SECOND DIVISION
(110) sub-lots.[14]
[G.R. Nos. 148404-05. April 11, 2002]
NELITA M. BACALING, represented by her attorney-in-fact JOSE JUAN TONG, and JOSE
JUAN TONG, in his personal capacity, petitioners, vs. FELOMINO MUYA, CRISPIN AMOR,
WILFREDO JEREZA, RODOLFO LAZARTE and NEMESIO TONOCANTE, respondents.
DECISION
DE LEON, JR., J.:
Before us is a Petition for Review of the consolidated Decision [1] dated January 31, 2001 of
the Court of Appeals[2] in CA-G.R. SP No. 54413,[3] and in CA-G.R. SP No. 54414, [4] and of its
Resolution[5] dated June 5, 2001 reversing the Decision [6] dated May 22, 1998 and Resolution
July 22, 1999 of the Office of the President.
The facts of the case are as follows:
Petitioner Nelita M. Bacaling and her spouse Ramon Bacaling were the owners of three (3)
parcels of land, with a total area of 9.9631 hectares, located in Barangay Cubay, Jaro, Iloilo
City, and designated as Lot No. 2103-A (Psd-24069), Lot No. 2103-B-12 (Psd 26685) and Lot
No. 2295. These lots were duly covered by Transfer Certificates of Title Nos. T-5801, T-5833
and T-5834, respectively. In 1955 the landholding was subdivided into one hundred ten (110)
sub-lots covered by TCT Nos. T-10664 to T-10773, inclusive of the Registry of Deeds of the
City of Iloilo. On May 16, 1955, the landholding was processed and approved as "residential"
or "subdivision" by the National Urban Planning Commission (NUPC). [7] On May 24, 1955 the
Bureau of Lands approved the corresponding subdivision plan for purposes of developing
the said property into a low-cost residential community which the spouses referred to as
the Bacaling-Moreno Subdivision.[8]
In 1957, a real estate loan of Six Hundred Thousand Pesos (P600,000.00) was granted to the
spouses Nelita and Ramon Bacaling by the Government Service Insurance System (GSIS) for
the development of the subdivision. [9] To secure the repayment of the loan, the Bacalings
executed in favor of the GSIS a real estate mortgage over their parcels of land including the
one hundred ten (110) sub-lots. [10] Out of the approved loan of Six Hundred Thousand Pesos
(P600,000.00), only Two Hundred Forty Thousand Pesos (P240,000.00) was released to
them.[11] The Bacalings failed to pay the amortizations on the loan and consequently the
mortgage constituted on the one hundred ten (110) sub-lots was foreclosed by the GSIS.
[12]
After a court case that reached all the way to this Court, [13] Nelita Bacaling (by then a
widow) in 1989 was eventually able to restore to herself ownership of the one hundred ten
According to the findings of the Office of the President, in 1972 and thereafter, respondents
Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante
clandestinely entered and occupied the entire one hundred ten (110) sub-lots (formerly
known as Lot No. 2103-A, Lot No. 2103-B-12 and Lot No. 2295) and grabbed exclusively for
themselves the said 9.9631 hectare landholding. [15] Apparently, respondents took advantage
of the problematic peace and order situation at the onset of martial law and the foreclosure
of the lots by GSIS.[16] They sowed the lots as if the same were their own, and altered the
roads, drainage, boundaries and monuments established thereon. [17]
Respondents, on the other hand, claim that in 1964 they were legally instituted by Bacalings
administrator/overseer as tenant-tillers of the subject parcels of land on sharing basis with
two and a half (2) hectares each for respondents Muya, Amor, Tonocante and Lazarte, and
one and a half (1) hectares for respondent Jereza. In 1974, their relationship with the
landowner was changed to one of leasehold. They religiously delivered their rental payments
to Bacaling as agricultural lessor. In 1980, they secured certificates of land transfer in their
names for the one hundred ten (110) sub-lots. They have made various payments to the
Land Bank of the Philippines as amortizing owners-cultivators of their respective tillage.
In 1977, however, the City Council of Iloilo enacted Zoning Ordinance No. 212 declaring the
one hundred ten (110) sub-lots as "residential" and "non-agricultural," which was consistent
with the conversion effected in 1955 by the NUPC and the Bureau of Lands. In 1978, Nelita
Bacaling was able to register the subject property as the Bacaling-Moreno Subdivision with
the National Housing Authority and to obtain therefrom a license to sell the subject one
hundred ten (110) sub-lots comprising the said subdivision to consummate the original and
abiding design to develop a low-cost residential community.
In August 21, 1990, petitioner Jose Juan Tong, together with Vicente Juan and Victoria Siady,
bought from Nelita Bacaling the subject one hundred ten (110) sub-lots for One Million
Seven Hundred Thousand Pesos (P1,700,000.00). [18] The said sale was effected after Bacaling
has repurchased the subject property from the Government Service Insurance System. To
secure performance of the contract of absolute sale and facilitate the transfer of title of the
lots to Jose Juan Tong, Bacaling appointed him in 1992 as her attorney-in-fact, under an
irrevocable special power of attorney with the following mandate-
1. To file, defend and prosecute any case/cases involving lots nos. 1 to 110 covered by TCT
Nos. T-10664 to T-10773 of the Register of Deeds of the City of Iloilo;
2. To assume full control, prosecute, terminate and enter into an amicable settlement and
compromise agreement of all cases now pending before the DARAB, Region VI, Iloilo City,
which involved portion of Lots 1 to 110, covered by TCT Nos. T-10664 to T-10773 of the
Register of Deeds of Iloilo City, which were purchased by Jose Juan Tong, Vicente Juan Tong
and Victoria Siady;
3. To hire a lawyer/counsel which he may deem fit and necessary to effect and attain the
foregoing acts and deeds; handle and prosecute the aforesaid cases;
4. To negotiate, cause and effect a settlement of occupation and tenants on the aforesaid
lots;
5. To cause and effect the transfer of the aforesaid lots in the name of the VENDEES;
6. To execute and deliver document/s or instrument of whatever nature necessary to
accomplish the foregoing acts and deeds.[19]
It is significant to note that ten (10) years after the perfection and execution of the sale, or
on April 26, 2000, Bacaling filed a complaint to nullify the contract of sale. The suit was,
however, dismissed with prejudice and the dismissal has long become final and executory. [20]
Following the sale of the one hundred ten (110) sub-lots and using the irrevocable special
power of attorney executed in his favor, petitioner Tong (together with Bacaling) filed a
petition for cancellation of the certificates of land transfer against respondents and a certain
Jaime Ruel with the Department of Agrarian Reform (DAR) Region VI Office in Iloilo City.
[21]
The DAR, however, dismissed the petition on the ground that there had been no
legitimate conversion of the classification of the 110 sub-lots from agricultural to residential
prior to October 21, 1972 when Operation Land Transfer under P.D. No. 72 took effect.
[22]
Bacaling and Tong appealed to the DAR Central Office but their appeal was similarly
rejected.[23] The motion for reconsideration failed to overturn the ruling of the Central Office
Order.[24]
On September 19, 1997, Bacaling and Tong appealed the adverse DAR Orders to the Office of
the President which reversed them in toto in a Decision[25] dated May 22, 1998 (OP Decision,
for brevity), the dispositive portion of which reads:
WHEREFORE, premises [considered], the assailed order of the Regional Director, DAR Region
VI, dated April 3, 1996, as well as the orders of the DAR Secretary dated December 12, 1996
and September 4, 1997, are hereby REVERSED AND SET ASIDE and subject landholdings
declared exempt from coverage of the CARL. The Certificates of Land Transfer (CLTs) issued
to the appellees are hereby cancelled and the Department of Agrarian Reform directed to
implement the voluntary offer made by appellant with respect to the payment of
disturbance compensation and relocation of the affected parties.
SO ORDERED.[26]
The OP Decision found that the one hundred ten (110) parcels of land had been completely
converted from agricultural to residential lots as a result of the declarations of the NUPC and
the Bureau of Lands and the factual circumstances, i.e., the GSIS loan with real estate
mortgage, the division of the original three (3) parcels of land into one hundred ten (110)
sub-lots under individual certificates of title, and the establishment of residential
communities adjacent to the subject property, which indubitably proved the intention of
Nelita and Ramon Bacaling to develop a residential subdivision thereon. The OP
Decision also categorically acknowledged the competence of the NUPC and the Bureau of
Lands to classify the one hundred ten (110) sub-lots into residential areas. On July 22, 1999,
separate motions for reconsideration thereof were denied. [27]
Respondents elevated the OP Decision to the Court of Appeals on a petition for review under
Rule 43 of the Rules of Civil Procedure. [28] Before the petition was resolved, or on December
2, 1999, Nelita Bacaling manifested to the appellate court that she was revoking the
irrevocable power of attorney in favor of Jose Juan Tong and that she was admitting the
status of respondents as her tenants of the one hundred ten (110) sub-lots which allegedly
were agricultural in character. The manifestation was however characterized by an obvious
streak of ambivalence when her prayer therein urged the Court of Appeals to decide the
case, curiously, on the basis of the clear intent of Private Respondent and in accordance with
the perception of this Honorable Court. [29]
On January 31, 2001 the Court of Appeals reversed the OP Decision and validated the
certificates of land transfers in favor of respondents without however promulgating a ruling
on petitioner Tong's supposedly ensuing lack of material interest in the controversy as a
result of the manifestation.[30] The dispositive portion of the decision reads:
WHEREFORE, premises considered, petition is GRANTED; and the May 22, 1998 Decision of
the Office of the President is hereby REVERSED and SET ASIDE. The April 3, 1996 Order of the
Regional Director, DARAB, Region VI, is REINSTATED.[31]
The appellate court refused to recognize the 1955 NUPC and Bureau of Lands classification
of the subject lots as residential subdivision. Tong moved for reconsideration of the CA
Decision which Bacaling did not oppose despite her manifestation. On June 5, 2001, again
without a single reference to Bacaling's alleged repudiation of Tong's actions, the Court of
Appeals denied reconsideration of its decision, [32] Hence, this petition for review on certiorari
based on the following assignment of errors:
I
SUBJECT LANDHOLDINGS ARE EXEMPT FROM THE COVERAGE OF P.D. 27 AND OPERATION
LAND TRANSFER (1972, AS WELL (sic) THE COMPREHENSIVE AGRARIAN REFORM LAW (1988)
AS THEY WERE CLASSIFIED AS RESIDENTIAL WAY BACK IN 1955 BY THE THEN NATIONAL
PLANNING COMMISSION AND THE SUBDIVSION PLAN WAS APPROVED BY THE BUREAU OF
LANDS. AS A CONSEQUENCE, THE CLTs ISSUED TO PRIVATE RESPONENTS IN OCTOBER, 1980
ARE INVALID AS HAVING BEEN ISSUED WITHOUT JURISDICTION.
II
PRIVATE RESPONDENTS ARE NOT BONA FIDE TENANTS OF THE LANDS INVOLVED. PUBLIC
REPSONDENTS RULING THAT THE LATTER ARE SUCH IS CONTRARY TO LAW AS IT IGNORED
THE FACT THAT THE LANDHOLDINGS ARE RESIDENTIAL AND NO COMPETENT PROOF OF
CONSENT OF THE OWNER WAS EVER PRESENTED BY PRIVATE RESPONDENTS.
III
APPROVAL OF THE SECRETARY OF AGRARIAN REFORM IS NOT NECESSARY FOR THE VALID
CLASSIFICATION OF THE LANDS INVOLVED INTO RESIDENTIAL BECAUSE THE CARL, AS ALSO
THE RELATED AGRARIAN LAWS, HAVE NO RETROACTIVE APPLICATION. [33]
Long after issues were joined in the instant proceedings, or on October 8, 2001, petitioner
Nelita Bacaling resurrected her manifestation with the Court of Appeals and moved to
withdraw/dismiss the present petition on the ground that the irrevocable power of attorney
in favor of petitioner Jose Juan Tong had been nullified by her and that Tong consequently
lacked the authority to appear before this Court. [34] She also manifested that, contrary to the
arguments of petitioner Tong, respondents were bona fide tenants of the one hundred ten
(110) sub-lots which were allegedly agricultural and not residential pieces of realty.
[35]
Accordingly, petitioner Tong was left all alone to pursue the instant case.
The issues in this case can be summarized as follows: (1) Does petitioner Tong have the
requisite interest to litigate this petition for review on certiorari?; (2) Are the respondents
agricultural lessees?; and (3) Are the one hundred ten (110) sub-lots admittedly classified for
residential use by the National Urban Planning Commission and the Bureau of Lands prior to
October 21, 1972[36] covered by the Operation Land Transfer under P.D. No. 72?
We hold that petitioner Jose Juan Tong possesses adequate and legitimate interest to file the
instant petition. Under our rules of procedure, interestmeans material interest, that is, an
interest in issue and to be affected by the judgment, [37] while a real party in interest is the
party who would be benefited or injured by the judgment or the party entitled to the avails
of the suit.[38] There should be no doubt that as transferee of the one hundred ten (110) sub-
lots through a contract of sale and as the attorney-in-fact of Nelita Bacaling, former owner of
the subject lots, under an irrevocable special power of attorney, petitioner Tong stands to be
benefited or injured by the judgment in the instant case as well as the orders and decisions
in the proceedings a quo.The deed of sale categorically states that petitioner Tong and his
co-sellers have fully paid for the subject parcels of land. The said payment has been duly
received by Bacaling. Hence, it stands to reason that he has adequate and material interest
to pursue the present petition to finality.
Respondents put too much weight on the motion to dismiss/withdraw filed by Nelita
Bacaling. Under the facts obtaining in this case, the motion should be treated cautiously, and
more properly, even skeptically. It is a matter of law that when a party adopts a certain
theory in the court below, he will not be permitted to change his theory on appeal, for to
permit him to do so would not only be unfair to the other party but it would also be
offensive to the basic rules of fair play, justice and due process. [39] Bacaling's motion to
dismiss the instant petition comes at the heels of her admission that she had immensely
benefited from selling the said one hundred ten (110) sub-lots to petitioner Tong and of the
dismissal with prejudice of the civil case which she had earlier filed to nullify the sale. [40] It
appears that the motion to dismiss is a crude and belated attempt long after the dismissal of
the civil case to divest Tong of his indubitable right of ownership over the one hundred ten
(110) sub-lots through the pretext of revoking the irrevocable special power of attorney
which Bacaling had executed in his favor hoping that in the process that her act would cause
the assailed orders of the DAR to become final and executory.
The records also bear out the fact that Bacaling's design to dispossess petitioner Tong of
material interest in the subject matter of the instant petition appears to be subtly
coordinated with respondents' legal maneuvers when it began as a side pleading (a
mere Manifestation) in the proceedings before the Court of Appeals (CA-G.R. SP No. 54413
and CA-G.R. SP No. 54414) but which was never pursued to its ultimate conclusion until it
again surfaced before this Court long after respondents' voluminous comment to the instant
petition had been filed. Under these circumstances, we certainly cannot place our trust upon
such an unsolicited motion having dubious roots, character and purpose.
Substantively, we rule that Bacaling cannot revoke at her whim and pleasure the irrevocable material interest to prosecute the instant petition with or without the desired cooperation of
special power of attorney which she had duly executed in favor of petitioner Jose Juan Tong Bacaling.
and duly acknowledged before a notary public. The agency, to stress, is one coupled with
On the issue of whether the private respondents are agricultural tenants and entitled to the
interest which is explicitly irrevocable since the deed of agency was prepared and signed
benefits accorded by our agrarian laws, we rule in the negative. The requisites in order to
and/or accepted by petitioner Tong and Bacaling with a view to completing the performance
have a valid agricultural leasehold relationship are: (1) The parties are the landowner and
of the contract of sale of the one hundred ten (110) sub-lots. It is for this reason that the
the tenant or agricultural lessee; (2) The subject matter of the relationship is agricultural
mandate of the agency constituted Tong as the real party in interest to remove all clouds on
land; (3) There is consent between the parties to the relationship; (4) the purpose of the
the title of Bacaling and that, after all these cases are resolved, to use the irrevocable special
relationship is to bring about agricultural production; (5) There is personal cultivation on the
power of attorney to ultimately cause and effect the transfer of the aforesaid lots in the
part of the tenant or agricultural lessee; and (6) The harvest is shared between the
name of the vendees [Tong with two (2) other buyers] and execute and deliver document/s
landowner and the tenant or agricultural lessee.
or instrument of whatever nature necessary to accomplish the foregoing acts and deeds.
[41]
The fiduciary relationship inherent in ordinary contracts of agency is replaced by material We find that the first, third and sixth requisites are lacking in the case at bar. One legal
consideration which in the type of agency herein established bars the removal or dismissal conclusion adduced from the facts in Government Service Insurance System v. Court of
of petitioner Tong as Bacalings attorney-in-fact on the ground of alleged loss of trust and Appeals[43] provides that GSIS, not Bacaling, was the owner of the subject properties from
confidence. 1961 up to 1989 as a result of the foreclosure and confirmation of the sale of the subject
properties. Although the confirmation only came in 1975, the ownership is deemed to have
While Bacaling alleges fraud in the performance of the contract of agency to justify its
been vested to GSIS way back in 1961, the year of the sale of the foreclosed properties. This
revocation, it is significant to note that allegations are not proof, and that proof requires the
is due to the fact that the date of confirmation by the trial court of the foreclosure sale
intervention of the courts where both petitioners Tong and Bacaling are heard. Stated
retroacts to the date of the actual sale itself. [44]
otherwise, Bacaling cannot vest in herself just like in ordinary contracts the unilateral
authority of determining the existence and gravity of grounds to justify the rescission of the Thus, the respondents cannot validly claim that they are legitimate and recognized tenants
irrevocable special power of attorney. In Sevilla v. Court of Appeals[42] we thus held- of the subject parcels of land for the reason that their agreement to till the land was not
with GSIS, the real landowner. There is no showing that GSIS consented to such tenancy
But unlike simple grants of a power of attorney, the agency that we hereby declare to be
relationship nor is there proof that GSIS received a share in the harvest of the
compatible with the intent of the parties, cannot be revoked at will. The reason is that it is
tenants. Consequently, the respondents cannot claim security of tenure and other rights
one coupled with an interest, the agency having been created for the mutual interest of the
accorded by our agrarian laws considering that they have not been validly instituted as
agent and the principal xxx [Petitioner's] interest, obviously, is not limited to the
agricultural lessees of the subject parcels of land. And from the time Bacaling recovered the
commissions she earned as a result of her business transactions, but one that extends to the
subject properties from GSIS up to the time the former changed her legal position in the
very subject matter of the power of management delegated to her. It is an agency that, as
instant case, Bacaling has consistently disclaimed respondents as her alleged tenants.
we said, cannot be revoked at the pleasure of the principal.Accordingly, the revocation
Bacalings current legal posture cannot also overturn our finding since, as earlier mentioned,
complained of should entitle the petitioner x x x to damages.
the said change of mind of Bacaling has little or no evidentiary weight under the
The requirement of a judicial process all the more assumes significance in light of the circumstances.
dismissal with prejudice, hence, res judicata, of Bacaling's complaint to annul the contract of
The respondents argue that GSIS cannot be considered as the owner of the said properties
sale which in turn gave rise to the irrevocable special power of attorney. It is clear that prima
from 1961 up to 1989 inasmuch as the foreclosure proceedings that started in 1957 only
facie there are more than sufficient reasons to deny the revocation of the said special power
attained finality during its promulgation by this Court in 1989. Respondents contend that
of attorney which is coupled with interest. Inasmuch as no judgment has set aside the
GSIS was the owner of the said parcels of land only from 1989.
agency relationship between Bacaling and Tong, we rule that petitioner Tong maintains
We disagree. The pendency of the GSIS case cannot be construed as a maintenance of status
quo with Bacaling as the owner from 1957 up to 1989 for the reason that what was appealed
to this Court was only the issue of redemption, and not the validity of the foreclosure
proceedings including the public auction sale, the confirmation of the public auction sale
and the confirmation and transfer of ownership of the foreclosed parcels of land to GSIS. The
ownership of GSIS over the subject parcels of land was not disputed. It was the existence of
the right to redeem in a judicial foreclosure that was the subject of the controversy. We
ruled that there was no longer any right of redemption in a judicial foreclosure proceeding
after the confirmation of the public auction. Only foreclosures of mortgages in favor of
banking institutions and those made extrajudicially are subject to legal redemption. Since
GSIS is not a banking institution and the procedure of the foreclosure is not extrajudicial in
nature, no right of redemption exists after the judicial confirmation of the public auction sale
of the said lots.
With respect to the third issue, we find that the one hundred ten (110) sub-lots are indeed
residential. In Tiongson v. Court of Appeals [45] we held that if the lot in question is not an
agricultural land then the rules on agrarian reform do not apply since the "key factor in
ascertaining whether there is a landowner-tenant relationship xxx is the nature of the
disputed property.[46] We reiterated this rule in Natalia Realty, Inc. v. Department of Agrarian
Reform[47] where we excluded lands not devoted to agricultural activity, i.e., lands previously
converted to non-agricultural or residential uses prior to the effectivity of the 1988 agrarian
reform law (R.A. No. 6657) by agencies other than the DAR, from the coverage of agrarian
reform. The statement of the rule is buttressed by P.D. No. 27 which by its terms applies only
to tenant-farmers of private agricultural lands primarily devoted to rice and corn under a
system of shared-crop or lease tenancy, whether classified as landed estate or not. [48]
In the case at bar, the indubitable conclusion from established facts is that the one hundred
ten (110) sub-lots, originally three (3) parcels of land, have been officially classified as
residential since 1955. The classification began when the NUPC and the Bureau of Lands
approved the subdivision of the original three (3) parcels of land into one hundred ten (110)
sub-lots each covered with transfer certificates of title. To build the subdivision project,
Nelita Bacaling then obtained a real estate mortgage loan from the GSIS which she used to
fund the project but he was unfortunately unable to complete it due to the immensity of the
project cost. Bacaling undertook to complete the sale of the subdivision when in 1978 she
obtained the registration thereof with the National Housing Authority as well as a license to
sell individually the one hundred ten (110) sub-lots. Earlier, in 1977, the City Council of Iloilo
also recognized the residential classification of the same one hundred ten (110) sub-lots
when it passed the Land Use Plan and Zoning Ordinance. In 1990, Bacaling sold the same
parcels of land to petitioner Tong who obviously wanted to pursue the development of the
subdivision project. It is clear that Tong bought the property for residential and not
agricultural purposes upon the strong assurance of Bacaling that the one hundred ten (110)
sub-lots were legally available for such prospect. To be sure, the subject lots were valuable in
the buyers market only for residential use as shown by the example of adjacent lots which
had long been utilized for building subdivisions and the implausibility of believing that Tong
would buy the lands only to lose them at a bargain to agrarian reform. [49]
Clearly, both intention and overt actions show the classification of the one hundred ten
(110) sub-lots for residential use. There can be no other conclusion from the facts obtaining
in the instant case. Indeed, one cannot imagine Nelita Bacaling borrowing the substantial
amount of Six Hundred Thousand Pesos (P600,000.00) from the GSIS and spending Two
Hundred Fifty Thousand Pesos (P250,000.00) for the purpose of developing and subdividing
the original three (3) parcels of land into one hundred ten (110) homelots, with individual
transfer certificates of title ready and available for sale, if her purported desire were to keep
the landholding for agricultural purposes. It also makes no sense that petitioner Tong would
invest so much money, time and effort in these sub-lots for planting and cultivating
agricultural crops when all the mechanisms are already in place for building a residential
community. One cannot likewise deny the consistent official government action which
decreed the said one hundred ten (110) sub-lots as most appropriate for human settlements
considering that for several times beginning in 1955 and in accordance with relevant laws
and regulations, the said landholding was categorically reserved as a residential subdivision.
It is also grave error to gloss over the NUPC action since its declarations have long been
recognized in similar cases as the present one as clear and convincing evidence of residential
classification. In Magno-Adamos v. Bagasao[50] we found the endorsements of the NUPC
approving albeit tentatively a subdivision plan to be a very strong evidence of conversion of
the disputed parcels of land into a residential subdivision which would contradict the alleged
tenancy relationship. We found nothing objectionable in the trial court's ruling in Santos v.
de Guzman[51] ejecting an alleged tenant from the landholding "because the same was
included in a homesite subdivision duly approved by the National Planning
Commission."[52] In Republic v. Castellvi[53] we gave great weight to the certification of the
NUPC that the subject parcels of land were classified as residential areas and ordered their
appraisal as residential and not agricultural lands -
The lower court found, and declared, that the lands of Castellvi and Toledo-Gozun are
residential lands. The finding of the lower court is in consonance with the unanimous
opinion of the three commissioners who, in their report to the court, declared that the lands
are residential lands. The Republic assails the finding that the lands are residential,
contending that the plans of the appellees to convert the lands into subdivision for
residential purposes were only on paper, there being no overt acts on the part of the
appellees which indicated that the subdivision project had been commenced xxx. We find
evidence showing that the lands in question had ceased to be devoted to the production of
agricultural crops, that they had become adaptable for residential purposes, and that the
appellees had actually taken steps to convert their lands into residential subdivisions
xxx. The evidence shows that Castellvi broached the idea of subdividing her land into
residential lots as early as July 11, 1956 in her letter to the Chief of Staff of the Armed Forces
of the Philippines xxx. As a matter of fact, the layout of the subdivision plan was tentatively
approved by the National Planning Commission on September 7, 1956 xxx. The land of
Castellvi had not been devoted to agriculture since 1947 when it was leased to the
Philippine Army. In 1957 said land was classified as residential, and taxes based on its
classification as residential had been paid since then xxx. The location of the Castellvi land
justifies its suitability for a residential subdivision.
The NUPC was created under EO 98, s. of 1946[54] to "prepare general plans, zoning
ordinances, and subdivision regulations, to guide and accomplish a coordinated, adjusted,
harmonious reconstruction and future development of urban areas which will in accordance
with present and future needs, best promote health, safety, morals, order, convenience,
prosperity, and general welfare, as well as efficiency and economy in the process of
development; including among other things adequate provisions for traffic, the promotion of
safety from fire and other dangers, adequate provision for light and air, the promotion of
healthful and convenient distribution of populations xxx." [55] Under the express terms of its
mandate, the NUPC was therefore duty-bound to act only upon realty projects which would
be used for human settlements and not for agricultural purposes. It is in this light that we
must take stock of the 1955 NUPC conversion of the one hundred ten (110) sub-lots from
agricultural to residential classification.
To bolster the exclusive role of the NUPC over developmental projects for residential and
industrial purposes, the term subdivision (which NUPC was mandated to review and if
properly executed to approve) was defined in EO 98 as the division of a tract or parcel of
land into two (2) or more lots, sites or other divisions for the purpose, whether immediate
or future, of sale or building development, and includes resubdivision, and when
appropriate to the context, relates to the process of subdividing or to the land or area
subdivided.[56] The Subdivision Regulations[57] (which the NUPC adopted pursuant to EO 98)
decreed as mandatory the NUPC approval of all subdivisions of land in the Philippines
intended for residential, commercial and industrial purposes, before lots comprising the
subdivision could be legally sold or building development therein could validly commence -
Any owner of land wishing to subdivide land shall submit to the Director of Planning [who
was the head of NUPC] a plat of the subdivision which shall conform to the requirements set
forth in these Regulations. No subdivider shall proceed with the sale of lots of a subdivision
and no plat of a subdivision shall be filed with the Director of Lands for approval or recorded
in the Office of the Register of Deeds until such plat shall have been approved by the
Director of Planning. Applications for plat approval submitted to the District or City Engineer
of a town or city in the Philippines shall be forwarded to the Director of Planning together
with the District or City Engineer's recommendations (underscoring supplied).
We are convinced that the 1955 approval by the NUPC of the subdivision of the subject
three (3) parcels of land owned by Nelita Bacaling and her spouse into one hundred ten
(110) sub-lots caused the conversion, if not outright classification, of the entire landholding
into a residential community for sale to interested buyers. This is an official classification of
the sub-lots as residential units and constitutes the only objective and effectual means of
obtaining in 1955 the classification and reservation of private land for non-agricultural
use, i.e. residential, industrial or commercial, since neither P.D. No. 27 nor R.A. No.
6657[58] (together with the specified formal mechanisms stipulated therein for converting a
piece of agricultural land into a residential lot) were then binding and effective. The
assignment or conversion of the one hundred ten (110) sub-lots for residential purposes was
not abrogated by P.D. No. 27 under which respondents invalidly secured their certificates of
land transfer since the decree was only prospectively effective [59] and its coverage was limited
only to agricultural lands which clearly do not include the residential sub-lots in question. [60]
By virtue of the official classification made by NUPC and the other circumstances
convincingly proved herein, the only fair and legally acceptable decision in the instant case
would be to declare, as we now indeed rule, that the one hundred ten (110) sub-lots are
truly residential in character as well as in purpose and are thus excluded from the coverage
of P.D. No. 27.
Verily, the Certificates of Land Transfer (CLT) issued in respondents' names are not valid and
do not change our ruling. The respondents cannot rely on said CLTS as proof of security of
tenure. It is well settled that the certificates of land transfer are not absolute evidence of
ownership of the subject lots[61] and consequently do not bar the finding that their issuance
is void from inception since they cover residential lands contrary to the mandate of P.D. No.
27. It follows from the fact of nullity of the certificates of land transfer in respondents'
names that the respondents are not entitled to occupy and possess the one hundred ten SO ORDERED.
(110) sub-lots or portions thereof without the consent of the owner, herein petitioner Tong.

While not raised as issues in the instant petition, we nevertheless rule now (conformably
with Gayos v. Gayos[62] that it is a cherished rule of procedure that a court should always
strive to settle the entire controversy in a single proceeding leaving no root or branch to bear
the seeds of future litigation) that respondents cannot claim disturbance compensation for
the reason that the sub-lots are not and have never been available for agrarian reform. In
the same vein, respondents also have no right to be reimbursed by petitioner Jose Juan Tong
for the value of or expenses for improvements which they might have introduced on the one
hundred ten (110) sub-lots since they did not allege nor prove the existence of such
improvements and their right to compensation thereto, if any. [63]

WHEREFORE, the Petition for Review is GRANTED. It is further ordered and adjudged that:

1. The certificates of land transfer over the one hundred ten (110) sub-lots located in
Barangay Cubay, Jaro, Iloilo City, in the name of respondents and/or their successors in
interest are hereby DECLARED VOID AB INITIO. The said one hundred ten (110) sub-lots,
covered by TCT Nos. T-10664 to T-10773 of the Registry of Deeds of the City of Iloilo, are
declared outside the coverage and operation of P.D. No. 27 and other land reform laws.

2. The consolidated Decision of the Court of Appeals in CA-G.R. SP No. 54413 (Felomino
Muya and Crispin Amor v. Nelita Bacaling, represented by her attorney-in-fact, Jose Juan
Tong, and the Executive Secretary, Office of the President) and in CA-G.R. SP No. 54414,
(Wilfredo Jereza, Rodolfo Lazarte and Nemesio Tonocante v. Hon. Executive Secretary, Office
of the President and Nelita Bacaling) and its Resolution dated June 5, 2001 denying
petitioners Motion for Reconsideration are REVERSED AND SET ASIDE.

3. The Decision dated May 22, 1998 and the Resolution dated July 22, 1999 of the Office of
the President in OP Case No. 98-K-8180 are REINSTATED with the modification in that the
respondents are not entitled to disturbance compensation; and

4. Respondents Felomino Muya, Crispin Amor, Wilfredo Jereza, Rodolfo Lazarte and Nemesio
Tonocante together with their assigns and successors in interest are ordered to vacate and
surrender peacefully the possession of the one hundred ten (110) sub-lots, covered by TCT
Nos. T-10664 to T-10773-Iloilo City, to petitioner Jose Juan Tong within thirty (30) days from
notice of this Decision.

No pronouncement as to costs.
FIRST DIVISION
[G.R. No. 151218. January 28, 2003]
NATIONAL SUGAR TRADING and/or the SUGAR REGULATORY ADMINISTRATION,
petitioners, vs. PHILIPPINE NATIONAL BANK, respondent.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for review which seeks to set aside the decision of the Court of Appeals
dated August 10, 2001 in CA-G.R. SP. No. 58102, [1] upholding the decision of the Office of the
President dated September 17, 1999,[2] as well as the resolution dated December 12, 2001
denying petitioners motion for reconsideration.
The antecedent facts, as culled from the records, are as follows:
Sometime in February 1974, then President Ferdinand E. Marcos issued Presidential Decree
No. 388[3] constituting the Philippine Sugar Commission (PHILSUCOM), as the sole buying
and selling agent of sugar on the quedan permit level. In November of the same year, PD
579[4] was issued, authorizing the Philippine Exchange Company, Inc. (PHILEXCHANGE), a
wholly owned subsidiary of Philippine National Bank (PNB) to serve as the marketing agent
of PHILSUCOM. Pursuant to PD 579, PHILEXCHANGEs purchases of sugar shall be financed by
PNB and the proceeds of sugar trading operations of PHILEXCHANGE shall be used to pay its
liabilities with PNB.[5]
Similarly, in February 1975, PD 659 was issued, constituting PHILEXCHANGE and/or PNB as
the exclusive sugar trading agencies of the government for buying sugar from planters or
millers and selling or exporting them.[6] PNB then extended loans to PHILEXCHANGE for the
latters sugar trading operations. At first, PHILEXCHANGE religiously paid its obligations to
PNB by depositing the proceeds of the sale of sugar with the bank. Subsequently, however,
with the fall of sugar prices in the world market, PHILEXCHANGE defaulted in the payments
of its loans amounting to P206,070,172.57. [7]
In July 1977, the National Sugar Trading Corporation (NASUTRA) replaced PHILEXCHANGE as
the marketing agent of PHILSUCOM. Accordingly, PHILEXCHANGE sold and turned over all
sugar quedans to NASUTRA. However, no physical inventory of the sugar covered by
the quedans was made.[8] Neither NASUTRA nor PHILSUCOM was required to immediately
pay PHILEXCHANGE. Notwithstanding this concession, NASUTRA and PHILSUCOM still failed
to pay the sugar stocks covered by quedans to PHILEXCHANGE which, as of June 30, 1984,
amounted to P498,828,845.03. As a consequence, PHILEXCHANGE was not able to pay its
obligations to PNB.
To finance its sugar trading operations, NASUTRA applied for and was granted [9] a P408
Million Revolving Credit Line by PNB in 1981. Every time NASUTRA availed of the credit line,
[10]
its Executive Vice-President, Jose Unson, executed a promissory note in favor of PNB.
In order to stabilize sugar liquidation prices at a minimum of P300.00 per picul, PHILSUCOM
issued on March 15, 1985 Circular Letter No. EC-4-85, considering all sugar produced during
crop year 1984-1985 as domestic sugar. Furthermore, PHILSUCOMs Chairman of Executive
Committee, Armando C. Gustillo proposed on May 14, 1985 the following liquidation
scheme of the sugar quedans[11] assigned to PNB by the sugar planters:
Upon notice from NASUTRA, PNB shall credit the individual producer and millers loan
accounts for their sugar proceeds and shall treat the same as loans of NASUTRA.
Such loans shall be charged interest at the prevailing rates and it shall commence five (5)
days after receipt by PNB of quedans from NASUTRA. [12]
PNB, for its part, issued Resolution No. 353 dated May 20, 1985 approving [13] the
PHILSUCOM/NASUTRA proposal for the payment of the sugar quedans assigned to it.
Pursuant to said resolution, NASUTRA would assume the interest on the planter/mill loan
accounts. The pertinent portion of the Resolution states:
Five (5) days after receipt of the quedans, NASUTRA shall absorb the accruing interest on
that portion of the planter/mill loan with PNB commensurate to the net liquidation value of
the sugar delivered, or in other words, NASUTRA proposes to assume interest that will run
on the planter/mill loan equivalent to the net proceeds of the sugar quedans, reckoned five
(5) days after quedan delivery to PNB.[14]
Despite such liquidation scheme, NASUTRA/PHILSUCOM still failed to remit the interest
payments to PNB and its branches, which interests amounted to P65,412,245.84 in 1986.
[15]
As a result thereof, then President Marcos issued PD 2005 dissolving NASUTRA effective
January 31, 1986. NASUTRAs records of its sugar trading operations, however, were
destroyed during the Edsa Revolution in February 1986.
On May 28, 1986, then President Corazon C. Aquino issued Executive Order (EO) No. 18
creating the Sugar Regulatory Administration (SRA) and abolishing PHILSUCOM. All the
assets and records of PHILSUCOM[16] including its beneficial interests over the assets of
NASUTRA were transferred to SRA. [17] On January 24, 1989, before the completion of the
three-year winding up period, NASUTRA established a trusteeship to liquidate and settle its 1984-85 sugar proceeds
accounts.[18] This notwithstanding, NASUTRA still defaulted in the payment of its loans
1987 & Philsucom account carried
amounting to P389,246,324.60 (principal and accrued interest) to PNB.
1988 in the books of Philexchange 206,070,172.57
In the meantime, PNB received remittances from foreign banks totaling US$36,564,558.90 or
the equivalent of P696,281,405.09 representing the proceeds of NASUTRAs sugar exports. P676,592,641.80
[19]
Said remittances were then applied by PNB to the unpaid accounts of NASUTRA/
PHILSUCOM with PNB and PHILEXCHANGE. The schedule of remittances and applications are =============
as follows: Unapplied Remittance P 19,688,763.29[20]
SCHEDULE OF REMITTANCES & APPLICATIONS Subsequently, PNB applied the P19,688,763.29 to PHILSUCOMs account with PHILEXCHANGE
Account of NASUTRA which in turn was applied to PHILEXCHANGEs account with PNB. [21]

July 31, 1988 Accordingly, NASUTRA requested[22] PNB to furnish it with the necessary documents and/or
explanation[23] concerning the disposition/ application, accounting and restitution of the
REMITTANCES remittances in question. Dissatisfied, and believing that PNB failed to provide them with said
documents, NASUTRA and SRA filed a petition for arbitration [24] with the Department of
Date Remitting Bank Amount
Justice on August 13, 1991.
11-19-85 Bankers Trust-New York P259,253,573.46
After due proceedings, the Secretary of Justice rendered a decision, to wit:
11-26-85 Bankers Trust-New York 144,459,242.84
WHEREFORE, judgment is hereby rendered-
03-06-86 Credit Lyonnais-Manila 209,880, 477.07
1. Declaring that of the amount of Six Hundred Ninety Six Million Two Hundred Eighty One
04-22-86 Societ General-Manila 82,151,953.10 Thousand Four Hundred Five and 09/100 Pesos (P696,281,405.09) equivalent of
US$36,564,558.90, foreign remittances received by respondent PNB, for and in behalf of
06-09-86 Credit Lyonnais-Manila 536,158.62
petitioner NASUTRA
Total P696,281,405.09
a) the amount of Three Hundred Eighty Nine Million Two Hundred Forty Six Thousand Three
============= Hundred Twenty Four and 60/100 Pesos (P389,246,324.60) was validly applied to
outstanding account of NASUTRA to PNB;
APPLICATIONS
b) the amount of Sixty Five Billion Four Hundred Twelve Thousand Two Hundred Forty Five
Date Applied to Amount and 84/100 Pesos (P65,412,245.84) was validly applied to claims of various PNB branches for
1986 NASUTRA account with PNB P389,246,324.60 interest on the unpaid CY 1984-85 sugar proceeds;

1986 Claims of various CAB planters 15, 863,898.79 Or a total of Four Hundred Fifty Four Million Six Hundred Fifty Eight Thousand Five Hundred
Seventy and 44/100 Pesos (P454,658,570.44).
1987 Claims of various PNB 65, 412,245.84
2. Ordering respondent PNB to pay petitioners
branches for interest or the unpaid CY
a) the amount of Two Hundred Six Million Seventy Thousand One Hundred Seventy Two and
57/100 Pesos (P206,070,172.57) representing the amount of remittance applied to
PHILSUCOM account carried in the books of Philexchange;
b) the amount of Fifteen Million Eight Hundred Sixty Three Thousand Eight Hundred Ninety
Eight and 79/100 Pesos (P15,863,898.79) representing the amount applied to settle Claims
of Various CAB Planters; and to pay interest on both items, at legal rate from date of filing of
this case.
Costs of suit will be shared equally by the parties.
SO ORDERED.[25]
Both parties appealed before the Office of the President. On September 17, 1999, the Office
of the President modified the decision of the Secretary of Justice, to wit:
IN VIEW OF ALL THE FOREGOING, the decision of the Secretary of Justice is hereby
AFFIRMED with the MODIFICATION that the application by the Philippine National Bank of
the amounts of P225,758,935.86 and P15,863,898.79 as payment of the Philippine Sugar
Commissions account carried in the books of Philippine Exchange Co., Inc. and the claims of
various CAB planters, respectively, is hereby declared legal and valid.
SO ORDERED.[26]
Petitioners subsequent Motion for Reconsideration was denied by the Office of the
President.[27] Thereafter, petitioners filed a petition for review with the Court of Appeals,
alleging, inter alia, that the Office of the President erred when it relied solely on the
documents submitted by PNB to determine the amount of the subject remittances and in
not ordering PNB to render an accounting of the said remittances; in declaring as valid and
legal PNBs application of the subject remittances to alleged NASUTRAs accounts with PNB
and PHILEXCHANGE without NASUTRAs knowledge, consent and authority.
On August 10, 2001, Court of Appeals rendered judgment dismissing the petition.
[28]
Petitioners filed a Motion for Reconsideration, which was denied on December 12, 2001.
Hence this petition, raising the lone issue:
THE CA DECIDED NOT IN ACCORD WITH LAW AND WITH THE APPLICABLE DECISION OF THIS
HONORABLE COURT, AND GRAVELY ABUSED ITS DISCRETION, WHEN IT UPHELD THE
LEGALITY AND VALIDITY OF THE OFFSETTING OR COMPENSATION OF THE SUBJECT
REMITTANCES TO ALLEGED ACCOUNTS OF NASUTRA WITH PNB AND PHILEX DESPITE THE
FACT THAT NO CREDITOR-DEBTOR RELATIONSHIP EXISTED BETWEEN PNB AND NASUTRA
WITH RESPECT TO THE SAID REMITTANCES.
In essence, NASUTRA and SRA aver that no compensation involving the subject remittances
can take effect by operation of law since the relationship created between PNB and
NASUTRA was one of trustee-beneficiary and not one of creditor and debtor. They also claim
that no legal compensation can take place in favor of PHILEXCHANGE since the subject
remittances were received by PNB and not PHILEXCHANGE, a corporation clothed with a
separate and distinct corporate personality from PNB. They added that PHILEXCHANGEs
account had already prescribed.
Moreover, NASUTRA and SRA contend that, assuming arguendo that creditor-debtor
relationship existed between PNB and NASUTRA, compensation was still illegal, since PNB
has not proven the existence of the P408 million revolving credit line and the CAB Planters
Account. Petitioners also assert that the CAB Planters Account is an unliquidated account
considering that it still has to be recomputed pursuant to the Sugar Reconstitution Law. [29]
Respondent PNB counters that it can apply the foreign remittances on the long-overdue
obligations of NASUTRA. They were entered into by NASUTRA with the blessing, if not with
express mandate, of the National Government in the pursuit of national interest and policy.
PNB invokes also the Letter of Intent submitted by the National Government to the
International Monetary Fund (IMF), wherein the government made specific reference to the
immediate payment by NASUTRA and PHILSUCOM of their outstanding obligations with PNB
to buoy up the countrys sagging economy. [30]
Petitioners arguments are specious.
Article 1306 of the New Civil Code provides:
Contracting parties may establish such stipulations, clauses terms and conditions as they
may deem convenient provided they are not contrary to law, morals, good customs, public
order or public policy.
In the instant case, NASUTRA applied for a P408 million credit line with PNB in order to
finance its trading operations. PNB, on the other hand, approved said credit line in its
Resolution No. 68. Thereafter, NASUTRA availed of the credit and in fact drew
P389,246,324.60, in principal and accrued interest, from the approved credit line. Evidence
shows that every time NASUTRA availed of the credit, its Executive Vice President, Jose
Unson, executed a promissory note[31] in favor of PNB with the following proviso:
In the event that this note is not paid at maturity or when the same becomes due under any
of the provisions hereof, I/We hereby authorize the Bank, at its option and without notice, to
apply to the payment of this note, any and all moneys, securities and things of values which
may be in the hands on deposit or otherwise belonging to me/us and for this purpose, I/We
hereby, jointly and severally, irrevocably constitute and appoint the Bank to be my/our true
Attorney-in-Fact with full power and authority for me/us and in my/our name and behalf
and without prior notice to negotiate, sell and transfer any moneys, securities and things of
value which it may hold, by public or private sale and apply the proceeds thereof to the
payment of this note. (Italics ours)
While we agree with petitioners that the application of subject remittances cannot be
justified under Article 1278 in relation to Article 1279 of the Civil Code, considering that
some elements of legal compensation were lacking, application of the subject remittances to
NASUTRAs account with PNB and the claims of various PNB branches for interest on the
unpaid CY 1984-1985 sugar proceeds is authorized under the above-quoted stipulation. PNB
correctly treated the subject remittances for the account of NASUTRA as moneys in its
hands which may be applied for the payment of the note.
Also, the relationship between NASUTRA/SRA and PNB when the former constituted the
latter as its attorney-in-fact is not a simple agency. NASUTRA/SRA has assigned and
practically surrendered its rights in favor of PNB for a substantial consideration. [32] To
reiterate, NASUTRA/SRA executed promissory notes in favor of PNB every time it availed of
the credit line. The agency established between the parties is one coupled with interest
which cannot be revoked or cancelled at will by any of the parties. [33]
Notwithstanding its availment of the approved credit, NASUTRA, for reasons only known to
itself, insisted in claiming for refund of the remittances. NASUTRAs posture is
untenable. NASUTRAs actuation runs counter to the good faith covenant in contractual
relations, required under Article 1159 of the Civil Code, to wit:
Obligations arising from contract have the force of law between the contracting parties and
should be complied with in good faith.
Verily, parties may freely stipulate their duties and obligations which perforce would be
binding on them. Not being repugnant to any legal proscription, the agreement entered into
by NASUTRA/SRA and PNB must be respected and have the force of law between them.
With respect to the application of the sum of P65,412,245.84, [34] the record shows that
NASUTRA failed to remit the interest payments to PNB despite its obligation under the
liquidation scheme proposed by the Chairman of its Executive Committee, Armando C.
Gustillo, to stabilize sugar liquidation prices. Certainly, the authority granted by NASUTRA to
Armando Gustillo to propose such liquidation scheme was an authority to represent
NASUTRA. Undisputedly, any obligation or liability arising from such agreement shall be
binding on the parties.NASUTRA, for its part, cannot now renege on its duties, considering
that it took advantage of the loan.
Having established that PNB validly applied the subject remittances to the interest of
NASUTRAs loan in the amount of P65,412,245.84, the application of the remainder of the
remittance amounting to P15,863,898.79 to the principal is proper.
With respect to the Central Azucarera de Bais (CAB) Planters account, petitioners maintained
that the subject remittance cannot be applied to payment thereof, considering that it is
unliquidated and needs recomputation, pursuant to Section 3 of Republic Act No. 7202 or
the Sugar Reconstitution Law, which provides:
The Philippine National Bank, the Republic Planters Bank, the Development Bank of the
Philippines and other government-owned and controlled financial institutions which have
granted loans to the sugar producers shall extend to accounts of said sugar producers
incurred from Crop Year 1974-1975 up to and including Crop Year 1984-1985 the following:
(a) Condonation of interest charged by the banks in excess of twelve percent (12%) per
annum and all penalties and surcharges:
(b) The recomputed loans shall be amortized for a period of thirteen (13) years inclusive of a
three-year grace period on principal effective upon the approval of this Act. The principal
portion of the loan will carry an interest rate of twelve percent (12%) and on the outstanding
balance effective when the original promissory notes were signed and funds released to the
producer.
Section 6 of Rules and Regulations implementing RA No. 7202 also provides:
SECTION 2. In cases, however, where sugar producers have no outstanding loan balance with
said financial institutions as of the date of effectivity of RA No. 7202 (i.e. sugar producers
who have fully paid their loans either through actual payment or foreclosure of collateral, or
who have partially paid their loans and after the recomputation of the interest charges, they
end up with excess payment to said financial institutions), said producers shall be entitled to
the benefits of recomputation in accordance with Sections 3 and 4 of RA No. 7202, but the
said financial institutions, instead of refunding the interest in excess of twelve (12%) per cent
per annum, interests, penalties and surcharges, apply the excess payment as an offset
and/or as payment for the producers outstanding loan obligations. Applications of
restructuring banks under Section 6 of RA No. 7202 shall be filed with the Central Monetary
Authority of the Philippines within one (1) year from application of excess payment.

