedro and
Marilou.

On July 2, 2001, the trial court rendered judgment dismissing the complaint as follows:

WHEREFORE, in view of the foregoing considerations, the complaint is DISMISSED.21

The trial court ruled that the 1968 Affidavit of Transfer operated as a simple transfer of the
subject properties from Margarita to Roberto. It found no express trust created between Roberto
and Margarita by virtue merely of the said document as there was no evidence of another
document showing Roberto’s undertaking to return the subject properties. Interestingly, it
concluded that, instead, an "implied or constructive trust" was created between the parties, as if
affirming that there was indeed an agreement – albeit unwritten – to have the properties returned
to Margarita in due time. 22

Moreover, the trial court surmised how Margarita could have failed to recover the subject
properties from Roberto at any time between 1968, following the execution of the Affidavit of
Transfer, and Roberto’s return from the United States shortly thereafter. Finding Margarita guilty
of laches by such inaction, the trial court barred recovery from respondents who were found to
have acquired the properties supposedly in good faith and for value.23 It also pointed out that
recovery could no longer be pursued in this case because Margarita had likewise exhausted the
ten-year prescriptive period for reconveyance based on an implied trust which had commenced
to run in 1968 upon the execution of the Affidavit of Transfer.24 Finally, it emphasized that mere
inadequacy of the price as alleged would not be a sufficient ground to annul the sales in favor of
Pedro and Marilou absent any defect in consent.25

Aggrieved, petitioner appealed to the Court of Appeals which, on October 13, 2006, affirmed the
trial court’s disposition. The appellate court dismissed petitioner’s claim that Roberto was
merely a trustee of the subject properties as there was no evidence on record supportive of the
allegation that Roberto merely borrowed the properties from Margarita upon his promise to
return the same on his arrival from the United States. Further, it hypothesized that granting the
existence of an implied trust, still Margarita’s action thereunder had already been circumscribed
by laches. 26

Curiously, while the appellate court had found no implied trust relation in the transaction
between Margarita and Roberto, nevertheless, it held that the ten-year prescriptive period under
Article 1144 of the Civil Code, in relation to an implied trust created under Article 1456, had
already been exhausted by Margarita because her cause of action had accrued way back in 1968;
and that while laches and prescription as defenses could have availed against Roberto, the same
would be unavailing against Pedro and Marilou because the latter were supposedly buyers in
good faith and for value.27 It disposed of the appeal, thus:

WHEREFORE, the Appeal is hereby DENIED. The assailed Decision dated 2 July 2001 of the
Regional Trial Court of Bauang, La Union, Branch 33 is AFFIRMED.

SO ORDERED.28

Hence, the instant recourse imputing error to the Court of Appeals in holding: (a) that the
complaint is barred by laches and prescription; (b) that the rule on innocent purchaser for value
applies in this case of sale of unregistered land; and (c) that there is no evidence to support the
finding that there is an implied trust created between Margarita and her son Roberto.29

Petitioner posits that the Court of Appeals should not have haphazardly applied the doctrine of
laches and failed to see that the parties in this case are bound by familial ties. They assert that
laches must not be applied when an injustice would result from it. Petitioner believes that the
existence of such confidential relationship precludes a finding of unreasonable delay on
Margarita’s part in enforcing her claim, especially in the face of Luz’s testimony that she and
Margarita had placed trust and confidence in Roberto. Petitioner also refutes the Court of
Appeals’ finding that there was a donation of the properties to Roberto when the truth is that the
subject properties were all that Margarita possessed and that she could not have failed to provide
for her other children nor for means by which to support herself. It reiterates that the transfer to
Roberto was only an accommodation so that he could submit proof to support his U.S. visa
application.

On the issue of prescription, petitioner advances that it runs from the time Roberto, as trustee,
has repudiated the trust by selling the properties to respondents in August 15, 1992; that hence,
the filing of the instant complaint in 1996 was well within the prescriptive period. Finally,
petitioner states that whether a buyer is in good or bad faith is a matter that attains relevance in
sales of registered land, as corollary to the rule that a purchaser of unregistered land uninformed
of the seller’s defective title acquires no better right than such seller.

Respondents stand by the ruling of the Court of Appeals. In their Comment, they theorize that if
indeed Margarita and Roberto had agreed to have the subject properties returned following the
execution of the Affidavit of Transfer, then there should have been a written agreement evincing
such intention of the parties. They note that petitioner’s reliance on the Affidavit of Transfer as
well as on the alleged unwritten agreement for the return of the properties must fail, simply
because they are not even parties to it. Be that as it may, the said document had effectively
transferred the properties to Roberto who, in turn, had acquired the full capacity to sell them,
especially since these properties could well be considered as Roberto’s inheritance from
Margarita who, on the contrary, did have other existing properties in her name. Moreover, they
believe that the liberal application of the rule on laches between family members does not apply
in the instant case because there is no fiduciary relationship and privity between them and
Margarita.