Although it appears from said provision that PNB was directed to condone interest, penalties
and surcharges charged in excess of 12% per annum, the passage of said law did not forestall
legal compensation that had taken place before its effectivity. The loan had been definitely
ascertained, assessed and determined by PNB. Pursuant to Section 4 [35] of RA 7202, there
would be condonation of interest whether the accounts were fully or partially paid.

With regard to the application of the amount of P206,070,172.57 to the PHILSUCOM

account carried in the books of PHILEXCHANGE, petitioners maintain that there could be no
application of the subject remittance, considering that the remittances were received by
PNB and not PHILEXCHANGE which has a personality separate and distinct from PNB.

Petitioners contention is not well-taken.

There exist clear indications that insofar as sugar trading was concerned, PHILEXCHANGE and
PNB were treated as one entity. Purchases of sugar of PHILEXCHANGE as the exclusive sugar
trading arm of PHILSUCOM were financed by PNB pursuant to PD 579. More importantly,
PNB, a wholly owned bank of the government at that time, in turn wholly owned and
controlled PHILEXCHANGE. Also, Section 2 (a), PD 659 declared as illegal the sale, transfer
and assignment of sugar by any planter, producer, miller, central, or refinery to any person or
entity other than Philippine Exchange, Inc. and/or the PNB. To reiterate, PHILEXCHANGE
failed to pay its loans with PNB because of the fall of the sugar prices in the world market.
When NASUTRA substituted PHILEXCHANGE as marketing agent of PHILSUCOM,
1,485,532.47 metric tons[36] of export sugar were turned over by PHILEXCHANGE to
NASUTRA. To reiterate, the foreign remittances constituted proceeds of the sale of the sugar
covered by quedans transferred by PHILEXCHANGE to NASUTRA.

WHEREFORE, in view of the foregoing, the instant petition for review is DENIED. The
decision of the Court of Appeals dated August 10, 2001 is AFFIRMED.

SO ORDERED
SECOND DIVISION
[G.R. No. 156015. August 11, 2005]
REPUBLIC OF THE PHILIPPINES, represented by LT. GEN. JOSE M. CALIMLIM, in his capacity
as former Chief of the Intelligence Service, Armed Forces of the Philippines (ISAFP), and
former Commanding General, Presidential Security Group (PSG), and MAJ. DAVID B.
DICIANO, in his capacity as an Officer of ISAFP and former member of the PSG, petitioners,
vs. HON. VICTORINO EVANGELISTA, in his capacity as Presiding Judge, Regional Trial Court,
Branch 223, Quezon City, and DANTE LEGASPI, represented by his attorney-in-fact, Paul
Gutierrez, respondents.
DECISION
PUNO, J.:
The case at bar stems from a complaint for damages, with prayer for the issuance of a writ of
preliminary injunction, filed by private respondent Dante Legaspi, through his attorney-in-
fact Paul Gutierrez, against petitioners Gen. Jose M. Calimlim, Ciriaco Reyes and Maj. David
Diciano before the Regional Trial Court (RTC) of Quezon City. [1]
The Complaint alleged that private respondent Legaspi is the owner of a land located in
Bigte, Norzagaray, Bulacan. In November 1999, petitioner Calimlim, representing the
Republic of the Philippines, and as then head of the Intelligence Service of the Armed Forces
of the Philippines and the Presidential Security Group, entered into a Memorandum of
Agreement (MOA) with one Ciriaco Reyes. The MOA granted Reyes a permit to hunt for
treasure in a land in Bigte, Norzagaray, Bulacan. Petitioner Diciano signed the MOA as a
witness.[2] It was further alleged that thereafter, Reyes, together with petitioners, started,
digging, tunneling and blasting works on the said land of Legaspi. The complaint also alleged
that petitioner Calimlim assigned about 80 military personnel to guard the area and encamp
thereon to intimidate Legaspi and other occupants of the area from going near the subject
land.
On February 15, 2000, Legaspi executed a special power of attorney (SPA) appointing his
nephew, private respondent Gutierrez, as his attorney-in-fact. Gutierrez was given the power
to deal with the treasure hunting activities on Legaspis land and to file charges against those
who may enter it without the latters authority. [3] Legaspi agreed to give Gutierrez 40% of the
treasure that may be found in the land.
On February 29, 2000, Gutierrez filed a case for damages and injunction against petitioners
for illegally entering Legaspis land. He hired the legal services of Atty. Homobono Adaza.
Their contract provided that as legal fees, Atty. Adaza shall be entitled to 30% of Legaspis
share in whatever treasure may be found in the land. In addition, Gutierrez agreed to pay
Atty. Adaza P5,000.00 as appearance fee per court hearing and defray all expenses for the
cost of the litigation.[4] Upon the filing of the complaint, then Executive Judge Perlita J. Tria
Tirona issued a 72-hour temporary restraining order (TRO) against petitioners.
The case[5] was subsequently raffled to the RTC of Quezon City, Branch 223, then presided by
public respondent Judge Victorino P. Evangelista. On March 2, 2000, respondent judge issued
another 72-hour TRO and a summary hearing for its extension was set on March 7, 2000.
On March 14, 2000, petitioners filed a Motion to Dismiss [6] contending: first, there is no real
party-in-interest as the SPA of Gutierrez to bring the suit was already revoked by Legaspi on
March 7, 2000, as evidenced by a Deed of Revocation, [7] and, second, Gutierrez failed to
establish that the alleged armed men guarding the area were acting on orders of petitioners.
On March 17, 2000, petitioners also filed a Motion for Inhibition [8] of the respondent judge
on the ground of alleged partiality in favor of private respondent.
On March 23, 2000, the trial court granted private respondents application for a writ of
preliminary injunction on the following grounds: (1) the diggings and blastings appear to
have been made on the land of Legaspi, hence, there is an urgent need to maintain
the status quoto prevent serious damage to Legaspis land; and, (2) the SPA granted to
Gutierrez continues to be valid.[9] The trial court ordered thus:
WHEREFORE, in view of all the foregoing, the Court hereby resolves to GRANT plaintiffs
application for a writ of preliminary injunction. Upon plaintiffs filing of an injunction bond in
the amount of ONE HUNDRED THOUSAND PESOS (P100,000.00), let a Writ of Preliminary
Injunction issue enjoining the defendants as well as their associates, agents or
representatives from continuing to occupy and encamp on the land of the plaintiff LEGASPI
as well as the vicinity thereof; from digging, tunneling and blasting the said land of plaintiff
LEGASPI; from removing whatever treasure may be found on the said land; from preventing
and threatening the plaintiffs and their representatives from entering the said land and
performing acts of ownership; from threatening the plaintiffs and their representatives as
well as plaintiffs lawyer.
On even date, the trial court issued another Order [10] denying petitioners motion to dismiss
and requiring petitioners to answer the complaint. On April 4, 2000, it likewise denied
petitioners motion for inhibition.[11]
On appeal, the Court of Appeals affirmed the decision of the trial court. [12]
Hence this petition, with the following assigned errors:
I manage the treasure hunting activities in the subject land; to file any case against anyone
WHETHER THE CONTRACT OF AGENCY BETWEEN LEGASPI AND PRIVATE RESPONDENT
GUTIERREZ HAS BEEN EFFECTIVELY REVOKED BY LEGASPI.
II
WHETHER THE COMPLAINT AGAINST PETITIONERS SHOULD BE DISMISSED.
III
WHETHER RESPONDENT JUDGE OUGHT TO HAVE INHIBITED HIMSELF FROM FURTHER
PROCEEDING WITH THE CASE.
We find no merit in the petition.
On the first issue, petitioners claim that the special power of attorney of Gutierrez to
represent Legaspi has already been revoked by the latter. Private respondent Gutierrez,
however, contends that the unilateral revocation is invalid as his agency is coupled with
interest.
We agree with private respondent.
Art. 1868 of the Civil Code provides that by the contract of agency, an agent binds himself to
render some service or do something in representation or on behalf of another, known as
the principal, with the consent or authority of the latter. [13]
A contract of agency is generally revocable as it is a personal contract of representation
based on trust and confidence reposed by the principal on his agent. As the power of the
agent to act depends on the will and license of the principal he represents, the power of the
agent ceases when the will or permission is withdrawn by the principal. Thus, generally, the
agency may be revoked by the principal at will. [14]
However, an exception to the revocability of a contract of agency is when it is coupled with
interest, i.e., if a bilateral contract depends upon the agency. [15] The reason for its
irrevocability is because the agency becomes part of another obligation or agreement. It is
not solely the rights of the principal but also that of the agent and third persons which are
affected. Hence, the law provides that in such cases, the agency cannot be revoked at the
sole will of the principal.
In the case at bar, we agree with the finding of the trial and appellate courts that the agency
granted by Legaspi to Gutierrez is coupled with interest as a bilateral contract depends on it.
It is clear from the records that Gutierrez was given by Legaspi, inter alia, the power to
who enters the land without authority from Legaspi; to engage the services of lawyers to
carry out the agency; and, to dig for any treasure within the land and enter into
agreements relative thereto. It was likewise agreed upon that Gutierrez shall be entitled to
40% of whatever treasure may be found in the land. Pursuant to this authority and to
protect Legaspis land from the alleged illegal entry of petitioners, agent Gutierrez hired the
services of Atty. Adaza to prosecute the case for damages and injunction against
petitioners. As payment for legal services, Gutierrez agreed to assign to Atty. Adaza 30% of
Legaspis share in whatever treasure may be recovered in the subject land. It is clear that
the treasure that may be found in the land is the subject matter of the agency; that under
the SPA, Gutierrez can enter into contract for the legal services of Atty. Adaza; and, thus
Gutierrez and Atty. Adaza have an interest in the subject matter of the agency, i.e., in the
treasures that may be found in the land. This bilateral contract depends on the agency and
thus renders it as one coupled with interest, irrevocable at the sole will of the principal
Legaspi.[16] When an agency is constituted as a clause in a bilateral contract, that is, when the
agency is inserted in another agreement, the agency ceases to be revocable at the pleasure
of the principal as the agency shall now follow the condition of the bilateral agreement.
[17]
Consequently, the Deed of Revocation executed by Legaspi has no effect. The authority of
Gutierrez to file and continue with the prosecution of the case at bar is unaffected.
On the second issue, we hold that the issuance of the writ of preliminary injunction is
justified. A writ of preliminary injunction is an ancilliary or preventive remedy that is
resorted to by a litigant to protect or preserve his rights or interests and for no other
purpose during the pendency of the principal action. [18] It is issued by the court to prevent
threatened or continuous irremediable injury to the applicant before his claim can be
thoroughly studied and adjudicated.[19] Its aim is to preserve the status quo ante until the
merits of the case can be heard fully, upon the applicants showing of two important
conditions, viz.: (1) the right to be protected prima facie exists; and, (2) the acts sought to be
enjoined are violative of that right.[20]
Section 3, Rule 58 of the 1997 Rules of Civil Procedure provides that a writ of preliminary
injunction may be issued when it is established:
(a) that the applicant is entitled to the relief demanded, the whole or part of such relief
consists in restraining the commission or continuance of the act or acts complained of, or in
requiring the performance of an act or acts, either for a limited period or perpetually;
(b) that the commission, continuance or non-performance of the act or acts complained of
during the litigation would probably work injustice to the applicant; or
(c) that a party, court, agency or a person is doing, threatening, or is attempting to do, or is
procuring or suffering to be done, some act or acts probably in violation of the rights of the
applicant respecting the subject of the action or proceeding, and tending to render the
judgment ineffectual.
It is crystal clear that at the hearing for the issuance of a writ of preliminary injunction,
mere prima facie evidence is needed to establish the applicants rights or interests in the
subject matter of the main action.[21] It is not required that the applicant
should conclusively show that there was a violation of his rights as this issue will still be fully
litigated in the main case.[22] Thus, an applicant for a writ is required only to show that he
has an ostensible right to the final relief prayed for in his complaint. [23]
bears to stress again that a judges appreciation or misappreciation of the sufficiency of
evidence adduced by the parties, or the correctness of a judges orders or rulings on the
objections of counsels during the hearing, without proof of malice on the part of respondent
judge, is not sufficient to show bias or partiality. As we held in the case of Webb vs. People,
[25]
the adverse and erroneous rulings of a judge on the various motions of a party do not
sufficiently prove bias and prejudice to disqualify him. To be disqualifying, it must be shown
that the bias and prejudice stemmed from an extrajudicial source and result in an opinion on
the merits on some basis other than what the judge learned from his participation in the
case. Opinions formed in the course of judicial proceedings, although erroneous, as long as
based on the evidence adduced, do not prove bias or prejudice. We also emphasized that
repeated rulings against a litigant, no matter how erroneously, vigorously and consistently
expressed, do not amount to bias and prejudice which can be a bases for the disqualification
of a judge.
Finally, the inhibition of respondent judge in hearing the case for damages has become moot
and academic in view of the latters death during the pendency of the case. The main case for
damages shall now be heard and tried before another judge.

In the case at bar, we find that respondent judge had sufficient basis to issue the writ of IN VIEW WHEREOF, the impugned Orders of the trial court in Civil Case No. Q-00-40115,
preliminary injunction. It was established, prima facie, that Legaspi has a right to peaceful dated March 23 and April 4, 2000, are AFFIRMED. The presiding judge of the Regional Trial
possession of his land, pendente lite. Legaspi had title to the subject land. It was likewise Court of Quezon City to whom Civil Case No. Q-00-40115 was assigned is directed to
established that the diggings were conducted by petitioners in the enclosed area of Legaspis proceed with dispatch in hearing the main case for damages. No pronouncement as to costs.
land. Whether the land fenced by Gutierrez and claimed to be included in the land of
SO ORDERED
Legaspi covered an area beyond that which is included in the title of Legaspi is a factual
issue still subject to litigation and proof by the parties in the main case for damages . It was
necessary for the trial court to issue the writ of preliminary injunction during the pendency
of the main case in order to preserve the rights and interests of private respondents Legaspi
and Gutierrez.

On the third issue, petitioners charge that the respondent judge lacked the neutrality of an
impartial judge. They fault the respondent judge for not giving credence to the testimony of
their surveyor that the diggings were conducted outside the land of Legaspi. They also claim
that respondent judges rulings on objections raised by the parties were biased against them.

We have carefully examined the records and we find no sufficient basis to hold that
respondent judge should have recused himself from hearing the case. There is no discernible
pattern of bias on the rulings of the respondent judge. Bias and partiality can never be
presumed. Bare allegations of partiality will not suffice in an absence of a clear showing that
will overcome the presumption that the judge dispensed justice without fear or favor. [24] It
 Petitioner,

- versus -
THIRD DIVISION
ENGR. EDUARDO M. PAULE,

ENGR. ALEXANDER COLOMA

and NATIONAL IRRIGATION Promulgated:

ZENAIDA G. MENDOZA, G.R. No. 175885
ADMINISTRATION (NIA
Petitioner,
MUOZ, NUEVA ECIJA),
Present:
Respondents. February 13, 2009
Ynares-Santiago, J. (Chairperson),

- versus - Austria-Martinez,
x ---------------------------------------------------------------------------------------- x
Chico-Nazario,

Nachura, and

Peralta, JJ.

ENGR. EDUARDO PAULE,

ENGR. ALEXANDER COLOMA DECISION

and NATIONAL IRRIGATION

ADMINISTRATION (NIA YNARES-SANTIAGO, J.:

MUOZ, NUEVA ECIJA),

Respondents.

These consolidated petitions assail the August 28, 2006 Decision [1] of the Court of Appeals in
CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-SD (2000), [2] and its
x ------------------------------------------------------ x
December 11, 2006 Resolution[3] denying the herein petitioners motion for reconsideration.

MANUEL DELA CRUZ, G.R. No. 176271

Engineer Eduardo M. Paule (PAULE) is the proprietor of E.M. Paule Construction and Trading
(EMPCT). On May 24, 1999, PAULE executed a special power of attorney (SPA) authorizing
Zenaida G. Mendoza (MENDOZA) to participate in the pre-qualification and bidding of a
National Irrigation Administration (NIA) project and to represent him in all transactions
related thereto, to wit:
1. To represent E.M. PAULE CONSTRUCTION & TRADING of which I (PAULE) am the General
Manager in all my business transactions with National Irrigation Authority, Muoz, Nueva
Ecija.
2. To participate in the bidding, to secure bid bonds and other documents pre-requisite in
the bidding of Casicnan Multi-Purpose Irrigation and Power Plant (CMIPPL 04-99), National
Irrigation Authority, Muoz, Nueva Ecija.
3. To receive and collect payment in check in behalf of E.M. PAULE CONSTRUCTION &
TRADING.
4. To do and perform such acts and things that may be necessary and/or required to make
the herein authority effective.[4]
On September 29, 1999, EMPCT, through MENDOZA, participated in the bidding of the NIA-
Casecnan Multi-Purpose Irrigation and Power Project (NIA-CMIPP) and was awarded
Packages A-10 and B-11 of the NIA-CMIPP Schedule A. On November 16, 1999, MENDOZA
received the Notice of Award which was signed by Engineer Alexander M. Coloma
(COLOMA), then Acting Project Manager for the NIA-CMIPP. Packages A-10 and B-11
involved the construction of a road system, canal structures and drainage box culverts with a
project cost of P5,613,591.69.
When Manuel de la Cruz (CRUZ) learned that MENDOZA is in need of heavy equipment for
use in the NIA project, he met up with MENDOZA in Bayuga, Muoz, Nueva Ecija, in an
apartment where the latter was holding office under an EMPCT signboard. A series of
meetings followed in said EMPCT office among CRUZ, MENDOZA and PAULE.
On December 2 and 20, 1999, MENDOZA and CRUZ signed two Job Orders/Agreements [5] for
the lease of the latters heavy equipment (dump trucks for hauling purposes) to EMPCT.
On April 27, 2000, PAULE revoked [6] the SPA he previously issued in favor of MENDOZA;
consequently, NIA refused to make payment to MENDOZA on her billings. CRUZ, therefore,
could not be paid for the rent of the equipment. Upon advice of MENDOZA, CRUZ addressed
his demands for payment of lease rentals directly to NIA but the latter refused to
acknowledge the same and informed CRUZ that it would be remitting payment only to
EMPCT as the winning contractor for the project.
In a letter dated April 5, 2000, CRUZ demanded from MENDOZA and/or EMPCT payment of
the outstanding rentals which amounted to P726,000.00 as of March 31, 2000.
On June 30, 2000, CRUZ filed Civil Case No. 18-SD (2000) with Branch 37 of the Regional Trial
Court of Nueva Ecija, for collection of sum of money with damages and a prayer for the
issuance of a writ of preliminary injunction against PAULE, COLOMA and the NIA. PAULE in
turn filed a third-party complaint against MENDOZA, who filed her answer thereto, with a
cross-claim against PAULE.
MENDOZA alleged in her cross-claim that because of PAULEs whimsical revocation of the
SPA, she was barred from collecting payments from NIA, thus resulting in her inability to
fund her checks which she had issued to suppliers of materials, equipment and labor for the
project. She claimed that estafa and B.P. Blg. 22 cases were filed against her; that she could
no longer finance her childrens education; that she was evicted from her home; that her
vehicle was foreclosed upon; and that her reputation was destroyed, thus entitling her to
actual and moral damages in the respective amounts of P3 million and P1 million.
Meanwhile, on August 23, 2000, PAULE again constituted MENDOZA as his attorney-in-fact
1. To represent me (PAULE), in my capacity as General Manager of the E.M. PAULE
CONSTRUCTION AND TRADING, in all meetings, conferences and transactions exclusively for
the construction of the projects known as Package A-10 of Schedule A and Package No. B-11
Schedule B, which are 38.61% and 63.18% finished as of June 21, 2000, per attached
Accomplishment Reports x x x;
2. To implement, execute, administer and supervise the said projects in whatever stage they
are in as of to date, to collect checks and other payments due on said projects and act as the
Project Manager for E.M. PAULE CONSTRUCTION AND TRADING;
3. To do and perform such acts and things that may be necessary and required to make the
herein power and authority effective.[7]
At the pre-trial conference, the other parties were declared as in default and CRUZ was
allowed to present his evidence ex parte. Among the witnesses he presented was
MENDOZA, who was impleaded as defendant in PAULEs third-party complaint.
On March 6, 2003, MENDOZA filed a motion to declare third-party plaintiff PAULE non-suited
with prayer that she be allowed to present her evidence ex parte.
However, without resolving MENDOZAs motion to declare PAULE non-suited, and without
granting her the opportunity to present her evidence ex parte, the trial court rendered its
decision dated August 7, 2003, the dispositive portion of which states, as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:
1. Ordering defendant Paule to pay the plaintiff the sum of P726,000.00 by way of actual
damages or compensation for the services rendered by him;
2. Ordering defendant Paule to pay plaintiff the sum of P500,000.00 by way of moral
damages;
3. Ordering defendant Paule to pay plaintiff the sum of P50,000.00 by way of reasonable
attorneys fees;
4. Ordering defendant Paule to pay the costs of suit; and
5. Ordering defendant National Irrigation Administration (NIA) to withhold the balance still
due from it to defendant Paule/E.M. Paule Construction and Trading under NIA-CMIPP
Contract Package A-10 and to pay plaintiff therefrom to the extent of defendant Paules
liability herein adjudged.
SO ORDERED.[8]
In holding PAULE liable, the trial court found that MENDOZA was duly constituted as EMPCTs
agent for purposes of the NIA project and that MENDOZA validly contracted with CRUZ for
the rental of heavy equipment that was to be used therefor. It found unavailing PAULEs
assertion that MENDOZA merely borrowed and used his contractors license in exchange for a
consideration of 3% of the aggregate amount of the project. The trial court held that through
the SPAs he executed, PAULE clothed MENDOZA with apparent authority and held her out to
the public as his agent; as principal, PAULE must comply with the obligations which
MENDOZA contracted within the scope of her authority and for his benefit. Furthermore,
PAULE knew of the transactions which MENDOZA entered into since at various times when
she and CRUZ met at the EMPCT office, PAULE was present and offered no objections. The
trial court declared that it would be unfair to allow PAULE to enrich himself and disown his
acts at the expense of CRUZ.

PAULE and MENDOZA both appealed the trial courts decision to the Court of Appeals.
PAULE claimed that he did not receive a copy of the order of default; that it was improper for
MENDOZA, as third-party defendant, to have taken the stand as plaintiff CRUZs witness; and
that the trial court erred in finding that an agency was created between him and MENDOZA,
and that he was liable as principal thereunder.
On the other hand, MENDOZA argued that the trial court erred in deciding the case without
affording her the opportunity to present evidence on her cross-claim against PAULE; that, as
a result, her cross-claim against PAULE was not resolved, leaving her unable to collect the
amounts of P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the
unpaid costs of the project and the amount PAULE received in excess of payments made by
NIA.
On August 28, 2006, the Court of Appeals rendered the assailed Decision which dismissed
CRUZs complaint, as well as MENDOZAs appeal. The appellate court held that the SPAs
issued in MENDOZAs favor did not grant the latter the authority to enter into contract with
CRUZ for hauling services; the SPAs limit MENDOZAs authority to only represent EMPCT in its
business transactions with NIA, to participate in the bidding of the project, to receive and
collect payment in behalf of EMPCT, and to perform such acts as may be necessary and/or
required to make the said authority effective. Thus, the engagement of CRUZs hauling
services was done beyond the scope of MENDOZAs authority.
As for CRUZ, the Court of Appeals held that he knew the limits of MENDOZAs authority
under the SPAs yet he still transacted with her. Citing Manila Memorial Park Cemetery, Inc. v.
Linsangan,[9] the appellate court declared that the principal (PAULE) may not be bound by
the acts of the agent (MENDOZA) where the third person (CRUZ) transacting with the agent
knew that the latter was acting beyond the scope of her power or authority under the
agency.
With respect to MENDOZAs appeal, the Court of Appeals held that when the trial court
rendered judgment, not only did it rule on the plaintiffs complaint; in effect, it resolved the
third-party complaint as well; [10] that the trial court correctly dismissed the cross-claim and
did not unduly ignore or disregard it; that MENDOZA may not claim, on appeal, the amounts
of P3,018,864.04, P500,000.00, and P839,450.88 which allegedly represent the unpaid costs
of the project and the amount PAULE received in excess of payments made by NIA, as these
are not covered by her cross-claim in the court a quo, which seeks reimbursement only of
the amounts of P3 million and P1 million, respectively, for actual damages (debts to
suppliers, laborers, lessors of heavy equipment, lost personal property) and moral damages
she claims she suffered as a result of PAULEs revocation of the SPAs; and that the revocation
of the SPAs is a prerogative that is allowed to PAULE under Article 1920 [11] of the Civil Code.
CRUZ and MENDOZAs motions for reconsideration were denied; hence, these consolidated
petitions:
G.R. No. 175885 (MENDOZA PETITION)
a) The Court of Appeals erred in sustaining the trial courts failure to resolve her motion
praying that PAULE be declared non-suited on his third-party complaint, as well as her
motion seeking that she be allowed to present evidence ex parte on her cross-claim;
b) The Court of Appeals erred when it sanctioned the trial courts failure to resolve her cross-
claim against PAULE; and,
c) The Court of Appeals erred in its application of Article 1920 of the Civil Code, and in
adjudging that MENDOZA had no right to claim actual damages from PAULE for debts
incurred on account of the SPAs issued to her.
G.R. No. 176271 (CRUZ PETITION) 3. Ordering defendant Paule to pay plaintiff the sum of P520,000.00 by way of moral
damages, and further sum of P100,000.00 by way of exemplary damages;

CRUZ argues that the decision of the Court of Appeals is contrary to the provisions of law on
agency, and conflicts with the Resolution of the Court in G.R. No. 173275, which affirmed the 4. Ordering defendant Paule to pay plaintiff the sum of P25,000.00 as for attorneys fees; and
Court of Appeals decision in CA-G.R. CV No. 81175, finding the existence of an agency
relation and where PAULE was declared as MENDOZAs principal under the subject SPAs and,
thus, liable for obligations (unpaid construction materials, fuel and heavy equipment rentals) 5. To pay the cost of suit.[13]
incurred by the latter for the purpose of implementing and carrying out the NIA project
awarded to EMPCT.
PAULE appealed[14] the above decision, but it was dismissed by the Court of Appeals in a
Decision[15] which reads, in part:
CRUZ argues that MENDOZA was acting within the scope of her authority when she hired his
services as hauler of debris because the NIA project (both Packages A-10 and B-11 of the
NIA-CMIPP) consisted of construction of canal structures, which involved the clearing and As to the finding of the trial court that the principle of agency is applicable in this case, this
disposal of waste, acts that are necessary and incidental to PAULEs obligation under the NIA Court agrees therewith. It must be emphasized that appellant (PAULE) authorized appellee
project; and that the decision in a civil case involving the same SPAs, where PAULE was found (MENDOZA) to perform any and all acts necessary to make the business transaction of
liable as MENDOZAs principal already became final and executory; that in Civil Case No. 90- EMPCT with NIA effective. Needless to state, said business transaction pertained to the
SD filed by MENDOZA against PAULE,[12] the latter was adjudged liable to the former for construction of canal structures which necessitated the utilization of construction materials
unpaid rentals of heavy equipment and for construction materials which MENDOZA obtained and equipments. Having given said authority, appellant cannot be allowed to turn its back on
for use in the subject NIA project. On September 15, 2003, judgment was rendered in said the transactions entered into by appellee in behalf of EMPCT.
civil case against PAULE, to wit:

The amount of moral damages and attorneys fees awarded by the trial court being justifiable
WHEREFORE, judgment is hereby rendered in favor of the plaintiff (MENDOZA) and against and commensurate to the damage suffered by appellee, this Court shall not disturb the
the defendant (PAULE) as follows: same. It is well-settled that the award of damages as well as attorneys fees lies upon the
discretion of the court in the context of the facts and circumstances of each case.

1. Ordering defendant Paule to pay plaintiff the sum of P138,304.00 representing the
obligation incurred by the plaintiff with LGH Construction; WHEREFORE, the appeal is DISMISSED and the appealed Decision is AFFIRMED.

2. Ordering defendant Paule to pay plaintiff the sum of P200,000.00 representing the SO ORDERED.[16]
balance of the obligation incurred by the plaintiff with Artemio Alejandrino;
PAULE filed a petition to this Court docketed as G.R. No. 173275 but it was denied with
finality on September 13, 2006.
MENDOZA, for her part, claims that she has a right to be heard on her cause of action as
stated in her cross-claim against PAULE; that the trial courts failure to resolve the cross-claim
was a violation of her constitutional right to be apprised of the facts or the law on which the
trial courts decision is based; that PAULE may not revoke her appointment as attorney-in-fact
for and in behalf of EMPCT because, as manager of their partnership in the NIA project, she
was obligated to collect from NIA the funds to be used for the payment of suppliers and
contractors with whom she had earlier contracted for labor, materials and equipment.
PAULE, on the other hand, argues in his Comment that MENDOZAs authority under the SPAs
was for the limited purpose of securing the NIA project; that MENDOZA was not authorized
to contract with other parties with regard to the works and services required for the project,
such as CRUZs hauling services; that MENDOZA acted beyond her authority in contracting
with CRUZ, and PAULE, as principal, should not be made civilly liable to CRUZ under the
SPAs; and that MENDOZA has no cause of action against him for actual and moral damages
since the latter exceeded her authority under the agency.
We grant the consolidated petitions.
Records show that PAULE (or, more appropriately, EMPCT) and MENDOZA had entered into a
partnership in regard to the NIA project. PAULEs contribution thereto is his contractors
license and expertise, while MENDOZA would provide and secure the needed funds for
labor, materials and services; deal with the suppliers and sub-contractors; and in general and
together with PAULE, oversee the effective implementation of the project. For this, PAULE
would receive as his share three per cent (3%) of the project cost while the rest of the profits
shall go to MENDOZA. PAULE admits to this arrangement in all his pleadings. [17]
Although the SPAs limit MENDOZAs authority to such acts as representing EMPCT in its
business transactions with NIA, participating in the bidding of the project, receiving and
collecting payment in behalf of EMPCT, and performing other acts in furtherance thereof,
the evidence shows that when MENDOZA and CRUZ met and discussed (at the EMPCT office
in Bayuga, Muoz, Nueva Ecija) the lease of the latters heavy equipment for use in the
project, PAULE was present and interposed no objection to MENDOZAs actuations. In his
pleadings, PAULE does not even deny this. Quite the contrary, MENDOZAs actions were in
accord with what she and PAULE originally agreed upon, as to division of labor and
delineation of functions within their partnership. Under the Civil Code, every partner is an
agent of the partnership for the purpose of its business; [18] each one may separately execute
all acts of administration, unless a specification of their respective duties has been agreed
upon, or else it is stipulated that any one of them shall not act without the consent of all the
others.[19] At any rate, PAULE does not have any valid cause for opposition because his only
role in the partnership is to provide his contractors license and expertise, while the sourcing
of funds, materials, labor and equipment has been relegated to MENDOZA.
Moreover, it does not speak well for PAULE that he reinstated MENDOZA as his attorney-in-
fact, this time with broader powers to implement, execute, administer and supervise the NIA
project, to collect checks and other payments due on said project, and act as the Project
Manager for EMPCT, even after CRUZ has already filed his complaint. Despite knowledge
that he was already being sued on the SPAs, he proceeded to execute another in MENDOZAs
favor, and even granted her broader powers of administration than in those being sued
upon. If he truly believed that MENDOZA exceeded her authority with respect to the initial
SPA, then he would not have issued another SPA. If he thought that his trust had been
violated, then he should not have executed another SPA in favor of MENDOZA, much less
grant her broader authority.
Given the present factual milieu, CRUZ has a cause of action against PAULE and
MENDOZA. Thus, the Court of Appeals erred in dismissing CRUZs complaint on a finding of
exceeded agency. Besides, that PAULE could be held liable under the SPAs for transactions
entered into by MENDOZA with laborers, suppliers of materials and services for use in the
NIA project, has been settled with finality in G.R. No. 173275. What has been adjudged in
said case as regards the SPAs should be made to apply to the instant case. Although the said
case involves different parties and transactions, it finally disposed of the matter regarding
the SPAs specifically their effect as among PAULE, MENDOZA and third parties with whom
MENDOZA had contracted with by virtue of the SPAs a disposition that should apply to CRUZ
as well. If a particular point or question is in issue in the second action, and the judgment
will depend on the determination of that particular point or question, a former judgment Participation, 8 NE 2nd Series, 895, 1007). It contemplates a state of mind affirmatively
between the same parties or their privies will be final and conclusive in the second if that operating with furtive design or some motive of self-interest or ill will for ulterior purposes
same point or question was in issue and adjudicated in the first suit. Identity of cause of (Air France v. Carrascoso, 18 SCRA 155, 166-167). Evident bad faith connotes a manifest
action is not required but merely identity of issues. [20] deliberate intent on the part of the accused to do wrong or cause damage. [22]

There was no valid reason for PAULE to revoke MENDOZAs SPAs. Since MENDOZA took care
of the funding and sourcing of labor, materials and equipment for the project, it is only
Moreover, PAULE should be made civilly liable for abandoning the partnership, leaving
logical that she controls the finances, which means that the SPAs issued to her were
MENDOZA to fend for her own, and for unduly revoking her authority to collect payments
necessary for the proper performance of her role in the partnership, and to discharge the
from NIA, payments which were necessary for the settlement of obligations contracted for
obligations she had already contracted prior to revocation. Without the SPAs, she could not
and already owing to laborers and suppliers of materials and equipment like CRUZ, not to
collect from NIA, because as far as it is concerned, EMPCT and not the PAULE-MENDOZA
mention the agreed profits to be derived from the venture that are owing to MENDOZA by
partnership is the entity it had contracted with. Without these payments from NIA, there
reason of their partnership agreement. Thus, the trial court erred in disregarding and
would be no source of funds to complete the project and to pay off obligations incurred. As
dismissing MENDOZAs cross-claim which is properly a counterclaim, since it is a claim made
MENDOZA correctly argues, an agency cannot be revoked if a bilateral contract depends
by her as defendant in a third-party complaint against PAULE, just as the appellate court
upon it, or if it is the means of fulfilling an obligation already contracted, or if a partner is
erred in sustaining it on the justification that PAULEs revocation of the SPAs was within the
appointed manager of a partnership in the contract of partnership and his removal from the
bounds of his discretion under Article 1920 of the Civil Code.
management is unjustifiable.[21]

Where the defendant has interposed a counterclaim (whether compulsory or permissive) or

PAULEs revocation of the SPAs was done in evident bad faith. Admitting all throughout that
is seeking affirmative relief by a cross-complaint, the plaintiff cannot dismiss the action so as
his only entitlement in the partnership with MENDOZA is his 3% royalty for the use of his
to affect the right of the defendant in his counterclaim or prayer for affirmative relief. The
contractors license, he knew that the rest of the amounts collected from NIA was owing to
reason for that exception is clear. When the answer sets up an independent action against
MENDOZA and suppliers of materials and services, as well as the laborers. Yet, he
the plaintiff, it then becomes an action by the defendant against the plaintiff, and, of course,
deliberately revoked MENDOZAs authority such that the latter could no longer collect from
the plaintiff has no right to ask for a dismissal of the defendants action. The present rule
NIA the amounts necessary to proceed with the project and settle outstanding obligations.
embodied in Sections 2 and 3 of Rule 17 of the 1997 Rules of Civil Procedure ordains a more
equitable disposition of the counterclaims by ensuring that any judgment thereon is based
on the merit of the counterclaim itself and not on the survival of the main
From the way he conducted himself, PAULE committed a willful and deliberate breach of his
complaint. Certainly, if the counterclaim is palpably without merit or suffers jurisdictional
contractual duty to his partner and those with whom the partnership had contracted. Thus,
flaws which stand independent of the complaint, the trial court is not precluded from
PAULE should be made liable for moral damages.
dismissing it under the amended rules, provided that the judgment or order dismissing the
counterclaim is premised on those defects. At the same time, if the counterclaim is justified,
the amended rules now unequivocally protect such counterclaim from peremptory dismissal
Bad faith does not simply connote bad judgment or negligence; it imputes a dishonest by reason of the dismissal of the complaint. [23]
purpose or some moral obliquity and conscious doing of a wrong; a breach of a sworn duty
through some motive or intent or ill-will; it partakes of the nature of fraud (Spiegel v. Beacon
Notwithstanding the immutable character of PAULEs liability to MENDOZA, however, the
exact amount thereof is yet to be determined by the trial court, after receiving evidence for
and in behalf of MENDOZA on her counterclaim, which must be considered pending and
unresolved.

WHEREFORE, the petitions are GRANTED. The August 28, 2006 Decision of the Court of
Appeals in CA-G.R. CV No. 80819 dismissing the complaint in Civil Case No. 18-SD (2000) and
its December 11, 2006 Resolution denying the motion for reconsideration are REVERSED and
SET ASIDE. The August 7, 2003 Decision of the Regional Trial Court of Nueva Ecija, Branch 37
in Civil Case No. 18-SD (2000) finding PAULE liable is REINSTATED, with
the MODIFICATION that the trial court is ORDERED to receive evidence on the counterclaim
of petitioner Zenaida G. Mendoza.

SO ORDERED.
 Before us is a petition for review on certiorari[1] with prayer for preliminary injunction
assailing the Order[2] dated March 22, 2006 of the Regional Trial Court (RTC), Branch
THIRD DIVISION
19, Digos City, Davao del Sur, in Civil Case No. 3488.

G.R. No. 175910

The facts, as culled from the records, follow.

Present:
On February 14, 1995, a Decision was rendered in NLRC Case No. RAB-11-07-00608-93
entitled, Patricio Sereno v. Teodoro Gasing/Truck Operator, finding Sereno to have been
ATTY. ROGELIO E. SARSABA, illegally dismissed and ordering Gasing to pay him his monetary claims in the amount
YNARES-SANTIAGO, J., of P43,606.47. After the Writ of Execution was returned unsatisfied, Labor Arbiter Newton R.
Petitioner,
Chairperson, Sancho issued an Alias Writ of Execution[3] on June 10, 1996, directing Fulgencio R. Lavarez,
Sheriff II of the National Labor Relations Commission (NLRC), to satisfy the judgment
CHICO-NAZARIO, award. On July 23, 1996, Lavarez, accompanied by Sereno and his counsel, petitioner Atty.
VELASCO, JR., Rogelio E. Sarsaba, levied a Fuso Truck bearing License Plate No. LBR-514, which at that time
- versus - was in the possession of Gasing. On July 30, 1996, the truck was sold at public auction, with
NACHURA, and Sereno appearing as the highest bidder. [4]
PERALTA, JJ.

Meanwhile, respondent Fe Vda. de Te, represented by her attorney-in-fact, Faustino

FE VDA. DE TE, represented by her Attorney-in-
Castaeda, filed with the RTC, Branch 18, Digos, Davao del Sur, a Complaint [5] for recovery of
Fact, FAUSTINO CASTAEDA, Promulgated:
motor vehicle, damages with prayer for the delivery of the truck pendente liteagainst
Respondents. July 30, 2009 petitioner, Sereno, Lavarez and the NLRC of Davao City, docketed as Civil Case No. 3488.
x---------------------------------------------------x

Respondent alleged that: (1) she is the wife of the late Pedro Te, the registered owner of the
truck, as evidenced by the Official Receipt[6] and Certificate of Registration;[7] (2) Gasing
merely rented the truck from her; (3) Lavarez erroneously assumed that Gasing owned the
DECISION truck because he was, at the time of the taking, [8] in possession of the same; and (4) since
neither she nor her husband were parties to the labor case between Sereno and Gasing, she
should not be made to answer for the judgment award, much less be deprived of the truck
PERALTA, J.: as a consequence of the levy in execution.
Petitioner filed a Motion to Dismiss[9] on the following grounds: (1) respondent has no legal
personality to sue, having no real interests over the property subject of the instant
complaint; (2) the allegations in the complaint do not sufficiently state that the respondent
has cause of action; (3) the allegations in the complaint do not contain sufficient cause of
action as against him; and (4) the complaint is not accompanied by an Affidavit of Merit and
Bond that would entitle the respondent to the delivery of the tuck pendente lite.
The NLRC also filed a Motion to Dismiss [10] on the grounds of lack of jurisdiction and lack of
cause of action.
Meanwhile, Lavarez filed an Answer with Compulsory Counterclaim and Third-Party
Complaint.[11] By way of special and affirmative defenses, he asserted that the RTC does not
have jurisdiction over the subject matter and that the complaint does not state a cause of
action.
On January 21, 2000, the RTC issued an Order [12] denying petitioner's Motion to Dismiss for
lack of merit.
In his Answer,[13] petitioner denied the material allegations in the complaint. Specifically, he
cited as affirmative defenses that: respondent had no legal personality to sue, as she had no
interest over the motor vehicle; that there was no showing that the heirs have filed an
intestate estate proceedings of the estate of Pedro Te, or that respondent was duly
authorized by her co-heirs to file the case; and that the truck was already sold to Gasing on
March 11, 1986 by one Jesus Matias, who bought the same from the Spouses Te. Corollarily,
Gasing was already the lawful owner of the truck when it was levied on execution and, later
on, sold at public auction.
[14] [15]
Incidentally, Lavarez filed a Motion for Inhibition, which was opposed by respondent.
On October 13, 2000, RTC Branch 18 issued an Order [16] of inhibition and directed the
transfer of the records to Branch 19. RTC Branch 19, however, returned the records back to
Branch 18 in view of the appointment of a new judge in place of Judge-designate Rodolfo A.
Escovilla. Yet, Branch 19 issued another Order[17] dated November 22, 2000 retaining the
case in said branch.
Eventually, the RTC issued an Order[18] dated May 19, 2003 denying the separate motions to
dismiss filed by the NLRC and Lavarez, and setting the Pre-Trial Conference on July 25, 2003.
On October 17, 2005, petitioner filed an Omnibus Motion to Dismiss the Case on the
following grounds:[19] (1) lack of jurisdiction over one of the principal defendants; and (2) to
discharge respondent's attorney-in-fact for lack of legal personality to sue.
It appeared that the respondent, Fe Vda. de Te, died on April 12, 2005.[20]
Respondent, through her lawyer, Atty. William G. Carpentero, filed an Opposition,
[21]
contending that the failure to serve summons upon Sereno is not a ground for dismissing
the complaint, because the other defendants have already submitted their respective
responsive pleadings. He also contended that the defendants, including herein petitioner,
had previously filed separate motions to dismiss the complaint, which the RTC denied for
lack of merit. Moreover, respondent's death did not render functus officio her right to sue
since her attorney-in-fact, Faustino Castaeda, had long testified on the complaint on March
13, 1998 for and on her behalf and, accordingly, submitted documentary exhibits in support
of the complaint.
On March 22, 2006, the RTC issued the assailed Order [22] denying petitioner's aforesaid
motion.
Petitioner then filed a Motion for Reconsideration with Motion for Inhibition, [23] in which he
claimed that the judge who issued the Order was biased and partial. He went on to state
that the judge's husband was the defendant in a petition for judicial recognition of which he
was the counsel, docketed as Civil Case No. C-XXI-100, before the RTC, Branch 21,
Bansalan, Davao del Sur. Thus, propriety dictates that the judge should inhibit herself from Notably, the petition was filed directly from the RTC which issued the Order in the exercise
the case. of its original jurisdiction. The question before Us then is: whether or not petitioner correctly
availed of the mode of appeal under Rule 45 of the Rules of Court.

Acting on the motion for inhibition, Judge Carmelita Sarno-Davin granted the same [24] and
ordered that the case be re-raffled to Branch 18. Eventually, the said RTC issued an Significantly, the rule on appeals is outlined below, to wit: [28]
Order[25] on October 16, 2006 denying petitioner's motion for reconsideration for lack of
merit.
(1) In all cases decided by the RTC in the exercise of its original jurisdiction, appeal may be
Hence, petitioner directly sought recourse from the Court via the present petition involving
made to the Court of Appeals by mere notice of appeal where the appellant raises questions
pure questions of law, which he claimed were resolved by the RTC contrary to law, rules and
of fact or mixed questions of fact and law;
existing jurisprudence.[26]

(2) In all cases decided by the RTC in the exercise of its original jurisdiction where the
There is a question of law when the doubt or difference arises as to what the law is on
appellant raises only questions of law, the appeal must be taken to the Supreme Court on a
certain state of facts, and which does not call for an examination of the probative value of
petition for review on certiorari under Rule 45.
the evidence presented by the parties-litigants. On the other hand, there is a question of
fact when the doubt or controversy arises as to the truth or falsity of the alleged
facts. Simply put, when there is no dispute as to fact, the question of whether or not the
conclusion drawn therefrom is correct, is a question of law. [27] (3) All appeals from judgments rendered by the RTC in the exercise of its appellate
jurisdiction, regardless of whether the appellant raises questions of fact, questions of law, or
mixed questions of fact and law, shall be brought to the Court of Appeals by filing a petition
for review under Rule 42.
Verily, the issues raised by herein petitioner are questions of law, as their resolution rest
solely on what the law provides given the set of circumstances availing. The first issue
involves the jurisdiction of the court over the person of one of the defendants, who was not
served with summons on account of his death. The second issue, on the other hand, Accordingly, an appeal may be taken from the RTC which exercised its original jurisdiction,
pertains to the legal effect of death of the plaintiff during the pendency of the case. before the Court of Appeals or directly before this Court, provided that the subject of the
same is a judgment or final order that completely disposes of the case, or of a particular
matter therein when declared by the Rules to be appealable. [29] The first mode of appeal, to
be filed before the Court of Appeals, pertains to a writ of error under Section 2(a), Rule 41 of
At first brush, it may appear that since pure questions of law were raised, petitioner's resort
the Rules of Court, if questions of fact or questions of fact and law are raised or involved. On
to this Court was justified and the resolution of the aforementioned issues will necessarily
the other hand, the second mode is by way of an appeal by certiorari before the Supreme
follow. However, a perusal of the petition requires that certain procedural issues must
Court under Section 2(c), Rule 41, in relation to Rule 45, where only questions of law are
initially be resolved before We delve into the merits of the case.
raised or involved.[30]

An order or judgment of the RTC is deemed final when it finally disposes of a pending action,
so that nothing more can be done with it in the trial court. In other words, the order or
judgment ends the litigation in the lower court. [31] On the other hand, an order which does
not dispose of the case completely and indicates that other things remain to be done by the
court as regards the merits, is interlocutory. Interlocutory refers to something between the
commencement and the end of the suit which decides some point or matter, but is not a
final decision on the whole controversy.[32]
The subject of the present petition is an Order of the RTC, which denied petitioner's
Omnibus Motion to Dismiss, for lack of merit.
We have said time and again that an order denying a motion to dismiss is interlocutory.
[33]
Under Section 1(c), Rule 41 of the Rules of Court, an interlocutory order is not
appealable. As a remedy for the denial, a party has to file an answer and interpose as a
defense the objections raised in the motion, and then to proceed to trial; or, a party may
immediately avail of the remedy available to the aggrieved party by filing an appropriate
special civil action for certiorari under Rule 65 of the Revised Rules of Court. Let it be
stressed though that a petition for certiorari is appropriate only when an order has been
issued without or in excess of jurisdiction, or with grave abuse of discretion amounting to
lack or excess of jurisdiction.
Based on the foregoing, the Order of the RTC denying petitioner's Omnibus Motion to
Dismiss is not appealable even on pure questions of law. It is worth mentioning that the
proper procedure in this case, as enunciated by this Court, is to cite such interlocutory order
as an error in the appeal of the case -- in the event that the RTC rules in favor of respondent
-- and not to appeal such interlocutory order. On the other hand, if the petition is to be
treated as a petition for review under Rule 45, it would likewise fail because
the proper subject would only be judgments or final orders that completely dispose of the
case.[34]
Not being a proper subject of an appeal, the Order of the RTC is considered
interlocutory. Petitioner should have proceeded with the trial of the case and, should the
RTC eventually render an unfavorable verdict, petitioner should assail the said Order as part
of an appeal that may be taken from the final judgment to be rendered in this case. Such
rule is founded on considerations of orderly procedure, to forestall useless appeals and avoid
undue inconvenience to the appealing party by having to assail orders as they are
promulgated by the court, when all such orders may be contested in a single appeal.
In one case,[35] the Court adverted to the hazards of interlocutory appeals:
It is axiomatic that an interlocutory order cannot be challenged by an appeal. Thus, it has
been held that the proper remedy in such cases is an ordinary appeal from an adverse
judgment on the merits, incorporating in said appeal the grounds for assailing the
interlocutory order.Allowing appeals from interlocutory orders would result in the `sorry
spectacle of a case being subject of a counterproductive ping-pong to and from the
appellate court as often as a trial court is perceived to have made an error in any of its
interlocutory rulings. x x x.
Another recognized reason of the law in permitting appeal only from a final order or
judgment, and not from an interlocutory or incidental one, is to avoid multiplicity of appeals
in a single action, which must necessarily suspend the hearing and decision on the merits of
the case during the pendency of the appeal. If such appeal were allowed, trial on the merits
of the case would necessarily be delayed for a considerable length of time and compel the
adverse party to incur unnecessary expenses, for one of the parties may interpose as many
appeals as incidental questions may be raised by him, and interlocutory orders rendered or
issued by the lower court.[36]
And, even if We treat the petition to have been filed under Rule 65, the same is still
dismissible for violating the principle on hierarchy of courts. Generally, a direct resort to us in
a petition for certiorari is highly improper, for it violates the established policy of strict
observance of the judicial hierarchy of courts. [37] This principle, as a rule, requires that
recourse must first be made to the lower-ranked court exercising concurrent jurisdiction
with a higher court. However, the judicial hierarchy of courts is not an iron-clad rule. A strict
application of the rule is not necessary when cases brought
[38]
before the appellate courts do not involve factual but legal questions.
In the present case, petitioner submits pure questions of law involving the effect of non-
service of summons following the death of the person to whom it should be served, and the
effect of the death of the complainant during the pendency of the case. We deem it best to
rule on these issues, not only for the benefit of the bench and bar, but in order to prevent
further delay in the trial of the case. Resultantly, our relaxation of the policy of strict
observance of the judicial hierarchy of courts is warranted.
Anent the first issue, petitioner argues that, since Sereno died before summons was served
on him, the RTC should have dismissed the complaint against all the defendants and that the
same should be filed against his estate.
[39]
The Sheriff's Return of Service dated May 19, 1997 states that Sereno could not be served
with copy of the summons, together with a copy of the complaint, because he was already
dead.
In view of Sereno's death, petitioner asks that the complaint should be dismissed, not
only against Sereno, but as to all the defendants, considering that the RTC did not acquire
jurisdiction over the person of Sereno.
Jurisdiction over a party is acquired by service of summons by the sheriff, his deputy or other
proper court officer, either personally by handing
a copy thereof to the defendant or by substituted service.[40] On the other
hand, summons is a writ by which the defendant is notified of the action brought against
him. Service of such writ is the means by which the court may acquire jurisdiction over his
person.[41]
Records show that petitioner had filed a Motion to Dismiss on the grounds of lack of legal
personality of respondent; the allegations in the complaint did not sufficiently state that
respondent has a cause of action or a cause of action against the defendants; and, the
complaint was not accompanied by an affidavit of merit and bond. The RTC denied the
motion and held therein that, on the basis of the allegations of fact in the complaint, it can
render a valid judgment. Petitioner, subsequently, filed his answer by denying all the
material allegations of the complaint. And by way of special and affirmative defenses, he
reiterated that respondent had no legal personality to sue as she had no real interest over
the property and that while the truck was still registered in Pedro Te's name, the same was
already sold to Gasing.
Significantly, a motion to dismiss may be filed within the time for but before the filing of an
answer to the complaint or pleading asserting a claim.[42] Among the grounds mentioned is
the court's lack of jurisdiction over the person of the defending party.
As a rule, all defenses and objections not pleaded, either in a motion to dismiss or in an
answer, are deemed waived.[43] The exceptions to this rule are: (1) when the court has no
jurisdiction over the subject matter, (2) when there is another action pending between the
parties for the same cause, or (3) when the action is barred by prior judgment or by statute
of limitations, in which cases, the court may dismiss the claim.
In the case before Us, petitioner raises the issue of lack of jurisdiction over the person of
Sereno, not in his Motion to Dismiss or in his Answer but only in his Omnibus Motion to
Dismiss. Having failed to invoke this ground at the proper time, that is, in a motion to
dismiss, petitioner cannot raise it now for the first time on appeal.
In fine, We cannot countenance petitioner's argument that the complaint against the other
defendants should have been dismissed, considering that the RTC never acquired jurisdiction
over the person of Sereno. The court's failure to acquire jurisdiction over one's person is a
defense which is personal to the person claiming it. Obviously, it is now impossible for
Sereno to invoke the same in view of his death. Neither can petitioner invoke such ground,
on behalf of Sereno, so as to reap the benefit of having the case dismissed against all of the
defendants. Failure to serve summons on Sereno's person will not be a cause for the
dismissal of the complaint against the other defendants, considering that they have been
served with copies of the summons and complaints and have long submitted their respective
responsive pleadings. In fact, the other defendants in the complaint were given the chance
to raise all possible defenses and objections personal to them in their respective motions to
dismiss and their subsequent answers.
We agree with the RTC in its Order when it resolved the issue in this wise:
As correctly pointed by defendants, the Honorable Court has not acquired jurisdiction over
the person of Patricio Sereno since there was indeed no valid service of summons insofar as
Patricio Sereno is concerned. Patricio Sereno died before the summons, together with a copy
of the complaint and its annexes, could be served upon him.
However, the failure to effect service of summons unto Patricio Sereno, one of the
defendants herein does not render the action DISMISSIBLE, considering that the three (3)
other defendants, namely, Atty. Rogelio E. Sarsaba, Fulgencio Lavares and the NLRC, were
validly served with summons and the case with respect to the answering defendants may
still proceed independently. Be it recalled that the three (3) answering defendants have
previously filed a Motion to Dismiss the Complaint which was denied by the Court.
Hence, only the case against Patricio Sereno will be DISMISSED and the same may be filed as
a claim against the estate of Patricio Sereno, but the case with respect to the three (3) other
accused will proceed.
Anent the second issue, petitioner moves that respondent's attorney-in-fact, Faustino
Castaeda, be discharged as he has no more legal personality to sue on behalf of Fe Vda. de
Te, who passed away on April 12, 2005, during the pendency of the case before the RTC.
When a party to a pending action dies and the claim is not extinguished, the Rules of Court
require a substitution of the deceased. [44] Section 1, Rule 87 of the Rules of Court
enumerates the actions that survived and may be filed against the decedent's
representatives as follows: (1) actions to recover real or personal property or an interest
thereon, (2) actions to enforce liens thereon, and (3) actions to recover damages for an
injury to a person or a property. In such cases, a counsel is obliged to inform the court of the
death of his client and give the name and address of the latter's legal representative. [45]
The rule on substitution of parties is governed by Section 16, [46] Rule 3 of the 1997 Rules of
Civil Procedure, as amended.
Strictly speaking, the rule on substitution by heirs is not a matter of jurisdiction, but a
requirement of due process. The rule on substitution was crafted to protect every party's
right to due process. It was designed to ensure that the deceased party would continue to
be properly represented in the suit through his heirs or the duly appointed legal
representative of his estate. Moreover, non-compliance with the Rules results in the denial
of the right to due process for the heirs who, though not duly notified of the proceedings,
would be substantially affected by the decision rendered therein. Thus, it is only when there
is a denial of due process, as when the deceased is not represented by any legal
representative or heir, that the court nullifies the trial proceedings and the resulting
judgment therein.[47]
In the case before Us, it appears that respondent's counsel did not make any manifestation
before the RTC as to her death. In fact, he had actively participated in the
proceedings. Neither had he shown any proof that he had been retained by respondent's
legal representative or any one who succeeded her.
However, such failure of counsel would not lead Us to invalidate the proceedings that have
long taken place before the RTC. The Court has repeatedly declared that failure of the
counsel to comply with his duty to inform the court of the death of his client, such that no
substitution is effected, will not invalidate the proceedings and the judgment rendered
thereon if the action survives the death of such party. The trial court's jurisdiction over the
case subsists despite the death of the party. [48]
The purpose behind this rule is the protection of the right to due process of every party to
the litigation who may be affected by the intervening death. The deceased litigants are
themselves protected as they continue to be properly represented in the suit through the
duly appointed legal representative of their estate. [49]
Anent the claim of petitioner that the special power of attorney [50] dated March 4,
1997 executed by respondent in favor of Faustino has become functus officio and that the
agency constituted between them has been extinguished upon the death of respondent,
corollarily, he had no more personality to appear and prosecute the case on her behalf.
Agency is extinguished by the death of the principal. [51] The only exception where the agency
shall remain in full force and effect even after the death of the principal is when if it has
been constituted in the common interest of the latter and of the agent, or in the interest of a
third person who has accepted the stipulation in his favor. [52]
A perusal of the special power of attorney leads us to conclude that it was constituted for
the benefit solely of the principal or for respondent Fe Vda. de Te. Nowhere can we infer
from the stipulations therein that it was created for the common interest of respondent and
her attorney-in-fact. Neither was there any mention that it was to benefit a third person who
has accepted the stipulation in his favor.
On this ground, We agree with petitioner. However, We do not believe that such ground
would cause the dismissal of the complaint.For as We have said, Civil Case No. 3488, which is
an action for the recovery of a personal property, a motor vehicle, is an action that survives
pursuant to Section 1, Rule 87 of the Rules of Court. As such, it is not extinguished by the
death of a party.
In Gonzalez v. Philippine Amusement and Gaming Corporation,[53] We have laid down the
criteria for determining whether an action survives the death of a plaintiff or petitioner, to
wit:
x x x The question as to whether an action survives or not depends on the nature of the
action and the damage sued for. If the causes of action which survive the wrong complained
[of] affects primarily and principally property and property rights, the injuries to the person
being merely incidental, while in the causes of action which do not survive the injury
complained of is to the person the property and rights of property affected being incidental.
xxx
Thus, the RTC aptly resolved the second issue with the following ratiocination:
While it may be true as alleged by defendants that with the death of Plaintiff, Fe Vda. de Te,
the Special Power of Attorney she executed empowering the Attorney-in-fact, Faustino
Castaeda to sue in her behalf has been rendered functus officio, however, this Court believes
that the Attorney-in-fact had not lost his personality to prosecute this case.
It bears stressing that when this case was initiated/filed by the Attorney-in-fact, the plaintiff
was still very much alive.
Records reveal that the Attorney-in-fact has testified long before in behalf of the said plaintiff
and more particularly during the state when the plaintiff was vehemently opposing the
dismissal of the complainant. Subsequently thereto, he even offered documentary evidence
in support of the complaint, and this court admitted the same. When this case was initiated,
jurisdiction was vested upon this Court to try and hear the same to the end. Well-settled is
the rule to the point of being elementary that once jurisdiction is acquired by this Court, it
attaches until the case is decided.
Thus, the proper remedy here is the Substitution of Heirs and not the dismissal of this case
which would work injustice to the plaintiff.
SEC. 16, RULE 3 provides for the substitution of the plaintiff who dies pending hearing of the
case by his/her legal heirs. As to whether or not the heirs will still continue to engage the
services of the Attorney-in-fact is another matter, which lies within the sole discretion of the
heirs.
 WHEREFORE, premises considered, the Petition is DENIED. The Order dated March 22,
2006 of the Regional Trial Court, Branch 19, Digos, Davao del Sur in Civil Case No. 3488, is
hereby AFFIRMED. Costs against the petitioner.
In fine, We hold that the petition should be denied as the RTC Order is interlocutory; hence,
not a proper subject of an appeal before the Court. In the same breath, We also hold that, if
the petition is to be treated as a petition for certiorari as a relaxation of the judicial hierarchy SO ORDERED.
of courts, the same is also dismissible for being substantially insufficient to warrant the Court
the nullification of the Order of the RTC.

Let this be an occasion for Us to reiterate that the rules are there to aid litigants in
prosecuting or defending their cases before the courts. However, these very rules should not
be abused so as to advance one's personal purposes, to the detriment of orderly
administration of justice. We can surmise from the present case herein petitioner's
manipulation in order to circumvent the rule on modes of appeal and the hierarchy of courts
so that the issues presented herein could be settled without going through the established
procedures. In Vergara, Sr. v. Suelto,[54] We stressed that this should be the constant policy
that must be observed strictly by the courts and lawyers, thus:

x x x. The Supreme Court is a court of last resort, and must so remain if it is to satisfactorily
perform the functions assigned to it by the fundamental charter and immemorial
tradition. It cannot and should not be burdened with the task of dealing with causes in the
first instance. Its original jurisdiction to issue the so-called extraordinary writs should be
exercised only where absolutely necessary or where serious and important reasons exist
therefor. Hence, that jurisdiction should generally be exercised relative to actions or
proceedings before the Court of Appeals, or before constitutional or other tribunals, bodies
or agencies whose acts for some reason or another are not controllable by the Court of
Appeals. Where the issuance of an extraordinary writ is also within the competence of the
Court of Appeals or a Regional Trial Court, it is in either of these courts that the specific
action for the writs procurement must be presented. This is and should continue to be the
policy in this regard, a policy that courts and lawyers must strictly observe. [55]
EN BANC
[G.R. No. 144516. February 11, 2004]
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COMMISSION ON
AUDIT, respondent.
DECISION
CARPIO, J.:
The Case
In this special civil action for certiorari,[1] the Development Bank of the Philippines (DBP)
seeks to set aside COA Decision No. 98-403 [2]dated 6 October 1998 (COA Decision) and COA
Resolution No. 2000-212[3] dated 1 August 2000 issued by the Commission on Audit
(COA). The COA affirmed Audit Observation Memorandum (AOM) No. 93-2, [4] which
disallowed in audit the dividends distributed under the Special Loan Program (SLP) to the
members of the DBP Gratuity Plan.
Antecedent Facts
The DBP is a government financial institution with an original charter, Executive Order No.
81,[5] as amended by Republic Act No. 8523 [6] (DBP Charter). The COA is a constitutional body
with the mandate to examine and audit all government instrumentalities and investment of
public funds.[7]
The COA Decision sets forth the undisputed facts of this case as follows:
xxx [O]n February 20, 1980, the Development Bank of the Philippines (DBP) Board of
Governors adopted Resolution No. 794 creating the DBP Gratuity Plan and authorizing the
setting up of a retirement fund to cover the benefits due to DBP retiring officials and
employees under Commonwealth Act No. 186, as amended. The Gratuity Plan was made
effective on June 17, 1967 and covered all employees of the Bank as of May 31, 1977.
On February 26, 1980, a Trust Indenture was entered into by and between the DBP and the
Board of Trustees of the Gratuity Plan Fund, vesting in the latter the control and
administration of the Fund. The trustee, subsequently, appointed the DBP Trust Services
Department (DBP-TSD) as the investment manager thru an Investment Management
Agreement, with the end in view of making the income and principal of the Fund sufficient
to meet the liabilities of DBP under the Gratuity Plan.
In 1983, the Bank established a Special Loan Program availed thru the facilities of the DBP
Provident Fund and funded by placements from the Gratuity Plan Fund. This Special Loan
Program was adopted as part of the benefit program of the Bank to provide financial
assistance to qualified members to enhance and protect the value of their gratuity benefits
because Philippine retirement laws and the Gratuity Plan do not allow partial payment of
retirement benefits. The program was suspended in 1986 but was revived in 1991 thru DBP
Board Resolution No. 066 dated January 5, 1991.
Under the Special Loan Program, a prospective retiree is allowed the option to utilize in the
form of a loan a portion of his outstanding equity in the gratuity fund and to invest it in a
profitable investment or undertaking. The earnings of the investment shall then be applied
to pay for the interest due on the gratuity loan which was initially set at 9% per annum
subject to the minimum investment rate resulting from the updated actuarial study. The
excess or balance of the interest earnings shall then be distributed to the investor-members.
Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total
of P11,626,414.25 representing the net earnings of the investments for the years 1991 and
1992. The payments were disallowed by the Auditor under Audit Observation Memorandum
No. 93-2 dated March 1, 1993, on the ground that the distribution of income of the Gratuity
Plan Fund (GPF) to future retirees of DBP is irregular and constituted the use of public funds
for private purposes which is specifically proscribed under Section 4 of P.D. 1445. [8]
AOM No. 93-2 did not question the authority of the Bank to set-up the [Gratuity Plan] Fund
and have it invested in the Trust Services Department of the Bank. [9] Apart from requiring the
recipients of the P11,626,414.25 to refund their dividends, the Auditor recommended that
the DBP record in its books as miscellaneous income the income of the Gratuity Plan Fund
(Fund). The Auditor reasoned that the Fund is still owned by the Bank, the Board of Trustees
is a mere administrator of the Fund in the same way that the Trust Services Department
where the fund was invested was a mere investor and neither can the employees, who have
still an inchoate interest [i]n the Fund be considered as rightful owner of the Fund. [10]
In a letter dated 29 July 1996, [11] former DBP Chairman Alfredo C. Antonio requested then
COA Chairman Celso D. Gangan to reconsider AOM No. 93-2. Chairman Antonio alleged that
the express trust created for the benefit of qualified DBP employees under the Trust
Agreement[12] (Agreement) dated 26 February 1980 gave the Fund a separate legal
personality. The Agreement transferred legal title over the Fund to the Board of Trustees and
all earnings of the Fund accrue only to the Fund. Thus, Chairman Antonio contended that
the income of the Fund is not the income of DBP.
Chairman Antonio also asked COA to lift the disallowance of the P11,626,414.25 distributed the gratuity benefits, and this has the same effect as the proscribed supplementary
as dividends under the SLP on the ground that the latter was simply a normal loan pension/retirement plan under Section 28 (b) of C(ommonwealth) A(ct) 186.
transaction. He compared the SLP to loans granted by other gratuity and retirement funds,
This Commission may now draw authority from the case of Conte, et al. v. Commission on
like the GSIS, SSS and DBP Provident Fund.
Audit (264 SCRA 19 [1996]) where the Supreme Court declared that financial assistance
The Ruling of the Commission on Audit granted to retiring employees constitute supplementary retirement or pension benefits. It
was there stated:
On 6 October 1998, the COA en banc affirmed AOM No. 93-2, as follows:
xxx Said Sec. 28 (b) as amended by R.A. 4968 in no uncertain terms bars the creation of any
The Gratuity Plan Fund is supposed to be accorded separate personality under the
insurance or retirement plan other than the GSIS for government officers and employees, in
administration of the Board of Trustees but that concept has been effectively eliminated
order to prevent the undue and iniquitous proliferation of such plans. It is beyond cavil that
when the Special Loan Program was adopted. xxx
Res. 56 contravenes the said provision of law and is therefore, invalid, void and of no
The Special Loan Program earns for the GPF an interest of 9% per annum, subject to effect. To ignore this and rule otherwise would be tantamount to permitting every other
adjustment after actuarial valuation. The investment scheme managed by the TSD government office or agency to put up its own supplementary retirement benefit plan under
accumulated more than that as evidenced by the payment of P4,568,971.84 in 1991 the guise of such financial assistance.[15]
and P7,057,442,41 in 1992, to the member-borrowers. In effect, the program is grossly
Hence, the instant petition filed by DBP.
disadvantageous to the government because it deprived the GPF of higher investment
earnings by the unwarranted entanglement of its resources under the loan program in the The Issues
guise of giving financial assistance to the availing employees. xxx
The DBP invokes justice and equity on behalf of its employees because of prevailing
Retirement benefits may only be availed of upon retirement. It can only be demanded and economic conditions. The DBP reiterates that the income of the Fund should be treated and
enjoyed when the employee shall have met the last requisite, that is, actual retirement recorded as separate from the income of DBP itself, and charges that COA committed grave
under the Gratuity Plan. During employment, the prospective retiree shall only have an abuse of discretion:
inchoate right over the benefits. There can be no partial payment or enjoyment of the
1. IN CONCLUDING THAT THE ADOPTION OF THE SPECIAL LOAN PROGRAM CONSTITUTES A
benefits, in whatever guise, before actual retirement. xxx
CIRCUMVENTION OF PHILIPPINE RETIREMENT LAWS;
PREMISES CONSIDERED, the instant request for reconsideration of the disallowance
2. IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM IS GROSSLY DISADVANTAGEOUS TO
amounting to P11,626,414.25 has to be, as it is hereby, denied. [13]
THE GOVERNMENT;
In its Resolution of 1 August 2000, the COA also denied DBPs second motion for
3. IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM CONSTITUTES A SUPPLEMENTARY
reconsideration. Citing the Courts ruling in Conte v. COA,[14] the COA concluded that the SLP
RETIREMENT BENEFIT.[16]
was actually a supplementary retirement benefit in the guise of financial assistance, thus:
The Office of the Solicitor General (OSG), arguing on behalf of the COA, questions the
At any rate, the Special Loan Program is not just an ordinary and regular transaction of the
standing of the DBP to file the instant petition.The OSG claims that the trustees of the Fund
Gratuity Plan Fund, as the Bank innocently represents. xxx It is a systematic investment mix
or the DBP employees themselves should pursue this certiorari proceeding since they would
conveniently implemented in a special loan program with the least participation of the
be the ones to return the dividends and not DBP.
beneficiaries, by merely filing an application and then wait for the distribution of net
earnings. The real objective, of course, is to give financial assistance to augment the value of
The central issues for resolution are: (1) whether DBP has the requisite standing to file the
instant petition for certiorari; (2) whether the income of the Fund is income of DBP; and (3)
whether the distribution of dividends under the SLP is valid.
The Ruling of the Court
The petition is partly meritorious.
The standing of DBP to file this petition for certiorari
As DBP correctly argued, the COA en banc implicitly recognized DBPs standing when it ruled
on DBPs request for reconsideration from AOM No. 93-2 and motion for reconsideration
from the Decision of 6 October 1998. The supposed lack of standing of the DBP was not even
an issue in the COA Decision or in the Resolution of 1 August 2000.
The OSG nevertheless contends that the DBP cannot question the decisions of the COA en
banc since DBP is a government instrumentality. Citing Section 2, Article IX-D of the
Constitution,[17] the OSG argued that:
Petitioner may ask the lifting of the disallowance by COA, since COA had not yet made a
definitive and final ruling on the matter in issue. But after COA denied with finality the
motion for reconsideration of petitioner, petitioner, being a government instrumentality,
should accept COAs ruling and leave the matter of questioning COAs decision with the
concerned investor-members.[18]
These arguments do not persuade us.
Section 2, Article IX-D of the Constitution does not bar government instrumentalities from
questioning decisions of the COA.Government agencies and government-owned and
controlled corporations have long resorted to petitions for certiorari to question rulings of
the COA.[19] These government entities filed their petitions with this Court pursuant to
Section 7, Article IX of the Constitution, which mandates that aggrieved parties may bring
decisions of the COA to the Court on certiorari.[20] Likewise, the Government Auditing Code
expressly provides that a government agency aggrieved by a COA decision, order or ruling
may raise the controversy to the Supreme Court on certiorari in the manner provided by law
and the Rules of Court.[21] Rule 64 of the Rules of Court now embodies this procedure, to wit:
SEC 2. Mode of review. A judgment or final order or resolution of the Commission on
Elections and the Commission on Audit may be brought by the aggrieved party to the
Supreme Court on certiorari under Rule 65, except as hereinafter provided.
The novel theory advanced by the OSG would necessarily require persons not parties to the
present case the DBP employees who are members of the Plan or the trustees of the Fund to
avail of certiorari under Rule 65. The petition for certiorari under Rule 65, however, is not
available to any person who feels injured by the decision of a tribunal, board or officer
exercising judicial or quasi-judicial functions. The person aggrieved under Section 1 of Rule
65 who can avail of the special civil action of certiorari pertains only to one who was a party
in the proceedings before the court a quo,[22] or in this case, before the COA. To hold
otherwise would open the courts to numerous and endless litigations. [23] Since DBP was the
sole party in the proceedings before the COA, DBP is the proper party to avail of the remedy
of certiorari.
The real party in interest who stands to benefit or suffer from the judgment in the suit must
prosecute or defend an action.[24] We have held that interest means material interest, an
interest in issue that the decision will affect, as distinguished from mere interest in the
question involved, or a mere incidental interest. [25]
As a party to the Agreement and a trustor of the Fund, DBP has a material interest in the
implementation of the Agreement, and in the operation of the Gratuity Plan and the Fund as
prescribed in the Agreement. The DBP also possesses a real interest in upholding the
legitimacy of the policies and programs approved by its Board of Directors for the benefit of
DBP employees. This includes the SLP and its implementing rules, which the DBP Board of
Directors confirmed.
The income of the Gratuity Plan Fund
The COA alleges that DBP is the actual owner of the Fund and its income, on the following
grounds: (1) DBP made the contributions to the Fund; (2) the trustees of the Fund are
merely administrators; and (3) DBP employees only have an inchoate right to the Fund.
The DBP counters that the Fund is the subject of a trust, and that the Agreement transferred
legal title over the Fund to the trustees.The income of the Fund does not accrue to DBP.
Thus, such income should not be recorded in DBPs books of account. [26]
A trust is a fiduciary relationship with respect to property which involves the existence of
equitable duties imposed upon the holder of the title to the property to deal with it for the
benefit of another.[27] A trust is either express or implied. Express trusts are those which the
direct and positive acts of the parties create, by some writing or deed, or will, or by words
evincing an intention to create a trust.[28]
In the present case, the DBP Board of Governors (now Board of Directors) Resolution No.
794 and the Agreement executed by former DBP Chairman Rafael Sison and the trustees of
the Plan created an express trust, specifically, an employees trust. An employees trust is a
trust maintained by an employer to provide retirement, pension or other benefits to its
employees.[29] It is a separate taxable entity[30]established for the exclusive benefit of the
employees.[31]
Resolution No. 794 shows that DBP intended to establish a trust fund to cover the
retirement benefits of certain employees under Republic Act No. 1616 [32] (RA 1616). The
principal and income of the Fund would be separate and distinct from the funds of DBP. We
quote the salient portions of Resolution No. 794, as follows:
2. Trust Agreement designed for in-house trustees of three (3) to be appointed by the Board
of Governors and vested with control and administration of the funds appropriated annually
by the Board to be invested in selective investments so that the income and principal of said
contributions would be sufficient to meet the required payments of benefits as officials
and employees of the Bank retire under the Gratuity Plan; xxx
The proposed funding of the gratuity plan has decided advantages on the part of the Bank
over the present procedure, where the Bank provides payment only when an employee
retires or on pay as you go basis:
1. It is a definite written program, permanent and continuing whereby the Bank provides
contributions to a separate trust fund, which shall be exclusively used to meet its liabilities
to retiring officials and employees; and
2. Since the gratuity plan will be tax qualified under the National Internal Revenue Code and
RA 4917, the Banks periodic contributions thereto shall be deductible for tax purposes and
the earnings therefrom tax free.[33] (Emphasis supplied)
In a trust, one person has an equitable ownership in the property while another person
owns the legal title to such property, the equitable ownership of the former entitling him to
the performance of certain duties and the exercise of certain powers by the latter. [34] A
person who establishes a trust is the trustor. One in whom confidence is reposed as regards
property for the benefit of another is the trustee. The person for whose benefit the trust is
created is the beneficiary.[35]
In the present case, DBP, as the trustor, vested in the trustees of the Fund legal title over the
Fund as well as control over the investment of the money and assets of the Fund. The
powers and duties granted to the trustees of the Fund under the Agreement were plainly
more than just administrative, to wit:
1. The BANK hereby vests the control and administration of the Fund in the TRUSTEES for
the accomplishment of the purposes for which said Fund is intended in defraying the
benefits of the PLAN in accordance with its provisions, and the TRUSTEES hereby accept the
trust xxx
2. The TRUSTEES shall receive and hold legal title to the money and/or property
comprising the Fund, and shall hold the same in trust for its beneficiaries, in accordance
with, and for the uses and purposes stated in the provisions of the PLAN.
3. Without in any sense limiting the general powers of management and administration
given to TRUSTEES by our laws and as supplementary thereto, the TRUSTEES shall manage,
administer, and maintain the Fund with full power and authority:
xxx
b. To invest and reinvest at any time all or any part of the Fund in any real estate (situated
within the Philippines), housing project, stocks, bonds, mortgages, notes, other securities or
property which the said TRUSTEES may deem safe and proper, and to collect and receive all
income and profits existing therefrom;
c. To keep and maintain accurate books of account and/or records of the Fund xxx.
d. To pay all costs, expenses, and charges incurred in connection with the administration,
preservation, maintenance and protection of the Fund xxx to employ or appoint such agents
or employees xxx.
e. To promulgate, from time to time, such rules not inconsistent with the conditions of this
Agreement xxx.
f. To do all acts which, in their judgment, are needful or desirable for the proper and
advantageous control and management of the Fundxxx.[36] (Emphasis supplied)
Clearly, the trustees received and collected any income and profit derived from the Fund,
and they maintained separate books of account for this purpose. The principal and income
of the Fund will not revert to DBP even if the trust is subsequently modified or
terminated. The Agreement states that the principal and income must be used to satisfy all
of the liabilities to the beneficiary officials and employees under the Gratuity Plan, as
follows:
5. The BANK reserves the right at any time and from time to time (1) to modify or amend in
whole or in part by written directions to the TRUSTEES, any and all of the provisions of this
Trust Agreement, or (2) to terminate this Trust Agreement upon thirty (30) days prior notice
in writing to the TRUSTEES; provided, however, that no modification or amendment which
affects the rights, duties, or responsibilities of the TRUSTEES may be made without the
TRUSTEES consent; and provided, that such termination, modification, or amendment prior
to the satisfaction of all liabilities with respect to eligible employees and their
beneficiaries, does not permit any part of the corpus or income of the Fund to be used for,
or diverted to, purposes other than for the exclusive benefit of eligible employees and
workers as provided for in the PLAN. In the event of termination of this Trust Agreement, all
cash, securities, and other property then constituting the Fund less any amounts constituting
accrued benefits to the eligible employees, charges and expenses payable from the Fund,
shall be paid over or delivered by the TRUSTEES to the members in proportion to their
accrued benefits.[37] (Emphasis supplied)
The resumption of the SLP did not eliminate the trust or terminate the transfer of legal title
to the Funds trustees. The records show that the Funds Board of Trustees approved the SLP
upon the request of the DBP Career Officials Association. [38] The DBP Board of Directors only
confirmed the approval of the SLP by the Funds trustees.
The beneficiaries or cestui que trust of the Fund are the DBP officials and employees who
will retire under Commonwealth Act No. 186[39] (CA 186), as amended by RA 1616. RA 1616
requires the employer agency or government instrumentality to pay for the retirement
gratuity of its employees who rendered service for the required number of years. [40] The
Government Service Insurance System Act of 1997 [41] still allows retirement under RA 1616
for certain employees.
As COA correctly observed, the right of the employees to claim their gratuities from the Fund
is still inchoate. RA 1616 does not allow employees to receive their gratuities until they
retire. However, this does not invalidate the trust created by DBP or the concomitant
transfer of legal title to the trustees. As far back as in Government v. Abadilla,[42] the Court
held that it is not always necessary that the cestui que trust should be named, or even be in
esse at the time the trust is created in his favor. It is enough that the beneficiaries are
sufficiently certain or identifiable.[43]
In this case, the GSIS Act of 1997 extended the option to retire under RA 1616 only to
employees who had entered government service before 1 June 1977. [44] The DBP employees
who were in the service before this date are easily identifiable. As of the time DBP filed the
instant petition, DBP estimated that 530 of its employees could still retire under RA 1616. At
least 60 DBP employees had already received their gratuities under the Fund. [45]
The Agreement indisputably transferred legal title over the income and properties of the
Fund to the Funds trustees. Thus, COAs directive to record the income of the Fund in DBPs
books of account as the miscellaneous income of DBP constitutes grave abuse of
discretion. The income of the Fund does not form part of the revenues or profits of DBP, and
DBP may not use such income for its own benefit. The principal and income of the Fund
together constitute the res or subject matter of the trust. The Agreement established the
Fund precisely so that it would eventually be sufficient to pay for the retirement benefits of
DBP employees under RA 1616 without additional outlay from DBP. COA itself acknowledged
the authority of DBP to set up the Fund. However, COAs subsequent directive would divest
the Fund of income, and defeat the purpose for the Funds creation.
The validity of the Special Loan Program
and the disallowance of P11,626,414.25
In disallowing the P11,626,414.25 distributed as dividends under the SLP, the COA relied
primarily on Republic Act No. 4968 (RA 4968) which took effect on 17 June 1967. RA 4968
added the following paragraph to Section 28 of CA 186, thus:
(b) Hereafter no insurance or retirement plan for officers or employees shall be created by
any employer. All supplementary retirement or pension plans heretofore in force in any
government office, agency, or instrumentality or corporation owned or controlled by the
government, are hereby declared inoperative or abolished: Provided, That the rights of those
who are already eligible to retire thereunder shall not be affected.
Even assuming, however, that the SLP constitutes a supplementary retirement plan, RA 4968
does not apply to the case at bar. The DBP Charter, which took effect on 14 February 1986,
expressly authorizes supplementary retirement plans adopted by and effective in DBP, thus:
SEC. 34. Separation Benefits. All those who shall retire from the service or are separated
therefrom on account of the reorganization of the Bank under the provisions of this
Charter shall be entitled to all gratuities and benefits provided for under existing laws
and/or supplementary retirement plans adopted by and effective in the Bank: Provided,
that any separation benefits and incentives which may be granted by the Bank subsequent
to June 1, 1986, which may be in addition to those provided under existing laws and
previous retirement programs of the Bank prior to the said date, for those personnel
referred to in this section shall be funded by the National Government; Provided, further,
that, any supplementary retirement plan adopted by the Bank after the effectivity of this laudable reasons, to address the concerns of DBP employees on the devaluation of their
Chapter shall require the prior approval of the Minister of Finance. retirement benefits. The remaining question is whether RA 1616 and the Gratuity Plan allow
this scheme.
xxx.
We rule that it is not allowed.
SEC. 37. Repealing Clause. All acts, executive orders, administrative orders, proclamations,
rules and regulations or parts thereof inconsistent with any of the provisions of this charter The right to retirement benefits accrues only upon certain prerequisites. First, the conditions
are hereby repealed or modified accordingly. [46] (Emphasis supplied) imposed by the applicable law in this case, RA 1616 must be fulfilled. [51] Second, there must
be actual retirement.[52] Retirement means there is a bilateral act of the parties, a voluntary
Being a special and later law, the DBP Charter[47] prevails over RA 4968. The DBP originally
agreement between the employer and the employees whereby the latter after reaching a
adopted the SLP in 1983. The Court cannot strike down the SLP now based on RA 4968 in
certain age agrees and/or consents to severe his employment with the former.[53]
view of the subsequent DBP Charter authorizing the SLP.
Severance of employment is a condition sine qua non for the release of retirement benefits.
Nevertheless, the Court upholds the COAs disallowance of the P11,626,414.25 in dividends
Retirement benefits are not meant to recompense employees who are still in the employ of
distributed under the SLP.
the government. That is the function of salaries and other emoluments. [54] Retirement
According to DBP Board Resolution No. 0036 dated 25 January 1991, the SLP allows a benefits are in the nature of a reward granted by the State to a government employee who
prospective retiree to utilize in the form of a loan, a portion of their outstanding equity in has given the best years of his life to the service of his country. [55]
the Gratuity Plan Fund and to invest [the] proceeds in a profitable investment or
The Gratuity Plan likewise provides that the gratuity benefit of a qualified DBP employee
undertaking.[48]The basis of the loanable amount was an employees gratuity fund credit,
[49]
shall only be released upon retirement under th(e) Plan. [56] As the COA correctly pointed out,
that is to say, what an employee would receive if he retired at the time he availed of the
this means that retirement benefits can only be demanded and enjoyed when the employee
loan.
shall have met the last requisite, that is, actual retirement under the Gratuity Plan. [57]
In his letter dated 26 October 1983 proposing the confirmation of the SLP, then DBP
There was thus no basis for the loans granted to DBP employees under the SLP. The rights of
Chairman Cesar B. Zalamea stated that:
the recipient DBP employees to their retirement gratuities were still inchoate, if not a mere
The primary objective of this proposal therefore is to counteract the unavoidable decrease in expectancy, when they availed of the SLP. No portion of their retirement benefits could be
the value of the said retirement benefits through the following scheme: considered as actually earned or outstanding before retirement. Prior to retirement, an
employee who has served the requisite number of years is only eligible for, but not yet
I. To allow a prospective retiree the option to utilize in the form of a loan, a portion of his entitled to, retirement benefits.
standing equity in the Gratuity Fund and to invest it in a profitable investment or
undertaking. The income or appreciation in value will be for his own account and should The DBP contends that the SLP is merely a normal loan transaction, akin to the loans granted
provide him the desired hedge against inflation or erosion in the value of the peso. This is by the GSIS, SSS and the DBP Provident Fund.
being proposed since Philippine retirement laws and the Gratuity Plan do not allow partial
The records show otherwise.
payment of retirement benefits, even the portion already earned, ahead of actual
retirement.[50] (Emphasis supplied) In a loan transaction or mutuum, the borrower or debtor acquires ownership of the amount
borrowed.[58] As the owner, the debtor is then free to dispose of or to utilize the sum he
As Chairman Zalamea himself noted, neither the Gratuity Plan nor our laws on retirement
loaned,[59] subject to the condition that he should later return the amount with the
allow the partial payment of retirement benefits ahead of actual retirement. It appears that
stipulated interest to the creditor. [60]
DBP sought to circumvent these restrictions through the SLP, which released a portion of an
employees retirement benefits to him in the form of a loan. Certainly, the DBP did this for
In contrast, the amount borrowed by a qualified employee under the SLP was not even
released to him. The implementing rules of the SLP state that:
The loan shall be available strictly for the purpose of investment in the following
investment instruments:
a. 182 or 364-day term Time deposits with DBP
b. 182 or 364-day T-bills /CB Bills
c. 182 or 364-day term DBP Blue Chip Fund
The investment shall be registered in the name of DBP-TSD in trust for availee-investor for
his sole risk and account. Choice of eligible terms shall be at the option of availee-
investor. Investments shall be commingled by TSD and Participation Certificates shall be
issued to each availee-investor.
xxx
IV. LOANABLE TERMS
xxx
e. Allowable Investment Instruments Time Deposit DBP T-Bills/CB Bills and DBP Blue Chip
Fund. TSD shall purchase new securities and/or allocate existing securities portfolio of
GPF depending on liquidity position of the Fund xxx.
xxx
g. Security The loan shall be secured by GS, Certificate of Time Deposit and/or BCF
Certificate of Participation which shall be registered in the name of DBP-TSD in trust for
name of availee-investor and shall be surrendered to the TSD for safekeeping. [61] (Emphasis
supplied)
In the present case, the Fund allowed the debtor-employee to borrow a portion of his
gratuity fund credit solely for the purpose of investing it in certain instruments specified by
DBP. The debtor-employee could not dispose of or utilize the loan in any other way. These
instruments were, incidentally, some of the same securities where the Fund placed its
investments. At the same time the Fund obligated the debtor-employee to assign
immediately his loan to DBP-TSD so that the amount could be commingled with the loans of
other employees.The DBP-TSD the same department which handled and had custody of the
Funds accounts then purchased or re-allocated existing securities in the portfolio of the
Fund to correspond to the employees loans.
Simply put, the amount ostensibly loaned from the Fund stayed in the Fund, and remained
under the control and custody of the DBP-TSD. The debtor-employee never had any control
or custody over the amount he supposedly borrowed. However, DBP-TSD listed new or
existing investments of the Fund corresponding to the loan in the name of the debtor-
employee, so that the latter could collect the interest earned from the investments.
In sum, the SLP enabled certain DBP employees to utilize and even earn from their
retirement gratuities even before they retired. This constitutes a partial release of their
retirement benefits, which is contrary to RA 1616 and the Gratuity Plan. As we have
discussed, the latter authorizes the release of gratuities from the earnings and principal of
the Fund only upon retirement.
The Gratuity Plan will lose its tax-exempt status if the retirement benefits are released prior
to the retirement of the employees. The trust funds of employees other than those of
private employers are qualified for certain tax exemptions pursuant to Section 60(B)
formerly Section 53(b) of the National Internal Revenue Code. [62] Section 60(B) provides:
Section 60. Imposition of Tax.
(A) Application of Tax. The tax imposed by this Title upon individuals shall apply to the
income of estates or of any kind of property held in trust, including:
xxx
(B) Exception. The tax imposed by this Title shall not apply to employees trust which forms
part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some
or all of his employees (1) if contributions are made to the trust by such employer, or
employees, or both for the purpose of distributing to such employees the earnings and
principal of the fund accumulated by the trust in accordance with such plan, and (2) if
under the trust instrument it is impossible, at any time prior to the satisfaction of all
liabilities with respect to employees under the trust, for any part of the corpus or income to
be (within the taxable year or thereafter) used for, or diverted to, purposes other than for
the exclusive benefit of his employees: xxx (Emphasis supplied)
The Gratuity Plan provides that the gratuity benefits of a qualified DBP employee shall be
released only upon retirement under th(e) Plan. If the earnings and principal of the Fund are
distributed to DBP employees prior to their retirement, the Gratuity Plan will no longer
qualify for exemption under Section 60(B). To recall, DBP Resolution No. 794 creating the
Gratuity Plan expressly provides that since the gratuity plan will be tax qualified under the
National Internal Revenue Code xxx, the Banks periodic contributions thereto shall be
deductible for tax purposes and the earnings therefrom tax free. If DBP insists that its
employees may receive the P11,626,414.25 dividends, the necessary consequence will be
the non-qualification of the Gratuity Plan as a tax-exempt plan.

Finally, DBP invokes justice and equity on behalf of its affected employees. Equity cannot
supplant or contravene the law.[63] Further, as evidenced by the letter of former DBP
Chairman Zalamea, the DBP Board of Directors was well aware of the proscription against
the partial release of retirement benefits when it confirmed the SLP. If DBP wants to enhance
and protect the value of xxx (the) gratuity benefits of its employees, DBP must do so by
investing the money of the Fund in the proper and sound investments, and not by
circumventing restrictions imposed by law and the Gratuity Plan itself.

We nevertheless urge the DBP and COA to provide equitable terms and a sufficient period
within which the affected DBP employees may refund the dividends they received under the
SLP. Since most of the DBP employees were eligible to retire within a few years when they
availed of the SLP, the refunds may be deducted from their retirement benefits, at least for
those who have not received their retirement benefits.

WHEREFORE, COA Decision No. 98-403 dated 6 October 1998 and COA Resolution No. 2000-
212 dated 1 August 2000 are AFFIRMED with MODIFICATION. The income of the Gratuity
Plan Fund, held in trust for the benefit of DBP employees eligible to retire under RA 1616,
should not be recorded in the books of account of DBP as the income of the latter.

SO ORDERED.
 x-----------------------------------------------------------------------------------------x

Republic of the Philippines DECISION

Supreme Court

Manila NACHURA, J.:

THIRD DIVISION This is a petition for review on certiorari from the Decision[1] of the Court of Appeals,
dated September 7, 2000, in CA-G.R. SP No. 53236, and Resolution dated May 9, 2001.