There is merit in the petition.

To begin with, the rule is that the latitude of judicial review under Rule 45 generally excludes
factual and evidentiary reevaluation, and the Court ordinarily abides by the uniform conclusions
of the trial court and the appellate court. Yet, in the case at bar, while the courts below have both
arrived at the dismissal of petitioner’s complaint, there still remains unsettled the ostensible
incongruence in their respective factual findings. It thus behooves us to be thorough both in
reviewing the records and in appraising the evidence, especially since an opposite conclusion is
warranted and, as will be shown, justified.

A trust is the legal relationship between one person having an equitable ownership of property
and another person owning the legal title to such property, the equitable ownership of the former
entitling him to the performance of certain duties and the exercise of certain powers by the
latter.30 Trusts are either express or implied.31 Express or direct trusts are created by the direct
and positive acts of the parties, by some writing or deed, or will, or by oral declaration in words
evincing an intention to create a trust.32 Implied trusts – also called "trusts by operation of law,"
"indirect trusts" and "involuntary trusts" – arise by legal implication based on the presumed
intention of the parties or on equitable principles independent of the particular intention of the
parties.33 They are those which, without being expressed, are deducible from the nature of the
transaction as matters of intent or, independently of the particular intention of the parties, as
being inferred from the transaction by operation of law basically by reason of equity.34

Implied trusts are further classified into constructive trusts and resulting trusts. Constructive
trusts, on the one hand, come about in the main by operation of law and not by agreement or
intention. They arise not by any word or phrase, either expressly or impliedly, evincing a direct
intention to create a trust, but one which arises in order to satisfy the demands of justice.35 Also
known as trusts ex maleficio, trusts ex delicto and trusts de son tort, they are construed against
one who by actual or constructive fraud, duress, abuse of confidence, commission of a wrong or
any form of unconscionable conduct, artifice, concealment of questionable means, or who in any
way against equity and good conscience has obtained or holds the legal right to property which
he ought not, in equity and good conscience, hold and enjoy.36 They are aptly characterized as
"fraud-rectifying trust,"37 imposed by equity to satisfy the demands of justice38 and to defeat or
prevent the wrongful act of one of the parties.39 Constructive trusts are illustrated in Articles
1450, 1454, 1455 and 1456.40

On the other hand, resulting trusts arise from the nature or circumstances of the consideration
involved in a transaction whereby one person becomes invested with legal title but is obligated in
equity to hold his title for the benefit of another. This is based on the equitable doctrine that
valuable consideration and not legal title is determinative of equitable title or interest and is
always presumed to have been contemplated by the parties.41 Such intent is presumed as it is not
expressed in the instrument or deed of conveyance and is to be found in the nature of their
transaction.42 Implied trusts of this nature are hence describable as "intention-enforcing
trusts."43 Specific examples of resulting trusts may be found in the Civil Code, particularly
Articles 1448, 1449, 1451, 1452 and 1453.44

Articles 1448 to 1456 of the Civil Code enumerate cases of implied trust, but the list according to
Article 1447 is not exclusive of others which may be established by the general law on trusts so
long as the limitations laid down in Article 1442 are observed,45 that is, that they be not in
conflict with the New Civil Code, the Code of Commerce, the Rules of Court and special laws.46

While resulting trusts generally arise on failure of an express trust or of the purpose thereof, or
on a conveyance to one person upon a consideration from another (sometimes referred to as a
"purchase-money resulting trust"), they may also be imposed in other circumstances such that the
court, shaping judgment in its most efficient form and preventing a failure of justice, must decree
the existence of such a trust.47 A resulting trust, for instance, arises where, there being no fraud
or violation of the trust, the circumstances indicate intent of the parties that legal title in one be
held for the benefit of another.48 It also arises in some instances where the underlying transaction
is without consideration, such as that contemplated in Article 144949 of the Civil Code. Where
property, for example, is gratuitously conveyed for a particular purpose and that purpose is either
fulfilled or frustrated, the court may affirm the resulting trust in favor of the grantor or
transferor,50 where the beneficial interest in property was not intended to vest in the grantee.51
Intention – although only presumed, implied or supposed by law from the nature of the
transaction or from the facts and circumstances accompanying the transaction, particularly the
source of the consideration – is always an element of a resulting trust52 and may be inferred from
the acts or conduct of the parties rather than from direct expression of conduct.53 Certainly, intent
as an indispensable element, is a matter that necessarily lies in the evidence, that is, by evidence,
even circumstantial, of statements made by the parties at or before the time title
passes.54 Because an implied trust is neither dependent upon an express agreement nor required
to be evidenced by writing,55 Article 145756 of our Civil Code authorizes the admission of parole
evidence to prove their existence. Parole evidence that is required to establish the existence of an
implied trust necessarily has to be trustworthy and it cannot rest on loose, equivocal or indefinite
declarations.57