SOLEDAD CAEZO, substituted by WILLIAM CAEZO G.R. No. 148788

and VICTORIANO CAEZO

Petitioners,
Present:
On January 29, 1997, petitioner Soledad Caezo filed a Complaint [2] for the recovery of real
property plus damages with the Municipal Trial Court (MTC) of Naval, Biliran, against her
YNARES-SANTIAGO, J., fathers second wife, respondent Concepcion Rojas. The subject property is an unregistered
land with an area of 4,169 square meters, situated at Higatangan, Naval, Biliran. Caezo
Chairperson, attached to the complaint a Joint Affidavit [3] executed on May 10, 1979 by Isidro Catandijan
AUSTRIA-MARTINEZ, and Maximina Caezo attesting to her acquisition of the property.
- versus -
CHICO-NAZARIO,

NACHURA, and In her complaint, the petitioner alleged that she bought the parcel of land in 1939 from
Crisogono Limpiado, although the transaction was not reduced into writing. Thereafter, she
REYES, JJ. immediately took possession of the property. When she and her husband left
for Mindanao in 1948, she entrusted the said land to her father, Crispulo [4] Rojas, who took
possession of, and cultivated, the property. In 1980, she found out that the respondent, her
stepmother, was in possession of the property and was cultivating the same. She also
CONCEPCION ROJAS, discovered that the tax declaration over the property was already in the name of Crispulo
Promulgated:
Rojas.[5]
Respondent.

November 23, 2007

In her Answer, the respondent asserted that, contrary to the petitioners claim, it was her
husband, Crispulo Rojas, who bought the property from Crisogono Limpiado in 1948, which
accounts for the tax declaration being in Crispulos name. From then on, until his death in
1978, Crispulo possessed and cultivated the property. Upon his death, the property was
included in his estate, which was administered by a special administrator, Bienvenido
Ricafort. The petitioner, as heir, even received her share in the produce of the estate. The
respondent further contended that the petitioner ought to have impleaded all of the heirs as
defendants. She also argued that the fact that petitioner filed the complaint only in 1997
means that she had already abandoned her right over the property. [6]
On July 3, 1998, after hearing, the MTC rendered a Decision in favor of the petitioner, thus:
WHEREFORE, premises considered, the Court finds a preponderance of evidence in favor of
plaintiff Soledad Caezo and against defendant Concepcion Rojas by declaring plaintiff the
true and lawful owner of the land more particularly described under paragraph 5 of the
complaint and hereby orders defendant Concepcion Rojas:
a) To vacate and surrender possession of the land to
plaintiff;
b) To pay plaintiff the sum of P34,000.00 actual
damages, P10,000.00 for attorneys fees
and litigation expenses; and
c) To pay the costs.
SO ORDERED. [7]
Despite the respondents objection that the verbal sale cannot be proven without infringing
the Statute of Frauds, the MTC gave credence to the testimony of the petitioners two
witnesses attesting to the fact that Crisogono Limpiado sold the property to the petitioner in
1939. The MTC also found no evidence to show that Crispulo Rojas bought the property
from Crisogono Limpiado in 1948. It held that the 1948 tax declaration in Crispulos name
had little significance on respondents claim, considering that in 1948,the country was then
rehabilitating itself from the ravages of the Second World War and the government was
more interested in the increase in tax collection than the observance of the niceties of law. [8]
The respondent appealed the case to the Regional Trial Court (RTC) of Naval,
Biliran. On October 12, 1998, the RTC reversed the MTC decision on the ground that the
action had already prescribed and acquisitive prescription had set in. The dispositive portion
of the Decision reads:
WHEREFORE, premises considered, the decision of the Municipal Trial Court of Naval, Biliran
awarding ownership of the disputed land to the plaintiff and further allowing recovery of
damages is hereby REVERSED in toto. There is no award of damages.
The said property remains as the legitime of the defendant Concepcion Rojas and her
children.
SO ORDERED.[9]
However, acting on petitioners motion for reconsideration, the RTC amended its original
decision on December 14, 1998.[10]This time, it held that the action had not yet prescribed
considering that the petitioner merely entrusted the property to her father. The ten-year
prescriptive period for the recovery of a property held in trust would commence to run only
from the time the trustee repudiates the trust. The RTC found no evidence on record
showing that Crispulo Rojas ever ousted the petitioner from the property. The dispositive
portion of the amended decision reads as follows:
WHEREFORE, in view of the foregoing considerations, the decision of this Court
dated October 12, 1998 is hereby set aside and another is hereby entered modifying the
decision of the Court a quo and declaring Soledad Rojas Vda. De Caezo as the true and lawful
owner of a parcel of land, more particularly described and bounded as follows:
A parcel of land situated at Higatangan, Naval, Biliran, bounded on the North by Policarpio
Limpiado; on the South by Fidel Limpiado; on the East by Seashore; and on the West by
Crispolo (sic) Limpiado with an approximate area of 4,169 square meters per Tax Declaration
No. 2258, later under Tax Declaration No. 4073 in the name of Crispolo Rojas and later in the
name of the Heirs of Crispolo Rojas.
Further, ordering defendant-appellant Concepcion Rojas and all persons claiming rights or
interest under her to vacate and surrender possession of the land aforecited to the plaintiff
or any of her authorized representatives, Ordering the Provincial and/or Municipal Assessors
Office to cancel the present existing Tax Declaration in the name of Heirs of Crispolo Rojas
referring to the above-described property in favor of the name of Soledad Rojas Vda. De
Caezo, Ordering the defendant-appellant Concepcion Rojas to pay the plaintiff-appellee the
sum of P34,000.00 in actual damages, and to pay for the loss of her share in money value of
the products of the coconuts of said land from 1979 to 1997 and to pay further until the case
is terminated at the rate of P200.00 per quarter based on the regular remittances of the late
Crispolo Rojas to the plaintiff-appellee, and to pay the costs.
SO ORDERED.[11]
The respondent filed a motion to reconsider the Amended Decision but the RTC denied the
same in an Order dated April 25, 1999.
She then filed a petition for review with the Court of Appeals (CA), which reversed the
Amended Decision of the RTC on September 7, 2000, thus:
WHEREFORE, the amended decision dated December 14, 1998 rendered in Civil Case No. B-
1041 is hereby REVERSED and SET ASIDE. The complaint filed by Soledad Caezo before the
Municipal Trial Court of Naval, Biliran is hereby DISMISSED on grounds of laches and
prescription and for lack of merit.
SO ORDERED.[12]
The CA held that the petitioners inaction for several years casts a serious doubt on her claim
of ownership over the parcel of land. It noted that 17 years lapsed since she discovered that
respondent was in adverse possession of the property before she instituted an action to
recover the same. And during the probate proceedings, the petitioner did not even contest
the inclusion of the property in the estate of Crispulo Rojas. [13]
The CA was convinced that Crispulo Rojas owned the property, having bought the same from
Crisogono Limpiado in 1948. Supporting this conclusion, the appellate court cited the
following circumstances: (1) the property was declared for taxation purposes in Crispulos
name and he had been paying the taxes thereon from 1948 until his death in 1978; (2)
Crispulo adversely possessed the same property from 1948 until his death in 1978; and (3)
upon his death in 1978, the property was included in his estate, the proceeds of which were
distributed among his heirs.[14]

The CA further held that, assuming that there was an implied trust between the petitioner
and her father over the property, her right of action to recover the same would still be
barred by prescription since 49 years had already lapsed since Crispulo adversely possessed
the contested property in 1948.[15]
On May 9, 2001, the CA denied the petitioners motion for reconsideration for lack of merit.
[16]
In this petition for review, the petitioner, substituted by her heirs, assigns the following
errors:
That the Court of Appeals committed grave abuse of discretion in setting aside petitioners
contention that the Petition for Review filed by respondent CONCEPCION ROJAS before the
Court of Appeals was FILED OUT OF TIME;
That the Court of Appeals erred and committed grave abuse of discretion amounting to lack
or excess of jurisdiction when it decided that the filing of the case by SOLEDAD CAEZO for
Recovery of Real Property was already barred by PRESCRIPTION AND LACHES. [17]
The petitioner insists that the respondents petition for review before the CA was filed out of
time. The petitioner posits that the CA may not grant an additional extension of time to file
the petition except for the most compelling reason. She contends that the fact that
respondents counsel needed additional time to secure the certified copy of his annexes
cannot be considered as a compelling reason that would justify an additional period of
extension. She admits, though, that this issue was raised for the first time in their motion for
reconsideration, but insists that it can be raised at any time since it concerns the jurisdiction
of the CA over the petition.
The petitioner further posits that prescription and laches are unavailing because there was
an express trust relationship between the petitioner and Crispulo Rojas and his heirs, and
express trusts do not prescribe. Even assuming that it was not an express trust, there was a
resulting trust which generally does not prescribe unless there is repudiation by the trustee.
For her part, the respondent argues that the petitioners are now estopped from questioning
the CA Resolution granting her second motion for extension to file the petition for review.
She notes that the petitioner did not raise this issue in the comment that she filed in the CA.
In any case, the grant of the second extension of time was warranted considering that the
certified true copy of the assailed RTC orders did not arrive at the office of respondents
counsel in Cebu City in time for the filing of the petition.
On the merits, the respondent asserts that the complaint is barred by prescription, laches
and estoppel. From 1948 until his death in 1978, Crispulo cultivated the property and was in
adverse, peaceful and continuous possession thereof in the concept of owner. It took the
petitioner 49 years from 1948 before she filed the complaint for recovery of the property in
1997. Granting that it was only in 1980 that she found out that the respondent adversely
possessed the property, still petitioner allowed 17 years to elapse before she asserted her
alleged right over the property.
Finally, the respondent maintains that the other co-owners are indispensable parties to the
case; and because they were not impleaded, the case should be dismissed.
The petition has no merit.
On the procedural issue raised by the petitioner, we find no reversible error in the grant by
the CA of the second motion for extension of time to file the respondents petition. The
grant or denial of a motion for extension of time is addressed to the sound discretion of the
court.[18] The CA obviously considered the difficulty in securing a certified true copy of the
assailed decision because of the distance between the office of respondents counsel and the
trial court as a compelling reason for the request. In the absence of any showing that the CA
granted the motion for extension capriciously, such exercise of discretion will not be
disturbed by this Court.
On the second issue, the petitioner insists that her right of action to recover the property
cannot be barred by prescription or laches even with the respondents uninterrupted
possession of the property for 49 years because there existed between her and her father an
express trust or a resulting trust. Indeed, if no trust relations existed, the possession of the
property by the respondent, through her predecessor, which dates back to 1948, would
already have given rise to acquisitive prescription in accordance with Act No. 190 (Code of
Civil Procedure).[19] Under Section 40 of Act No. 190, an action for recovery of real property,
or of an interest therein, can be brought only within ten years after the cause of action
accrues. This period coincides with the ten-year period for acquisitive prescription provided
under Section 41[20] of the same Act.
Thus, the resolution of the second issue hinges on our determination of the existence of a
trust over the property --- express or implied --- between the petitioner and her father.
A trust is the legal relationship between one person having an equitable ownership of
property and another person owning the legal title to such property, the equitable
ownership of the former entitling him to the performance of certain duties and the exercise
of certain powers by the latter. [21] Trusts are either express or implied.[22] Express trusts are
those which are created by the direct and positive acts of the parties, by some writing or
deed, or will, or by words evincing an intention to create a trust. [23] Implied trusts are those
which, without being expressed, are deducible from the nature of the transaction as matters
of intent or, independently, of the particular intention of the parties, as being superinduced
on the transaction by operation of law basically by reason of equity. [24] An implied trust may
either be a resulting trust or a constructive trust.
It is true that in express trusts and resulting trusts, a trustee cannot acquire by prescription a
property entrusted to him unless he repudiates the trust. [25] The following discussion is
instructive:
There is a rule that a trustee cannot acquire by prescription the ownership of property
entrusted to him, or that an action to compel a trustee to convey property registered in his
name in trust for the benefit of the cestui que trust does not prescribe, or that the defense
of prescription cannot be set up in an action to recover property held by a person in trust for
the benefit of another, or that property held in trust can be recovered by the beneficiary
regardless of the lapse of time.
That rule applies squarely to express trusts. The basis of the rule is that the possession of a
trustee is not adverse. Not being adverse, he does not acquire by prescription the property
held in trust. Thus, Section 38 of Act 190 provides that the law of prescription does not apply
"in the case of a continuing and subsisting trust."
The rule of imprescriptibility of the action to recover property held in trust may possibly
apply to resulting trusts as long as the trustee has not repudiated the trust.
xxxx
Acquisitive prescription may bar the action of the beneficiary against the trustee in an
express trust for the recovery of the property held in trust where (a) the trustee has
performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust;
(b) such positive acts of repudiation have been made known to the cestui que trust, and (c)
the evidence thereon is clear and conclusive. [26]
As a rule, however, the burden of proving the existence of a trust is on the party asserting its
existence, and such proof must be clear and satisfactorily show the existence of the
trust and its elements.[27] The presence of the following elements must be proved: (1) a
trustor or settlor who executes the instrument creating the trust; (2) a trustee, who is the
person expressly designated to carry out the trust; (3) the trust res, consisting of duly
identified and definite real properties; and (4) the cestui que trust, or beneficiaries whose
identity must be clear.[28] Accordingly, it was incumbent upon petitioner to prove the
existence of the trust relationship. And petitioner sadly failed to discharge that burden.
The existence of express trusts concerning real property may not be established by parol
evidence.[29] It must be proven by some writing or deed. In this case, the only evidence to
support the claim that an express trust existed between the petitioner and her father was
the self-serving testimony of the petitioner. Bare allegations do not constitute evidence
adequate to support a conclusion. They are not equivalent to proof under the Rules of Court.
[30]
In one case, the Court allowed oral testimony to prove the existence of a trust, which had
been partially performed. It was stressed therein that what is important is that there should
be an intention to create a trust, thus:
What is crucial is the intention to create a trust. While oftentimes the intention is manifested
by the trustor in express or explicit language, such intention may be manifested by inference
from what the trustor has said or done, from the nature of the transaction, or from the
circumstances surrounding the creation of the purported trust.
However, an inference of the intention to create a trust, made from language, conduct or
circumstances, must be made with reasonable certainty. It cannot rest on vague, uncertain
or indefinite declarations. An inference of intention to create a trust, predicated only on
circumstances, can be made only where they admit of no other interpretation. [31]
Although no particular words are required for the creation of an express trust, a clear
intention to create a trust must be shown; and the proof of fiduciary relationship must be
clear and convincing. The creation of an express trust must be manifested with reasonable
certainty and cannot be inferred from loose and vague declarations or from ambiguous
circumstances susceptible of other interpretations. [32]
In the case at bench, an intention to create a trust cannot be inferred from the petitioners
testimony and the attendant facts and circumstances. The petitioner testified only to the
effect that her agreement with her father was that she will be given a share in the produce
of the property, thus:
Q: What was your agreement with your father Crispulo Rojas when you left this property to
him?
A: Every time that they will make copra, they will give a share.
Q: In what particular part in Mindanao [did] you stay with your husband?
A: Bansalan, Davao del Sur.
Q: And while you were in Bansalan, Davao del Sur, did Crispolo Rojas comply with his
obligation of giving your share the proceeds of the land?
A: When he was still alive, he gave us every three months sometimes P200.00 and
sometimes P300.00.[33]
This allegation, standing alone as it does, is inadequate to establish the existence of a trust
because profit-sharing per se, does not necessarily translate to a trust relation. It could also
be present in other relations, such as in deposit.
What distinguishes a trust from other relations is the separation of the legal title and
equitable ownership of the property. In a trust relation, legal title is vested in the fiduciary
while equitable ownership is vested in a cestui que trust. Such is not true in this case. The
petitioner alleged in her complaint that the tax declaration of the land was transferred to the
name of Crispulo without her consent. Had it been her intention to create a trust and make
Crispulo her trustee, she would not have made an issue out of this because in a trust
agreement, legal title is vested in the trustee. The trustee would necessarily have the right to
transfer the tax declaration in his name and to pay the taxes on the property. These acts
would be treated as beneficial to the cestui que trust and would not amount to an adverse
possession.[34]
Neither can it be deduced from the circumstances of the case that a resulting trust was
created. A resulting trust is a species of implied trust that is presumed always to have been
contemplated by the parties, the intention as to which can be found in the nature of their
transaction although not expressed in a deed or instrument of conveyance. A resulting trust
is based on the equitable doctrine that it is the more valuable consideration than the legal
title that determines the equitable interest in property. [35]
While implied trusts may be proved by oral evidence, the evidence must be trustworthy and
received by the courts with extreme caution, and should not be made to rest on loose,
equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence
can easily be fabricated.[36] In order to establish an implied trust in real property by parol
evidence, the proof should be as fully convincing as if the acts giving rise to the trust
obligation are proven by an authentic document. An implied trust, in fine, cannot be
established upon vague and inconclusive proof. [37] In the present case, there was no evidence
of any transaction between the petitioner and her father from which it can be inferred that a
resulting trust was intended.
In light of the disquisitions, we hold that there was no express trust or resulting trust
established between the petitioner and her father. Thus, in the absence of a trust relation,
we can only conclude that Crispulos uninterrupted possession of the subject property for 49
years, coupled with the performance of acts of ownership, such as payment of real estate
taxes, ripened into ownership. The statutory period of prescription commences when a
person who has neither title nor good faith, secures a tax declaration in his name and may,
therefore, be said to have adversely claimed ownership of the lot.[38] While tax declarations
and receipts are not conclusive evidence of ownership and do not prove title to the land,
nevertheless, when coupled with actual possession, they constitute evidence of great weight
and can be the basis of a claim of ownership through prescription. [39]Moreover, Section 41 of
Act No. 190 allows adverse possession in any character to ripen into ownership after the
lapse of ten years.There could be prescription under the said section even in the absence of
good faith and just title.[40]
All the foregoing notwithstanding, even if we sustain petitioners claim that she was the
owner of the property and that she constituted a trust over the property with her father as
the trustee, such a finding still would not advance her case.
Assuming that such a relation existed, it terminated upon Crispulos death in 1978. A trust
terminates upon the death of the trustee where the trust is personal to the trustee in the
sense that the trustor intended no other person to administer it. [41] If Crispulo was indeed
appointed as trustee of the property, it cannot be said that such appointment was intended
to be conveyed to the respondent or any of Crispulos other heirs. Hence, after Crispulos
death, the respondent had no right to retain possession of the property. At such point, a
constructive trust would be created over the property by operation of law. Where one
mistakenly retains property which rightfully belongs to another, a constructive trust is the
proper remedial device to correct the situation. [42]
A constructive trust is one created not by any word or phrase, either expressly or impliedly,
evincing a direct intention to create a trust, but one which arises in order to satisfy the
demands of justice. It does not come about by agreement or intention but in the main by
operation of law, construed against one who, by fraud, duress or abuse of confidence,
obtains or holds the legal right to property which he ought not, in equity and good
conscience, to hold.[43]
 filed the action to recover the property. Laches is negligence or omission to assert a right
within a reasonable time, warranting a presumption that the party entitled to it has either
As previously stated, the rule that a trustee cannot, by prescription, acquire ownership over
abandoned or declined to assert it.[48]
property entrusted to him until and unless he repudiates the trust, applies to express trusts
and resulting implied trusts. However, in constructive implied trusts, prescription may
supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation
Finally, the respondent asserts that the court a quo ought to have dismissed the complaint
of the said trust is not a condition precedent to the running of the prescriptive period. [44] A
for failure to implead the other heirs who are indispensable parties. We agree. We note that
constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary
the complaint filed by the petitioner sought to recover ownership, not just possession of the
relation. While in an express trust, a beneficiary and a trustee are linked by confidential or
property; thus, the suit is in the nature of an action for reconveyance. It is axiomatic that
fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary
owners of property over which reconveyance is asserted are indispensable parties. Without
relation to speak of and the so-called trustee neither accepts any trust nor intends holding
them being impleaded, no relief is available, for the court cannot render valid judgment.
the property for the beneficiary.[45] The relation of trustee and cestui que trust does not in
Being indispensable parties, their absence in the suit renders all subsequent actions of the
fact exist, and the holding of a constructive trust is for the trustee himself, and therefore, at
trial court null and void for want of authority to act, not only as to the absent parties but
all times adverse.
even as to those present. Thus, when indispensable parties are not before the court, the
In addition, a number of other factors militate against the petitioners case. First, the action should be dismissed.[49] At any rate, a resolution of this issue is now purely academic
petitioner is estopped from asserting ownership over the subject property by her failure to in light of our finding that the complaint is already barred by prescription, estoppel and
protest its inclusion in the estate of Crispulo. The CA, thus, correctly observed that: laches.

Even in the probate proceedings instituted by the heirs of Crispulo Rojas, which included her WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of
as a daughter of the first marriage, Caezo never contested the inclusion of the contested Appeals, dated September 7, 2000, and Resolution dated May 9, 2001, are AFFIRMED.
property in the estate of her father. She even participated in the project of partition of her
SO ORDERED.
fathers estate which was approved by the probate court in 1984. After personally receiving
her share in the proceeds of the estate for 12 years, she suddenly claims ownership of part
of her fathers estate in 1997.

The principle of estoppel in pais applies when -- by ones acts, representations, admissions,
or silence when there is a need to speak out -- one, intentionally or through culpable
negligence, induces another to believe certain facts to exist; and the latter rightfully relies
and acts on such belief, so as to be prejudiced if the former is permitted to deny the
existence of those facts.[46] Such a situation obtains in the instant case.

Second, the action is barred by laches. The petitioner allegedly discovered that the property
was being possessed by the respondent in 1980. [47] However, it was only in 1997 that she
SECOND DIVISION LABISTE and EUFRONIO LABISTE; (2) May 8, 2009

BERNARDINO LABISTE, deceased and survived

HEIRS OF TRANQUILINO LABISTE G.R. No. 162033 by his children, namely: POLICARPIO LABISTE,

(also known as Tranquilino Laviste) BONIFACIO LABISTE, FELIX LABISTE,

represented by: (1) GERARDO LABISTE, GABINA LABISTE, CAYETANA LABISTE and

representing the Heirs of Gregorio Labiste; Present: ISABEL LABISTE; (3) LUCIA LABISTE,

(2) OBDULLIA LABISTE GABUAN, deceased and survived by her children, namely:

representing the heirs of Juan Labiste; QUISUMBING, J., ISAAC LABISTE, GENARO LABISTE,

(3) VICTORIA G. CHIONG, representing Chairperson, BRAULIA LABISTE, BRAULIO LABISTE,

the Heirs of Eulalia Labiste; (4) APOLINARIA CARPIO MORALES, ASUNCION LABISTE, ALFONSO LABISTE

LABISTE YLAYA, representing the TINGA, and CLAUDIA LABISTE; (4) EPIFANIO

Heirs of Nicolasa Labiste; (5) DEMOSTHENES VELASCO, JR., and LABISTE and CLAUDIA LABISTE;

LABISTE, representing the Heirs of Gervacio BRION, JJ. deceased and survived by his children,

Labiste; (6) ALEJANDRA LABISTE; namely SILVESTRE LABISTE,

representing the Heirs of SINFROCIO PAULA LABISTE and GERARDA LABISTE;

LABISTE, and (7) CLOTILDE LABISTE CARTA, (5) ANA LABISTE, deceased and survived by her

representing the Heirs of Andres Labiste, children, namely: MAXIMO LABISTE, MOISES

Petitioners, LABISTE, GERVACIO LABISTE, SATURNINA

LABISTE and QUIRINO LABISTE; (6) SEVERO

- versus LABISTE, deceased and survived by his children,

Namely: FELIX LABISTE, RUFINA

HEIRS OF JOSE LABISTE, survived by his Promulgated: LABISTE, SIMPLICIO LABISTE,

children, (1) ZACARIAS LABISTE, deceased VICENTE LABISTE and PATRICIO

and survived by his children, namely: CRESENCIA LABISTE,

Respondents.
x-------------------------------------------------------------------------------------x
DECISION
TINGA, J.:
This is a petition for review [1] under Rule 45 of the Rules of Court of the Court of Appeals
Decision dated 30 June 2003[2] in CA-G.R. CV No. 65829. reversing the decision of the
Regional Trial Court (RTC) of Cebu City, Branch 9. The appellate court denied
petitioners[3] motion for reconsideration in a Resolution dated 15 January 2004.
The factual antecedents are as follows:
On 29 September 1919, the late Epifanio Labiste (Epifanio), on his own and on behalf of his
brothers and sisters who were the heirs of Jose Labiste (Jose), purchased from the Bureau of
Lands Lot No. 1054 of the Banilad Friar Lands Estate, with an area of 13,308 square meters,
located at Guadalupe, Cebu City for P36.00.[4] Subsequently, on 9 June 1924, then Bureau of
Lands Director Jorge B. Vargas executed Deed of Conveyance No. 12536 selling and ceding
Lot No. 1054 to Epifanio and his brothers and sisters who were the heirs of Jose. [5]
After full payment of the purchase price but prior to the issuance of the deed of conveyance,
Epifanio executed an Affidavit[6] (Affidavit of Epifanio) in Spanish on 10 July 1923 affirming
that he, as one of the heirs of Jose, and his uncle and petitioners predecessor-in-interest,
Tranquilino Labiste (Tranquilino), then co-owned Lot No. 1054 because the money that was
paid to the government came from the two of them. Tranquilino and the heirs of Jose
continued to hold the property jointly.
Sometime in 1928, the Register of Deeds of Cebu City issued Original Certificate of Title No.
3878 for Lot No. 1054. On 2 May 1928, Engineer Espiritu Bunagan (Engr. Bunagan), Deputy
Public Land Surveyor, subdivided Lot No. 1054 into two lots: LotNo. 1054-A with an area of
6,664 square meters for Tranquilino and Lot No. 1054-B with an area of 6,664 square meters
for Epifanio. The subdivision plan prepared by Engr. Bunagan was approved by Jose P. Dans,
Acting Director of Lands on 28 October 1928.[7]
Subsequently, on 18 October 1939, the heirs of Tranquilino [8] purchased the one-half (1/2)
interest of the heirs of Jose[9]over Lot No. 1054 for P300.00, as evidenced by the Calig-onan
sa Panagpalit[10] executed by the parties in the Visayan dialect. The heirs of Tranquilino
immediately took possession of the entire lot.
When World War II broke out, the heirs of Tranquilino fled Cebu City and when they came
back they found their homes and possessions destroyed. The records in the Office of the
Register of Deeds, Office of the City Assessor and other government offices were also
destroyed during the war. Squatters have practically overrun the entire property, such that
neither petitioners nor respondents possess it.
In October 1993, petitioners learned that one of the respondents, [11] Asuncion Labiste, had
filed on 17 September 1993 a petition for reconstitution of title over Lot No. 1054.
Petitioners opposed the petition at first but by a compromise agreement between the
parties dated 25 March 1994, petitioners withdrew their opposition to expedite the
reconstitution process. Under the compromise agreement, petitioners were to be given time
to file a complaint so that the issues could be litigated in an ordinary action and the
reconstituted title was to be deposited with the Clerk of Court for a period of sixty (60) days
to allow petitioners to file an action for reconveyance and to annotate a notice of lis
pendens. The Register of Deeds of Cebu City issued the reconstituted title, TCT No. RT-7853,
[12]
in the name of Epifanio Labiste, married to Tomasa Mabitad, his brothers and sisters,
heirs of Jose Labiste on 14 December 1994. However, respondents did not honor the
compromise agreement.
 findings of fact by the lower court are conclusive absent any palpable error or arbitrariness.
[21]
The Court finds no reason to depart from this principle. Moreover, it is a long settled
Petitioners filed a complaint[13] for annulment of title seeking the reconveyance of property
doctrine that findings of fact of the trial court, when affirmed by the Court of Appeals, are
and damages on 13 January 1995, docketed as Civil Case No. CEB-16943, with the RTC
binding upon the Court. It is not the function of the Supreme Court to weigh anew the
of Cebu City. Respondents claimed that the Affidavit of Epifanio and the Calig-onan sa
evidence already passed upon by the Court of Appeals for these are deemed final and
Panagpalit were forgeries and that petitioners action had long prescribed or barred by
conclusive and may not be reviewed on appeal. [22]
laches.[14]

The sole issue that the Court has to resolve is whether or not petitioners cause of action has
The RTC in a Decision dated 23 August 1999[15] ruled in favor of petitioners. After evaluating
prescribed.
the documents presented by petitioners, the RTC found that they are genuine and authentic
as ancient documents and that they are valid and enforceable. [16]Moreover, it held that the
action had not prescribed as the complaint was filed about a year after the reconstitution of
The Court of Appeals erred in applying the rules on prescription and the principle of laches
the title by respondents. The judicial reconstitution was even opposed by petitioners until a
because what is involved in the present case is an express trust.
compromise agreement was reached by the parties and approved by the RTC which ordered
the reconstitution. The RTC further held that the reconstituted title did not give any more
right to respondents than what their predecessors-in-interest actually had as it is limited to
the reconstitution of the certificate as it stood at the time of its loss or destruction. [17] Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in
another. It is a fiduciary relationship that obliges the trustee to deal with the property for the
benefit of the beneficiary.[23] Trust relations between parties may either be express or
implied. An express trust is created by the intention of the trustor or of the parties. An
On appeal, the Court of Appeals, while affirming petitioners right to the property,
implied trust comes into being by operation of law. [24]
nevertheless reversed the RTCs decision on the ground of prescription and laches. It
affirmed the RTCs findings that the Affidavit and the Calig-onan sa Panagpalit are genuine
and authentic, and that the same are valid and enforceable documents. [18] Citing Article 1144
of the Civil Code, it held that petitioners cause of action had prescribed for the action must Express trusts are created by direct and positive acts of the parties, by some writing or deed,
be brought within ten (10) years from the time the right of action accrues upon the written or will, or by words either expressly or impliedly evincing an intention to create a trust.
[25]
contract which in this case was when petitioners predecessors-in-interest lost possession Under Article 1444 of the Civil Code, "[n]o particular words are required for the creation
over the property after World War II. Also, the lapse of time to file the action constitutes of an express trust, it being sufficient that a trust is clearly intended." The Affidavit of
neglect on petitioners part so the principle of laches is applicable. [19] Epifanio is in the nature of a trust agreement. Epifanio affirmed that the lot brought in his
name was co-owned by him, as one of the heirs of Jose, and his uncle Tranquilino. And by
agreement, each of them has been in possession of half of the property. Their arrangement
was corroborated by the subdivision plan prepared by Engr. Bunagan and approved by Jose
Hence, the present petition.
P. Dans, Acting Director of Lands.

The genuineness and authenticity of the Affidavit of Epifanio and the Calig-onan sa
As such, prescription and laches will run only from the time the express trust is repudiated.
Panagpalit are beyond cavil. As we have ruled in a litany of cases, resort to judicial review of
The Court has held that for acquisitive prescription to bar the action of the beneficiary
the decisions of the Court of Appeals under Rule 45 is confined only to errors of law. [20] The
against the trustee in an express trust for the recovery of the property held in trust it must
be shown that: (a) the trustee has performed unequivocal acts of repudiation amounting to
an ouster of the cestui que trust; (b) such positive acts of repudiation have been made
known to the cestui que trust, and (c) the evidence thereon is clear and conclusive.
[26]
Respondents cannot rely on the fact that the Torrens title was issued in the name of
Epifanio and the other heirs of Jose. It has been held that a trustee who obtains
a Torrens title over property held in trust by him for another cannot repudiate the trust by
relying on the registration.[27] The rule requires a clear repudiation of the trust duly
communicated to the beneficiary. The only act that can be construed as repudiation was
when respondents filed the petition for reconstitution in October 1993. And since
petitioners filed their complaint in January 1995, their cause of action has not yet
prescribed, laches cannot be attributed to them.
may be compelled to execute the proper document. [33] But even assuming that such action
was filed by petitioners, the same had already prescribed.
It is settled that only laws existing at the time of the execution of a contract are applicable
thereto and not later statutes, unless the latter are specifically intended to have retroactive
effect.[34] Consequently, it is the Old Code of Civil Procedure (Act No. 190) which applies in
this case since the Calig-onan sa Panagpalit was executed on 18 October 1939 while the
New Civil Code took effect only on 30 August 1950. And section 43 of Act No. 190, like its
counterpart Article 1144 of the New Civil Code, provides that action upon a written contract
must be filed within ten years.[35]

It is hornbook doctrine that laches is a creation of equity and its application is controlled by
equitable considerations. Laches cannot be used to defeat justice or perpetrate fraud and
injustice.[28] Neither should its application be used to prevent the rightful owners of a
property from
WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals
dated 30 June 2003 in CA-G.R. CV No. 65829 is REVERSED and SET ASIDE and the Decision of
the Regional Trial Court of Cebu City, Branch 9 dated 23 August 1999 is
REINSTATED with MODIFICATION in petitioners are hereby DECLARED the absolute owners
of one-half of Lot No. 1054 or Lot No. 1054-A under TCT No. RT-7853. The Register of Deeds
of Cebu City is hereby ORDERED to CANCEL TCT No. RT-7853 in part and issue a new Transfer
Certificate of Title to petitioners, heirs of Tranquilino Labiste, covering Lot No. 1054-A. No
costs.

SO ORDERED.
recovering what has been fraudulently registered in the name of another. [29] The equitable
remedy of laches is, therefore, unavailing in this case.

However, to recover the other half of the property covered by the private Calig-onan sa
Panagpalit and to have it registered on the title of the property, petitioners should have filed
an action to compel[30] respondents, as heirs of the sellers in the contract, [31] to execute a
public deed of sale. A conveyance of land made in a private document does not affect its
validity. Article 1358,like its forerunner Article 1280 of the Civil Code of Spain, does not
require the accomplishment of the acts or

contracts in a public instrument in order to validate the act or contract but only to insure its
efficacy,[32] so that after the existence of said contract has been admitted, the party bound
SECOND DIVISION
G.R. No. 179096 February 06, 2013
JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko, Sr., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH, Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioner Joseph Goyanko, Jr.,
administrator of the Estate of Joseph Goyanko, Sr., to nullify the decision 2 dated February 20,
2007 and the resolution3 dated July 31, 2007 of the Court of Appeals (CA) in CA-G.R. CV. No.
00257 affirming the decision 4 of the Regional Trial Court of Cebu City, Branch 16(RTC) in Civil
Case No. CEB-22277. The RTC dismissed the petitioner’s complaint for recovery of sum
money against United Coconut Planters Bank, Mango Avenue Branch (UCPB).
The Factual Antecedents
In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos (P2,000,000.00)
with Philippine Asia Lending Investors, Inc. family, represented by the petitioner, and his
illegitimate family presented conflicting claims to PALII for the release of the investment.
Pending the investigation of the conflicting claims, PALII deposited the proceeds of the
investment with UCPB on October 29, 1996 5 under the name "Phil Asia: ITF (In Trust For) The
Heirs of Joseph Goyanko, Sr." (ACCOUNT). On September 27, 1997, the deposit under the
ACCOUNT was P1,509,318.76.
On December 11, 1997, UCPB allowed PALII to withdraw One Million Five Hundred Thousand
Pesos (P1,500,000.00) from the Account, leaving a balance of only P9,318.76. When UCPB
refused the demand to restore the amount withdrawn plus legal interest from December 11,
1997, the petitioner filed a complaint before the RTC. In its answer to the complaint, UCPB
admitted, among others, the opening of the ACCOUNT under the name "ITF (In Trust For)
The Heirs of Joseph Goyanko, Sr.," (ITF HEIRS) and the withdrawal on December 11, 1997.
The RTC Ruling
In its August 27, 2003 decision, the RTC dismissed the petitioner’s complaint and awarded
UCPB attorney’s fees, litigation expenses and the costs of the suit. 6 The RTC did not consider
the words "ITF HEIRS" sufficient to charge UCPB with knowledge of any trust relation
between PALII and Goyanko’s heirs (HEIRS). It concluded that UCPB merely performed its
duty as a depository bank in allowing PALII to withdraw from the ACCOUNT, as the contract
of deposit was officially only between PALII, in its own capacity, and UCPB. The petitioner
appealed his case to the CA.
The CA’s Ruling
Before the CA, the petitioner maintained that by opening the ACCOUNT, PALII established a
trust by which it was the "trustee" and the HEIRS are the "trustors-beneficiaries;" thus,
UCPB should be liable for allowing the withdrawal.
The CA partially granted the petitioner’s appeal. It affirmed the August 27, 2003 decision of
the RTC, but deleted the award of attorney’s fees and litigation expenses. The CA held that
no express trust was created between the HEIRS and PALII. For a trust to be established, the
law requires, among others, a competent trustor and trustee and a clear intention to create
a trust, which were absent in this case. Quoting the RTC with approval, the CA noted that the
contract of deposit was only between PALII in its own capacity and UCPB, and the words "ITF
HEIRS" were insufficient to establish the existence of a trust. The CA concluded that as no
trust existed, expressly or impliedly, UCPB is not liable for the amount withdrawn. 7
In its July 31, 2007 resolution, 8 the CA denied the petitioner’s motion for reconsideration.
Hence, the petitioner’s present recourse.
The Petition
The petitioner argues in his petition that: first, an express trust was created, as clearly shown
by PALII’s March 28, 1996 and November 15, 1996 letters. 9 Citing jurisprudence, the
petitioner emphasizes that from the established definition of a trust, 10 PALII is clearly the
trustor as it created the trust; UCPB is the trustee as it is the party in whom confidence is
reposed as regards the property for the benefit of another; and the HEIRS are the
beneficiaries as they are the persons for whose benefit the trust is created. 11 Also,
quoting Development Bank of the Philippines v. Commission on Audit, 12 the petitioner argues
that the naming of the cestui que trust is not necessary as it suffices that they are adequately
certain or identifiable.13
Second, UCPB was negligent and in bad faith in allowing the withdrawal and in failing to
inquire into the nature of the ACCOUNT. 14 The petitioner maintains that the surrounding
facts, the testimony of UCPB’s witness, and UCPB’s own records showed that: (1) UCPB was
aware of the trust relation between PALII and the HEIRS; and (2) PALII held the ACCOUNT in
a trust capacity. Finally, the CA erred in affirming the RTC’s dismissal of his case for lack of
cause of action. The petitioner insists that since an express trust clearly exists, UCPB, the
trustee, should not have allowed the withdrawal.
The Case for UCPB
UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit contract between
PALII and UCPB only, which created a debtor-creditor relationship obligating UCPB to return
the proceeds to the account holder-PALII. Thus, it was not negligent in handling the
ACCOUNT when it allowed the withdrawal. The mere designation of the ACCOUNT as "ITF" is
insufficient to establish the existence of an express trust or charge it with knowledge of the
relation between PALII and the HEIRS.
UCPB also argues that the petitioner changed the theory of his case. Before the CA, the
petitioner argued that the HEIRS are the trustors-beneficiaries, and PALII is the trustee. Here,
the petitioner maintains that PALII is the trustor, UCPB is the trustee, and the HEIRS are the
beneficiaries. Contrary to the petitioner’s assertion, the records failed to show that PALII and
UCPB executed a trust agreement, and PALII’s letters made it clear that PALII, on its own,
intended to turn-over the proceeds of the ACCOUNT to its rightful owners.
The Court’s Ruling
The issue before us is whether UCPB should be held liable for the amount withdrawn
because a trust agreement existed between PALII and UCPB, in favor of the HEIRS, when
PALII opened the ACCOUNT with UCPB.
We rule in the negative.
We first address the procedural issues. We stress the settled rule that a petition for review
on certiorari under Rule 45 of the Rules of Court resolves only questions of law, not
questions of fact.15 A question, to be one of law, must not examine the probative value of the
evidence presented by the parties; 16 otherwise, the question is one of fact. 17Whether an
express trust exists in this case is a question of fact whose resolution is not proper in a
petition under Rule 45. Reinforcing this is the equally settled rule that factual findings of the
lower tribunals are conclusive on the parties and are not generally reviewable by this
Court,18 especially when, as here, the CA affirmed these findings. The plain reason is that this
Court is not a trier of facts.19 While this Court has, at times, permitted exceptions from the
restriction,20 we find that none of these exceptions obtain in the present case.
Second, we find that the petitioner changed the theory of his case. The petitioner argued
before the lower courts that an express trust exists between PALII as the trustee and the
HEIRS as the trustor-beneficiary.21 The petitioner now asserts that the express trust exists
between PALII as the trustor and UCPB as the trustee, with the HEIRS as the
beneficiaries.22 At this stage of the case, such change of theory is simply not allowed as it
violates basic rules of fair play, justice and due process. Our rulings are clear - "a party who
deliberately adopts a certain theory upon which the case was decided by the lower court will
not be permitted to change [it] on appeal"; 23 otherwise, the lower courts will effectively be
deprived of the opportunity to decide the merits of the case fairly. 24 Besides, courts of justice
are devoid of jurisdiction to resolve a question not in issue. 25 For these reasons, the petition
must fail. Independently of these, the petition must still be denied.
No express trust exists; UCPB exercised the required diligence in handling the ACCOUNT;
petitioner has no cause of action against UCPB
A trust, either express or implied, 26 is the fiduciary relationship "x x x 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." 27 Express or direct trusts are created
by the direct and positive acts of the trustor or of the parties. 28 No written words are
required to create an express trust. This is clear from Article 1444 of the Civil Code, 29 but, the
creation of an express trust must be firmly shown; it cannot be assumed from loose and
vague declarations or circumstances capable of other interpretations. 30
In Rizal Surety & Insurance Co. v. CA,31 we laid down the requirements before an express
trust will be recognized:
Basically, these elements include a competent trustor and trustee, an ascertainable
trust res, and sufficiently certain beneficiaries. xxx each of the above elements is required
to be established, and, if any one of them is missing, it is fatal to the trusts (sic).
Furthermore, there must be a present and complete disposition of the trust property,
notwithstanding that the enjoyment in the beneficiary will take place in the future. It is
essential, too, that the purpose be an active one to prevent trust from being executed into a
legal estate or interest, and one that is not in contravention of some prohibition of statute or
rule of public policy. There must also be some power of administration other than a mere
duty to perform a contract although the contract is for a thirdparty beneficiary. A
declaration of terms is essential, and these must be stated with reasonable certainty in
order that the trustee may administer, and that the court, if called upon so to do, may
enforce, the trust. [emphasis ours]
Under these standards, we hold that no express trust was created. First, while an and the depositor;42 by receiving the deposit, the bank impliedly agrees to pay upon demand
ascertainable trust res and sufficiently certain beneficiaries may exist, a competent trustor and only upon the depositor’s order.43
and trustee do not. Second, UCPB, as trustee of the ACCOUNT, was never under any
Since the records and the petitioner’s own admission showed that the ACCOUNT was
equitable duty to deal with or given any power of administration over it. On the contrary, it
opened by PALII, UCPB’s receipt of the deposit signified that it agreed to pay PALII upon its
was PALII that undertook the duty to hold the title to the ACCOUNT for the benefit of the
demand and only upon its order. Thus, when UCPB allowed PALII to withdraw from the
HEIRS. Third, PALII, as the trustor, did not have the right to the beneficial enjoyment of the
ACCOUNT, it was merely performing its contractual obligation under their savings deposit
ACCOUNT. Finally, the terms by which UCPB is to administer the ACCOUNT was not shown
agreement. No negligence or bad faith 44 can be imputed to UCPB for this action. As far as
with reasonable certainty. While we agree with the petitioner that a trust’s beneficiaries
UCPB was concerned, PALII is the account holder and not the HEIRS. As we held in Falton
need not be particularly identified for a trust to exist, the intention to create an express
Iron Works Co. v. China Banking Corporation. 45 the bank’s duty is to its creditor-depositor and
trust must first be firmly established, along with the other elements laid above; absent
not to third persons. Third persons, like the HEIRS here, who may have a right to the money
these, no express trust exists.
deposited, cannot hold the bank responsible unless there is a court order or
Contrary to the petitioner’s contention, PALII’s letters and UCPB’s records established UCPB’s garnishment.46 The petitioner’s recourse is to go before a court of competent jurisdiction to
participation as a mere depositary of the proceeds of the investment. In the March 28, 1996 prove his valid right over the money deposited.
letter, PALII manifested its intention to pursue an active role in and up to the turnover of
In these lights, we find the third assignment of error mooted. A cause of action requires that
those proceeds to their rightful owners, 32 while in the November 15, 1996 letter, PALII
there be a right existing in favor of the plaintiff, the defendant’s obligation to respect that
begged the petitioner to trust it with the safekeeping of the investment proceeds and
right, and an act or omission of the defendant in breach of that right. 47 We reiterate that
documents.33 Had it been PALII’s intention to create a trust in favor of the HEIRS, it would
UCPB’s obligation was towards PALII as its creditor-depositor. While the HEIRS may have a
have relinquished any right or claim over the proceeds in UCPB’s favor as the trustee. As
valid claim over the proceeds of the investment, the obligation to turn-over those proceeds
matters stand, PALII never did.
lies with PALII. Since no trust exists the petitioner’s complaint was correctly dismissed and
UCPB’s records and the testimony of UCPB’s witness 34 likewise lead us to the same the CA did not commit any reversible error in affirming the RTC decision. One final note, the
conclusion. While the words "ITF HEIRS" may have created the impression that a trust burden to prove the existence of an express trust lies with the petitioner. 48 For his failure to
account was created, a closer scrutiny reveals that it is an ordinary savings account. 35 We discharge this burden, the petition must fail.
give credence to UCPB’s explanation that the word "ITF" was merely used to distinguish the
WHEREFORE, in view of these considerations, we hereby DENY the petition and AFFIRM the
ACCOUNT from PALII’s other accounts with UCPB. A trust can be created without using the
decision dated February 20, 2007 and the resolution dated July 31, 2007 of the Court of
word "trust" or "trustee," but the mere use of these words does not automatically reveal an
Appeals in CA-G.R. CV. No. 00257. Costs against the petitioner.
intention to create a trust. 36 If at all, these words showed a trustee-beneficiary relationship
between PALII and the HEIRS. SO ORDERED
Contrary to the petitioner’s position, UCPB did not become a trustee by the mere opening of
the ACCOUNT.1âwphi1 While this may seem to be the case, by reason of the fiduciary nature
of the bank’s relationship with its depositors, 37 this fiduciary relationship does not "convert
the contract between the bank and its depositors from a simple loan to a trust agreement,
whether express or implied."38 It simply means that the bank is obliged to observe "high
standards of integrity and performance" in complying with its obligations under the contract
of simple loan.39 Per Article 1980 of the Civil Code, 40 a creditor-debtor relationship exists
between the bank and its depositor. 41 The savings deposit agreement is between the bank

THIRD DIVISION
METROPOLITAN BANK & TRUST COMPANY, INC. G.R. No. 176959
(as successor-in-interest of the banking
operations of Global Business Bank, Inc. formerly
known as PHILIPPINE BANKING CORPORATION),
Petitioner,
- versus -
THE BOARD OF TRUSTEES OF RIVERSIDE MILLS
CORPORATION PROVIDENT AND RETIREMENT
FUND, represented by ERNESTO TANCHI, JR.,
CESAR SALIGUMBA, AMELITA SIMON, EVELINA
OCAMPO and CARLITOS Y. LIM, RMC UNPAID
EMPLOYEES ASSOCIATION, INC., and THE
INDIVIDUAL BENEFICIARIES OF THE PROVIDENT
AND RETIREMENT FUND OF RMC,
Respondents.
September 8, 2010
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
VILLARAMA, JR., J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, prays for the reversal of the Decision [1] dated November 7, 2006 and
Resolution[2] dated March 5, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 76642. The
Present: CA had affirmed the Decision [3] dated June 27, 2002 of the Regional Trial Court (RTC), Branch
137, Makati City in Civil Case No. 97-997 which declared invalid the reversion or application
of the Riverside Mills Corporation Provident and Retirement Fund (RMCPRF) to the
CARPIO MORALES, J., outstanding obligation of Riverside Mills Corporation (RMC) with Philippine Banking
Chairperson, Corporation (Philbank).
BERSAMIN, The facts are as follows:
DEL CASTILLO,* On November 1, 1973, RMC established a Provident and Retirement Plan [4] (Plan) for its
regular employees. Under the Plan, RMC and its employees shall each contribute 2% of the
VILLARAMA, JR., and employees current basic monthly salary, with RMCs contribution to increase by 1% every five
(5) years up to a maximum of 5%. The contributions shall form part of the provident fund
SERENO, JJ.
(the Fund) which shall be held, invested and distributed by the Commercial Bank and Trust
Company. Paragraph 13 of the Plan likewise provided that the Plan may be amended or
terminated by the Company at any time on account of business conditions, but no such
action shall operate to permit any part of the assets of the Fund to be used for, or diverted
to purposes other than for the exclusive benefit of the members of the Plan and their
beneficiaries. In no event shall any part of the assets of the Fund revert to [RMC] before all
liabilities of the Plan have been satisfied. [5]
On October 15, 1979, the Board of Trustees of RMCPRF (the Board) entered into an
Investment Management Agreement [6](Agreement) with Philbank (now, petitioner
Metropolitan Bank and Trust Company). Pursuant to the Agreement, petitioner shall act as
an agent of the Board and shall hold, manage, invest and reinvest the Fund in Trust Account
No. 1797 in its behalf. The Agreement shall be in force for one (1) year and shall be deemed
automatically renewed unless sooner terminated either by petitioner bank or by the Board.
In 1984, RMC ceased business operations. Nonetheless, petitioner continued to render
Promulgated: investment services to respondent Board. In a letter[7] dated September 27, 1995, petitioner
informed respondent Board that Philbanks Board of Directors had decided to apply the
remaining trust assets held by it in the name of RMCPRF against part of the outstanding
obligations of RMC.
Subsequently, respondent RMC Unpaid Employees Association, Inc. (Association),
representing the terminated employees of RMC, learned of Trust Account No. 1797. Through
counsel, they demanded payment of their share in a letter [8] dated February 4, 1997.When
such demand went unheeded, the Association, along with the individual members of
RMCPRF, filed a complaint for accounting against the Board and its officers, namely, Ernesto
Tanchi, Jr., Carlitos Y. Lim, Amelita G. Simon, Evelina S. Ocampo and Cesar Saligumba, as well
as petitioner bank. The case was docketed as Civil Case No. 97-997 in the RTC of Makati City,
Branch 137.
On June 2, 1998, during the trial, the Board passed a Resolution [9] in court declaring that the
Fund belongs exclusively to the employees of RMC. It authorized petitioner to release the
proceeds of Trust Account No. 1797 through the Board, as the court may
direct. Consequently, plaintiffs amended their complaint to include the Board as co-plaintiffs.
On June 27, 2002, the RTC rendered a decision in favor of respondents. The trial court
declared invalid the reversion and application of the proceeds of the Fund to the
outstanding obligation of RMC to petitioner bank. The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring INVALID the reversion or application of the Riverside Mills Corporation
Provident and Retirement Fund as payment for the outstanding obligation of Riverside Mills
Corporation with defendant Philippine Banking Corporation.
2. Defendant Philippine Banking Corporation (now [Global Bank]) is hereby ordered to:
a. Reverse the application of the Riverside Mills Corporation Provident and Retirement Fund
as payment for the outstanding obligation of Riverside Mills Corporation with defendant
Philippine Banking Corporation;
b. Render a complete accounting of the Riverside Mills Corporation Provident and
Retirement Fund; the Fund will then be subject to disposition by plaintiff Board of Trustees
in accordance with law and the Provident Retirement Plan;
c. Pay attorneys fees equivalent to 10% of the total amounts due to plaintiffs Riverside Mills
Unpaid Employees Association and the individual beneficiaries of the Riverside Mills
Corporation Provident and Retirement Fund; and costs of suit.
3. The Riverside Mills Corporation Provident and Retirement Fund is ordered to determine
the beneficiaries of the FUND entitled to benefits, the amount of benefits per beneficiary,
and pay such benefits to the individual beneficiaries.
SO ORDERED.[10]
On appeal, the CA affirmed the trial court. It held that the Fund is distinct from RMCs
account in petitioner bank and may not be used except for the benefit of the members of
RMCPRF. Citing Paragraph 13 of the Plan, the appellate court stressed that the assets of the
Fund shall not revert to the Company until after the liabilities of the Plan had been
satisfied. Further, the Agreement was specific that upon the termination of the Agreement,
petitioner shall deliver the Fund to the Board or its successor, and not to RMC as trustor. The
CA likewise sustained the award of attorneys fees to respondents. [11]
Hence, this petition.
Before us, petitioner makes the following assignment of errors:
I.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE REVERSION AND
APPLICATION BY PHILBANK OF THE FUND IN PAYMENT OF THE LOAN OBLIGATIONS OF
RIVERSIDE MILLS CORPORATION WERE INVALID.[12]
II.
THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN DECLARING THAT
BY HAVING ENTERED INTO AN AGREEMENT WITH THE BOARD, (PHILBANK) IS NOW
ESTOPPED TO QUESTION THE LATTERS AUTHORITY ASWELL AS THE TERMS AND CONDITIONS
THEREOF.[13]
III.
THE HONORABLE COURT COMMITTED REVERSIBLE ERROR IN AWARDING ATTORNEYS FEES
TO PLAINTIFFS-APPELLEES ON THE BASIS THAT [PHILBANK] WAS REMISS IN ITS DUTY TO
TREAT RMCPRFS ACCOUNT WITH THE HIGHEST DEGREE OF CARE CONSIDERING THE
FIDUCIARY NATURE OF THEIR RELATIONSHIP, PERFORCE, THE PLAINTIFFS-APPELLEES WERE
COMPELLED TO LITIGATE TO PROTECT THEIR RIGHT.[14]
The fundamental issue for our determination is whether the proceeds of the RMCPRF may
be applied to satisfy RMCs debt to Philbank.
Petitioner contends that RMCs closure in 1984 rendered the RMCPRF Board of
Trustees functus officio and devoid of authority to act on behalf of RMCPRF. It thus belittles
the RMCPRF Board Resolution dated June 2, 1998, authorizing the release of the Fund to
several of its supposed beneficiaries. Without known claimants of the Fund for eleven (11)
years since RMC closed shop, it was justifiable for petitioner to consider the Fund to have
technically reverted to, and formed part of RMCs assets. Hence, it could be applied to satisfy
RMCs debts to Philbank. Petitioner also disputes the award of attorneys fees in light of the
efforts taken by Philbank to ascertain claims before effecting the reversion.
Respondents for their part, belie the claim that petitioner exerted earnest efforts to
ascertain claims. Respondents cite petitioners omission to publish a notice in newspapers of
general circulation to locate claims against the Fund. To them, petitioners act of addressing
the letter dated September 27, 1995 to the Board is a recognition of its authority to act for
the beneficiaries. For these reasons, respondents believe that the reversion of the Fund to
RMC is not only unwarranted but unconscionable. For being compelled to litigate to protect
their rights, respondents also defend the award of attorneys fees to be proper.
The petition has no merit.
A trust is a fiduciary relationship with respect to property which involves the existence of
equitable duties imposed upon the holder of the title to the property to deal with it for the
benefit of another. A trust is either express or implied. Express trusts are those which the
direct and positive acts of the parties create, by some writing or deed, or will, or by words
evincing an intention to create a trust.[15]
Here, the RMC Provident and Retirement Plan created an express trust to provide retirement
benefits to the regular employees of RMC. RMC retained legal title to the Fund but held the
same in trust for the employees-beneficiaries. Thus, the allocation under the Plan is directly
credited to each members account:
6. Allocation:
a. Monthly Contributions:
1. Employee to be credited to his account.
2. Employer to be credited to the respective members account as stated under the
contribution provision.
b. Investment Earnings semestral valuation of the fund shall be made and any earnings or
losses shall be credited or debited, as the case may be, to each members
account in proportion to his account balances based on the last proceeding (sic) [preceding]
accounting period.
c. Forfeitures shall be retained in the fund. [16] (Emphasis supplied.)
The trust was likewise a revocable trust as RMC reserved the power to terminate the Plan
after all the liabilities of the Fund to the employees under the trust had been
paid. Paragraph 13 of the Plan provided that [i]n no event shall any part of the assets of the
Fund revert to the Company before all liabilities of the Plan have been satisfied.
Relying on this clause, petitioner, as the Fund trustee, considered the Fund to have
technically reverted to RMC, allegedly after no further claims were made thereon since
November 1984. Thereafter, it applied the proceeds of the Fund to RMCs debt with the bank
pursuant to Paragraph 9 of Promissory Note No. 1618-80 [17] which RMC executed on May 12,
1981. The pertinent provision of the promissory note reads:
IN THE EVENT THAT THIS NOTE IS NOT PAID AT MATURITY OR WHEN THE SAME BECOMES
DUE UNDER ANY OF THE PROVISIONS HEREOF, I/WE HEREBY AUTHORIZE THE BANK AT ITS
OPTION AND WITHOUT NOTICE, TO APPLY TO THE PAYMENT OF THIS NOTE, ANY AND ALL
MONEYS, SECURITIES AND THINGS OF VALUE WHICH MAY BE IN ITS HAND OR ON DEPOSIT
OR OTHERWISE BELONGING TO ME/US AND, FOR THIS PURPOSE, I/WE HEREBY, JOINTLY
AND SEVERALLY, IRREVOCABLY CONSTITUTE AND APPOINT THE SAID BANK TO BE MY/OUR
TRUE ATTORNEY-IN-FACT WITH FULL POWER AND AUTHORITY FOR ME/US AND IN MY/OUR
NAME AND BEHALF, AND WITHOUT PRIOR NOTICE, TO NEGOTIATE, SELL AND TRANSFER ANY
MONEYS, SECURITIES AND THINGS OF VALUE WHICH IT MAY HOLD, BY PUBLIC OR PRIVATE
SALE, AND APPLY THE PROCEEDS THEREOF TO THE PAYMENT OF THIS NOTE. (Emphasis
supplied.)
Petitioner contends that it was justified in supposing that reversion had occurred because its
efforts to locate claims against the Fund from the National Labor Relations Commission
(NLRC), the lower courts, the CA and the Supreme Court proved futile.
We are not convinced.
Employees trusts or benefit plans are intended to provide economic assistance to employees
upon the occurrence of certain contingencies, particularly, old age retirement, death,
sickness, or disability. They give security against certain hazards to which members of the
Plan may be exposed. They are independent and additional sources of protection for the
working group and established for their exclusive benefit and for no other purpose. [18] Here,
while the Plan provides for a reversion of the Fund to RMC, this cannot be done until all the
liabilities of the Plan have been paid. And when RMC ceased operations in 1984, the Fund
became liable for the payment not only of the benefits of qualified retirees at the time of
RMCs closure but also of those who were separated from work as a consequence of the
closure. Paragraph 7 of the Retirement Plan states:
Separation from Service:
A member who is separated from the service of the Company before satisfying the
conditions for retirement due to resignation or any reason other than dismissal for cause
shall be paid the balance of his account as of the last day of the month prior to separation .
The amount representing the Companys contribution and income thereon standing to the
credit of the separating member shall be paid to him as follows:
Completed Years % of Companys Contribution
of Membership and Earnings Thereon Payable
0 5 NIL
6 10 20%
11 15 40%
16 20 60%
21 25 80%
25 over 100%
A member who is separated for cause shall not be entitled to withdraw the total amount
representing his contribution and that of the Company including the earned interest
thereon, and the employers contribution shall be retained in the fund. [19] (Emphasis
supplied.)
The provision makes reference to a member-employee who is dismissed for cause. Under
the Labor Code, as amended, an employee may be dismissed for just or authorized causes. A
dismissal for just cause under Article 282 [20] of the Labor Code, as amended, implies that the
employee is guilty of some misfeasance towards his employer, i.e. the employee has
committed serious misconduct in relation to his work, is guilty of fraud, has perpetrated an
offense against the employer or any immediate member of his family, or has grossly and
habitually neglected his duties. Essentially, it is an act of the employee that sets off the
dismissal process in motion.
On the other hand, a dismissal for an authorized cause under Article 283 [21] and 284[22] of
the Labor Code, as amended, does not entail any wrongdoing on the part of the
employee. Rather, the termination of employment is occasioned by the employers exercise
of management prerogative or by the illness of the employee matters beyond the workers
control.
The distinction between just and authorized causes for dismissal lies in the fact that payment
of separation pay is required in dismissals for an authorized cause but not so in dismissals for
just cause. The rationale behind this rule was explained in the case of Phil. Long Distance
Telephone Co. v. NLRC[23] and reiterated in San Miguel Corporation v. Lao,[24] thus:
We hold that henceforth separation pay shall be allowed as a measure of social justice only
in those instances where the employee is validly dismissed for causes other than serious
misconduct or those reflecting on his moral character. Where the reason for the valid
dismissal is, for example, habitual intoxication or an offense involving moral turpitude, like
theft or illicit sexual relations with a fellow worker, the employer may not be required to give
the dismissed employee separation pay, or financial assistance, or whatever other name it is
called, on the ground of social justice.
xxxxxxxxx
The policy of social justice is not intended to countenance wrongdoing simply because it is
committed by the underprivileged. At best[,] it may mitigate the penalty but it certainly will
not condone the offense.
In San Miguel Corporation v. Lao, we reversed the CA ruling which granted retirement
benefits to an employee who was found by the Labor Arbiter and the NLRC to have been
properly dismissed for willful breach of trust and confidence.
Applied to this case, the penal nature of the provision in Paragraph 7 of the Plan, whereby a
member separated for cause shall not be entitled to withdraw the contributions made by
him and his employer, indicates that the separation for cause being referred to therein is any
of the just causes under Article 282 of the Labor Code, as amended.
To be sure, the cessation of business by RMC is an authorized cause for the termination of its any time on account of business conditions. There is no dispute as to the management
employees. Hence, not only those qualified for retirement should receive their total benefits prerogative on this matter, considering that the Fund consists primarily of contributions from
under the Fund, but those laid off should also be entitled to collect the balance of their the salaries of members-employees and the Company. However, it must be stressed that
account as of the last day of the month prior to RMCs closure. In addition, the Plan provides the RMC Provident and Retirement Plan was primarily established for the benefit of regular
that the separating member shall be paid a maximum of 40% of the amount representing and permanent employees of RMC. As such, the Board may not unilaterally terminate the
the Companys contribution and its income standing to his credit. Until these liabilities shall Plan without due regard to any accrued benefits and rightful claims of members-
have been settled, there can be no reversion of the Fund to RMC. employees. Besides, the Board is bound by Paragraph 13 prohibiting the reversion of the
Fund to RMC before all the liabilities of the Plan have been satisfied.
Under Paragraph 6[25] of the Agreement, petitioners function shall be limited to the
liquidation and return of the Fund to the Board upon the termination of the As to the contention that the functions of the Board of Trustees ceased upon with RMCs
Agreement. Paragraph 14 of said Agreement further states that it shall be the duty of the closure, the same is likewise untenable.
Investment Manager to assign, transfer, and pay over to its successor or successors all cash,
Under Section 122[27] of the Corporation Code, a dissolved corporation shall nevertheless
securities, and other properties held by it constituting the fund less any amounts
continue as a body corporate for three (3) years for the purpose of prosecuting and
constituting the charges and expenses which are authorized [under the Agreement] to be
defending suits by or against it and enabling it to settle and close its affairs, to dispose and
payable from the Fund.[26] Clearly, petitioner had no power to effect reversion of the Fund to
convey its property and to distribute its assets, but not for the purpose of continuing the
RMC.
business for which it was established. Within those three (3) years, the corporation may
The reversion petitioner effected also could hardly be said to have been done in good faith appoint a trustee or receiver who shall carry out the said purposes beyond the three (3)-year
and with due regard to the rights of the employee-beneficiaries. The restriction imposed winding-up period. Thus, a trustee of a dissolved corporation may commence a suit which
under Paragraph 13 of the Plan stating that in no event shall any part of the assets of the can proceed to final judgment even beyond the three (3)-year period of liquidation. [28]
Fund revert to the Company before all liabilities of the Plan have been satisfied, demands
In the same manner, during and beyond the three (3)-year winding-up period of RMC, the
more than a passive stance as that adopted by petitioner in locating claims against the
Board of Trustees of RMCPRF may do no more than settle and close the affairs of the
Fund. Besides, the beneficiaries of the Fund are readily identifiable the regular or permanent
Fund. The Board retains its authority to act on behalf of its members, albeit,in a limited
employees of RMC who were qualified retirees and those who were terminated as a result
capacity. It may commence suits on behalf of its members but not continue managing the
of its closure.Petitioner needed only to secure a list of the employees concerned from the
Fund for purposes of maximizing profits. Here, the Boards act of issuing the Resolution
Board of Trustees which was its principal under the Agreement and the trustee of the Plan or
authorizing petitioner to release the Fund to its beneficiaries is still part of the liquidation
from RMC which was the trustor of the Fund under the Retirement Plan. Yet, petitioner
process, that is, satisfaction of the liabilities of the Plan, and does not amount to doing
notified respondent Board of Trustees only after Philbanks Board of Directors had decided to
business. Hence, it was properly within the Boards power to promulgate.
apply the remaining trust assets of RMCPRF to the liabilities of the company.
Anent the award of attorneys fees to respondents, we find the same to be in order. Article
Petitioner nonetheless assails the authority of the Board of Trustees to issue the Resolution
2208(2) of the Civil Code allows the award of attorneys fees in cases where the defendants
of June 2, 1998 recognizing the exclusive ownership of the Fund by the employees of RMC
act or omission has compelled the plaintiff to litigate with third persons or to incur expenses
and authorizing its release to the beneficiaries as may be ordered by the trial
to protect his interest. Attorneys fees may be awarded by a court to one (1) who was
court. Petitioner contends that the cessation of RMCs operations ended not only the Board
compelled to litigate with third persons or to incur expenses to protect his or her interest by
members employment in RMC, but also their tenure as members of the RMCPRF Board of
reason of an unjustified act or omission of the party from whom it is sought. [29]
Trustees.
Here, petitioner applied the Fund in satisfaction of the obligation of RMC without authority
Again, we are not convinced. Paragraph 13 of the Plan states that [a]lthough it is expected
and without bothering to inquire regarding unpaid claims from the Board of Trustees of
that the Plan will continue indefinitely, it may be amended or terminated by the Company at
RMCPRF. It wrote the members of the Board only after it had decided to revert the Fund to
RMC. Upon being met with objections, petitioner insisted on the reversion of the Fund to
RMC, despite the clause in the Plan that prohibits such reversion before all liabilities shall
have been satisfied, thereby leaving respondents with no choice but to seek judicial relief.

WHEREFORE, the petition for review on certiorari is hereby DENIED. The Decision
dated November 7, 2006 and the Resolution dated March 5, 2007 of the Court of Appeals in
CA-G.R. CV No. 76642 are AFFIRMED.

With costs against the petitioner.

SO ORDERED.
 CONSUELO and FELIX, all surnamed
AGUSTIN; and SEVERINA TORBELA
ILDEFONSO,
Republic of the Philippines
Petitioners,
Supreme Court

Manila
- versus -

SPOUSES ANDRES
FIRST DIVISION T. ROSARIOand LENA DUQUE-ROSARIO and
BANCO FILIPINO SAVINGS AND MORTGAGE
BANK,

Respondents.
MARIA TORBELA, represented by her heirs, G.R. No. 140528 x-----------------------x
namely: EULOGIO TOSINO, husband and
children: CLARO, MAXIMINO, CORNELIO, LENA DUQUE-ROSARIO,
OLIVIA and CALIXTA, all surnamed TOSINO,
Petitioner,
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- - versus -
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 BANCO FILIPINO SAVINGS AND MORTGAGE
heirs, namely: PATRICIO, SEGUNDO, 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 Decision [1] dated June 29, 1999 and
Resolution[2] dated October 22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.
G.R. No. 140553

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

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

BERSAMIN,

DEL CASTILLO, and 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,
VILLARAMA, JR., JJ. 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,
Promulgated: 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
December 7, 2011 Partition[9] dated December 3, 1962.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
On December 12, 1964, the Torbela siblings executed a Deed of Absolute Quitclaim [10] over
Lot No. 356-A in favor of Dr. Rosario. According to the said Deed, the Torbela siblings for and
On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an Affidavit of Adverse Claim, [16] on
in consideration of the sum of NINE PESOS (P9.00) x x x transfer[red] and convey[ed] x x x
behalf of the Torbela siblings.Cornelio deposed in said Affidavit:
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 Valerianos name was partially cancelled as to Lot No. 356-A and TCT No. 3. That ANDRES T. ROSARIO later quitclaimed his rights in favor of the former owners by
52751[12] was issued in Dr. Rosarios name covering the said property. 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;

Another Deed of Absolute Quitclaim [13] 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 P1.00. The Deed stated:
That for and in consideration of the sum of one peso (P1.00), 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.
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]

Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development
The very next day, on May 17, 1967, the Torbela siblings had Cornelios Affidavit of Adverse
Bank of the Philippines (DBP) on February 21, 1965 in the sum of P70,200.00, secured by a
Claim dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim dated December 28,
mortgage constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751
1964 annotated on TCT No. 52751 as Entry Nos. 274471[18] and 274472,[19] respectively.
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.
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. Rosarios 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.
52751[20] 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, 1981and the loan amount was
increased to P450,000.00. The loan was secured by mortgages constituted on the following
properties: (1) Lot No. 356-A, covered by TCT No. 52751 in Dr. Rosarios 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 LotNo. 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.
Merison 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 P1,200,000.00 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. 533283[25] 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 P830,064.00 from Banco Filipino.
Because Banco Filipino paid the balance of Dr. Rosarios loan from PNB, the mortgage on Lot
No. 356-A in favor of PNB was cancelled per Entry No. 533478[26] 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,
Entry No. 627059 Lis Pendens Dr. Andres T. Rosario and Lena Duque Rosario, Plaintiff versus
1986. Filed to TCT No. 52751
Banco Filipino, et. al. Civil Case No. U-4667 or Annulment of ExtraJudicial Foreclosure of Real
February 13, 1986-1986 February 13 3:30 p.m. 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.) PACIFICO M. BRAGANZA

Register of Deeds[27]

(SGD.) RUFINO M. MORENO, SR.

Register of Deeds[32]
The spouses Rosario afterwards failed to pay their loan from Banco Filipino. As of April 2,
1987, the spouses Rosarios outstanding principal obligation and penalty charges amounted
to P743,296.82 and P151,524.00, respectively.[28]

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990,
the RTC issued an Order[33]dismissing without prejudice Civil Case No. U-4667 due to the
Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489, and
spouses Rosarios failure to prosecute.
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 P1,372,387.04. The
Certificate of Sale[29] dated April 2, 1987, in favor of Banco Filipino, was annotated on TCT No.
Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino, but their
52751 on April 14, 1987 as Entry No. 610623.[30]
efforts were unsuccessful.Upon the expiration of the one-year redemption period in April
1988, the Certificate of Final Sale [34] and Affidavit of Consolidation[35] covering all three
foreclosed properties were executed on May 24, 1988 and May 25, 1988, respectively.
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.
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 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
The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint [37] for
Deputy, and the Register of Deeds of Pangasinan. The case was docketed as Civil Case No. U-
annulment of the Certificate of Final Sale dated May 24, 1988, judicial cancelation of TCT No.
4667. Another notice of lis pendens was annotated on TCT No. 52751 on March 10,
165813, and damages, against Banco Filipino, the Ex OfficioProvincial Sheriff, and the
1988 as Entry No. 627059, viz:
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
Decision[38] on these three cases was promulgated on January 15, 1992, the dispositive
portion of which reads:
WHEREFORE, judgment is rendered:
6. [The Torbela siblings] are hereby ordered to pay Banco Filipino the sum
of P20,000.00 as attorneys 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
1. Declaring the real estate mortgage over Lot 356-A covered by TCT 52751 Habon and Rufino Moreno in Civil Case No. U-4733; and against Banco Filipino in Civil Case
executed by Spouses Andres Rosario in favor of Banco Filipino, legal and valid; No. U-4359.[39]

2. Declaring the sheriffs 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;
The RTC released an Amended Decision [40] dated January 29, 1992, adding the following
paragraph to the dispositive:
3. Declaring Banco Filipino the owner of Lot 356-A covered by TCT No. 52751 (now
TCT 165813);
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
4. Banco Filipino is entitled to a Writ of Possession over Lot 356-A together with Deeds of Pangasinan[.][41]
the improvements thereon (Rose InnBuilding). The Branch Clerk of Court is hereby ordered
to issue a writ of possession in favor of Banco Filipino;

The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before the Court
5. [The Torbela siblings] are hereby ordered to render accounting to Banco Filipino
of Appeals. Their appeal was docketed as CA-G.R. CV No. 39770.
the rental they received from tenants of Rose Inn Building from May 14, 1988;

In its Decision[42] 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 P1,200,000.00 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 P300,000.00 as moral damages; P200,000.00 as exemplary damages and P100,000.00 as
attorneys fees.
Costs against [Dr. Rosario].[43]
The Court of Appeals, in a Resolution [44] 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
A
OF RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE BANK.
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
Seventh Issue and Assignment of Error: CONSOLIDATION OF OWNERSHIP BY [BANCO FILIPINO], ARE NULL AND VOID.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE SUBJECT B
PROPERTY IS AT LEAST WORTH P1,200,000.00.[45]

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]
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, Duque-Rosario prays that the appealed decision of the Court of Appeals be reversed and set
Petition) and the RESOLUTION dated October 22, 1999 (Annex B, Petition) be REVERSED and aside, and that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A be freed from all obligations and
SET ASIDE, and/or further MODIFIED in favor of the [Torbela siblings], and another DECISION encumbrances and returned to her.
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. Review of findings of fact by the RTC and the Court of Appeals warranted.

The [Torbela siblings] likewise pray for such other reliefs and further remedies as may be A disquisition of the issues raised and/or errors assigned in the Petitions at bar unavoidably
deemed just and equitable under the premises. [46] 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
Duque-Rosario, now legally separated from Dr. Rosario, avers in her Petition for Review in
review of the Court:
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:
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. 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 P200.00;
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. Veloso[51]:
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 P9.00. 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. Rosarios 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 P1.00. On February 21, 1965, Dr. Rosarios loan in the amount
of P70,200.00, 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. Rosarios 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 P25,000.00, pursuant to a verbal agreement with the latter. The Court though
observes that Dr. Rosarios 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 implied. An express trust is created by the intention of the trustor or of the parties, while an
in his pleadings (1) an intrinsic ambiguity, mistake, or imperfection in the Deeds; (2) failure of implied trust comes into being by operation of law. [61]
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] 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
Even if the Court considers Dr. Rosarios testimony on his alleged verbal agreement with the
trust. Under Article 1444 of the Civil Code, [n]o particular words are required for the
Torbela siblings, the Court finds the same unsatisfactory. Dr. Rosario averred that the two
creation of an express trust, it being sufficient that a trust is clearly intended. [62] It is possible
Deeds were executed only because he was planning to secure loan from the Development
to create a trust without using the word trust or trustee. Conversely, the mere fact that
Bank of the Philippines and Philippine National Bank and the bank needed absolute
these words are used does not necessarily indicate an intention to create a trust. The
quitclaim[.][58] While Dr. Rosarios explanation makes sense for the first Deed of Absolute
question in each case is whether the trustor manifested an intention to create the kind of
Quitclaim dated December 12, 1964 executed by the Torbela siblings (which transferred Lot
relationship which to lawyers is known as trust. It is immaterial whether or not he knows
No. 356-A to Dr. Rosario for P9.00.00), the same could not be said for the second Deed of
that the relationship which he intends to create is called a trust, and whether or not he
Absolute Quitclaim dated December 28, 1964 executed by Dr. Rosario. In fact, Dr. Rosarios
knows the precise characteristics of the relationship which is called a trust. [63]
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 P1.00.00) would actually work against
the approval of Dr. Rosarios loan by the banks. Since Dr. Rosarios Deed of Absolute Quitclaim
dated December 28, 1964 is a declaration against his self-interest, it must be taken as In Tamayo v. Callejo,[64] the Court recognized that a trust may have a constructive or implied
favoring the truthfulness of the contents of said Deed. [59] nature in the beginning, but the registered owners 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
It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over Lot
No. 52751 on December 16, 1964, an implied trust was initially established between him
No. 356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr. Rosario's
and the Torbela siblings under Article 1451 of the Civil Code, which provides:
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 ART. 1451. When land passes by succession to any person and he causes the legal title to be
Dr. Rosario as against the Torbela siblings, the latter having relied upon his representation. put in the name of another, a trust is established by implication of law for the benefit of the
true owner.

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
Dr. Rosarios 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.
Rosarios 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 beneficiarys 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. Ringor[69] 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
Joses 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 Torrenssystem 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 Joses 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 (P450,000.00) 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, 1981[73]
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
Having determined that the Torbela siblings are the true owners and Dr. Rosario merely the
No. 490658 does not actually appear on TCT No. 52751 and, thus, it cannot be used as the
trustee of Lot No. 356-A, the Court is next faced with the issue of whether or not the Torbela
reckoning date for the start of the prescriptive period.
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. Rosarios default on his loan obligations, Banco
Filipino foreclosed the mortgage, acquired Lot No. 356-A as the highest bidder at the
The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-A
foreclosure sale, and consolidated title in its name under TCT No. 165813. The resolution of
to PNB on March 6, 1981 when the amended loan and mortgage agreement was registered
this issue depends on the answer to the question of whether or not Banco Filipino was a
on TCT No. 52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole
mortgagee in good faith.
world[74] that Lot No. 356-A was mortgaged by Dr. Rosario to PNB as security for a loan, the
amount of which was increased to P450,000.00. Hence, Dr. Rosario is deemed to have
effectively repudiated the express trust between him and the Torbela siblings on March 6,
Under Article 2085 of the Civil Code, one of the essential requisites of the contract of
1981, on which day, the prescriptive period for the enforcement of the express trust by the
mortgage is that the mortgagor should be the absolute owner of the property to be
Torbela siblings began to run.
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
From March 6, 1981, when the amended loan and mortgage agreement was registered on
foreclosure sale arising therefrom are given effect by reason of public policy. This principle is
TCT No. 52751, to February 13, 1986, when the Torbela siblings instituted before the RTC
based on the rule that all persons dealing with property covered by a Torrens Certificate of
Civil Case No. U-4359 against the spouses Rosario, only about five yearshad passed. The
Title, as buyers or mortgagees, are not required to go beyond what appears on the face of
Torbela siblings were able to institute Civil Case No. U-4359 well before the lapse of the 10-
the title. This is the same rule that underlies the principle of innocent purchasers for
year prescriptive period for the enforcement of their express trust with Dr. Rosario.
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
Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or neglect, investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a
for an unreasonable and unexplained length of time, to do that which by exercising due valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled
diligence could or should have been done earlier. It is negligence or omission to assert a right to protection.[76]
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. Rosarios
On one hand, the Torbela siblings aver that Banco Filipino is not a mortgagee in good faith
repudiation of the express trust, still within the 10-year prescriptive period for enforcement
because as early as May 17, 1967, they had already annotated Cornelios Adverse Claim
of such trusts. This does not constitute an unreasonable delay in asserting one's right. A
dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim dated December 28,
delay within the prescriptive period is sanctioned by law and is not considered to be a delay
1964 on TCT No. 52751 as Entry Nos. 274471-274472, respectively.
that would bar relief. Laches apply only in the absence of a statutory prescriptive period. [75]

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because
Banco Filipino is not a mortgagee and buyer in good faith.
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.
Rosarios loan for P1,200,000.00 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. Rosarios 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. Rosarios
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 claimants 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 Piao[78] 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 claimants 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. Rosarios 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. Rosarios 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. Rosarios 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 P1,200,000.00 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 Appeals[87] 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 (P8,000.00) to ten thousand pesos (P10,000.00), the landowner was
ordered to reimburse the builder in the amount of forty thousand pesos (P40,000.00),
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. Rosarios
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 P300,000.00 as moral
damages; P200,000.00 as exemplary damages; and P100,000.00 as attorneys fees.
Indeed, Dr. Rosarios 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. Rosarios betrayal had
caused the Torbela siblings (which included Dr. Rosarios 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 P200,000.00.
In addition to the moral damages, exemplary damages may also be imposed given that Dr.
Rosarios 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 P100,000.00.
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. Rosarios 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 P100,000.00 may beconsidered 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. Rosarios 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-Rosarios 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-Rosarios 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, (i.e., lack of personal notice to Duque-Rosario) and consolidation of title (i.e., failure to
1988 and May 25, 1988, respectively, and were clearly not premature. provide Duque-Rosario with copies of the Certificate of Final Sale).

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
The right of the purchaser to the possession of the foreclosed property becomes absolute
right of redemption.[93] However, the liberal interpretation of the rule on redemption is
upon the expiration of the redemption period. The basis of this right to possession is the
inapplicable herein as neither Duque-Rosario nor Dr. Rosario had made any attempt to
purchaser's ownership of the property. After the consolidation of title in the buyer's name
redeem Lot No. 5-F-8-C-2-B-2-A. Duque-Rosario could only rely on the efforts of the Torbela
for failure of the mortgagor to redeem, the writ of possession becomes a matter of right and
siblings at redemption, which were unsuccessful. While the Torbela siblings made several
its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function. [96]
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 The judge with whom an application for a writ of possession is filed need not look into the
by an actual and simultaneous tender of payment. The redemption price should either be validity of the mortgage or the manner of its foreclosure. Any question regarding the validity
fully offered in legal tender or else validly consigned in court. Only by such means can the of the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a writ of
auction winner be assured that the offer to redeem is being made in good faith. [94]In case of possession. Regardless of whether or not there is a pending suit for the annulment of the
disagreement over the redemption price, the redemptioner may preserve his right of mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without
redemption through judicial action, which in every case, must be filed within the one-year prejudice, of course, to the eventual outcome of the pending annulment case. The issuance
period of redemption. The filing of the court action to enforce redemption, being equivalent of a writ of possession in favor of the purchaser in a foreclosure sale is a ministerial act and
to a formal offer to redeem, would have the effect of preserving his redemptive rights and does not entail the exercise of discretion.[97]
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.
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
Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-F-8-C-2- of merit. The Decision dated June 29, 1999 of the Court of Appeals in CA-G.R. CV No. 39770,
B-2-A in favor of Banco Filipino by invoking the pendency of Civil Case No. U-4359, the which affirmed with modification the Amended Decision dated January 29, 1992 of the RTC
Torbela siblings action for recovery of ownership and possession and damages, which in Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822, is AFFIRMED WITH
supposedly tolled the period for redemption of the foreclosed properties. Without MODIFICATIONS, to now read as follows:
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- (1) Banco Filipino is ORDERED to reconvey Lot No. 356-A to the Torbela siblings;
4359 apply to Lot No. 356-A alone.

(2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT No. 165813 in the name
Equally unpersuasive is Duque-Rosarios argument that the writ of possession over Lot No. 5- of Banco Filipino and to issue a new certificate of title in the name of the Torbela siblings for
F-8-C-2-B-2-A should not be issued given the defects in the conduct of the foreclosure sale 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 P200,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys 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.
 CONSUELO and FELIX, all surnamed
AGUSTIN; and SEVERINA TORBELA
ILDEFONSO,
Republic of the Philippines
Petitioners,
Supreme Court

Manila
- versus -

SPOUSES ANDRES
FIRST DIVISION T. ROSARIOand LENA DUQUE-ROSARIO and
BANCO FILIPINO SAVINGS AND MORTGAGE
BANK,

Respondents.
MARIA TORBELA, represented by her heirs, G.R. No. 140528 x-----------------------x
namely: EULOGIO TOSINO, husband and
children: CLARO, MAXIMINO, CORNELIO, LENA DUQUE-ROSARIO,
OLIVIA and CALIXTA, all surnamed TOSINO,
Petitioner,
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- - versus -
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 BANCO FILIPINO SAVINGS AND MORTGAGE
heirs, namely: PATRICIO, SEGUNDO, 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 Decision [1] dated June 29, 1999 and
Resolution[2] dated October 22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.
G.R. No. 140553

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

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

BERSAMIN,

DEL CASTILLO, and 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,
VILLARAMA, JR., JJ. 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,
Promulgated: 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
December 7, 2011 Partition[9] dated December 3, 1962.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
On December 12, 1964, the Torbela siblings executed a Deed of Absolute Quitclaim [10] over
Lot No. 356-A in favor of Dr. Rosario. According to the said Deed, the Torbela siblings for and
On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an Affidavit of Adverse Claim, [16] on
in consideration of the sum of NINE PESOS (P9.00) x x x transfer[red] and convey[ed] x x x
behalf of the Torbela siblings.Cornelio deposed in said Affidavit:
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 Valerianos name was partially cancelled as to Lot No. 356-A and TCT No. 3. That ANDRES T. ROSARIO later quitclaimed his rights in favor of the former owners by
52751[12] was issued in Dr. Rosarios name covering the said property. 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;

Another Deed of Absolute Quitclaim [13] 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 P1.00. The Deed stated:
That for and in consideration of the sum of one peso (P1.00), 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.
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]

Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development
The very next day, on May 17, 1967, the Torbela siblings had Cornelios Affidavit of Adverse
Bank of the Philippines (DBP) on February 21, 1965 in the sum of P70,200.00, secured by a
Claim dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim dated December 28,
mortgage constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751
1964 annotated on TCT No. 52751 as Entry Nos. 274471[18] and 274472,[19] respectively.
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.
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. Rosarios 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.
52751[20] 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, 1981and the loan amount was
increased to P450,000.00. The loan was secured by mortgages constituted on the following
properties: (1) Lot No. 356-A, covered by TCT No. 52751 in Dr. Rosarios 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 LotNo. 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.
Merison 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 P1,200,000.00 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. 533283[25] 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 P830,064.00 from Banco Filipino.
Because Banco Filipino paid the balance of Dr. Rosarios loan from PNB, the mortgage on Lot
No. 356-A in favor of PNB was cancelled per Entry No. 533478[26] 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,
Entry No. 627059 Lis Pendens Dr. Andres T. Rosario and Lena Duque Rosario, Plaintiff versus
1986. Filed to TCT No. 52751
Banco Filipino, et. al. Civil Case No. U-4667 or Annulment of ExtraJudicial Foreclosure of Real
February 13, 1986-1986 February 13 3:30 p.m. 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.) PACIFICO M. BRAGANZA

Register of Deeds[27]

(SGD.) RUFINO M. MORENO, SR.

Register of Deeds[32]
The spouses Rosario afterwards failed to pay their loan from Banco Filipino. As of April 2,
1987, the spouses Rosarios outstanding principal obligation and penalty charges amounted
to P743,296.82 and P151,524.00, respectively.[28]

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990,
the RTC issued an Order[33]dismissing without prejudice Civil Case No. U-4667 due to the
Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489, and
spouses Rosarios failure to prosecute.
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 P1,372,387.04. The
Certificate of Sale[29] dated April 2, 1987, in favor of Banco Filipino, was annotated on TCT No.
Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino, but their
52751 on April 14, 1987 as Entry No. 610623.[30]
efforts were unsuccessful.Upon the expiration of the one-year redemption period in April
1988, the Certificate of Final Sale [34] and Affidavit of Consolidation[35] covering all three
foreclosed properties were executed on May 24, 1988 and May 25, 1988, respectively.
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.
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 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
The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint [37] for
Deputy, and the Register of Deeds of Pangasinan. The case was docketed as Civil Case No. U-
annulment of the Certificate of Final Sale dated May 24, 1988, judicial cancelation of TCT No.
4667. Another notice of lis pendens was annotated on TCT No. 52751 on March 10,
165813, and damages, against Banco Filipino, the Ex OfficioProvincial Sheriff, and the
1988 as Entry No. 627059, viz:
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
Decision[38] on these three cases was promulgated on January 15, 1992, the dispositive
portion of which reads:
WHEREFORE, judgment is rendered:
6. [The Torbela siblings] are hereby ordered to pay Banco Filipino the sum
of P20,000.00 as attorneys 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
1. Declaring the real estate mortgage over Lot 356-A covered by TCT 52751 Habon and Rufino Moreno in Civil Case No. U-4733; and against Banco Filipino in Civil Case
executed by Spouses Andres Rosario in favor of Banco Filipino, legal and valid; No. U-4359.[39]

2. Declaring the sheriffs 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;
The RTC released an Amended Decision [40] dated January 29, 1992, adding the following
paragraph to the dispositive:
3. Declaring Banco Filipino the owner of Lot 356-A covered by TCT No. 52751 (now
TCT 165813);
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
4. Banco Filipino is entitled to a Writ of Possession over Lot 356-A together with Deeds of Pangasinan[.][41]
the improvements thereon (Rose InnBuilding). The Branch Clerk of Court is hereby ordered
to issue a writ of possession in favor of Banco Filipino;

The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before the Court
5. [The Torbela siblings] are hereby ordered to render accounting to Banco Filipino
of Appeals. Their appeal was docketed as CA-G.R. CV No. 39770.
the rental they received from tenants of Rose Inn Building from May 14, 1988;

In its Decision[42] 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 P1,200,000.00 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 P300,000.00 as moral damages; P200,000.00 as exemplary damages and P100,000.00 as
attorneys fees.
Costs against [Dr. Rosario].[43]
The Court of Appeals, in a Resolution [44] 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
A
OF RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE BANK.
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
Seventh Issue and Assignment of Error: CONSOLIDATION OF OWNERSHIP BY [BANCO FILIPINO], ARE NULL AND VOID.

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE SUBJECT B
PROPERTY IS AT LEAST WORTH P1,200,000.00.[45]

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]
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, Duque-Rosario prays that the appealed decision of the Court of Appeals be reversed and set
Petition) and the RESOLUTION dated October 22, 1999 (Annex B, Petition) be REVERSED and aside, and that Lot No. 4489 and Lot No. 5-F-8-C-2-B-2-A be freed from all obligations and
SET ASIDE, and/or further MODIFIED in favor of the [Torbela siblings], and another DECISION encumbrances and returned to her.
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. Review of findings of fact by the RTC and the Court of Appeals warranted.

The [Torbela siblings] likewise pray for such other reliefs and further remedies as may be A disquisition of the issues raised and/or errors assigned in the Petitions at bar unavoidably
deemed just and equitable under the premises. [46] 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
Duque-Rosario, now legally separated from Dr. Rosario, avers in her Petition for Review in
review of the Court:
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:
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. 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 P200.00;
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. Veloso[51]:
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 P9.00. 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. Rosarios 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 P1.00. On February 21, 1965, Dr. Rosarios loan in the amount
of P70,200.00, 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. Rosarios 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 P25,000.00, pursuant to a verbal agreement with the latter. The Court though
observes that Dr. Rosarios 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 implied. An express trust is created by the intention of the trustor or of the parties, while an
in his pleadings (1) an intrinsic ambiguity, mistake, or imperfection in the Deeds; (2) failure of implied trust comes into being by operation of law. [61]
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] 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
Even if the Court considers Dr. Rosarios testimony on his alleged verbal agreement with the
trust. Under Article 1444 of the Civil Code, [n]o particular words are required for the
Torbela siblings, the Court finds the same unsatisfactory. Dr. Rosario averred that the two
creation of an express trust, it being sufficient that a trust is clearly intended. [62] It is possible
Deeds were executed only because he was planning to secure loan from the Development
to create a trust without using the word trust or trustee. Conversely, the mere fact that
Bank of the Philippines and Philippine National Bank and the bank needed absolute
these words are used does not necessarily indicate an intention to create a trust. The
quitclaim[.][58] While Dr. Rosarios explanation makes sense for the first Deed of Absolute
question in each case is whether the trustor manifested an intention to create the kind of
Quitclaim dated December 12, 1964 executed by the Torbela siblings (which transferred Lot
relationship which to lawyers is known as trust. It is immaterial whether or not he knows
No. 356-A to Dr. Rosario for P9.00.00), the same could not be said for the second Deed of
that the relationship which he intends to create is called a trust, and whether or not he
Absolute Quitclaim dated December 28, 1964 executed by Dr. Rosario. In fact, Dr. Rosarios
knows the precise characteristics of the relationship which is called a trust. [63]
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 P1.00.00) would actually work against
the approval of Dr. Rosarios loan by the banks. Since Dr. Rosarios Deed of Absolute Quitclaim
dated December 28, 1964 is a declaration against his self-interest, it must be taken as In Tamayo v. Callejo,[64] the Court recognized that a trust may have a constructive or implied
favoring the truthfulness of the contents of said Deed. [59] nature in the beginning, but the registered owners 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
It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over Lot
No. 52751 on December 16, 1964, an implied trust was initially established between him
No. 356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr. Rosario's
and the Torbela siblings under Article 1451 of the Civil Code, which provides:
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 ART. 1451. When land passes by succession to any person and he causes the legal title to be
Dr. Rosario as against the Torbela siblings, the latter having relied upon his representation. put in the name of another, a trust is established by implication of law for the benefit of the
true owner.