Thus, contrary to the Court of Appeals’ finding that there was no evidence on record showing
that an implied trust relation arose between Margarita and Roberto, we find that petitioner before
the trial court, had actually adduced evidence to prove the intention of Margarita to transfer to
Roberto only the legal title to the properties in question, with attendant expectation that Roberto
would return the same to her on accomplishment of that specific purpose for which the
transaction was entered into. The evidence of course is not documentary, but rather testimonial.

We recall that the complaint before the trial court alleged that the 1968 Affidavit of Transfer was
executed merely to accommodate Roberto’s request to have the properties in his name and
thereby produce proof of ownership of certain real properties in the Philippines to support his
U.S. visa application. The agreement, the complaint further stated, was for Margarita to transfer
the tax declarations of the subject properties to Roberto for the said purpose and without the
intention to divest her of the rights of ownership and dominion.58 Margarita, however, died
before trial on the merits ensued;59 yet the allegation was substantiated by the open-court
statements of her daughter, Luz, and of her niece, Hilaria Costales (Hilaria), a disinterested
witness.

In her testimony, Luz, who affirmed under oath her own presence at the execution of the
Affidavit of Transfer, described the circumstances under which Margarita and Roberto entered
into the agreement. She narrated that Roberto had wanted to travel to the U.S and to show the
embassy proof of his financial capacity, he asked to "borrow" from Margarita the properties
involved but upon the condition that he would give them back to her upon his arrival from the
United States. She admitted that Roberto’s commitment to return the properties was not put in
writing because they placed trust and confidence in him, and that while she had spent most of her
time in Mindanao since she married in 1956, she would sometimes come to La Union to see her
mother but she never really knew whether at one point or another her mother had demanded the
return of the properties from Roberto.60 She further asserted that even after Roberto’s arrival
from the United States, it was Margarita who paid off the taxes on the subject properties and that
it was only when her health started to deteriorate that Roberto had taken up those
obligations.61 Hilaria’s testimony ran along the same line. Like Luz, she was admittedly present
at the execution of the Affidavit of Transfer which took place at the house she shared with
Jacinto Costales, the notarizing officer who was her own brother. She told that Roberto at the
time had wanted to travel to the U.S. but did not have properties in the Philippines which he
could use to back up his visa application; as accommodation, Margarita "lent" him the tax
declarations covering the properties but with the understanding that upon his return he would
give them back to Margarita. She professed familiarity with the properties involved because one
of them was actually sitting close to her own property.62

While indeed at one point at the stand both of Luz‘s and Hilaria’s presence at the execution of
the affidavit had been put to test in subtle interjections by respondents’ counsel to the effect that
their names and signatures did not appear in the Affidavit of Transfer as witnesses, this, to our
mind, is of no moment inasmuch as they had not been called to testify on the fact of, or on the
contents of, the Affidavit of Transfer or its due execution. Rather, their testimony was offered to
prove the circumstances surrounding its execution – the circumstances from which could be
derived the unwritten understanding between Roberto and Margarita that by their act, no absolute
transfer of ownership would be effected. Besides, it would be highly unlikely for Margarita to
institute the instant complaint if it were indeed her intention to vest in Roberto, by virtue of the
Affidavit of Transfer, absolute ownership over the covered properties.

It is deducible from the foregoing that the inscription of Roberto’s name in the Affidavit of
Transfer as Margarita’s transferee is not for the purpose of transferring ownership to him but
only to enable him to hold the property in trust for Margarita. Indeed, in the face of the credible
and straightforward testimony of the two witnesses, Luz and Hilaria, the probative value of the
ownership record forms in the names of respondents, together with the testimony of their witness
from the municipal assessor’s office who authenticated said forms, are utterly minimal to show
Roberto’s ownership. It suffices to say that respondents did not bother to offer evidence that
would directly refute the statements made by Luz and Hilaria in open court on the circumstances
underlying the 1968 Affidavit of Transfer.