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
Dr. Rosarios 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.
Rosarios 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 beneficiarys 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. Ringor[69] 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
Joses 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 Torrenssystem 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 Joses 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 (P450,000.00) 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, 1981[73]
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
Having determined that the Torbela siblings are the true owners and Dr. Rosario merely the
No. 490658 does not actually appear on TCT No. 52751 and, thus, it cannot be used as the
trustee of Lot No. 356-A, the Court is next faced with the issue of whether or not the Torbela
reckoning date for the start of the prescriptive period.
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. Rosarios default on his loan obligations, Banco
Filipino foreclosed the mortgage, acquired Lot No. 356-A as the highest bidder at the
The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-A
foreclosure sale, and consolidated title in its name under TCT No. 165813. The resolution of
to PNB on March 6, 1981 when the amended loan and mortgage agreement was registered
this issue depends on the answer to the question of whether or not Banco Filipino was a
on TCT No. 52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole
mortgagee in good faith.
world[74] that Lot No. 356-A was mortgaged by Dr. Rosario to PNB as security for a loan, the
amount of which was increased to P450,000.00. Hence, Dr. Rosario is deemed to have
effectively repudiated the express trust between him and the Torbela siblings on March 6,
Under Article 2085 of the Civil Code, one of the essential requisites of the contract of
1981, on which day, the prescriptive period for the enforcement of the express trust by the
mortgage is that the mortgagor should be the absolute owner of the property to be
Torbela siblings began to run.
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
From March 6, 1981, when the amended loan and mortgage agreement was registered on
foreclosure sale arising therefrom are given effect by reason of public policy. This principle is
TCT No. 52751, to February 13, 1986, when the Torbela siblings instituted before the RTC
based on the rule that all persons dealing with property covered by a Torrens Certificate of
Civil Case No. U-4359 against the spouses Rosario, only about five yearshad passed. The
Title, as buyers or mortgagees, are not required to go beyond what appears on the face of
Torbela siblings were able to institute Civil Case No. U-4359 well before the lapse of the 10-
the title. This is the same rule that underlies the principle of innocent purchasers for
year prescriptive period for the enforcement of their express trust with Dr. Rosario.
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
Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or neglect, investigation. Hence, even if the mortgagor is not the rightful owner of, or does not have a
for an unreasonable and unexplained length of time, to do that which by exercising due valid title to, the mortgaged property, the mortgagee in good faith is, nonetheless, entitled
diligence could or should have been done earlier. It is negligence or omission to assert a right to protection.[76]
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. Rosarios
On one hand, the Torbela siblings aver that Banco Filipino is not a mortgagee in good faith
repudiation of the express trust, still within the 10-year prescriptive period for enforcement
because as early as May 17, 1967, they had already annotated Cornelios Adverse Claim
of such trusts. This does not constitute an unreasonable delay in asserting one's right. A
dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim dated December 28,
delay within the prescriptive period is sanctioned by law and is not considered to be a delay
1964 on TCT No. 52751 as Entry Nos. 274471-274472, respectively.
that would bar relief. Laches apply only in the absence of a statutory prescriptive period. [75]

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because
Banco Filipino is not a mortgagee and buyer in good faith.
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.
Rosarios loan for P1,200,000.00 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. Rosarios 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. Rosarios
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 claimants 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 Piao[78] 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 claimants 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. Rosarios 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. Rosarios 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. Rosarios 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 P1,200,000.00 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 Appeals[87] 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 (P8,000.00) to ten thousand pesos (P10,000.00), the landowner was
ordered to reimburse the builder in the amount of forty thousand pesos (P40,000.00),
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. Rosarios
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 P300,000.00 as moral
damages; P200,000.00 as exemplary damages; and P100,000.00 as attorneys fees.
Indeed, Dr. Rosarios 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. Rosarios betrayal had
caused the Torbela siblings (which included Dr. Rosarios 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 P200,000.00.
In addition to the moral damages, exemplary damages may also be imposed given that Dr.
Rosarios 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 P100,000.00.
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. Rosarios 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 P100,000.00 may beconsidered 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. Rosarios 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-Rosarios 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-Rosarios 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, (i.e., lack of personal notice to Duque-Rosario) and consolidation of title (i.e., failure to
1988 and May 25, 1988, respectively, and were clearly not premature. provide Duque-Rosario with copies of the Certificate of Final Sale).

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
The right of the purchaser to the possession of the foreclosed property becomes absolute
right of redemption.[93] However, the liberal interpretation of the rule on redemption is
upon the expiration of the redemption period. The basis of this right to possession is the
inapplicable herein as neither Duque-Rosario nor Dr. Rosario had made any attempt to
purchaser's ownership of the property. After the consolidation of title in the buyer's name
redeem Lot No. 5-F-8-C-2-B-2-A. Duque-Rosario could only rely on the efforts of the Torbela
for failure of the mortgagor to redeem, the writ of possession becomes a matter of right and
siblings at redemption, which were unsuccessful. While the Torbela siblings made several
its issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function. [96]
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 The judge with whom an application for a writ of possession is filed need not look into the
by an actual and simultaneous tender of payment. The redemption price should either be validity of the mortgage or the manner of its foreclosure. Any question regarding the validity
fully offered in legal tender or else validly consigned in court. Only by such means can the of the mortgage or its foreclosure cannot be a legal ground for the refusal to issue a writ of
auction winner be assured that the offer to redeem is being made in good faith. [94]In case of possession. Regardless of whether or not there is a pending suit for the annulment of the
disagreement over the redemption price, the redemptioner may preserve his right of mortgage or the foreclosure itself, the purchaser is entitled to a writ of possession, without
redemption through judicial action, which in every case, must be filed within the one-year prejudice, of course, to the eventual outcome of the pending annulment case. The issuance
period of redemption. The filing of the court action to enforce redemption, being equivalent of a writ of possession in favor of the purchaser in a foreclosure sale is a ministerial act and
to a formal offer to redeem, would have the effect of preserving his redemptive rights and does not entail the exercise of discretion.[97]
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.
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
Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-F-8-C-2- of merit. The Decision dated June 29, 1999 of the Court of Appeals in CA-G.R. CV No. 39770,
B-2-A in favor of Banco Filipino by invoking the pendency of Civil Case No. U-4359, the which affirmed with modification the Amended Decision dated January 29, 1992 of the RTC
Torbela siblings action for recovery of ownership and possession and damages, which in Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822, is AFFIRMED WITH
supposedly tolled the period for redemption of the foreclosed properties. Without MODIFICATIONS, to now read as follows:
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- (1) Banco Filipino is ORDERED to reconvey Lot No. 356-A to the Torbela siblings;
4359 apply to Lot No. 356-A alone.

(2) The Register of Deeds of Pangasinan is ORDERED to cancel TCT No. 165813 in the name
Equally unpersuasive is Duque-Rosarios argument that the writ of possession over Lot No. 5- of Banco Filipino and to issue a new certificate of title in the name of the Torbela siblings for
F-8-C-2-B-2-A should not be issued given the defects in the conduct of the foreclosure sale 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 P200,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys 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.
 Today is Tuesday, October 16, 2018 Firstly, petitioner alleged in her Complaint that she was the owner of a parcel of land situated in U
with an area of 1,457 sq.m. and covered by Transfer Certificate of Title (TCT) No. T-43373 4of the Reg
Cagayan, registered in petitioner’s name. A residential house and a warehouse were constructed o
petitioner also claimed to own (the land and the improvements thereon shall be hereinafter refe
Petitioner averred that in the middle part of 1986, she discovered that TCT No. T-43373 was cancelled
580435 was issued in its stead in the name of respondent spouses Ramos. Upon verification, petition
cancellation of her title was a Deed of Donation of a Registered Land, Residential House and Camar
executed in favor of respondent spouses Ramos on 27 April 1983. Petitioner insisted that her signatu
Republic of the was a forgery as she did not donate any property to respondent spouses Ramos. When petitioner con
Philippines
SUPREME Ramos about the false donation,
COURT the latter pleaded that they would just pay for the Ugac properti
Manila Petitioner agreed to the proposition of the respondent spouses Ramos.

THIRD DIVISION Subsequently, around 10 January 1987, 7 petitioner found out that the respondent spouses Ramos we
respondent Bartex, Inc. Petitioner then sent her son, Johnson Paredes (Johnson), 8 to caution respon
G.R. No. 178645 January 30, 2009 spouses Ramos were not the lawful owners of the said properties. Johnson was allegedly able to
LINA representative of respondent Bartex, Inc. Petitioner also warned respondent spouses Ramos not to s
PEÑALBER,
vs. otherwise, she would file the necessary action against them. The respondent spouses Ramos then as
QUIRINO RAMOS, LETICIA PEÑALBER, and BARTEX INC., Respondents. such thing. As a precaution, petitioner executed an Affidavit of Adverse Claim over the Ugac Propertie
the same to be annotated on TCT No. T-58043 on the same day. Despite petitioner’s warnings,
DECISION executed in favor of respondent Bartex, Inc. a Deed of Absolute Sale 9 over the Ugac properties on 12
₱150,000.00. As a result, TCT No. T-58043 in the name of respondent spouses Ramos was cancelled an
CHICO-NAZARIO, J.:
of respondent Bartex, Inc. was issued on 20 January 1987.
Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the Decision
Petitioner contended that the Deed of Absolute Sale executed by respondent spouses Ramos in fav
Court of Appeals in CA-G.R. CV No. 69731. Said Decision reversed and set aside the Decision 2 dated 19 January 2000 of the Regional
not convey any valid title, not only because respondent Bartex, Inc. was a buyer in bad faith, but a
Trial Court (RTC) of Tuguegarao City, Branch 2, in Civil Case No. 3672, which declared petitioner Lina Peñalber the owner of the
Ramos did not own the Ugac properties. Thus, petitioner prayed for the declaration of nullity of
Bonifacio property subject of this case and ordered respondent spouses Quirino Ramos and Leticia Peñalber to reconvey the same to
Registered Land, Residential House and Camarin purportedly executed by petitioner in favor responde
petitioner.
58043, issued in the name of respondent spouses Ramos; (3) the Deed of Absolute Sale executed by t
The factual and procedural antecedents of the case are set forth hereunder. favor of respondent Bartex, Inc.; and (4) TCT No. T-68825, issued in the name of respondent Bartex, In
be granted, petitioner sought in the alternative that respondent spouses Ramos be ordered to pay
Petitioner is the mother of respondent Leticia and the mother-in-law of respondent Quirino, husband of Leticia. Respondent Bartex,
properties, which was about ₱1.5 Million. Petitioner further prayed that TCT No. T-43373, in her name
Inc., on the other hand, is a domestic corporation which bought from respondent spouses Ramos one of the two properties involved
in this case. Second Cause of Action

On 18 February 1987, petitioner filed before the RTC a Complaint for Declaration of Nullity of Deeds andpetitioner
Secondly, Titles, Reconveyance,
claimed that for many years prior to 1984, she operated a hardware store in a bu
Damages, [with] Application for a Writ of Preliminary Prohibitory Injunction against the respondents. St., Tuguegarao, Cagayan. However, the commercial lot (Bonifacio property) upon which the building
3672. in the name of Maria Mendoza (Mendoza), from whom petitioner rented the same.

First Cause of Action On 22 March 1982, petitioner allowed respondent spouses Ramos to manage the hardware store. T
the Bonifacio property up for sale. As petitioner did not have available cash to buy the property, sheWith
allegedly
regardentered
to petitioner’s
into a verbal
second cause of action involving the Bonifacio property, respondent spo
agreement with respondent spouses Ramos with the following terms: were given not only the management, but also the full ownership of the hardware store by the peti
stocks and merchandise of the store will be inventoried, and out of the proceeds of the sales thereof,
[1.] The lot would be bought [by herein respondent spouses Ramos] for and in behalf of [herein petitioner];
pay petitioner’s outstanding obligations and liabilities. After settling and paying the obligations and lia
[2.] The consideration of ₱80,000.00 for said lot would be paid by [respondent spouses Ramos] fromspouses Ramos bought
the accumulated the of
earnings Bonifacio
the property from Mendoza out of their own funds.
store;
Lastly, even if petitioner and respondent spouses Ramos belonged to the same family, the spouses Ra
[3.] Since [respondent spouses Ramos] have the better credit standing, they would be made to appear to exert efforts
in the Deedtoofarrive at the
Sale as an amicable settlement of their dispute. Hence, respondent spous
counterclaim
vendees so that the title to be issued in their names could be used by [them] to secure a loan with which to build a against petitioner,
bigger building andmoral and exemplary damages and attorney’s fees, for allegedly fi
expand the business of [petitioner]. complaint.

In accordance with the above agreement, respondent spouses Ramos allegedly entered into a contract Onof27 April 1987, respondent Bartex, Inc. filed before the RTC its own Answer to petitioner’s Compla
sale
Bonifacio property, and on 24 October 1984, TCT No. T-62769 covering said property was issued in the namesofoftherespondent
12 13 a representative corporation inquired about the Ugac properties for sale, respondent spouses
spouses Ramos. duplicate copy of TCT No. T-58043, together with the tax declarations covering the parcel of l
Respondent Bartex, Inc. even verified the title and tax declarations covering the Ugac properties wi
On 20 September 1984, respondent spouses Ramos returned the management of the hardware store to petitioner.
Office On theAssessor
of the Municipal bases ofas to any cloud, encumbrance or lien on the properties, but none w
receipts and disbursements, petitioner asserted that the Bonifacio property was fully paid out of the funds
Ramos of theactually
were then store and if
occupying the Ugac properties and they only vacated the same after th
respondent spouses Ramos had given any amount for the purchase price of the said property, they had already sufficiently reimbursed
respondent Bartex, Inc. Respondent Bartex, Inc. claimed that the sale of the Ugac properties by re
themselves from the funds of the store. Consequently, petitioner demanded from respondent spouses Ramos thewas
corporation reconveyance of the
already consummated on 12 January 1987, and the documents conveying the said
title to the Bonifacio property to her but the latter unjustifiably refused. processed for registration, when petitioner caused the annotation of an adverse claim at the back o
1987. Asthus,
Petitioner insisted that respondent spouses Ramos were, in reality, mere trustees of the Bonifacio property, respondent
they wereBartex,
underInc.
a was never aware of any imperfection in the title of responden
moral and legal obligation to reconvey title over the said property to her. Petitioner, therefore, prayedproperties,
that she be it claimed
declaredthat
the itowner
was an innocent purchaser in good faith.
of the Bonifacio property; TCT No. T-62769, in the name of respondent spouses, be declared null andTrial
void;of and the Register
the case thereafter of ensued.
Deeds
for the Province of Cagayan be directed to issue another title in her name.
On 19 January 2000, the RTC promulgated its decision, ruling on petitioner’s first cause of action in th
On 2 March 1987, respondent spouses Ramos accordingly filed before the RTC their Answer 14 to petitioner’s Complaint. As regards the
On theand
first cause of action, respondent spouses Ramos alleged that petitioner, together with her son, Johnson, firstthecause of action,
latter’s the Court finds the testimony of [herein petitioner] Lina Penalber (sic) d
wife, Maria
Teresa Paredes, mortgaged the Ugac properties to the Development Bank of the Philippines (DBP) onof19donation
August 1990 overforthetheUgac
amountproperty in favor of [herein respondent spouses] Quirino Ramos a
insufficient to support
of ₱150,000.00. When the mortgage was about to be foreclosed because of the failure of petitioner to pay the mortgage debt, the said cause of action. A notarial document is, by law, entitled to full faith a
petitioner asked respondent spouses Ramos to redeem the mortgaged property or pay her mortgageLlosa, debt to 282
DBP.SCRA 248) and
In return, a high degree of proof is needed to overthrow the presumption of truth in
petitioner
document executed
promised to cede, convey and transfer full ownership of the Ugac properties to them. Respondent spouses Ramos paid the mortgage with all legal formalities (People vs. Fabro, 277 SCRA 19). Hence, in order to co
debt and, in compliance with her promise, petitioner voluntarily transferred the Ugac properties tonotarial
the formerdocument
by wayandof athe presumption
Deed of of regularity in its favor, these (sic) must be evidence that is
merely
Donation dated 27 April 1983. After accepting the donation and having the Deed of Donation registered, TCTpreponderant
No. T- 58043 (Calahat
was issued vs. Intermediate Appellate Court, 241 SCRA 356). In the case at bench
to respondent spouses Ramos and they then took actual and physical possession of the Ugac properties. Respondent spouses Ramos over the Ugac property in favor of [respondent spouses Ramo
not execute the deed of donation
asserted that petitioner had always been aware of their intention to sell the Ugac properties as theysufficient to overcome
posted placards thereonthe stating
presumption of regularity of the notarial deed of donation and its entitlem
that the said properties were for sale. Respondent spouses Ramos further averred that petitioner alsoit isknew
true that
that,they
generally,
finally the
soldparty
the who asserts the affirmative side of a proposition has the burden o
(sic) the [respondent
Ugac properties to respondent Bartex, Inc. for ₱150,000.00. Thus, respondent spouses Ramos maintained that petitioner was not spouses Ramos] who are asserting the validity of the deed of donation, [respon
entitled to any reimbursement for the Ugac properties. rely on the above-stated presumption given to notarial documents and need not present any evi
validity and due execution of the notarized deed of donation. On the other hand, [petitioner], in additionOn 22 to February
her allegation
2000,that she did spouses Ramos filed with the RTC a Motion for Reconsideration 18
respondent
not execute any such deed of donation in favor of [respondent spouses Ramos] should have had her assailing
allegedly
thefalsified
ruling ofsignature
the RTC onon petitioner’s second cause of action on the ground that the allege
the deed of donation examined by qualified handwriting experts to prove that, indeed, she did not execute them and the petitioner
same. Her involving
failure to the
do Bonifacio property could not be proven by parol evidence. In an Or
so results in the failure of her cause.15 (Emphasis ours.) denied respondent spouses Ramos’ Motion for Reconsideration for lack of merit, ratiocinating that r
to interpose timely objections when petitioner testified on their alleged verbal agreement regardin
With respect to petitioner’s second cause of action, the RTC adjudged that:
property. As such, respondent spouses Ramos were deemed to have waived such objections, which c
Motion for
On the second cause of action, the Court finds the evidence preponderantly in favor of the [herein petitioner]. TheReconsideration.
evidence on recordThe RTC then reiterated its finding that petitioner’s evidence clearly
shows that when [petitioner] allowed [herein respondent spouses Ramos] full management of theaction. Additionally,
hardware the RTC
store located on held
the that the requirement that the parties exert earnest efforts toward
Bonifacio property in March, 1982 (sic) an inventory of the stocks in trade in the said store was made showing stocks worth by the respondents as they filed no motion regarding the same befo
dispute had likewise been waived
₱226,951.05* and when she got back the store from [respondent spouses Ramos] on September 1984, another inventory was made
On 24 July 2000, respondent spouses Ramos elevated their case to the Court of Appeals, inso
[on] the stocks in trade in the said store showing, stocks worth ₱110,005.88 * or a difference of ₱116,946.17.
petitioner’s second cause of action was concerned.20 The appeal was docketed as CA-G.R. CV No. 6973
inventory having been made when the hardware store was turned over to [respondent spouses Ramos] was, to the mind of the Court,
for the latter to account for the sales of such stocks. And to arrive at the net amount due to [petitioner],
On 15 allDecember
that is needed
2006,tothe
beCourt
done of Appeals rendered the assailed Decision in favor of respondent sp
is to deduct the value of the stocks present at the store when management was returned to [petitioner] in September 1984 from the
Finding merit in the appeal, the appellate court observed that the second cause of action involved
value of the stocks found in the hardware store when said management was given to [respondent spouses Ramos] in 1982.
daughter, but also her son-in-law, who was not covered by the term "family relations" under A
[Petitioner] claims that the purchase price for the Bonifacio property was to be taken from the proceeds of sales from the22hardware
Therefore, Article 151 of the Family Code, requiring the exertion of earnest efforts toward a co
store which, as the evidence on record stands[,] shows a balance in her favor of more than ₱116,000.00. [Respondent spouses Ramos]
impediment arising from the said provision was limited only to suits between members of the same
contend that said amount was expended to pay off [petitioner’s] obligations to her suppliers. The record, however, is totally silent on
the term "family relations" under Article 150.
how much and when [respondent spouses Ramos] paid said alleged obligations of [petitioner] or even who were the said suppliers
thus paid. That [petitioner] and [respondent spouses Ramos] agreed that the amount due [petitioner] Thefrom
Courttheofproceeds
Appeals of the
also sales that petitioner failed to prove her claim with the required quantu
declared
of her stocks in the hardware store would be applied to the purchase price of the Bonifacio property Courtis supported
of Appeals:by the fact that
[petitioner] did not ever ask for an accounting of said proceeds, despite the fact that as early as September, 1984 (sic) she already
knew that her stocks left by her in March, 1982 (sic) was already sold by [respondent spouses Ramos] It and
appears
that that
therebefore
was amanagement
difference of the store was transferred to [herein respondent spouses Ram
of ₱116,000.00 plus which was due to her. 16(Emphasis ours.) stocks of the hardware store was made by [herein petitioner’s] other children showing stocks am
management of the hardware store was returned to [petitioner], a second inventory was m
Thus, the RTC decreed: Php110,004.88 showing a difference of Php116,946.15. Contrary, however, to the finding of the trial c
showing such difference is not conclusive proof to show that the said amount was used to pay the pu
WHEREFORE, in view of all the foregoing, judgment is hereby rendered:
fact, as testified by Johnson Paredes, son of [petitioner] who made the computation on the alleged i
1. Finding the evidence on record insufficient to prove the [herein petitioner’s] first cause of action, and,
goods,
hence,
representing
dismissingthe theamount
same; of Php116,946.17, were actually sold or not. It may have been taken

2. On the second cause of action, in favor of the [petitioner] and against the [herein respondent spouses
It isRamos];
a basic rule of evidence that bare allegations, unsubstantiated by evidence, are not equivalent to
bare allegation of a verbal trust agreement, and the deed of absolute sale between Maria Mendoza a
2.1 Declaring the [petitioner] the owner of Lot 2-B of subdivision plan PST-2-01-019316 (sic) with an area of 195 square meters
the latter should prevail.
situated along Bonifacio Street, Tuguegarao, Cagayan; and
Although oral testimony is allowed to prove that a trust exists, contrary to the contention of [respo
2.2 Ordering the [respondent spouses Ramos] to reconvey to the [petitioner] the said property (Bonifacio property).
court may rely on parol evidence to arrive at a conclusion that an express trust exists, what is crucial
17
With costs de oficio. (Emphasis ours.) While oftentimes the intention is manifested by the trustor in express or explicit language, such
inference from what the trustor has said or done, from the nature of the transaction, or from the
creation of the purported trust. into being by operation of law. 33 Express trusts are those which are created by the direct and posi
writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a
However, an inference of the intention to create a trust, made from language, conduct or circumstances, must be made with
required for the creation of an express trust, it being sufficient that a trust is clearly intended. 35 How
reasonable certainty. It cannot rest on vague, uncertain or indefinite declarations. An inference of intention to create a trust,
1443 of the Civil Code, when an express trust concerns an immovable property or any interest therein
predicated only on circumstances, can be made only where they admit of no other interpretation. Here, [petitioner] failed to establish
parol or oral evidence.36
with reasonable certainty her claim that the purchase of the subject lot was pursuant to a verbal trust agreement with [respondent
spouses Ramos].23 (Emphasis ours.) In the instant case, petitioner maintains that she was able to prove the existence of a trust agreeme
spouses Ramos. She calls attention to the fact that respondent spouses Ramos could not account for t
Thus, the Court of Appeals disposed of the case as follows:
beginning inventory and the second inventory of the stocks of the hardware store, and they failed t
WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED and the Decision datedallegation
19 Januarythat
2000theofamount was used to pay the other obligations of petitioner. As respondent sp
the Regional
existence
Trial Court (RTC) of Tuguegarao City, Branch 2, with respect to the second cause of action or the Bonifacio of the in
Property ₱116,946.15 difference, petitioner contends that they have the burden of proving
Civil Case No.
3672 is hereby REVERSED and SET ASIDE and a new one entered DISMISSING the second cause of action of [herein petitioner’s] to buy the Bonifacio property. Petitioner asserts that given the resp
indeed they did not use the same
complaint.24 discharge such burden, the only conclusion would be that they did use the amount to purchase the Bo

On 12 January 2007, petitioner sought reconsideration 25 of the foregoing Decision, but it was denied Petitioner
by thefurther alleges
appellate thatinbased
court a on the verbal agreement between her and respondent spouse
26
Resolution dated 31 May 2007. created and that the same is valid and enforceable. Petitioner claims that she is the trustor for it was
property to respondent spouses Ramos as the trustees, with the condition that the same be used t
To have the ruling of the Court of Appeals overturned, petitioner brought her case before us through the instant
which would be Petition,
used toraising
build the
a bigger building to expand petitioner’s business. Petitioner maintains t
following issues: (1) whether the existence of a trust agreement between her and respondent spouses Ramos was
intended clearly
by the established,
parties when petitioner left the management of the hardware store to respon
and (2) whether such trust agreement was valid and enforceable. agreement that the proceeds from the sales from said store be used to buy the lot upon which th
spouses
At the outset, it is apparent that petitioner is raising questions of fact in the instant Petition. Be it noted thatRamos’ assumption
in a petition of the management of the hardware store and their eventual purc
for review
under Rule 45 of the Rules of Court, only questions of law must be entertained. A question of law indubitably
arises whenshows
there isthat respondent
doubt as to spouses Ramos honored their obligation under the verbal agr
what the law is on a certain state of facts, while there is a question of fact when the doubt arisesbehooved as to thefor the or
truth respondent
falsity of spouses
the Ramos to hold the Bonifacio property for petitioner’s benefit.
alleged facts.27 When the doubt or difference arises as to the truth or falsehood of alleged facts or when the query
Petitioner’s necessarily
arguments fail solicits
to persuade.
calibration of the whole evidence considering mostly the credibility of witnesses, existence and relevancy of specific surrounding
circumstances, their relation to each other and to the whole and probabilities of the situation,Itquestions bears stressing thatofpetitioner
or errors fact are has the burden of proving her cause of action in the instant ca
raised. The rule that only questions of law may be raised in a petition for review under Rule weakness
28
45, however, of theadmits
defense of of respondent spouses Ramos. Burden of proof is the duty of any party to
certain
exceptions, among which is when the findings of the trial court are grounded entirely on speculation, surmise and conjecture. As will of evidence required by law, which is preponderance of evidence
29 claim or defense by the amount
37
be discussed further, we find the afore-mentioned exception to be applicable in the present Petition, evidence is the weight,
thus, warranting credit, and value of the aggregate evidence on either side and is usually co
a departure
from the general rule. the term "greater weight of the evidence" or "greater weight of the credible evidence. It is evidence
court as worthy of belief than that which is offered in opposition thereto. 38 Therefore, the party, wh
In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficialasserts
enjoyment of property,ofthe
the affirmative thelegal
issue has the burden of proof to obtain a favorable judgment. For the pl
title to which is vested in another, but the word "trust" is frequently employed to indicate duties, relations,
parts. 39 and responsibilities which
For the defendant, an affirmative defense is one which is not a denial of an essential ingr
are not strictly technical trusts.30 A person who establishes a trust is called the trustor; one in whom confidence is reposed is known
action, but one which, if established, as will be a good defense i.e., an avoidance of the claim.40
the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.
between the trustee and the beneficiary (cestui que trust) as regards certain property, real, personal, From moneythe or allegations of the petitioner’s Complaint in Civil Case No. 3672, the alleged verbal trust ag
choses in action.
respondent spouses Ramos is in the nature of an express trust as petitioner explicitly agreed therein
Trusts are either express or implied. Express trusts are created by the intention of the trustor or ofRamos the parties. Implied
to acquire titletrusts
to thecome
Bonifacio property in their names, but to hold the same property for pe
alleged trust concerns an immovable property, however, respondent spouses Ramos counter that thePetitioner’ssame is unenforceable
allegations assince
to the
theexistence of an express trust agreement with respondent spouses Ra
agreement was made verbally and no parol evidence may be admitted to prove the existence ofand an her
express
son Johnson’s
trust concerning
testimonies,
an do not hold water. As correctly ruled by the Court of Appeals, a re
immovable property or any interest therein. in the beginning inventory of the stocks of the hardware store (before management was transferred
and the second inventory thereof (after management was returned to petitioner), by itself, is no
On this score, we subscribe to the ruling of the RTC in its Order dated 17 July 2000 that said spouses were deemed to have waived
amount was used to pay the purchase price of the Bonifacio property, such as would make it the prop
their objection to the parol evidence as they failed to timely object when petitioner testified on the said verbal agreement. The
trust by respondent spouses Ramos. Such a conclusion adopted by the RTC is purely speculative
requirement in Article 1443 that the express trust concerning an immovable or an interest therein be in writing is merely for purposes
difference in the two inventories might have been caused by other factors and the same is capable o
of proof, not for the validity of the trust agreement. Therefore, the said article is in the nature of a statute of frauds. The term statute
the amount thereof may have been written off as business losses due to a bad economic condition
of frauds is descriptive of statutes which require certain classes of contracts to be in writing. The statute does not deprive the parties
might have been damaged or otherwise their purchase prices have increased dramatically, etc.), the
of the right to contract with respect to the matters therein involved, but merely regulates the formalities of the contract necessary to
the shoulders of petitioner alone who has the burden of proof in the instant case. This petitioner mis
render it enforceable.41 The effect of non-compliance is simply that no action can be proved unless the requirement is complied with.
respondent spouses Ramos never denied the ₱116,946.15 difference, or that they failed to present
Oral evidence of the contract will be excluded upon timely objection. But if the parties to the action, during the trial, make no
said amount to pay the other obligations and liabilities of petitioner is not sufficient to discharge
objection to the admissibility of the oral evidence to support the contract covered by the statute, and thereby permit such contract to
existence of the alleged express trust agreement.
be proved orally, it will be just as binding upon the parties as if it had been reduced to writing. 42
WHEREFORE, premises considered, the instant Petition for Review on Certiorari under Rule 45 of the
Per petitioner’s testimony,43 the Bonifacio property was offered for sale by its owner Mendoza. Petitioner told respondent spouses
The assailed Decision of the Court of Appeals in CA-G.R. CV No. 69731 dated 15 December 2006 is
Ramos that she was going to buy the lot, but the title to the same will be in the latter’s names. The money from the hardware store
petitioner.
managed by respondent spouses Ramos shall be used to buy the Bonifacio property, which shall then be mortgaged by the
respondent spouses Ramos so that they could obtain a loan for building a bigger store. The purchaseSO price
ORDERED.
of ₱80,000.00 was paid for
the Bonifacio property. On 20 September 1984, the respondent spouses Ramos returned the management of the store to petitioner.
Thereafter, petitioner allowed her son Johnson to inventory the stocks of the store. Johnson found out that the purchase price of
₱80,000.00 for the Bonifacio property was already fully paid. When petitioner told the respondent spouses Ramos to transfer the title
to the Bonifacio property in her name, the respondent spouses Ramos refused, thus, prompting petitioner to file a complaint against
them.

Similarly, Johnson testified44 that on 22 March 1982, petitioner turned over the management of the hardware store to respondent
spouses Ramos. During that time, an inventory 45 of the stocks of the store was made and the total value of the said stocks were
determined to be ₱226,951.05. When respondent spouses Ramos returned the management of the store to petitioner on 20
September 1984, another inventory 46 of the stocks was made, with the total value of the stocks falling to ₱110,004.88. The difference
of ₱116,946.16 was attributed to the purchase of the Bonifacio property by the respondent spouses Ramos using the profits from the
sales of the store.

A careful perusal of the records of the case reveals that respondent spouses Ramos did indeed fail to interpose their objections
regarding the admissibility of the afore-mentioned testimonies when the same were offered to prove the alleged verbal trust
agreement between them and petitioner. Consequently, these testimonies were rendered admissible in evidence.
admissibility of evidence is an affair of logic and law, determined as it is by its relevance and competence, the weight to be given to
such evidence, once admitted, still depends on judicial evaluation. 47 Thus, despite the admissibility of the said testimonies, the Court
holds that the same carried little weight in proving the alleged verbal trust agreement between petitioner and respondent spouses.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-26549 July 31, 1970
EUGENIO LOPEZ, publisher and owner of the "MANILA, CHRONICLE and JUAN T.
GATBONTON, petitioners,
vs.
THE HON. COURT OF APPEALS and FIDEL G. CRUZ, respondents.
Salonga, Ordoñez, Sicat & Associates for petitioners.
FERNANDO, J.:
There is an element of novelty in this appeal by certiorari from a decision of respondent
Court of Appeals holding petitioners, the then publisher and editor of This Week Magazine,
liable in damages to the tune of eleven thousand pesos arising from the publication of a
picture of respondent, Fidel G. Cruz, as being responsible for the hoax of the year. The
absence of any connection either fanciful or remote with such event is admitted. The view is
pressed by petitioners, invoking a liberal construction of the implications of press freedom,
owning up to the mistake, unfortunately not discovered until it was too late, and publishing
a correction as an earnest of its good faith, that they should not be made to pay at all. This
Court, without discounting the elements of plausibility of their contention, cannot, however,
close its eyes to the injury inflicted on respondent and indulge them in such a plea. It is not
disposed though to affirm respondent Court's decision in its entirety. Considering all the
circumstances, the damages awarded to private respondent appear to be far too generous. A
reduction is in order. The sum of one thousand pesos would be enough. So we decide.
The antecedents of the case follow: In the early part of January, 1956, there appeared on the
front page of The Manila Chronicle, of which petitioner Eugenio Lopez was the publisher, as
well as on other dailies, a news story of a sanitary inspector assigned to the Babuyan Islands,
Fidel Cruz by name, sending a distress signal to a passing United States Airforce plane which
in turn relayed the message to Manila. He was not ignored, an American Army plane
dropping on the beach of an island an emergency-sustenance kit containing, among other
things, a two-way radio set. He utilized it to inform authorities in Manila that the people in
the place were living in terror, due to a series of killings committed since Christmas of 1955.
Losing no time, the Philippines defense establishment rushed to the island a platoon of
scout rangers led by Major Wilfredo Encarnacion. Upon arriving at the reported killer-
menaced Babuyan Claro, however, Major Encarnacion and his men found, instead of the
alleged killers, a man, the same Fidel Cruz, who merely wanted transportation home to
Manila. In view of this finding, Major Wilfredo Encarnacion branded as a "hoax," to use his
own descriptive word, the report of Fidel Cruz. That was the term employed by the other
newspapers when referring to the above-mentioned incident.
This Week Magazine of the Manila Chronicle, then edited by petitioner Juan T. Gatbonton,
devoted a pictorial article to it in its issue of January 15, 1956. Mention was made that while
Fidel Cruz story turned out to be false if brought to light the misery of the people living in
that place, with almost everybody sick, only two individuals able to read and write, food and
clothing being scarce. Then in the January 29, 1956 issue of This Week Magazine, the
"January News Quiz" included an item on the central figure in what was known as the
Calayan Hoax, who nevertheless did the country a good turn by calling the government's
attention to that forsaken and desolate corner of the Republic. Earlier in its Special Year End
Quiz appearing in its issue of January 13, 1956, reference was made to a health inspector
who suddenly felt "lonely" in his isolated post, cooked up a story about a murderer running
loose on the island of Calayan so that he could be ferried back to civilization. He was given
the appellation of "Hoax of the Year."
The magazine on both occasions carried photographs of the person purporting to be Fidel
Cruz. Unfortunately, the pictures that were published on both occasions were that of private
respondent Fidel G. Cruz, a businessman contractor from Santa Maria, Bulacan. It turned out
that the photographs of respondent Cruz and that of Fidel Cruz, sanitary inspector, were on
file in the library of the Manila Chronicle in accordance with the standard procedure
observed in other newspaper offices, but when the news quiz format was prepared, the two
photographs were in advertently switched.
As soon, however, as the inadvertent error was brought to the attention of petitioners, the
following correction was immediately published in This Week Magazine on January 27, 1957:
"While we were rushing to meet: the deadline for January 13th issue of This Week, we
inadvertently published the picture of former Mayor Fidel G. Cruz of Sta. Maria, Bulacan,
businessman and contractor, in 'Our Own Who's Who feature in the Year End Quiz' of This
Week in lieu of the health inspector Fidel Cruz, who was connected with a story about a
murderer running loose on Calayan Island. We here express our profound regrets that such
an error occurred." Together with the foregoing correction, petitioners published the picture
of Fidel Cruz; the photographs and the correction moreover were enclosed by four lines the to several cases.9 Other decisions to the same effect have been promulgated since the fourth
type used was bolder than ordinary, and the item was placed in a conspicuous place in order edition of Newell published in 1924. 1 0 Why libel law has both a criminal and a civil aspect is
to call the attention of the readers to such amends being made. 1 explained by Hale in his Law of the Press thus: "On the one hand, libeling a person results in
depriving him of his good reputation. Since reputation is a thing of value, truly rather to be
Respondent Fidel G. Cruz sued petitioners in the Court of First Instance of Manila for the
chosen than great riches , an impairment of it is a personal wrong. To redress this personal
recovery of damages alleging the defamatory character of the above publication of his
wrong money damages are awarded to the injured person. On the other hand, the
picture. After trial duly had, he was awarded five thousand pesos as actual damages,
publication of defamatory statements tends strongly to induce breach of the peace by the
another five thousand pesos as moral damages, and one thousand pesos for attorney's fees.
person defamed, and hence is of peculiar moment to the state as the guardian of the public
That judgment was affirmed on appeal to respondent Court. Hence, this petition for
peace. Viewed from this angle, libel is a crime, and as such subjects the offender to a fine or
certiorari with the result, as already announced at the opening of this opinion, that while
imprisonment." 11
respondent Cruz is entitled to Prevail, the damages awarded him should be reduced.
The first decision cited by Newell is a decision of Justice Holmes. The case is Peck v. Tribune
1. It is on the freedom of the press that petitioners would stake their case to demonstrate
Co. 1 2 Plaintiff there complained of her picture being published in an advertisement in
that no action for libel would lie arising from the publication of the picture of respondent
defendant's newspaper. The Chicago Sunday Tribune, with certain words of commendation
Cruz identified as responsible for the hoax of the year, when such was not the case at all. It is
for a brand of liquor attributed to her when in fact she did not make such a statement at all
easily understandable why. No liability would be incurred if it could be demonstrated that it
and could not have made it, as she was a total abstainer. The defendant was held liable, for
comes within the well-nigh all embracing scope of freedom of the press. Included therein is
as Justice Holmes pointed out: "There was some suggestion that the defendant published
the widest latitude of choice as to what items should see the light of day so long as they are
the portrait by mistake, and without knowledge that it was the plaintiff's portrait, or was not
relevant to a matter of public interest, the insistence on the requirement as to its truth
what it purported to be. But the fact, if it was one, was no excuse. If the publication was
yielding at times to unavoidable inaccuracies attendant on newspapers and other
libelous, the defendant took the risk. As was said of such matters by Lord Mansfield,
publications being subject to the tyranny of deadlines. If no such showing could be plausibly
'Whenever a man publishes, he publishes at his peril.' ... The reason is plain. A libel is
made, however, it is difficult to resist the conclusion that there was in fact the commission of
harmful on its face. If a man sees fit to publish manifestly hurtful statements concerning an
such quasi-delict. It was held in Lu Chu Sing v. Lu Tiong Gui,2 that "the repeal of the old Libel
individual, without other justification than exists for an advertisement or a piece of news,
Law (Act No. 277) did not abolish the civil action for libel." 3 A libel was defined in that Act as
the usual principles of tort will make him liable if the statements are false, or are true only of
a "malicious defamation, expressed either in writing, printing, or by signs or pictures, or the
someone else." 1 3
like, ..., tending to blacken the memory of one who is dead or to impeach the honesty,
virtue, or reputation, or publish the alleged or natural defects of one who is alive, and Learned Hand, in holding that an action for libel would lie arising from a publication in an
thereby "pose him to public hatred, contempt, or ridicule," 4 There was an express provision advertisement of plaintiff's photograph yielding a "grotesque monstrous and obscene
in such legislation for a tort or a quasi-delict action arising from libel. 5 There is reinforcement impression" and that he was "substantially enough ridiculed" to complain reached the
to such a view in the new Civil Code providing for the recovery of moral damages for libel, conclusion "that because the picture taken with the legends was calculated to expose the
slander or any other form of defamation.6 plaintiff to more than trivial ridicule, it was prima facie actionable; that the fact that it did
not assume to state a fact or an opinion is irrelevant; and that in consequence the
There has been no time then in our judicial history when civil actions for libel did not form a
publication is actionable." 1 4 It is likewise an accepted fact that such publications do
staple part of litigations which had reached this Court. 7 Such is the case in a far greater
occasion greater injury to reputation than would mere words alone. Cardozo so aptly put the
measure in the United States. According to the standard treatise of Newell on Slander and
matter thus: "'It has its genesis in evils which the years have not erased. Many things that
Libel: "Publication of a person's photograph in connection with an article libelous of a third
are defamatory may be said with impunity through the medium of speech. Not so, however,
person, is a libel on the person whose picture is published, where the acts set out in the
when speech is caught upon the wing and transmuted into print. What gives the sting to the
article are imputed to such person."8 In support of the above statement, he made reference
writing is its permanence of form. The spoken word dissolves, but the written one abide and
Perpetuates the scandal.' ... When one speaks of a writing in this connection, one does not
limit oneself to writings in manuscripts or books. Any symbol suffices — Pictures,
hieroglyphics shorthand notes — if only what is written is intelligible to him who reads." 1 5
2. That is only one side of the picture, however. There is an impressive recognition in our
decisions of the curtailment to which press freedom would be subjected if an action for libel
were not rigorously scrutinized to remove doubts as to its being utilized to penalize the
exercise of that constitutional right Thus, in the first leading case, United States v.
Bustos, 1 6 Justice Malcolm could correctly stress: "The interest of society and the
maintenance of good government demand a full discussion of public affairs. Complete
liberty to comment on the conduct of public men is a scalpel in the case of free speech. The
sharp incision of its probe relieves the abscesses of officialdom. Men in public life may suffer
under a hostile and an unjust accusation: the wound can be assuaged with the balm of a
clear conscience. A public officer must not to be too thin-skinned with reference to
comment upon his official acts. Only thus can the intelligence and dignity of the individual
be exalted. Of course, criticism does not authorize defamation. Nevertheless, as an
individual is less than the State, so must expected criticism be born for the common
good." 1 7 On this aspect of the question which, as answered by him, would require that a
criminal suit for libel should not be utilized as a means for stifling press freedom, he
categorically declared: "Public policy, the welfare of society, and the orderly administration
of government have demanded protection for public opinion. The inevitable and
incontestable result has been the development and adoption of the doctrine of
privilege." 1 8
In another civil action for libel, such a thought is expressed differently in this wise: "So long
as it is done in good faith, newspapers have the legal right to have and express opinions on
legal questions. To deny them that right would infringe upon the freedom of the
press." 1 9 The last word on the subject, up to now at least, came from Quisumbing v.
Lopez. 2 0 In the language of the then Chief Justice Paras, who penned the opinion: "The
Court of Appeals found as a fact that "there is no evidence in the record to prove that the
publication of the news item under Consideration was prompted by personal ill will or spite,
or that there was intention to do harm,' and that on the other hand there was 'an honest
and high sense of duty to serve the best interests of the public, without self-seeking motive
and with malice towards none.' Every citizen of course has the right to enjoy a good name
and reputation, but we do not consider that the respondents, under the circumstances of
this case, had violated said right or abused the freedom of the press. The newspapers should
be given such leeway and tolerance as to enable them to courageously and effectively
perform their important role in our democracy. In the preparation of stories, press reporters
and edition usually have to race with their deadlines; and consistently with good faith and
reasonable care, they should not be held to account, to a point of suppression, for honest
mistakes or imperfection in the choice of words." 2 1
It was not until 1964 that the United States Supreme Court had occasion to speak its mind
on the subject. In the leading case of New York Times Co. v. Sulivan, 2 2 the nature of the
question presented was set forth by Justice Brennan for the Court in the opening paragraph
of his opinion: "We are required in this case to determine for the first time the extent to
which the constitutional protections for speech and press limit a State's power to award
damages in a libel action brought by a public official against critics of his official
conduct." 2 3 This is the Court's approach to such an issue: "In deciding the question now, we
are compelled by neither precedent nor Policy to give any more weight to the epithet 'libel'
than we have to other 'mere labels' of state law. ... Like insurrection, contempt, advocacy of
unlawful acts, breach of the peace, obscenity, solicitation of legal business, and the various
other formulae for the repression of expression that have been challenged in this Court, libel
can claim no talismanic immunity from constitutional limitations. It must be measured by
standards that satisfy the First Amendment." 2 4 Continuing the same trend, the opinion
stressed further: "Thus we consider this case against the background of a profound national
commitment to the principle that debate on public issues should be uninhibited, robust, and
wide-open, and that it may well include vehement, caustic, and sometimes unpleasantly
sharp attacks on government and public officials. ... The present advertisement, as an
expression of grievance and protest on one of the major public issues of our time, would
seem clearly to qualify for the constitutional protection." 2 5
For liability to arise then without offending press freedom, there is this test to meet: "The
constitutional guarantees require, we think, a federal rule that prohibits a public official from
recovering damages for a defamatory falsehood relating to his official conduct unless he
proves that the statement was made with 'actual malice' — that is, with knowledge that it
was false or with reckless disregard of whether it was false or not." 2 6 The United States
Supreme Court went further in Curtis Publishing Co. v. Butts, 2 7 where such immunity, was
held as covering statements concerning public figures regardless of whether or not they are
government officials. Why there should be such an extension is understandable in the light
of the broad scope enjoyed by press freedom which certainly allows a full and free
discussion of public issues. What can be more logical and appropriate, then, than such an
expansion of the principle. As noted by a commentator: "Since discussion of public issues
cannot be meaningful without reference to the men involved on both sides of such issues,
and since such men will not necessarily be public officials, one cannot but agree that the
Court was right in Curtis to extend the Times rule to all public figures." 2 8
The significance of the foregoing line of decisions impressive for their consistency is quite the first article, by stating that neither Col. Alba nor the PCAC had filed the aforementioned
obvious. No inroads on press freedom should be allowed in the guise of punitive action complaints with the city fiscal's office. It, likewise, indicated the number of sheets of stencil
visited on what otherwise could be characterized as libel whether in the form of printed involved in said complaints. But, this rectification or clarification does not wipe out the
words or a defamatory imputation resulting from the publication of respondent's picture responsibility arising from the publication of the first article, although it may and should
with the offensive caption as in the case here complained of. This is not to deny that the mitigate it (Jimenez vs. Reyes, 27 Phil. 52)." 3 0
party responsible invites the institution either of a criminal prosecution or a civil suit. It must
The correction promptly made by petitioners would thus call for a reduction in the damages
be admitted that what was done did invite such a dire consequence, considering the value
awarded. It should be noted that there was no proof of any actual pecuniary logs arising
the law justly places on a man's reputation. This is merely to underscore the primacy that
from the above publication. It is worthwhile to recall what Justice Malcolm referred to as the
freedom of the press enjoys. It ranks rather high in the hierarchy of legal values. If the cases
tolerant attitude on the part of appellate courts on this score, the usual practice being "more
moan anything at all then, to emphasize what has so clearly emerged, they call for the
likely to reduce damages for libel than to increase them." 3 1
utmost care on the part of the judiciary to assure that in safeguarding the interest of the
party allegedly offended a realistic account of the obligation of a news media to disseminate WHEREFORE, the decision of respondent Court of Appeals of August 25, 1966 affirming the
information of a public character and to comment thereon as well as the conditions lower court decision of March 22, 1958 is hereby modified, petitioners Eugenio Lopez and
attendant on the business of publishing cannot be ignored. To single out one Juan T. Gatbonton being ordered to pay jointly and severally the sum of P500.00 as moral
decision, Quisumbing v. Lopez so speaks in tones loud and clear. damages and the additional amount of P500.00 for attorney's fees. Costs against petitioners.
3. It is to the haven thus afforded by such a highly sympathetic ruling to press freedom that Concepcion, C.J., Reyes, J.B.L., Zaldivar and Teehankee, JJ., concur.
petitioners would seek refuge. The defamatory matter complained of in the Quisumbing
case appeared in the headline. It was without basis, as shown by the text of the news item Castro and Barredo, JJ., concur in the result.
itself. Nonetheless, for the reasons expressed with vigor and clarity by former Chief Justice
Paras, no liability was deemed incurred by the then publisher of the Manila Chronicle A
newspaper, it is stressed, "should not be held to account to a point of suppression for honest
mistakes or imperfection in the choice of words." The above ruling, coupled with the
requirement in the New York Times decision of the United States Supreme Court, would for
the writer of this opinion, furnish a sufficient basis for the success of this appeal. The Court,
however, is not inclined to view matters thus. Obviously Quisumbing v. Lopez is not squarely
in point. Here there was no pressure of a daily deadline to meet no occasion to act with
haste as the picture of respondent was published in a weekly magazine. Moreover, there is
the added requirement of reasonable care imposed by such decision which from the facts
here found, appeared not to be satisfied. It cannot be concluded then that the plea of
petitioners is sufficiently persuasive. The mandate of press freedom is not ignored, but here
it does not speak unequivocally. It is not decisive of the basic issue. By itself, it does not have
a controlling significance. So we hold.

4. Petitioners would make much, likewise, of their correction, which has all the force of a
retraction, as a basis from being absolved from any pecuniary responsibility. The present
Chief Justice in Policarpio v. Manila Times 2 9 restated the controlling principle: "We note
that the news item published on August 13, 1956, rectified a major inaccuracy contained in
 Today is Tuesday, October 16, 2018 Madrigal Business Park (MBP lot) in Alabang, Muntinlupa. Petitioner bought the MBP lot through
investment in the MBP lot came about upon the invitation of VMC, which also purchased two lots. P
the MBP lot is 49.59%. Petitioner’s investment manager, the Citytrust Banking Corporation (Citytrust
Analysis, regularly reported the Employees’ Trust Fund’s share in the MBP lot. 9 The MBP lot is cover
No. 183907 (TCT 183907) with VMC as the registered owner. 10

Petitioner claims that since it needed funds to pay the retirement and pension benefits of VMC emplo
made by VMC, petitioner’s Board of Trustees authorized the sale of its share in the MBP lot. 11

Republic of the On 14 March 1997, VMC negotiated the sale of the MBP lot with Metropolitan Bank and Trust
Philippines
SUPREME ₱81,675,000, but the consummation
COURT of the sale was withheld. 12 On 26 March 1997, VMC eventually
Manila VMC, through its Vice President Rolando Rodriguez and Assistant Vice President Teodorico Escober, s
as the sole vendor.
SECOND DIVISION
Metrobank, as withholding agent, paid the Bureau of Internal Revenue (BIR) ₱6,125,625 as with
G.R. No. 162175 June 28, 2010 property.
MIGUEL J. OSSORIO PENSION FOUNDATION, INCORPORATED,
Petitioner alleges that the parties who co-owned the MBP lot executed a notarized Memorandum of
vs. the sale, the pertinent provisions of which state: 13
COURT OF APPEALS and COMMISSIONER OF INTERNAL REVENUE, Respondents.
2. The said parcels of land are actually co-owned by the following:
DECISION
Block 4, Lot 1 Covered by TCT No. 183907
CARPIO, J.:
% SQ.M. AMOUNT
The Case

The Miguel J. Ossorio Pension Foundation, Incorporated (petitioner or MJOPFI) filed this Petition for Certiorari
MJOPF 49.59% 450.00 ₱ 5,504,748.25
Issuance of a Temporary Restraining Order and/or Writ of Preliminary Injunction to reverse the Court of Appeals’
I (CA) Decision
3
30 May 2003 in CA-G.R. SP No. 61829 as well as the Resolution dated 7 November 2003 denying the Motion for Reconsideration. In
the assailed decision, the CA affirmed the Court of Tax Appeals’ (CTA) Decision 4 dated 24 October 2000. TheVMC CTA denied petitioner’s
32.23% 351.02 3,578,294.70
claim for refund of withheld creditable tax of ₱3,037,500 arising from the sale of real property of which petitioner claims to be a co-
owner as trustee of the employees’ trust or retirement funds. VFC 18.18% 197.98 2,018,207.30

The Facts 3. Since Lot 1 has been sold for ₱81,675,000.00 (gross of 7.5% withholding tax and 3% broker’s co
proceeds
Petitioner, a non-stock and non-profit corporation, was organized for the purpose of holding title to and of the sale
administering the is ₱40,500,000.00 (gross of 7.5% withholding tax and 3% broker’s commission
employees’
trust or retirement funds (Employees’ Trust Fund) established for the benefit of the employees ofindebtedVictoriastoMilling
VMC representing pension benefit advances paid to retirees amounting to ₱21,425,141
Company, Inc.
(VMC). Petitioner, as trustee, claims that the income earned by the Employees’ Trust Fund is tax exempt under Section 53(b) of the Check for said amount of ₱14,822,358.46 will therefore be issu
5 ₱14,822,358.46 in favor of MJOPFI.
National Internal Revenue Code (Tax Code). proceeds of the sale of Lot 1. The check corresponding to said amount will be deposited with M
Management & Trust Group which will then be invested by it in the usual course of its administration
Petitioner alleges that on 25 March 1992, petitioner decided to invest part of the Employees’ Trust Fund to purchase a lot
Petitioner claims that it is a co-owner of the MBP lot as trustee of the Employees’ Trust Fund, based on
ii. the
Thatnotarized
VMC held Memorandum
the property of in trust for North Legaspi Land Development Corporation, North Neg
Agreement presented before the appellate courts. Petitioner asserts that VMC has confirmed that Insurance
petitioner,
Factors
as Corporation,
trustee of theVictorias Science and Technical Foundation, Inc. and Canetown Develo
Employees’ Trust Fund, is VMC’s co-owner of the MBP lot. Petitioner maintains that its ownership of the MBP lot is supported by the
iii. That the previous agreement (ii) was cancelled and it showed that the MBP lot was co-owned
excerpts of the minutes and the resolutions of petitioner’s Board Meetings. Petitioner further contends that there is no dispute that 22
Insurance Factors Corporation (VFC).
the Employees’ Trust Fund is exempt from income tax. Since petitioner, as trustee, purchased 49.59% of the MBP lot using funds of the
Employees’ Trust Fund, petitioner asserts that the Employees’ Trust Fund's 49.59% share in the income The CTA taxruled
paid that
(or ₱3,037,697.40
these pieces of evidence are self-serving and cannot by themselves prove petition
14
rounded off to ₱3,037,500) should be refunded. when the TCT, the Deed of Absolute Sale, and the Monthly Remittance Return of Income Taxes Withh
otherwise. The CTA further ruled that petitioner failed to present any evidence to prove that the mon
Petitioner maintains that the tax exemption of the Employees’ Trust Fund rendered the payment of ₱3,037,500 as illegal or erroneous.
came from the Employees' Trust Fund.23
On 5 May 1997, petitioner filed a claim for tax refund. 15
The CTA concluded that petitioner is estopped from claiming a tax exemption. The CTA pointed out t
On 14 August 1997, the BIR, through its Revenue District Officer, wrote petitioner stating that under Section 26 of the Tax Code,
to believe that it is the sole owner of the MBP lot through its execution of the Deeds of Absolute Sa
petitioner is not exempt from tax on its income from the sale of real property. The BIR asked petitioner to submit documents to prove
subsequent sale of the MBP lot and through the registration of the MBP lot in VMC’s name. Conse
its co-ownership of the MBP lot and its exemption from tax. 16
VMC’s name alone. The CTA stated that petitioner may not now claim a refund of a portion of the tax
On 2 September 1997, petitioner replied that the applicable provision granting its claim for tax exemption
presenting
is not Section
Secretary’s
26 but
Certificates
Section and memoranda of agreement in order to prove its ownership. T
53(b) of the Tax Code. Petitioner claims that its co-ownership of the MBP lot is evidenced by Board hence,
Resolution
theseNos.
documents
92-34 and merit very little weight. 24
96-46
and the memoranda of agreement among petitioner, VMC and its subsidiaries. 17
The Ruling of the Court of Appeals
Since the BIR failed to act on petitioner’s claim for refund, petitioner elevated its claim to the Commissioner of Internal Revenue (CIR)
The CA declared that the findings of the CTA involved three types of documentary evidence that p
on 26 October 1998. The CIR did not act on petitioner’s claim for refund. Hence, petitioner filed a petition for tax refund before the
contention that it purchased 49.59% of the MBP lot with funds from the Employees’ Trust Fund: (1
CTA. On 24 October 2000, the CTA rendered a decision denying the petition. 18
executed by petitioner and other VMC subsidiaries; (2) Secretary’s Certificates containing excer
On 22 November 2000, petitioner filed its Petition for Review before the Court of Appeals. On 20 conducted
May 2003, by the
the CA
respective
renderedboards
a of directors or trustees of VMC and petitioner; (3) Certified T
19
decision denying the appeal. The CA also denied petitioner’s Motion for Reconsideration. Analysis issued by Citytrust regarding the investment of ₱5,504,748.25 in Madrigal Business Park I for

Aggrieved by the appellate court’s Decision, petitioner elevated the case before this Court. The CA agreed with the CTA that these pieces of documentary evidence submitted by petitioner ar
contrived easily. The CA ruled that these documents failed to show that the funds used to purch
The Ruling of the Court of Tax Appeals
Employees’ Trust Fund. The CA explained, thus:
20
The CTA held that under Section 53(b) [now Section 60(b)] of the Tax Code, it is not petitioner that is entitled to exemption from
We are constrained to echo the findings of the Court of Tax Appeals in regard to the failure of th
income tax but the income or earnings of the Employees’ Trust Fund. The CTA stated that petitioner is not the pension trust itself but
documents pertaining to its investments, e.g. title to the subject property, were really in its name,
it is a separate and distinct entity whose function is to administer the pension plan for some VMC employees.
resulting tax benefit that such foresight or providence would produce; hence, genuine efforts tow
evaluating the evidence adduced by the parties, ruled that petitioner is not a party in interest.
exerted, this notwithstanding the alleged difficulty of procuring a title under the names of all the co-o
To prove its co-ownership over the MBP lot, petitioner presented the following documents: understand why petitioner would allow the title of the property to be placed solely in the name of p
the VMC, although it allegedly owned a much bigger (nearly half), portion thereof. Withal, petition
a. Secretary’s Certificate showing how the purchase and eventual sale of the MBP lot came about. speak, on its investment, and we are not impressed by the documents which the petitioner presented

b. Memoranda of Agreement showing various details: "mobility" of the subject real estate assets between or among the petitioner, the VMC and the latter'
the subject parcel of land was registered and sold under the name solely of VMC, even as payment o
i. That the MBP lot was co-owned by VMC and petitioner on a 50/50 basis; its name, we cannot but concur with the finding of the Court of Tax Appeals that petitioner's claim
tax is bereft of solid juridical basis.26 Generally, the factual findings of the CTA, a special court exercising expertise on the subject of tax, a
conclusive upon this Court, especially if these are substantially similar to the findings of the CA whic
The Issues
questions of fact.27 However, there are recognized exceptions to this rule, 28such as when the judgmen
The issues presented are: of facts.

1. Whether petitioner or the Employees’ Trust Fund is estopped from claiming that the Employees’ Trust Petitioner contends
Fund is that the
the beneficial CA erred in evaluating the documents as self-serving instead of consider
owner
because
of 49.59% of the MBP lot and that VMC merely held 49.59% of the MBP lot in trust for the Employees’ Trust Fund. they are public documents duly notarized by a Notary Public and presumed to be regu
Petitioner explains that the CA erred in doubting the authenticity and genuineness of the three mem
2. If petitioner or the Employees’ Trust Fund is not estopped, whether they have sufficiently established that the
as evidence. Employees’
Petitioner Trustthat there is nothing wrong in the execution of the three memoran
submits
Fund is the beneficial owner of 49.59% of the MBP lot, and thus entitled to tax exemption for its sharePetitioner
in the proceeds
points from the sale
out that VMCofauthorized petitioner to administer its Employees’ Trust Fund which
the MBP lot. from its founder, Miguel J. Ossorio, with his shares of stocks and share in VMC's profits. 29
The Ruling of the Court Petitioner argues that the Citytrust report reflecting petitioner’s investment in the MBP lot is co
We grant the petition. Employees’ Trust Funds was used to purchase the MBP lot. In fact, the CIR did not dispute the a
documentary evidence. Further, it would be unlikely for Citytrust to issue a certified copy of the P
The law expressly allows a co-owner (first co-owner) of a parcel of land to register his proportionate share in theinvested
petitioner name ofinhis co-owner
the MBP lot if it were not true. 30
(second co-owner) in whose name the entire land is registered. The second co-owner serves as a legal trustee of the first co-owner
insofar as the proportionate share of the first co-owner is concerned. The first co-owner remains the Petitioner
owner of hisclaims that substantial
proportionate share evidence is all that is required to prove petitioner’s co-ownership an
and not the second co-owner in whose name the entire land is registered. Article 1452 of the Civil Code overwhelmingly
provides: proved that petitioner is a co-owner of the MBP lot to the extent of 49.59% of the MB

Art. 1452. If two or more persons agree to purchase a property and by common consent the legal title Thus, how the
is taken parties
in the namebecame
of one ofco-owners was shown by the excerpts of the minutes and the resolu
them for the benefit of all, a trust is created by force of law in favor of the others in proportion tothethepetitioner
interest ofand those
each. of VMC. All these documents showed that as far as March 1992, petitioner a
(Emphasis
supplied) co-owner of the said property. It then decided to invest the retirement funds to buy the said prope
49.59% thereof. When it was sold to Metrobank, petitioner received its share in the proceeds from th
For Article 1452 to apply, all that a co-owner needs to show is that there is "common consent" among the purchasing
resolutions co-owners
of the parties' to
respective Board of Directors were certified under oath by their respecti
put the legal title to the purchased property in the name of one co-owner for the benefit of all. Once this "common consent" is shown,
time. The corporate certifications are accorded verity by law and accepted as prima facie evidence
"a trust is created by force of law." The BIR has no option but to recognize such legal trust as well asmeetings
the beneficial
because ownership of thesecretary is, for the time being, the board itself. 31
the corporate
real owners because the trust is created by force of law. The fact that the title is registered solely in the name of one person is not
conclusive that he alone owns the property. Petitioner, citing Article 1452 of the Civil Code, claims that even if VMC registered the land solely in
the absolute owner of the whole property or deprive petitioner of its rights as a co-owner. 32 Petition
Thus, this case turns on whether petitioner can sufficiently establish that petitioner, as trustee of the Employees’
system, Trust of
the issuance Fund,
a TCThas
doesa not create or vest a title and it has never been recognized as a mod
common agreement with VMC and VFC that petitioner, VMC and VFC shall jointly purchase the MBP lot and put the title to the MBP
lot in the name of VMC for the benefit petitioner, VMC and VFC. The issues of whether petitioner or the Employees’ Trust Fund is estopped from claiming 49.59% ow
the documents presented by petitioner are self-serving, and whether petitioner has proven its exemp
We rule that petitioner, as trustee of the Employees’ Trust Fund, has more than sufficiently establishedfactthat
whichit has an agreement
could with after reviewing, examining and evaluating the probative value of t
only be resolved
VMC and VFC to purchase jointly the MBP lot and to register the MBP lot solely in the name of VMC for the benefit of petitioner, VMC
ruled that the documents presented by petitioner cannot prove its co-ownership over the MBP lot
and VFC. Absolute Sale and the Remittance Return disclosed that VMC is the sole owner and taxpayer.
Factual findings of the CTA will bethe appellate reviewed
However, courts failed to consider the genuineness and due execution of the notariz
when judgment is based on a misapprehension of facts. acknowledging petitioner’s ownership of the MBP lot which provides:
2. The said parcels of land are actually co-owned by the following: acquiring ownership. A TCT is merely an evidence of ownership over a particular property and its
person does not foreclose the possibility that the property may be co-owned by persons not named in
Block 4, Lot 1 Covered by TCT No. 183907
held in trust for another person by the registered owner. 35
% SQ.M. AMOUNT No particular words are required for the creation of a trust, it being sufficient that a trust is clearly int
or not the trustor and the trustee know that the relationship which they intend to create is called
MJOPF 49.59% 450.00 P 5,504,748.25 parties know the precise characteristic of the relationship which is called a trust because what is i
I manifested an intention to create the kind of relationship which in law is known as a trust. 37

VMC 32.23% 351.02 3,578,294.70 The fact that the TCT, Deed of Absolute Sale and the Remittance Return were in VMC’s name does no
property is owned by another entity because Article 1452 of the Civil Code expressly authorizes a
VFC 18.18% 197.98 2,018,207.30 with his own money and to take conveyance in the name of another.

In Tigno v. Court of Appeals, the Court explained, thus:

Thus, there is a "common consent" or agreement among petitioner, VMC and VFC to co-own the MBP lot in the proportion specified in
the notarized Memorandum of Agreement. An implied trust arises where a person purchases land with his own money and takes conveyance th
such a case, the property is held on resulting trust in favor of the one furnishing the consideration f
In Cuizon v. Remoto,34 we held:
intention or understanding appears. The trust which results under such circumstances does not arise
Documents acknowledged before notaries public are public documents and public documents areofadmissible the parties, in but
evidence
from thewithout
facts and circumstances; that is to say, the trust results because of equi
necessity of preliminary proof as to their authenticity and due execution. They have in their favor the operation
presumption of regularity, and to
of law. 38

contradict the same, there must be evidence that is clear, convincing and more than merely preponderant.
In this case, the notarized Memorandum of Agreement and the certified true copies of the Portfolio M
The BIR failed to present any clear and convincing evidence to prove that the notarized Memorandumclearly of Agreement
prove that is fictitious
petitioner or invested
has ₱5,504,748.25, using funds of the Employees' Trust Fund, to
no legal effect. Likewise, VMC, the registered owner, did not repudiate petitioner’s share in the MBP lot.
MBPFurther,
lot wasCitytrust,
registered a reputable
in VMC’s name only, a resulting trust is created by operation of law. A resulti
banking institution, has prepared a Portfolio Mix Analysis for the years 1994 to 1997 showing that petitioner
doctrineinvested ₱5,504,748.25
that valuable in and not legal title determines the equitable interest and is presu
consideration
the MBP lot. Absent any proof that the Citytrust bank records have been tampered or falsified, and by thethe
BIRparties.
has presented
39
Based on none,
this the
resulting trust, the Employees’ Trust Fund is considered the beneficial c
Portfolio Mix Analysis should be given probative value.
Petitioner has sufficiently proven that it had a "common consent" or agreement with VMC and VFC
The BIR argues that under the Torrens system, a third person dealing with registered property need The not go beyond
absence of the TCT and name
petitioner’s since in the TCT does not prevent petitioner from claiming before the BIR
the registered owner is VMC, petitioner is estopped from claiming ownership of the MBP lot. This argument is grosslyowner
is the beneficial erroneous. The of the MBP lot and that VMC merely holds 49.59% of the MBP lot in
of 49.59%
trustor-beneficiary is not estopped from proving its ownership over the property held in trust by thebenefit
trusteeofwhen the purposeTrust
the Employees’ is not
Fund.
to contest the disposition or encumbrance of the property in favor of an innocent third-party purchaser for value. The BIR, not being a
The BIR has acknowledged that the owner of a land can validly place the title to the land in the name
buyer or claimant to any interest in the MBP lot, has not relied on the face of the title of the MBP lot to acquire any interest in the lot.
[DA-(I-012) 190-09] dated 16 April 2009, a certain Amelia Segarra purchased a parcel of land and reg
There is no basis for the BIR to claim that petitioner is estopped from proving that it co-owns, as trustee of the Employees’ Trust Fund,
Segarra and Amelito Segarra as trustees on the condition that upon demand by Amelia Segarra, the tr
the MBP lot. Article 1452 of the Civil Code recognizes the lawful ownership of the trustor-beneficiary over the property registered in
favor of their sister, Arleen May Segarra-Guevara. The BIR ruled that an implied trust is deemed creat
the name of the trustee. Certainly, the Torrens system was not established to foreclose a trustor or beneficiary from proving its
land to the beneficiary is not subject to capital gains tax or creditable withholding tax.
ownership of a property titled in the name of another person when the rights of an innocent purchaser or lien-holder are not
involved. More so, when such other person, as in the present case, admits its being a mere trustee of Income
the trustor
fromorEmployees’
beneficiary.Trust Fund is Exempt from Income Tax

The registration of a land under the Torrens system does not create or vest title, because registration is notclaims
Petitioner one ofthat
thethe
modes of
Employees’ Trust Fund is exempt from the payment of income tax. Petition
it acts for the Employees’ Trust Fund, and can file the claim for refund. As trustee, petitioner considers
would result
itself as
in athe
diminution
entity that
of is
accumulated income and reduce whatever the trust beneficiaries wo
40
entitled to file a claim for refund of taxes erroneously paid in the sale of the MBP lot. This would run afoul of the very intendment of the law.

The Office of the Solicitor General argues that the cardinal rule in taxation is that tax exemptions are
In highly
Migueldisfavored
J. Ossorio and
Pension Foundation, Inc. v. Commissioner of Internal Revenue,45 the CTA held that
whoever
claims a tax exemption must justify his right by the clearest grant of law. Tax exemption cannot arise of withholding
by implicationtaxes
andpaid
any on
doubtinterest income from direct loans made by the Employees' Trust Fun
41
whether the exemption exists is strictly construed against the taxpayer. Further, the findings of the exempt
CTA, which
fromwere
tax. The
affirmed
CTA, in
byrecognizing
the petitioner’s entitlement for tax exemption, explained:
CA, should be given respect and weight in the absence of abuse or improvident exercise of authority.
In or about 1968, Victorias Milling Co., Inc. established a retirement or pension plan for its emplo
Section 53(b) and now Section 60(b) of the Tax Code provides: companies pursuant to a 22-page plan. Pursuant to said pension plan, Victorias Milling Co., Inc
contributions to the employee trust for the purpose of distributing or paying to said employees, t
SEC. 60. Imposition of Tax. -
funds accumulated by the trust in accordance with said plan. Under the plan, it is imposable, at any ti
(A) Application of Tax. - x x x liabilities with respect to employees under the trust, for any part of the corpus or income to be u
other than for the exclusive benefit of said employees. Moreover, upon the termination of the pl
(B) Exception. - The tax imposed by this Title shall not apply to employee’s trust which forms part of applied
a pension,for stock bonus or
the benefit of profit-
all employees and their beneficiaries entitled thereto in proportion to
sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer,
respective benefits as provided in said plan.
or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the
trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any timeTheprior
petitioner
to the and VictoriasofMilling
satisfaction all Co., Inc., on January 22, 1970, entered into a Memorandum
agreed
liabilities with respect to employees under the trust, for any part of the corpus or income to be (within that petitioner
the taxable would administer the pension plan funds and assets, as assigned and transf
year or thereafter)
used for, or diverted to, purposes other than for the exclusive benefit of his employees: Provided, Thatamounts that may
any amount fromdistributed
actually time to time be set aside by Victorias Milling Co., Inc. "For the benefit of the
is to be strictly adhered
to any employee or distributee shall be taxable to him in the year in which so distributed to the extent that it exceeds the amount to pursuant to the rules and regulations of the Pension Plan and of the Articl
contributed by such employee or distributee. of petitioner.

Petitioner’s Articles of Incorporation state the purpose for which the corporation was formed: The pension plan was thereafter submitted to the Bureau of Internal Revenue for registration and for
or earnings are exempt from income tax pursuant to Rep. Act 4917, in relation to Sec. 56(b), now Sec.
Primary Purpose
In a letter dated January 18, 1974 addressed to Victorias Milling Co., Inc., the Bureau of Internal Re
To hold legal title to, control, invest and administer in the manner provided, pursuant to applicable rules
theand conditions
trust as established,
fund of your retirement benefit plan is exempt from income tax, pursuant to Rep. Act 491
and in the interest and for the benefit of its beneficiaries and/or participants, the private pensionthe plan as established
Tax Code." for certain
employees of Victorias Milling Company, Inc., and other pension plans of Victorias Milling Company affiliates and/or
subsidiaries, the pension funds and assets, as well as accruals, additions and increments thereto, and In accordance
such amounts withas petitioner’s
may be set Articles of Incorporation (Annex A), petitioner would "hold leg
administer, in the
aside or accumulated for the benefit of the participants of said pension plans; and in furtherance of the foregoing and as may manner provided,
be pursuant to applicable rules and conditions as established,
43
incidental thereto. (Emphasis supplied) benefit of its beneficiaries and/or participants, the private pension plan as established for certain
Co., Inc. and other pension plans of Victorias Milling Co. affiliates and/or subsidiaries, the pension
Petitioner is a corporation that was formed to administer the Employees' Trust Fund. Petitioner invested ₱5,504,748.25
accruals, additionsofandtheincrements
funds of thereto, and such amounts as may be set aside or accumulated
the Employees' Trust Fund to purchase the MBP lot. When the MBP lot was sold, the gross income ofpursuant the Employees’ Trust Fund
to the same Articles fromof Incorporations, petitioner is empowered to "settle, compromis
the sale of the MBP lot was ₱40,500,000. The 7.5% withholding tax of ₱3,037,500 and broker’s commission were deducted
claims, debts or damages fromduetheor owing to or from pension funds and assets and other funds an
44
proceeds. In Commissioner of Internal Revenue v. Court of Appeals, the Court explained the rationale for the tax-exemption
commence or defend suits privilege
or legal proceedings and to represent said funds and assets in all suits or
of income derived from employees’ trusts:
Petitioner, through its investment manager, the City Trust Banking Corporation, has invested the
It is evident that tax-exemption is likewise to be enjoyed by the income of the pension trust. Otherwise,
treasury taxation of thoseBank
bills, Central earnings
bills, direct lending, etc. so as to generate income or earnings for
beneficiaries of the pension plan. Prior to the effectivity of Presidential Decree No. 1959 on October
from15,deposit
1984, substitutes
respondent isdidessentially
not to maximize and expedite the collection of income taxes by req
subject said income or earning of the employee trust to income tax because they were exempt from income
If an employees’
tax pursuanttrust
to like
Sec.the
56(b),
GCL enjoys a tax-exempt status from income, we see no logic in withho
now Sec. 54(b) of the Tax Code and the BIR Ruling dated January 18, 1984 (Annex D). (Boldfacing supplied;
incomeitalicization
which it isinnot
thesupposed
original) to pay in the first place.

xxx xxx

It asserted that the pension plan in question was previously submitted to the Bureau of Internal Revenue Similarly,
for a ruling
the income
as to whether
of the trust
thefunds involved herein is exempt from the payment of final withholdi
income or earnings of the retirement funds of said plan are exempt from income tax and in a letter dated January 18,1984,
This CTA decision became final and executory when the CIR failed to file a Petition for Review within t
ruled that the earnings of the trust funds of the pension plan are exempt from income tax under Sec. 56(b) of the Tax Code
(Emphasis supplied) Similarly, in BIR Ruling [UN-450-95], Citytrust wrote the BIR to request for a ruling exempting it from
on the sale of the land by various BIR-approved trustees and tax-exempt private emplo
"A close review of the provisions of the plan and trust instrument disclose that in reality the corpus and income of the trust fund are
funds48 represented by Citytrust. The BIR ruled that the private employees benefit trust funds, whic
not at no time used for, or diverted to, any purpose other than for the exclusive benefit of the plan beneficiaries. This fact was likewise
the requirements of the law and the regulations and therefore qualify as reasonable retire
confirmed after verification of the plan operations by the Revenue District No. 63 of the Revenue Region No. 14, Bacolod City. Section
contemplation of Republic Act No. 4917 (now Sec. 28(b)(7)(A), Tax Code). The income from the tru
X also confirms this fact by providing that if any assets remain after satisfaction of the requirements of all the above clauses, such
exempt from the payment of income tax and consequently from the payment of the creditable withho
remaining assets will be applied for the benefits of all persons included in such classes in proportion to the amounts allocated for their
property.49
respective benefits pursuant to the foregoing priorities.
Thus, the documents issued and certified by Citytrust showing that money from the Employees’ Tru
"In view of all the foregoing, this Office is of the opinion, as it hereby holds, that the income of the trust fund of your retirement
lot cannot simply be brushed aside by the BIR as self-serving, in the light of previous cases holding th
benefit plan is exempt from income tax pursuant to Republic Act 4917 in relation to Section 56(b) of the Tax Code. (Annex "D" of
the money of the Employees’ Trust Fund. These documents, together with the notarized Memorandum
Petition)
that petitioner, on behalf of the Employees’ Trust Fund, indeed invested in the purchase of the MB
This CTA decision, which was affirmed by the CA in a decision dated 20 January 1993, became final and Fund
executory
owns 49.59%
on 3 August
of the1993.
MBP lot.1avvphi1

The tax-exempt character of petitioner’s Employees' Trust Fund is not at issue in this case. The tax-exempt
Since character
petitionerofhas
theproven
Employees'
that the income from the sale of the MBP lot came from an investmen
Trust Fund has long been settled. It is also settled that petitioner exists for the purpose of holding title
petitioner,
to, and administering,
as trustee of the
theEmployees’
tax- Trust Fund, is entitled to claim the tax refund of ₱3,037,500 w
exempt Employees’ Trust Fund established for the benefit of VMC’s employees. As such, petitionersale hasofthe
thepersonality
MBP lot. to claim tax
refunds due the Employees' Trust Fund.
Wherefore, we GRANT the petition and SET ASIDE the Decision of 30 May 2003 of the Court of A
In Citytrust Banking Corporation as Trustee and Investment Manager of Various Retirement Funds Respondent
v. Commissioner
Commissioner
of Internal
of Internal Revenue is directed to refund petitioner Miguel J. Ossorio Pens
46
Revenue, the CTA granted Citytrust’s claim for refund on withholding taxes paid on the investments made trusteebyofCitytrust
the Employees’
in behalfTrust
of the
Fund, the amount of ₱3,037,500, representing income tax erroneousl
trust funds it manages, including petitioner.47 Thus:
SO ORDERED.
In resolving the second issue, we note that the same is not a case of first impression. Indeed, the petitioner is correct in its adherence
to the clear ruling laid by the Supreme Court way back in 1992 in the case of Commissioner of Internal Revenue vs. The Honorable
Court of Appeals, The Court of Tax Appeals and GCL Retirement Plan, 207 SCRA 487 at page 496, supra

xxx

There can be no denying either that the final withholding tax is collected from income in respect of which employees’ trusts are
declared exempt (Sec. 56(b), now 53(b), Tax Code). The application of the withholdings system to interest on bank deposits or yield
 Petitioner Celerino E. Mercado appeals the Decision [1] dated April 28, 2008 and
Resolution[2] dated July 22, 2008 of the Court of Appeals (CA) in CA-G.R. CV No. 87480. The
FIRST DIVISION
CA dismissed petitioners complaint [3] for recovery of possession, quieting of title, partial
declaration of nullity of deeds and documents, and damages, on the ground of prescription.

CELERINO E. MERCADO, G.R. No. 184109 The antecedent facts

Petitioner, Present: Doroteo Espinocilla owned a parcel of land, Lot No. 552, with an area of 570 sq. m., located
at Magsaysay Avenue, Zone 5, Bulan, Sorsogon. After he died, his five children, Salvacion,
Aspren, Isabel, Macario, and Dionisia divided Lot No. 552 equally among themselves. Later,
CORONA, C.J., Dionisia died without issue ahead of her four siblings, and Macario took possession of
Dionisias share. In an affidavit of transfer of real property [4] dated November 1, 1948,
Chairperson, Macario claimed that Dionisia had donated her share to him in May 1945.
LEONARDO-DE CASTRO, Thereafter, on August 9, 1977, Macario and his daughters Betty Gullaba and Saida Gabelo
- versus - BERSAMIN, sold[5] 225 sq. m. to his son Roger Espinocilla, husband of respondent Belen Espinocilla and
father of respondent Ferdinand Espinocilla. On March 8, 1985, Roger Espinocilla sold[6] 114
DEL CASTILLO, and sq. m. to Caridad Atienza. Per actual survey of Lot No. 552, respondent Belen Espinocilla
occupies 109 sq. m., Caridad Atienza occupies 120 sq. m., Caroline Yu occupies 209 sq. m.,
VILLARAMA, JR., JJ.
and petitioner, Salvacion's son, occupies 132 sq. m. [7]

The case for petitioner

BELEN* ESPINOCILLA** AND FERDINAND Promulgated:
Petitioner sued the respondents to recover two portions: an area of 28.5 [8] sq. m. which he
ESPINOCILLA,
bought from Aspren and another 28.5 sq. m. which allegedly belonged to him but was
Respondents. occupied by Macarios house.[9] His claim has since been modified to an alleged
February 1, 2012
encroachment of only 39 sq. m. that he claims must be returned to him. He avers that he is
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x entitled to own and possess 171 sq. m. of Lot No. 552, having inherited 142.5 sq. m. from his
mother Salvacion and bought 28.5 sq. m. from his aunt Aspren. According to him, his
mothers inheritance is 142.5 sq. m., that is, 114 sq. m. from Doroteo plus 28.5 sq. m. from
DECISION Dionisia. Since the area he occupies is only 132 sq. m., [10] he claims that respondents
encroach on his share by 39 sq. m.[11]

VILLARAMA, JR., J.:

The case for respondents

Respondents agree that Doroteos five children each inherited 114 sq. m. of Lot No.
The case 552. However, Macarios share increased when he received Dionisias share. Macarios
increased share was then sold to his son Roger, respondents husband and
father. Respondents claim that they rightfully possess the land they occupy by virtue of
acquisitive prescription and that there is no basis for petitioners claim of encroachment. [12]
The trial courts decision
On May 15, 2006, the Regional Trial Court (RTC) ruled in favor of petitioner and held that he
is entitled to 171 sq. m. The RTC found that petitioner inherited 142.5 sq. m. from his
mother Salvacion and bought 28.5 sq. m. from his aunt Aspren. The RTC computed that
Salvacion, Aspren, Isabel and Macario each inherited 142.5 sq. m. of Lot No. 552. Each
inherited 114 sq. m. from Doroteo and 28.5 sq. m. from Dionisia. The RTC further ruled that
Macario was not entitled to 228 sq. m. Thus, respondents must return 39 sq. m. to petitioner
who occupies only 132 sq. m.[13]
There being no public document to prove Dionisias donation, the RTC also held that
Macarios 1948 affidavit is void and is an invalid repudiation of the shares of his sisters
Salvacion, Aspren, and Isabel in Dionisias share. Accordingly, Macario cannot acquire said
shares by prescription. The RTC further held that the oral partition of Lot No. 552 by
Doroteos heirs did not include Dionisias share and that partition should have been the main
action. Thus, the RTC ordered partition and deferred the transfer of possession of the 39 sq.
m. pending partition.[14] The dispositive portion of the RTC decision reads:
WHEREFORE, in view of the foregoing premises, the court issues the following ORDER, thus -
a) Partially declaring the nullity of the Deed of Absolute Sale of Property dated August 9,
1977 x x x executed by Macario Espinocilla, Betty E. Gullaba and Saida E. Gabelo in favor of
Roger Espinocilla, insofar as it affects the portion or the share belonging to Salvacion
Espinocilla, mother of [petitioner,] relative to the property left by Dionisia Espinocilla,
including [Tax Declaration] No. 13667 and other documents of the same nature and
character which emanated from the said sale;
b) To leave as is the Deeds of Absolute Sale of May 11, 1983 and March 8, 1985, it having
been determined that they did not involve the portion belonging to [petitioner] x x x.
c) To effect an effective and real partition among the heirs for purposes of determining the
exact location of the share (114 sq. m.) of the late Dionisia Espinocilla together with the 28.5
sq. m. belonging to [petitioners] mother Salvacion, as well as, the exact location of the 39 sq.
m. portion belonging to the [petitioner] being encroached by the [respondents], with the
assistance of the Commissioner (Engr. Fundano) appointed by this court.
d) To hold in abeyance the transfer of possession of the 39 sq. m. portion to the [petitioner]
pending the completion of the real partition above-mentioned. [15]
The CA decision
On appeal, the CA reversed the RTC decision and dismissed petitioners complaint on the
ground that extraordinary acquisitive prescription has already set in in favor of
respondents. The CA found that Doroteos four remaining children made an oral partition of
Lot No. 552 after Dionisias death in 1945 and occupied specific portions. The oral partition
terminated the co-ownership of Lot No. 552 in 1945. Said partition also included Dionisias
share because the lot was divided into four parts only. And since petitioners complaint was
filed only on July 13, 2000, the CA concluded that prescription has set in. [16] The CA disposed
the appeal as follows:
WHEREFORE, the appeal is GRANTED. The assailed May 15, 2006 Decision of the Regional
Trial Court (RTC) of Bulan, Sorsogon is hereby REVERSED and SET ASIDE. The Complaint of
the [petitioner] is hereby DISMISSED. No costs.[17]
The instant petition
The core issue to be resolved is whether petitioners action to recover the subject portion is
barred by prescription.
Petitioner confirms oral partition of Lot No. 552 by Doroteo's heirs, but claims that his share
increased from 114 sq. m. to 171 sq. m. and that respondents encroached on his share by 39
sq. m. Since an oral partition is valid, the corresponding survey ordered by the RTC to
identify the 39 sq. m. that must be returned to him could be made. [18] Petitioner also alleges
that Macario committed fraud in acquiring his share; hence, any evidence adduced by him to
justify such acquisition is inadmissible. Petitioner concludes that if a person obtains legal
title to property by fraud or concealment, courts of equity will impress upon the title a so-
called constructive trust in favor of the defrauded party. [19]
The Courts ruling Macario cannot acquire by prescription the shares of Salvacion, Aspren, and Isabel, in
Dionisias 114-sq. m. share from Lot No. 552.

Moreover, the CA correctly dismissed petitioners complaint as an action for reconveyance

We affirm the CA ruling dismissing petitioners complaint on the ground of prescription.
based on an implied or constructive trust prescribes in 10 years from the time the right of
Prescription, as a mode of acquiring ownership and other real rights over immovable action accrues.[24] This is the other kind of prescription under the Civil Code, called extinctive
property, is concerned with lapse of time in the manner and under conditions laid down by prescription, where rights and actions are lost by the lapse of time. [25] Petitioners action for
law, namely, that the possession should be in the concept of an owner, public, peaceful, recovery of possession having been filed 55 years after Macario occupied Dionisias share, it
uninterrupted, and adverse. Acquisitive prescription of real rights may be ordinary or is also barred by extinctive prescription. The CA while condemning Macarios fraudulent act
extraordinary. Ordinary acquisitive prescription requires possession in good faith and with of depriving his three sisters of their shares in Dionisias share, equally emphasized the fact
just title for 10 years. In extraordinary prescription, ownership and other real rights over that Macarios sisters wasted their opportunity to question his acts.
immovable property are acquired through uninterrupted adverse possession for 30 years
WHEREFORE, we DENY the petition for review on certiorari for lack of merit and AFFIRM the
without need of title or of good faith. [20]
assailed Decision dated April 28, 2008 and Resolution dated July 22, 2008 of the Court of
Here, petitioner himself admits the adverse nature of respondents possession with his Appeals in CA-G.R. CV No. 87480.
assertion that Macarios fraudulent acquisition of Dionisias share created a constructive
No pronouncement as to costs.
trust. In a constructive trust, there is neither a promise nor any fiduciary relation to speak of
and the so-called trustee (Macario) neither accepts any trust nor intends holding the SO ORDERED.
property for the beneficiary (Salvacion, Aspren, Isabel). The relation of trustee and cestui
que trust does not in fact exist, and the holding of a constructive trust is for the trustee
himself, and therefore, at all times adverse. [21] Prescription may supervene even if the
trustee does not repudiate the relationship. [22]

Then, too, respondents uninterrupted adverse possession for 55 years of 109 sq. m. of Lot
No. 552 was established. Macario occupied Dionisias share in 1945 although his claim that
Dionisia donated it to him in 1945 was only made in a 1948 affidavit. We also agree with the
CA that Macarios possession of Dionisias share was public and adverse since his other co-
owners, his three other sisters, also occupied portions of Lot No. 552. Indeed, the 1977 sale
made by Macario and his two daughters in favor of his son Roger confirms the adverse
nature of Macarios possession because said sale of 225 sq. m. [23] was an act of ownership
over Macarios original share and Dionisias share. In 1985, Roger also exercised an act of
ownership when he sold 114 sq. m. to Caridad Atienza. It was only in the year 2000, upon
receipt of the summons to answer petitioners complaint, that respondents peaceful
possession of the remaining portion (109 sq. m.) was interrupted. By then, however,
extraordinary acquisitive prescription has already set in in favor of respondents. That the
RTC found Macarios 1948 affidavit void is of no moment. Extraordinary prescription is
unconcerned with Macarios title or good faith. Accordingly, the RTC erred in ruling that
 PUNO, C.J.:

Republic of the Philippines

Supreme Court
This is a Petition for Review on Certiorari[1] assailing the Decision[2] of the Court of Appeals
Manila
(CA) in CA-G.R. CV No. 42993 which reversed and set aside the Decision of the Regional Trial
Court (RTC) of Olongapo City, Branch 74, in Civil Case No. 558-0-88.