As a trustee of a resulting trust, therefore, Roberto, like the trustee of an express passive trust, is
merely a depositary of legal title having no duties as to the management, control or disposition of
the property except to make a conveyance when called upon by the cestui que trust.63 Hence, the
sales he entered into with respondents are a wrongful conversion of the trust property and a
breach of the trust. The question is: May respondents now be compelled to reconvey the subject
properties to petitioner? We rule in the affirmative.

Respondents posit that petitioner’s claim may never be enforced against them as they had
purchased the properties from Roberto for value and in good faith. They also claim that, at any
rate, petitioner’s cause of action has accrued way back in 1968 upon the execution of the
Affidavit of Transfer and, hence, with the 28 long years that since passed, petitioner’s claim had
long become stale not only on account of laches, but also under the rules on extinctive
prescription governing a resulting trust. We do not agree.

First, fundamental is the rule in land registration law that the issue of whether the buyer of realty
is in good or bad faith is relevant only where the subject of the sale is registered land and the
purchase was made from the registered owner whose title to the land is clean, in which case the
purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in
good faith and for value.64 Since the properties in question are unregistered lands, respondents
purchased the same at their own peril. Their claim of having bought the properties in good faith,
i.e., without notice that there is some other person with a right to or interest therein, would not
protect them should it turn out, as it in fact did in this case, that their seller, Roberto, had no right
to sell them.

Second, the invocation of the rules on limitation of actions relative to a resulting trust is not on
point because the resulting trust relation between Margarita and Roberto had been extinguished
by the latter’s death. A trust, it is said, terminates upon the death of the trustee, particularly
where the trust is personal to him.65 Besides, prescription and laches, in respect of this resulting
trust relation, hardly can impair petitioner’s cause of action. On the one hand, in accordance with
Article 114466 of the Civil Code, an action for reconveyance to enforce an implied trust in one’s
favor prescribes in ten (10) years from the time the right of action accrues, as it is based upon an
obligation created by law.67 It sets in from the time the trustee performs unequivocal acts of
repudiation amounting to an ouster of the cestui que trust which are made known to the
latter.68 In this case, it was the 1992 sale of the properties to respondents that comprised the act
of repudiation which, however, was made known to Margarita only in 1995 but nevertheless
impelled her to institute the action in 1996 – still well within the prescriptive period. Hardly can
be considered as act of repudiation Roberto’s open court declaration which he made in the 1979
adoption proceedings involving respondents to the effect that he owned the subject
properties,69 nor even the fact that he in 1977 had entered into a lease contract on one of the
disputed properties which contract had been subject of a 1996 decision of the Court of
Appeals.70 These do not suffice to constitute unequivocal acts in repudiation of the trust.
On the other hand, laches, being rooted in equity, is not always to be applied strictly in a way
that would obliterate an otherwise valid claim especially between blood relatives. The existence
of a confidential relationship based upon consanguinity is an important circumstance for
consideration; hence, the doctrine is not to be applied mechanically as between near
relatives.71 Adaza v. Court of Appeals72 held that the relationship between the parties therein,
who were siblings, was sufficient to explain and excuse what would otherwise have been a long
delay in enforcing the claim and the delay in such situation should not be as strictly construed as
where the parties are complete strangers vis-a-vis each other; thus, reliance by one party upon his
blood relationship with the other and the trust and confidence normally connoted in our culture
by that relationship should not be taken against him. Too, Sotto v. Teves73 ruled that the doctrine
of laches is not strictly applied between near relatives, and the fact that the parties are connected
by ties of blood or marriage tends to excuse an otherwise unreasonable delay.

Third, there is a fundamental principle in agency that where certain property entrusted to an
agent and impressed by law with a trust in favor of the principal is wrongfully diverted, such
trust follows the property in the hands of a third person and the principal is ordinarily entitled to
pursue and recover it so long as the property can be traced and identified, and no superior
equities have intervened. This principle is actually one of trusts, since the wrongful conversion
gives rise to a constructive trust which pursues the property, its product or proceeds, and permits
the beneficiary to recover the property or obtain damages for the wrongful conversion of the
property. Aptly called the "trust pursuit rule," it applies when a constructive or resulting trust has
once affixed itself to property in a certain state or form.74

Hence, a trust will follow the property – through all changes in its state and form as long as such
property, its products or its proceeds, are capable of identification, even into the hands of a
transferee other than a bona fidepurchaser for value, or restitution will be enforced at the election
of the beneficiary through recourse against the trustee or the transferee personally. This is
grounded on the principle in property law that ownership continues and can be asserted by the
true owner against any withholding of the object to which the ownership pertains, whether such
object of the ownership is found in the hands of an original owner or a transferee, or in a
different form, as long as it can be identified.75 Accordingly, the person to whom is made a
transfer of trust property constituting a wrongful conversion of the trust property and a breach of
the trust, when not protected as a bona fide purchaser for value, is himself liable and accountable
as a constructive trustee. The liability attaches at the moment of the transfer of trust property and
continues until there is full restoration to the beneficiary. Thus, the transferee is charged with,
and can be held to the performance of the trust, equally with the original trustee, and he can be
compelled to execute a reconveyance.76

This scenario is characteristic of a constructive trust imposed by Article 145677 of the Civil
Code, which impresses upon a person obtaining property through mistake or fraud the status of
an implied trustee for the benefit of the person from whom the property comes. Petitioner, in
laying claim against respondents who are concededly transferees who professed having validly
derived their ownership from Roberto, is in effect enforcing against respondents a constructive
trust relation that arose by virtue of the wrongful and fraudulent transfer to them of the subject
properties by Roberto.

Aznar Brother Realty Co. v. Aying,78 citing Buan Vda. de Esconde v. Court of
Appeals,79 explained this form of implied trust as follows:

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a
typical trust, confidence is reposed in one person who is named a trustee for the benefit of
another who is called the cestui que trust, respecting property which is held by the trustee for the
benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate
from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are
linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor
any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends
holding the property for the beneficiary.
xxxx

x x x [C]onstructive trusts are created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise contrary to intention against one
who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which
he ought not, in equity and good conscience, to hold.80

It is settled that an action for reconveyance based on a constructive implied trust prescribes in 10
years likewise in accordance with Article 1144 of the Civil Code. Yet not like in the case of a
resulting implied trust and an express trust, prescription supervenes in a constructive implied
trust even if the trustee does not repudiate the relationship. In other words, repudiation of said
trust is not a condition precedent to the running of the prescriptive period.81

As to when the prescriptive period commences to run, Crisostomo v. Garcia82 elucidated as

follows:

When property is registered in another's name, an implied or constructive trust is created by law
in favor of the true owner. The action for reconveyance of the title to the rightful owner
prescribes in 10 years from the issuance of the title. An action for reconveyance based on
implied or constructive trust prescribes in ten years from the alleged fraudulent registration or
date of issuance of the certificate of title over the property.1avvphi1

It is now well settled that the prescriptive period to recover property obtained by fraud or
mistake, giving rise to an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to
Art. 1144. This ten-year prescriptive period begins to run from the date the adverse party
repudiates the implied trust, which repudiation takes place when the adverse party registers the
land.83

From the foregoing, it is clear that an action for reconveyance under a constructive implied trust
in accordance with Article 1456 does not prescribe unless and until the land is registered or the
instrument affecting the same is inscribed in accordance with law, inasmuch as it is what binds
the land and operates constructive notice to the world.84 In the present case, however, the lands
involved are concededly unregistered lands; hence, there is no way by which Margarita, during
her lifetime, could be notified of the furtive and fraudulent sales made in 1992 by Roberto in
favor of respondents, except by actual notice from Pedro himself in August 1995. Hence, it is
from that date that prescription began to toll. The filing of the complaint in February 1996 is well
within the prescriptive period. Finally, such delay of only six (6) months in instituting the present
action hardly suffices to justify a finding of inexcusable delay or to create an inference that
Margarita has allowed her claim to stale by laches.

WHEREFORE, the Petition is GRANTED. The October 13, 2006 Decision of the Court of
Appeals in CA-G.R. CV No. 72371, affirming the July 2, 2001 judgment of the Regional Trial
Court of La Union, Branch 33 in Civil Case No. 1031-BG, is REVERSED and SET ASIDE,
and a new one is entered (a) directing the cancellation of the tax declarations covering the subject
properties in the name of Roberto D. Laigo and his transferees; (b) nullifying the deeds of sale
executed by Roberto D. Laigo in favor of respondents Pedro Roy Laigo and Marilou Laigo; and
(c) directing said respondents to execute reconveyance in favor of petitioner.

SO ORDERED.

DIOSDADO M. PERALTA
Associate Justice

WE CONCUR:

ANTONIO T. CARPIO*
Associate Justice
 PRESBITERO J. VELASCO, JR. ARTURO D. BRION**
Associate Justice Associate Justice

MARIA LOURDES P. A. SERENO***

Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Court’s Division.

PRESBITERO J. VELASCO, JR.

Associate Justice
Third Division, Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson’s
Attestation, I certify that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court’s Division.

RENATO C. CORONA
Chief Justice