FIRST DIVISION

The instant case traces its origin to an action for partition filed by petitioners Felix Ting Ho,
Jr., Merla Ting Ho Braden, Juana Ting Ho and Lydia Ting Ho Belenzo against their brother,
respondent Vicente Teng Gui, before the RTC, Branch 74 of Olongapo City. The controversy
FELIX TING HO, JR., G.R. No. 130115 revolves around a parcel of land, and the improvements established thereon, which,
according to petitioners, should form part of the estate of their deceased father, Felix Ting
MERLA TING HO BRADEN, Ho, and should be partitioned equally among each of the siblings.
JUANA TING HO & LYDIA

TING HO BELENZO, Present: In their complaint before the RTC, petitioners alleged that their father Felix Ting Ho died
intestate on June 26, 1970, and left upon his death an estate consisting of the following:

Petitioners, PUNO, C.J., Chairperson, a) A commercial land consisting of 774 square meters, more or less, located at Nos. 16 and
18 Afable St., East Bajac-Bajac, Olongapo City, covered by Original Certificate of Title No. P-
CARPIO, 1064 and Tax Declaration No. 002-2451;
CORONA, b) A two-storey residential house on the aforesaid lot;
- versus - AZCUNA, and c) A two-storey commercial building, the first floor rented to different persons and the
LEONARDO-DE CASTRO, JJ. second floor, Bonanza Hotel, operated by the defendant also located on the above described
lot; and
Promulgated:
d) A sari-sari store (formerly a bakery) also located on the above described lot. [3]
VICENTE TENG GUI,

Respondent. July 16, 2008

According to petitioners, the said lot and properties were titled and tax declared under trust
in the name of respondent Vicente Teng Gui for the benefit of the deceased Felix Ting Ho
who, being a Chinese citizen, was then disqualified to own public lands in the Philippines;
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x
and that upon the death of Felix Ting Ho, the respondent took possession of the same for his
own exclusive use and benefit to their exclusion and prejudice. [4]

DECISION
In his answer, the respondent countered that on October 11, 1958, Felix Ting Ho sold the
commercial and residential buildings to his sister-in-law, Victoria Cabasal, and the bakery to
his brother-in-law, Gregorio Fontela.[5] He alleged that he acquired said properties from the
respective buyers on October 28, 1961 and has since then been in possession of subject
properties in the concept of an owner; and that on January 24, 1978, Original Certificate of
Title No. P-1064 covering the subject lot was issued to him pursuant to a miscellaneous sales
patent granted to him on January 3, 1978.[6]
The undisputed facts as found by the trial court (RTC), and affirmed by the appellate court
(CA), are as follows:
[T]he plaintiffs and the defendant are all brothers and sisters, the defendant being the
oldest. They are the only legitimate children of the deceased Spouses Felix Ting Ho and
Leonila Cabasal. Felix Ting Ho died on June 26, 1970 while the wife Leonila Cabasal died
on December 7, 1978. The defendant Vicente Teng Gui is the oldest among the children as
he was born on April 5, 1943. The father of the plaintiffs and the defendant was a Chinese
citizen although their mother was Filipino. That sometime in 1947, the father of the plaintiffs
and defendant, Felix Ting Ho, who was already then married to their mother Leonila Cabasal,
occupied a parcel of land identified to (sic) as Lot No. 18 Brill which was thereafter identified
as Lot No. 16 situated at Afable Street, East Bajac-Bajac, Olongapo City, by virtue of the
permission granted him by the then U.S. Naval Reservation Office, Olongapo, Zambales. The
couple thereafter introduced improvements on the land. They built a house of strong
material at 16 Afable Street which is a commercial and residential house and another
building of strong material at 18 Afable Street which was a residential house and a
bakery. The couple, as well as their children, lived and resided in the said properties until
their death. The father, Felix Ting Ho had managed the bakery while the mother managed
the sari-sari store. Long before the death of Felix Ting Ho, who died on June 26, 1970, he
executed on October 11, 1958 a Deed of Absolute Sale of a house of strong material
located at 16 Afable Street, Olongapo, Zambales, specifically described in Tax Dec. No.
5432, in favor of Victoria Cabasal his sister-in-law (Exh. C). This Deed of Sale cancelled the
Tax Dec. of Felix Ting Ho over the said building (Exh. C-1) and the building was registered in
the name of the buyer Victoria Cabasal, as per Tax Dec. No. 7579 (Exh. C-2). On the same
date, October 11, 1958 the said Felix Ting Ho also sold a building of strong material located
at 18 Afable Street, described in Tax Dec. No. 5982, in favor of Gregorio Fontela, of legal
age, an American citizen, married (Exh. D). This Deed of Sale, in effect, cancelled Tax Dec.
No. 5982 and the same was registered in the name of the buyer Gregorio Fontela, as per Tax
Dec. No. 7580 (Exh. D-2).In turn Victoria Cabasal and her husband Gregorio Fontela sold to
Vicente Teng Gui on October 28, 1961 the buildings which were bought by them from Felix
Ting Ho and their tax declarations for the building they bought (Exhs. C-2 and D-2) were
accordingly cancelled and the said buildings were registered in the name of the defendant
Vicente Teng Gui (Exhs. C-3 and D-3). On October 25, 1966 the father of the parties Felix
Ting Ho executed an Affidavit of Transfer, Relinquishment and Renouncement of Rights and
Interest including Improvements on Land in favor of his eldest son the defendant Vicente
Teng Gui. On the basis of the said document the defendant who then chose Filipino
citizenship filed a miscellaneous sales application with the Bureau of Lands. Miscellaneous
Sales Patent No. 7457 of the land which was then identified to be Lot No. 418, Ts-308
consisting of 774 square meters was issued to the applicant Vicente Teng Gui and
accordingly on the 24th of January, 1978 Original Certificate of Title No. P-1064 covering the
lot in question was issued to the defendant Vicente Teng Gui. Although the buildings and
improvements on the land in question were sold by Felix Ting Ho to Victoria Cabasal and
Gregorio Fontela in 1958 and who in turn sold the buildings to the defendant in 1961 the
said Felix Ting Ho and his wife remained in possession of the properties as Felix Ting Ho
continued to manage the bakery while the wife Leonila Cabasal continued to manage the
sari-sari store. During all the time that the alleged buildings were sold to the spouses
Victoria Cabasal and Gregorio Fontela in 1958 and the subsequent sale of the same to the
defendant Vicente Teng Gui in October of 1961 the plaintiffs and the defendant continued to
live and were under the custody of their parents until their father Felix Ting Ho died in 1970
and their mother Leonila Cabasal died in 1978. [7] (Emphasis supplied)
In light of these factual findings, the RTC found that Felix Ting Ho, being a Chinese citizen and
the father of the petitioners and respondent, resorted to a series of simulated transactions
in order to preserve the right to the lot and the properties thereon in the hands of the
family. As stated by the trial court:
After a serious consideration of the testimonies given by both one of the plaintiffs and the
defendant as well as the documentary exhibits presented in the case, the Court is inclined to
believe that Felix Ting Ho, the father of the plaintiffs and the defendant, and the husband of
Leonila Cabasal thought of preserving the properties in question by transferring the said
properties to his eldest son as he thought that he cannot acquire the properties as he was a
Chinese citizen. To transfer the improvements on the land to his eldest son the defendant
Vicente Teng Gui, he first executed simulated Deeds of Sales in favor of the sister and
brother-in-law of his wife in 1958 and after three (3) years it was made to appear that these
vendees had sold the improvements to the defendant Vicente Teng Gui who was then 18
years old. The Court finds that these transaction (sic) were simulated and that no
consideration was ever paid by the vendees.
xxxxxxxxx
With regards (sic) to the transfer and relinquishment of Felix Ting Hos right to the land in
question in favor of the defendant, the Court believes, that although from the face of the
document it is stated in absolute terms that without any consideration Felix Ting Ho was
transferring and renouncing his right in favor of his son, the defendant Vicente Teng Gui, still
the Court believes that the transaction was one of implied trust executed by Felix Ting Ho for
the benefit of his family[8]
Notwithstanding such findings, the RTC considered the Affidavit of Transfer, Relinquishment
and Renouncement of Rights and Interests over the land as a donation which was accepted
by the donee, the herein respondent. With respect to the properties in the lot, the trial
court held that although the sales were simulated, pursuant to Article 1471 of the New Civil
Code[9] it can be assumed that the intention of Felix Ting Ho in such transaction was to give
and donate such properties to the respondent. As a result, it awarded the entire conjugal
share of Felix Ting Ho in the subject lot and properties to the respondent and divided only
the conjugal share of his wife among the siblings. The dispositive portion of the RTC decision
decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the
defendant as the Court orders the partition and the adjudication of the subject
properties, Lot 418, Ts-308, specifically described in original Certificate of Title No. P-1064
and the residential and commercial houses standing on the lot specifically described in Tax
Decs. Nos. 9179 and 9180 in the name of Vicente Teng Gui in the following manner, to wit:
To the defendant Vicente Teng Gui is adjudicated an undivided six-tenth (6/10) of the
aforementioned properties and to each of the plaintiffs Felix Ting Ho, Jr., Merla Ting-Ho
Braden, Juana Ting and Lydia Ting Ho-Belenzo each an undivided one-tenth (1/10) of the
properties[10]
From this decision, both parties interposed their respective appeals. The petitioners claimed
that the RTC erred in awarding respondent the entire conjugal share of their deceased father
in the lot and properties in question contrary to its own finding that an implied trust existed
between the parties. The respondent, on the other hand, asserted that the RTC erred in not
ruling that the lot and properties do not form part of the estate of Felix Ting Ho and are
owned entirely by him.
On appeal, the CA reversed and set aside the decision of the RTC. The appellate court held
that the deceased Felix Ting Ho was never the owner and never claimed ownership of the
subject lot since he is disqualified under Philippine laws from owning public lands, and that
respondent Vicente Teng Gui was the rightful owner over said lot by virtue of Miscellaneous
Sales Patent No. 7457 issued in his favor, viz:
The deceased Felix Ting Ho, plaintiffs and defendants late father, was never the owner of
the subject lot, now identified as Lot No. 418, Ts-308 covered by OCT No. P-1064 (Exh. A;
Record, p. 104). As stated by Felix Ting Ho no less in the Affidavit of Transfer,
Relinquishment and Renouncement of Rights and Interest etc. (Exh. B: Record, p. 107),
executed on October 25, 1966 he, the late Felix Ting Ho, was merely a possessor or
occupant of the subject lot by virtue of a permission granted by the then U.S. Naval
Reservation Office, Olongapo, Zambales. The late Felix Ting Ho was never the owner and
never claimed ownership of the land. (Emphasis supplied)
The affidavit, Exhibit B, was subscribed and sworn to before a Land Investigator of the
Bureau of Lands and in the said affidavit, the late Felix Ting Ho expressly acknowledged that
because he is a Chinese citizen he is not qualified to purchase public lands under Philippine
laws for which reason he thereby transfers, relinquishes and renounces all his rights and
interests in the subject land, including all the improvements thereon to his son, the
defendant Vicente Teng Gui, who is of legal age, single, Filipino citizen and qualified under
the public land law to acquire lands.
xxxxxxxxx
Defendant Vicente Teng Gui acquired the subject land by sales patent or purchase from
the government and not from his father, the late Felix Ting Ho. It cannot be said that he
acquired or bought the land in trust for his father because on December 5, 1977 when the
subject land was sold to him by the government and on January 3, 1978 when Miscellaneous 4. Let the records of this case be remanded to the court of origin for further proceedings;
Sales Patent No. 7457 was issued, the late Felix Ting Ho was already dead, having died on
June 6, 1970 (TSN, January 10, 1990, p. 4). [11]
5. Let a copy of this decision be furnished the Office of the Solicitor General; and
Regarding the properties erected over the said lot, the CA held that the finding that the sales
of the two-storey commercial and residential buildings and sari-sari store to Victoria Cabasal
and Gregorio Fontela and subsequently to respondent were without consideration and
simulated is supported by evidence, which clearly establishes that these properties should 6. There is no pronouncement as to costs.
form part of the estate of the late spouses Felix Ting Ho and Leonila Cabasal.

SO ORDERED.[12]
Thus, while the appellate court dismissed the complaint for partition with respect to the lot Both petitioners and respondent filed their respective motions for reconsideration from this
in question, it awarded the petitioners a four-fifths (4/5) share of the subject properties ruling, which were summarily denied by the CA in its Resolution [13] dated August 5,
erected on the said lot. The dispositive portion of the CA ruling reads as follows: 1997. Hence, this petition.

WHEREFORE, premises considered, the decision appealed from is REVERSED and SET ASIDE
and NEW JUDGMENT rendered:
1. DISMISSING plaintiff-appellants complaint with respect to the subject parcel of land,
identified as Lot No. 418, Ts-308, covered by OCT No. P-1064, in the name of plaintiff-
appellants [should be defendant-appellant];
2. DECLARING that the two-storey commercial building, the two-storey residential building
and sari-sari store (formerly a bakery), all erected on the subject lot No. 418, Ts-308, form
part of the estate of the deceased spouses Felix Ting Ho and Leonila Cabasal, and that
plaintiff-appellants are entitled to four-fifths (4/5) thereof, the remaining one-fifth (1/5)
being the share of the defendant-appellant;
According to the petitioners, the CA erred in declaring that Lot No. 418, Ts-308 does not
form part of the estate of the deceased Felix Ting Ho and is owned alone by
respondent. Respondent, on the other hand, contends that he should be declared the sole
owner not only of Lot No. 418, Ts-308 but also of the properties erected thereon and that
the CA erred in not dismissing the complaint for partition with respect to the said properties.
The primary issue for consideration is whether both Lot No. 418, Ts-308 and the properties
erected thereon should be included in the estate of the deceased Felix Ting Ho.
We affirm the CA ruling.
With regard to Lot No. 418, Ts-308, Article XIII, Section 1 of the 1935 Constitution states:

3. DIRECTING the court a quo to partition the said two-storey commercial building, two-
storey residential building and sari-sari store (formerly a bakery) in accordance with Rule 69 Section 1. All agricultural timber, and mineral lands of the public domain, waters, minerals,
of the Revised Rules of Court and pertinent provisions of the Civil Code; coal, petroleum, and other mineral oils, all forces of potential energy and other natural
resources of the Philippines belong to the State, and their disposition, exploitation,
development, or utilization shall be limited to citizens of the Philippines or to corporations
or associations at least sixty per centum of the capital of which is owned by such
Registration of grants and patents involving public lands is governed by Section 122 of Act
citizens, subject to any existing right, grant, lease, or concession at the time of the
No. 496, which was subsequently amended by Section 103 of Presidential Decree No.
inauguration of the Government established under this Constitution (Emphasis supplied)
1529, viz:

Our fundamental law cannot be any clearer. The right to acquire lands of the public domain
Sec. 103. Certificate of title pursuant to patents.Whenever public land is by the Government
is reserved for Filipino citizens or corporations at least sixty percent of the capital of which is
alienated, granted or conveyed to any person, the same shall be brought forthwith under the
owned by Filipinos. Thus, in Krivenko v. Register of Deeds,[14] the Court enunciated that:
operation of this Decree. It shall be the duty of the official issuing the instrument of
alienation, grant, patent or conveyance in behalf of the Government to cause such
instrument to be filed with the Register of Deeds of the province or city where the land lies,
Perhaps the effect of our construction is to preclude aliens, admitted freely into
and to be there registered like other deeds and conveyance, whereupon a certificate of title
the Philippines from owning sites where they may build their homes. But if this is the
shall be entered as in other cases of registered land, and an owners duplicate issued to the
solemn mandate of the Constitution, we will not attempt to compromise it even in the
grantee. The deeds, grant, patent or instrument of conveyance from the Government to the
name of amity or equity. We are satisfied, however, that aliens are not completely excluded
grantee shall not take effect as a conveyance or bind the land, but shall operate only as a
by the Constitution from the use of lands for residential purposes. Since their residence in
contract between the Government and the grantee and as evidence of authority to the
the Philippines is temporary, they may be granted temporary rights such as a lease contract
Register of Deeds to make registration. It is the act of registration that shall be the operative
which is not forbidden by the Constitution. Should they desire to remain here forever and
act to affect and convey the land, and in all cases under this Decree registration shall be
share our fortunes and misfortunes, Filipino citizenship is not impossible to acquire. [15]
made in the office of the Register of Deeds of the province or city where the land lies. The
In the present case, the father of petitioners and respondent was a Chinese citizen; fees for registration shall be paid by the grantee. After due registration and issuance of the
therefore, he was disqualified from acquiring and owning real property in the Philippines. In certificate of title, such land shall be deemed to be registered land to all intents and
fact, he was only occupying the subject lot by virtue of the permission granted him by the purposes under this Decree.[16] (Emphasis supplied)
then U.S. Naval Reservation Office of Olongapo, Zambales. As correctly found by the CA, the
deceased Felix Ting Ho was never the owner of the subject lot in light of the constitutional
proscription and the respondent did not at any instance act as the dummy of his father. Under the law, a certificate of title issued pursuant to any grant or patent involving public
land is as conclusive and indefeasible as any other certificate of title issued to private lands
in the ordinary or cadastral registration proceeding. The effect of the registration of a patent
On the other hand, the respondent became the owner of Lot No. 418, Ts-308 when he was and the issuance of a certificate of title to the patentee is to vest in him an incontestable title
granted Miscellaneous Sales Patent No. 7457 on January 3, 1978, by the Secretary of Natural to the land, in the same manner as if ownership had been determined by final decree of the
Resources By Authority of the President of the Philippines, and when Original Certificate of court, and the title so issued is absolutely conclusive and indisputable, and is not subject to
Title No. P-1064 was correspondingly issued in his name. The grant of the miscellaneous collateral attack.[17]
sales patent by the Secretary of Natural Resources, and the corresponding issuance of the
Nonetheless, petitioners invoke equity considerations and claim that the ruling of
original certificate of title in his name, show that the respondent possesses all the
the RTC that an implied trust was created between respondent and their father with respect
qualifications and none of the disqualifications to acquire alienable and disposable lands of
to the subject lot should be upheld.
the public domain. These issuances bear the presumption of regularity in their performance
in the absence of evidence to the contrary.
This contention must fail because the prohibition against an alien from owning lands of the
public domain is absolute and not even an implied trust can be permitted to arise on equity
considerations.
In the case of Muller v. Muller,[18] wherein the respondent, a German national, was seeking
reimbursement of funds claimed by him to be given in trust to his petitioner wife, a
Philippine citizen, for the purchase of a property in Antipolo, the Court, in rejecting the
claim, ruled that:
Respondent was aware of the constitutional prohibition and expressly admitted his
knowledge thereof to this Court. He declared that he had the Antipolo property titled in the
name of the petitioner because of the said prohibition. His attempt at subsequently
asserting or claiming a right on the said property cannot be sustained.
The Court of Appeals erred in holding that an implied trust was created and resulted by
operation of law in view of petitioner's marriage to respondent. Save for the exception
provided in cases of hereditary succession, respondent's disqualification from owning
lands in the Philippines is absolute. Not even an ownership in trust is allowed. Besides,
where the purchase is made in violation of an existing statute and in evasion of its express
provision, no trust can result in favor of the party who is guilty of the fraud. To hold
otherwise would allow circumvention of the constitutional prohibition.
Invoking the principle that a court is not only a court of law but also a court of equity, is
likewise misplaced. It has been held that equity as a rule will follow the law and will not
permit that to be done indirectly which, because of public policy, cannot be done directly...
[19]
Coming now to the issue of ownership of the properties erected on the subject lot, the Court
agrees with the finding of the trial court, as affirmed by the appellate court, that the series
of transactions resorted to by the deceased were simulated in order to preserve the
properties in the hands of the family. The records show that during all the time that the
properties were allegedly sold to the spouses Victoria Cabasal and Gregorio Fontela in 1958
and the subsequent sale of the same to respondent in 1961, the petitioners and respondent,
along with their parents, remained in possession and continued to live in said properties.
However, the trial court concluded that:
In fairness to the defendant, although the Deeds of Sale executed by Felix Ting Ho regarding
the improvements in favor of Victoria Cabasal and Gregorio Fontela and the subsequent
transfer of the same by Gregorio Fontela and Victoria Cabasal to the defendant are all
simulated, yet, pursuant to Article 1471 of the New Civil Code it can be assumed that the
intention of Felix Ting Ho in such transaction was to give and donate the improvements to
his eldest son the defendant Vicente Teng Gui [20]
Its finding was based on Article 1471 of the Civil Code, which provides that:
Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in
reality a donation, or some other act or contract. [21]
The Court holds that the reliance of the trial court on the provisions of Article 1471 of the
Civil Code to conclude that the simulated sales were a valid donation to the respondent is
misplaced because its finding was based on a mere assumption when the law requires
positive proof.
The respondent was unable to show, and the records are bereft of any evidence, that the
simulated sales of the properties were intended by the deceased to be a donation to
him. Thus, the Court holds that the two-storey residential house, two-storey residential
building and sari-sari store form part of the estate of the late spouses Felix Ting Ho and
Leonila Cabasal, entitling the petitioners to a four-fifths (4/5) share thereof.
IN VIEW WHEREOF, the petition is DENIED. The assailed Decision dated December 27, 1996
of the Court of Appeals in CA-G.R. CV No. 42993 is hereby AFFIRMED.

SO ORDERED.
 Today is Tuesday, October 16, 2018 present their evidence ex parte against the respondents.

The petitioners’ evidence showed that the subject property was previously part of the 51,151-squa
Miguela at Maguyam, Silang, Cavite. On July 5, 1975, Miguela sold to Caparas 25,000 square mete
51,151-square meter tract of land. Miguela retained for herself the balance (or 26, 151 square meters
at the western portion of the original 51,151-square meter property. Further, the deed of conveyance
Caparas, entitled "Kasulatan ng Tuluyang Bilihan ng Lupa," 6 described the boundaries of the parcel o
"sa ibaba ay Faustino Amparo, sa silangan ay Silang at Carmona boundary, sa ilaya ay Aquilino Ligaya
lupa ni Miguela Reyes."7
Republic of the Philippines
SUPREME The petitioners asserted COURT
that more than fourteen (14) years later, Caparas caused the prepar
8
Manila plan (Caparas survey plan) under her name for several parcels of land (consolidated parcels of l
Cavite, with a total land area of 40,697 square meters. Under the Caparas survey plan, the parcel
SECOND DIVISION
Miguela was erroneously transferred to the eastern portion of the original 51,151-square meter trac
G.R. No. 175428 April 15, 2013 the subject property was included in the consolidated parcels of land owned by Caparas. The p
admitted the wrongful inclusion of the subject property owned by Miguela in the consolidated p
RICARDO CHU, JR. and DY "Sinumpaang KOKENG,
Salaysay ng Pagpapatotoo"9 dated August 27, 1990.
vs.
MELANIA CAPARA.S and SPOUSES RUEL and HERMENEGILDA PEREZ, Respondents. The petitioners also alleged that on November 8, 1991, Caparas sold to the spouses Perez the conso
entitled "Kasulatan ng Bilihang Tuluyan." The petitioners claimed that included in the aforesaid
DECISION boundary description similar to the 25,000-square meter parcel of land sold by Miguela to Caparas.
BRION, J.: According to the petitioners, Miguela, on July 24, 1994, sold the subject property to the petitioners 1
securedthe
Under consideration is the petition for review on certiorari 1 under Rule 45 of the Rules of Court challenging a tax declaration (TD No. 22477-A). 11 Considering the alleged error in the Caparas survey pla
decision
reconveyance
7, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 67243. The CA affirmed the decision 3 dated February of the
19, 1998 of subject property from Caparas and the spouses Perez, who refused to reconvey t
the Regional
Trial Court (RTC) of Tagaytay City, Branch 18, in Civil Case No. TG-1541, dismissing the complaint for recovery of possession
After an ex of athe
parte hearing, parcel
RTC ruled in the petitioners’ favor. 12 The RTC, however, refused to appro
of land filed by petitioners Ricardo Chu, Jr. and Dy Kok Eng against respondents Melania Caparas andsurvey
spousesplanRuel
forand
the Hermenegilda
subject property13 that the petitioners submitted.
Perez.
The spouses Perez filed a petition for relief from judgment 14 on the ground of excusable negligence
The Factual Antecedents the parcel of land sold to the petitioners was not the subject property whose title had been con
15
names.
At the root of the case is a parcel of land with an area of 26,151 square meters (subject property) located In the alternative,
at Maguyam, the spouses Perez claimed that they bought the subject property in good
Silang, Cavite,
in
originally owned and registered in the name of Miguela Reyes and covered by Tax Declaration (TD) No. 9529. open, continuous, public and adverse possession of it since 1991.

On November 10, 1995, the petitioners filed a complaint to recover possession of the subject property The RTC Ruling
a prayer to annul the sale of the subject property executed between the respondents. In the complaint, the petitioners
On February 19, 1998,alleged that
the RTC rendered a decision 16 setting aside its earlier decision, and dismissed t
they are the successors-in-interest of Miguela over the subject property, which Caparas held in trust of
formerit.
Miguela. The petitioners also
averred that the subject property was erroneously included in the sale of land between the respondents.
The RTC held that the petitioners had no sufficient cause of action for reconveyance and damages a
The respondents failed to file an answer to the complaint and were declared in default. The RTCfound thus that
allowed
Chu the petitioners
admitted duringtocross-examination 17 that the parcel of land sold to them was different
The RTC also rejected the petitioners’ claim that they were purchasers in good faith of the subject subject
property
property)
considering
was designated
that the as Lot No. 1 and was included in Caparas’ consolidated parcels of lan
spouses Perez’s title over the consolidated parcels of land was registered. The RTC ruled that even granting that the subject property
Similarly, the petitioners assert that the CA also disregarded the evidence of Caparas’ "Sinumpaang
was included in the consolidated parcels of land sold to the spouses Perez, the petitioners were deemed to have knowledge of the
Miguela’s ownership of the subject property and Caparas’ admission that she was merely a trustee th
spouses Perez’s interest therein.
that the CA should have also considered that the spouses Perez, as Caparas’ successors-in-interest
Finally, considering the petitioners’ unfounded claims, the RTC ordered the petitioners to pay the spousesproperty.
Perez moral and exemplary
damages, attorney’s fees and the costs of suit.
Finally, the petitioners insist that the award of damages and attorney’s fees to the spouses Perez w
The petitioners appealed the RTC decision to the CA, assigning as errors the failure of the RTC: (1)subject to recognize
property.
that there was an
encroachment when the subject property was included in the Caparas survey plan as part of the consolidated parcels of land owned
The Case for the Respondents
by Caparas; and (2) to consider the petitioners’ lack of malice or bad faith in filing the case against Caparas and the spouses Perez that
would justify the award of damages and attorney’s fees. 18 The spouses Perez, relying on the rulings of the RTC and of the CA, Maintain 24 that: (1) the peti
premature as they failed to prove their claim of encroachment; (2) the petitioners cannot be deemed
The Ruling of the CA
subject property; and (3) the RTC has no authority to approve or cancel survey plans.
19
In its August 7, 2006 decision, the CA dismissed the petitioners’ appeal and affirmed the February 19, 1998 decision of the RTC. The
The spouses Perez also assert that the petition does not raise any issue of law but only questions
CA declared that the petitioners’ resort to the court was premature since there was no proof that the Bureau of Lands revoked its
petition. They submit that the factual findings of the CA, duly passed upon, are binding and conclusi
approval of the Caparas survey plan. In any event, the CA declared that Chu’s admission and the existing and duly approved Caparas
technical encroachment, which the petitioners insist as the real issue obtaining in this case, is bett
survey plan belied their claim of encroachment in the petitioners’ property by the spouses Perez.
administrative authorities. Caparas did not file her comment and memorandum.
The CA also affirmed the RTC’s finding that the petitioners were presumed to have knowledge of the spouses Perez’s registered title
The Issue
over the subject property.
In sum, the core issue for determination is: whether the parcel of land sold to the petitioners is the
Finally, the CA upheld the RTC’s refusal to approve, for lack of authority, the new survey plan that the petitioners submitted and also
consolidated parcels of land sold to the spouses Perez.
upheld the award of damages, attorney’s fees, and costs. The CA’s denial of the petitioner’s motion for reconsideration
present recourse. The Court’s Ruling
The Petition We affirm the decision and the resolution of the CA.
The petitioners impute serious error and grave abuse of discretion on the findings of the CA that: first, there was
Preliminary no encroachment
considerations
made by the spouses Perez in the petitioners’ property; second, the filing of the petitioners’ complaint was premature; and third, the
petitioners are liable for moral and exemplary damages and attorney’s fees. 21 At the outset, we find that the resolution of the petition necessarily requires the re-evaluation of the
the CA. Essentially, what the petitioners seek in this petition is a relief from the Court on the issue
The petitioners insist that the CA misunderstood the term "encroachment." They argue that this caseissues
involves technical encroachment
of prematurity and propriety of the award of damages that are intertwined with the issue of en
and not mere physical encroachment. There was technical encroachment due to the mistake in the Caparas survey
the petition plan
must that
fail, as included
a Rule 45 petition bars us from the consideration of factual issues.
the subject property as among the consolidated parcels of land owned by Caparas.
Repeatedly, this Court has ruled that a petition for review on certiorari under Rule 45 of the Rules of C
The petitioners explained that the "Kasulatan ng Tuluyang Bilihan ng Lupa," 22 between Miguela andlaw Caparas,
and not referred to aofparcel
questions facts. of
"A question of law arises when there is doubt as to what the law is
land located at the eastern portion of the original 51,151-square meter tract of land. Under the Caparas
there is survey planofhowever,
a question fact when thethe doubt arises as to the truth or falsity of the alleged facts." 25
parcel of land retained by Miguela (and thereafter sold to the petitioners) became the parcel of land located at the eastern portion of
The question,
the 51,151-square meter tract of land (designated as Lot No. 3); the portion on the west of the 51,151-square metertotract
be one of law,
of land (themust rest solely on what the law provides on the given set of circ
scrutiny of the probative value of the parties’ evidence. 26 Once the issue invites a review of the factu
CA, as in this case, the question posed is one of fact that is proscribed in a Rule 45 petition. 27 of basis. An action for reconveyance is a legal and equitable remedy that seeks to transfer or reconve
in another person’s name, to its rightful owner. 34 To warrant reconveyance of the land, the plaintiff
The Court’s jurisdiction under a Rule 45 review is limited to reviewing perceived errors of law, which the lower courts may have
others,35 ownership of the land in dispute and the defendant’s erroneous, fraudulent or wrongful regi
committed.28 The resolution of factual issues is the function of the lower courts whose findings, when aptly supported by evidence,
bind this Court. This is especially true when the CA affirms the lower court’s findings, 29as in this In the
case.present
While petition,
this Court,
the under
petitioners failed to prove that the parcel of land they owned was the su
established exceptional circumstances, had deviated from the above rule, we do not find this case to benothing
undertoanyreconvey
of the exceptions.
as what the spouses Perez registered in their names did not include the parcel
their evidence, own.
Nevertheless, we still affirm the assailed CA rulings even if we were to disregard these established doctrinal rules.
We also see no trust, express or implied, created between the petitioners and the spouses Perez ove
On the issue of encroachment and prematurity of the action
operation of law is the right to the beneficial enjoyment of a property whose legal title is vested in
A review of the records from the RTC and the CA reveals that both arrived at the same factual existence of a conflict
consideration involving
– there was noone and the same property between two parties, one having the r
encroachment. We agree with this factual finding for the following reasons: holding the legal title. There is no trust created when the property owned by one party is separate
been registered in another’s name.
First, the records undoubtedly established that the subject property was not the parcel of land that the petitioners purchased from
Miguela. We note that the Caparas survey plan was used in identifying the property purchased by the In this case, thefrom
petitioners Caparas survey
Miguela. Theplan and the deed of sale between the petitioners and Miguela show
deed of sale between them showed what the petitioners purchased from Miguela referred to anotherthe petitioners
parcel of landisdesignated
distinct from the consolidated parcels of land sold by Caparas to the spouses Perez.
as Lot
No. 3 in the Caparas survey plan, while the subject property was designated as Lot No. 1 of the same plan. Significantly, Chu also
Although we are aware of an apparent discrepancy between the boundary description of the
admitted that the parcel of land they purchased from Miguela was different from the subject property.
"Kasulatan ng Tuluyang Bilihan ng Lupa" executed between Caparas and Miguela, the "Kasulata
The following pieces of evidence adduced by the petitioners also support the above conclusion: executed between Caparas and the spouses Perez, and Caparas’ TD on the one hand, and th
consolidated parcels of land stated in the Caparas survey plan and the spouses Perez’s title on the oth
1. The contents in the Deed of Absolute Sale between Miguela and the petitioners, 30 dated July 24, more
1994, imagined
which described theThis
than real. parcel
perceived discrepancy does not help the petitioners’ cause in light of th
of land sold by Miguela to the petitioners as Lot No. 3, per Ccs-04-000872-D and covered by TD No. 22312-A;
between the petitioners and Miguela used the Caparas survey plan that clearly identified the parcel o
2. The tax declaration (TD No. 22312-A) 31 under Miguela’s name for the year 1996 involving Lot No. 3from the subject property.
Ccs-04-000872-D, with boundary
description as NE- creek, NW- creek, SE- Lot No. 10565, and SW- Lot. No. 1; Even granting that the Caparas survey plan did erroneously switch the positions of the petitioners’ an
32
3. The tax declaration (TD No. 22477-A) under the petitioners’ name for the year 1996, which cancelledlandholdings, we agree
TD No. 22312,with the RTC that reconveyance was still an inappropriate remedy. The petitio
likewise
covering Lot No. 3, Ccs-04-000872-D with the same boundary description as stated in the cancelled TD. to file the proper action before the Department of Environment and Natural Resources-Land Manage
of the Caparas survey plan and for the approval of a new survey plan 38 that correctly reflects
In contrast with these pieces of evidence, the spouses Perez’s Original Certificate of Title No. P-3123
landholdings. For until the Caparas survey plan has been cancelled, the petitioners’ claim of encroach
and their actual occupation of this property since 1991 duly established their ownership of this property. Clearly then, there was no
encroachment by the spouses Perez since they were the owners of the subject property. There was also Another perspective,
no evidence too,that
to prove thatthe
must be considered is Miguela’s act in selling to the petitioners Lot No.
spouses Perez encroached on the parcel of land (Lot No. 3) belonging to the petitioners. which can be regarded as a ratification of any perceived error under the circumstances.

Second, contrary to the petitioners’ assertion, what Caparas admitted in the "Sinumpaang Salaysay On the ngpropriety of the award
Pagpapatotoo" was theof damages and attorney’s fees
erroneous inclusion of Lot No. 3 in the Caparas survey plan and its implication that Lot No. 3 belonged
Based onto Caparas.
the aboveItdiscussion,
was for this we find the award of damages and attorney’s fees in the spouses Pere
reason that Caparas acknowledged Miguela’s ownership of Lot No. 3.
First, assuming that Miguela sold to the petitioners the subject property, the petitioners cannot be d
On the Action for reconveyance faith.1âwphi1 To be deemed a purchaser in good faith, there must be absence of notice that som
39
In light of the above, the petitioners’ action against Caparas and the spouses Perez for reconveyance,interest
based on in trust,
such property.
must fail forThe
lackestablished facts show that the spouses Perez had been in possessi
1991, while the petitioners purchased the subject property only on July 24, 1994. Had the petitioners actually verified the status of the
subject property before they purchased it, they would have known of the spouses Perez’s interest therein. More importantly, the land
registration court has confirmed the spouses Perez’s title over the subject property on March 1, 1994 or months prior to the
petitioners’ purchase. As the RTC and the CA correctly ruled, the petitioners were deemed to have been placed on constructive notice
of the spouses Perez’s title since the registration proceedings are in rem. 40

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

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

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

SO ORDERED.

ARTURO D. BRION
Associate Justice

WE CONCUR:
 Today is Tuesday, October 16, 2018 an original area of 1,500 square meters was awarded to Jesus M. Larrabaster by the National Land S
who subsequently sold his rights and interests over the said property to Jose B. Peña (Peña) on June 2

Thereafter, the original area of Lot No. 355 which was 1,500 square meters increased to 3,616.93
Peña then requested the Bureau of Lands (BOL) to adjust the area of the lot awarded to him but th
ground that the accretion belonged to the government.

Aggrieved, Peña appealed to the Office of the President. The BOL recommended that Lot No. 355 b
wit, Lot Nos. 107, 108 and 109, and that Lot No. 108 with an area of 1,500 square meters, be awarded
Republic of the Lot No. 355. Meanwhile, Lot Nos. 107 and 109 would be allocated to Basilio Mendoza (Mendoza) and
Philippines
SUPREME COURT
The Office of the President initially adopted the recommendation of the BOL. Upon reconsideration,
Manila
and held that the entire area of Lot No. 355, including the accretion, belonged to Peña and not to the
THIRD DIVISION 108, and 109 were awarded to him.

G.R. No. 147340 December 13, 2007 On January 27, 1970, Mendoza filed a special civil action for certiorari against the Assistant Executive
Office of the President, the BOL, the Director of Lands, and Peña before Branch 24 of the Court of
CYNTHIA CRUZ KHEMANI and SHANKER N. which wasKHEMANI,
docketed as Civil Case No. 98. Claiming that he was denied due process, Mendoza assailed
vs. President awarding the entire area of Lot No. 355 to Peña. He asserted ownership over Lot No. 107 on
THE HEIRS OF ANASTACIO TRINIDAD, represented by NAPOLEON and ROLANDO TRINIDAD, respondents.
Sales Application he allegedly filed with the BOL on November 6, 1962.
DECISION On May 10, 1985, the trial court rendered a decision dismissing Mendoza’s petition for certiorari bu
YNARES-SANTIAGO, J.: Court of Appeals on appeal. Hence, Mendoza filed a petition for review on certiorari before the Supre

This petition for review on certiorari 1 assails the July 31, 2000 Decision 2 of the Court of Appeals In in the case SP
CA-G.R. of Assistant
No. 55581, Executive
which Secretary for Legal Affairs of the Office of the President v. Court o
affirmed the May 24, 1999 Order3 of the Regional Trial Court, Branch 24, Koronadal, South Cotabato January
in Civil9,Case
1989, the1122,
No. Supreme Court rejected Mendoza’s claim over Lot No. 107 and found the Miscell
entitled
legal force
"Heirs of Anastacio and Francisca Trinidad, et al. v. Heirs of Jose Peña, et al." Also assailed is the January 8, 2001andResolution
effect since the object thereof was no longer public land. Thus, Peña’s right of ownersh
the motion for reconsideration. 355, which consists of Lot Nos. 107, 108 and 109, was affirmed.

The factual antecedents are as follows: On September 20, 1993, the Peña Heirs were awarded a patent by the Department of Environment an
on September 21, 1993, Original Certificate of Title No. P-33658 7 covering Lot No. 107 was issued in th
Petitioner Cynthia Cruz Khemani is the registered owner of Lot No. 107, Ts-1032 (Lot No. 107), which is covered by Transfer Certificate
On January
of Title (TCT) No. 58976 issued on March 10, 1994. 5 Khemani purchased the lot from the heirs of Jose 27, Peña
B. Peña (the 1994,Heirs)
respondents
on filed with the Regional Trial Court, Branch 24, Koronad
8 9
February 17, 1994. Shanker N. Khemani is her brother-in-law and duly authorized representative. complaint against the Peña Heirs, the DENR Region IX Office, and the BOL for "Review of Decree of R
with Prayer for Issuance of Writ of Preliminary Prohibitory Injunction and Temporary Restraining Ord
Subject of the instant case is a 340 square meter portion (the Disputed Property) of Lot No. 107 over
Case which respondents
No. 1122. Heirs filed
Respondents of the complaint on the strength of their own and their predeces
Anastacio Trinidad, represented by Napoleon and Rolando Trinidad, are claiming ownership. Respondents
adverseallege that they
possession and
of the their Property in the concept of owner since 1950.
Disputed
predecessors-in-interest, Spouses Anastacio and Francisca Trinidad, have openly, peacefully, publicly and adversely possessed the
Disputed Property in the concept of owner since 1950. Respondents also claimed that on July 16, 1976, their predecessor-in-interest, Anastacio, applied for a
over the Disputed Property which was designated as a portion of Lot No. 107, Ts-1032. 10 On March
Lot No. 107 and Lot Nos. 108 and 109, constitute Lot No. 355 which was part of the public domain. On July 10, 1950,
Certification No. Lot
3445No. 355 withthat the Disputed Property was awarded to Anastacio and that the tra
certifying
and approved per Board Resolution No. 133, Series of 1979. action is in personam. The final judgment in said action is only binding and conclusive upon the partie
interest.
Instead of an answer, the Peña Heirs filed a Motion to Dismiss 11 alleging that the Regional Trial Court lacks jurisdiction over the nature
of the action or the suit; that respondents have no legal capacity to sue as only the government may x x xseek
x nullification of the land
grant in their favor; and that the cause of action is barred by prior judgment or the statute of limitations. They asserted that the issue
Mendoza, the petitioner in the first action, laid claim in Lot 107 on the basis of his possession t
of ownership over the Disputed Property has long been settled in the Assistant Executive Secretary
Application. On the other hand, private respondents’ interest in the contested property is anchor
respondents’ predecessor-in-interest, Anastacio, was a mere squatter who had been allowed by Mendoza to occupy a portion of Lot
Miscellaneous Sales Application. In other words, private respondents are not asserting rights under M
No. 107 sometime in 1960.
no community of interests in the contested property; in fact, their interests are antagonistic to each o
12
In respondents’ Comment/Opposition, they claimed that the Disputed Property had long ceased to be public land by virtue of their
On the other hand, "the test often used in determining whether causes of action are identical is
open, public, continuous, adverse and exclusive possession in the concept of owner for more than 40 years, and that they were never
evidence which is necessary to sustain the second action would have been sufficient to authorize
parties in the Assistant Executive Secretary case involving Mendoza.
forms or nature of the two actions be different" (Carlet vs. Court of Appeals, 275 SCRA 97). Consideri
On September 3, 1997, Judge Rodolfo C. Soledad (Judge Soledad) granted petitioner’s motion to dismiss respondents’
and heldaction
that isrespondents
different from that of Mendoza, the evidence necessary to sustain the latter’s
13
are bound by the ruling of this Court in the Assistant Executive Secretary case. separate and distinct from that required to establish private respondents’ cause of action.

Respondents filed a motion for reconsideration14 alleging that res judicata does not apply and that Since
their
notaction
all requisites
is not of
barred
res judicata
by are present, respondent judge acted rightly in issuing the assaile
the Assistant Executive Secretary case. They argued that neither they, nor Anastacio, were parties in the
no abuse
said case
of discretion.
and that there is no
identity of causes of action.
WHEREFORE, the petition is DISMISSED for lack of merit.
In 1998, Judge Soledad died without resolving the motion for reconsideration filed by respondents. Judge Francisco S. Ampig (Judge
SO ORDERED.16
Ampig) was designated Acting Judge. On May 24, 1999, Judge Ampig granted the motion for reconsideration, reinstated Civil Case No.
1122, and directed the Peña Heirs to file an answer. The motion for reconsideration of the foregoing decision was denied hence, this petition.
The Peña Heirs, together with herein petitioner as the new owner of Lot No. 107, filed a petition for Petitioner claims that the case of Assistant Executive Secretary bars the filing of Civil Case
Appeals which was docketed as CA-G.R. SP No. 55581. for certiorari under Rule 65 of the Rules of Court is the proper remedy in assailing the order of the
motion to dismiss.
On July 31, 2000, the Court of Appeals rendered the assailed decision dismissing the petition. It ruled that a petition for
not the proper remedy against an order denying a motion to dismiss. Further, it held that there is no Respondents argue that they have been in open, peaceful, public and adverse possession of the Dis
owner since 1950; that the patent and original certificate of title were fraudulently issued in favor
Moreover, petitioners have plain, speedy and adequate remedy in the ordinary course of law. The remedy against an adverse
action for review of decree of registration and/or reconveyance is not barred by the Court’s ruling in A
interlocutory order, such as the assailed orders, is not certiorari but to continue with the case in due course and, when an unfavorable
verdict is handed down, to take an appeal in the manner authorized by law. x x x The issues for resolution are as follows: 1) whether a petition for certiorari under Rule 65 is the pro
denying a motion to dismiss; and 2) whether Judge Ampig committed grave abuse of discretion in
With the denial of the motion to dismiss and reinstatement of the case, petitioners will still answer the complaint. Upon joinder of
dismiss and reinstating Civil Case No. 1122.
issues, the parties will enter into trial, after which, the lower court will render a verdict. And if adverse to them, petitioners may
appeal the decision together with the assailed orders. The case at bench does not fall under any of Thethe exceptional
petition circumstances
lacks merit.
where the extraordinary writ of certiorari may be resorted to despite availability of appeal.
It has long been settled that an order denying a motion to dismiss is an interlocutory order. It neither
xxxx a case, as it leaves something to be done by the court before the case is finally decided on the merits
the denial of a motion to dismiss cannot be questioned in a special civil action for certiorari.17
Private respondents are not parties in the first action. Neither are they the successors-in-interest of any of the parties therein. The first
However, there are exceptions to the general rule. In Velarde v. Lopez, Jr.,18 the Court held thatand resort
title to
in favor
a special
of thecivil
Peña Heirs. In Morato v. Court of Appeals,25 we held that the test of identity
action
for certiorari is allowed when the ground for the motion to dismiss is improper venue, lack of jurisdiction, form orof action but in whether the same facts or evidence would support and establish the former and
at bar.19 Thus, petitioner did not commit a procedural error in filing a petition for certiorari before the Court of Appeals.
Thus, res judicata does not apply in the instant case there being no identity of parties and causes of
Nevertheless, as to the substantive issue raised herein, the petition must fail. We find that Judge Ampig policy
did not
underlying
committhe grave
principle
abuse of res judicata must be considered together with the policy that a pa
discretion in denying petitioner’s motion to dismiss and reinstating Civil Case No. 1122. adversary proceeding wherein to present his case. 27 It bears stressing that respondents’ action for r
sanctioned under Section 32 of Presidential Decree No. 1529, 28 which provides that a person deprive
In Oropeza Marketing Corp. v. Allied Banking Corp.,20 we held that res judicata literally means "a matter adjudged; a thing judicially
may institute an action to reopen or review a decree of registration within one year from entry of such
acted upon or decided; a thing or matter settled by judgment." It lays the rule that an existing final judgment or decree rendered on
the merits, and without fraud or collusion, by a court of competent jurisdiction, upon any matter within Section
its jurisdiction,
32. Reviewisofconclusive
decree ofofregistration; Innocent purchaser for value. The decree of registration
the rights of the parties or their privies, in all other actions or suits in the same or any other judicial tribunal
by reason of concurrent
of absence,jurisdiction
minority, or other disability of any person adversely affected thereby, nor by
on the points and matters in issue in the first suit. 21 reversing judgments, subject, however, to the right of any person, including the government and th
land or of any estate or interest therein by such adjudication or confirmation of title obtained by a
A case is barred by prior judgment or res judicata when the following requisites concur: (1) the former judgment is final; (2) it is
Court of First Instance a petition for reopening and review of the decree of registration not later than
rendered by a court having jurisdiction over the subject matter and the parties; (3) it is a judgment or an order on the merits; and (4)
of the entry of such decree of registration, but in no case shall such petition be entertained by the co
there is – between the first and the second actions – identity of parties, subject matter, and causes of action.
for value has acquired the land or an interest therein, whose rights may be prejudiced. Whenever th
In this case, it is not disputed that the first three elements are present. Likewise, there is no controversyvalue" or an equivalent
regarding the identityphrase
of the occurs in this Decree, it shall be deemed to include an innoce
subject matter. The question, therefore, is whether there is identity of parties and causes of action. We encumbrancer
find that there forisvalue.
none.
The Court
Civil Case No. 98 was a special civil action for certiorari filed by Mendoza against the Assistant Executive has repeatedly
Secretary applied
for Legal Affairs of the foregoing provision of law to a patent issued by the Director of
the Office of the President, the BOL, the Director of Lands, and Peña. On the other hand, Civil Case No. of 1122
Natural Resources,
is an action forunder
review theofsignature of the President of the Philippines. The date of the issuan
the date of the issuance
decree of registration and/or reconveyance. The parties are respondents Trinidad, the Peña Heirs, the DENR Region IX Office, and the of the decree in ordinary cases. 29
BOL.
In this case, the patent was issued in favor of the Peña Heirs on September 20, 1993. Responde
Mendoza’s action in Civil Case No. 98 was based on alleged grave abuse of discretion of the Office "Review of Decree
of the President in of Registration
awarding the and/or Reconveyance with Prayer for Issuance of Writ of Prelim
Temporary Restraining
entire area of Lot No. 355 to Peña. He claimed ownership over Lot No. 7 and in support thereof, presented the Miscellaneous Sales Order" on January 27, 1994, or well within the prescribed one-year period. Lik
30
Application he filed with the BOL on November 6, 1962. Meanwhile, respondents’ action in Civil Case 58976No.under
1122 waspetitioner’s
based on name
theirbears a Notice of Lis Pendens. Thus, it cannot be said that petitio
continued possession of the Disputed Property in the concept of owner for over 40 years, and thevalue allegedas she was wellissuance
fraudulent aware ofofrespondents’
a claim over the Disputed Property.
patent and certificate of title to the Peña Heirs.
Further, even assuming arguendo that respondents filed their action after one year, they may still b
True, res judicata does not require absolute but only substantial identity of parties. However, there party may file identity
is substantial an action for when
only reconveyance based on implied or constructive trust, which prescribes i
the "additional" party acts in the same capacity or is in privity with the parties in the former action. issuance of the certificate of title over the property provided that the property has not been acquir
31
It must be emphasized that respondents are not asserting rights under Mendoza. Indeed, the recordsvalue. will show that the parties in the
two cases have their own rights and interests in relation to the subject matter in litigation.
Respondents clearly asserted in their complaint that they and their predecessors-in-interest hav
Moreover, as correctly found by the Court of Appeals, the basis of respondents’ action was different Disputed
fromProperty and that they
that of Mendoza; the were fraudulently deprived of ownership thereof when the Pe
evidence necessary to sustain the latter’s claim is separate and distinct from that required to certificate of title in theircause
establish respondents’ favor.ofThese allegations certainly measure up to the requisite statement o
32
24
action. While Mendoza relied on the Miscellaneous Sales Application as evidence to support his claim, reconveyance.
herein respondents would
have to present proof of their alleged continuous possession of the Disputed Property as well as fraud in the issuance of the patent
A final note. It appears from the records that after our ruling in the Assistant Executive Secretary case
on September 20, 1993 in favor of the Peña Heirs which became the basis for the issuance of OCT No. P-33658 covering Lot No. 107.
However, as held in the Assistant Executive Secretary case, Lot No. 107 – as accretions to the original lot (Lot No. 355) awarded to
Larrabaster on July 10, 1950 – "no longer belonged to the Government[,] the subdivision thereof by the Bureau of Lands into three lots
(Lot No. 107, Lot No. 108 and Lot No. 109), as well as the allocation of said lots to two other individuals, was beyond the scope of its
authority."33 As a result, while Lot No. 107 may no longer be acquired under the provisions of the Public Land Act, it does not
absolutely foreclose the possibility that, as a private property, a portion thereof (the Disputed Property) may have been acquired by
respondents through acquisitive prescription under the Civil Code. These matters, however, are the proper subject of a separate action
should one be filed subject, of course, to such claims and defenses that either party may have under relevant laws.

All told, it would be premature to order the dismissal of respondents’ complaint as they have yet to be given an opportunity to
substantiate their claims. We note that respondents are in actual physical possession of the Disputed Property up to this date, and the
fact of their physical possession over many years is not disputed by petitioner. 34Under the circumstances, it would be more in keeping
with the standards of fairness to have a full-blown trial where the evidentiary matters are threshed out.

WHEREFORE, the petition is DENIED. The July 31, 2000 Decision, and the January 8, 2001 Resolution of the Court of Appeals in CA-
G.R. SP No. 55581 are AFFIRMED. The trial court is ORDERED to resume trial in Civil Case No. 1122 and to resolve the same with
dispatch.

SO ORDERED.
 CHICO-NAZARIO, J.:

THIRD DIVISION

Before us is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of Court, which
seeks to reverse and set aside the Decision [2] dated 8 March 2007 and the
Resolution[3] dated 3 September 2007 of the Court of Appeals in CA-G.R. CV No. 66873.The
PERFECTA CAVILE, JOSE DE LA CRUZ and G.R. No. 179540 assailed Decision of the appellate court reversed and set aside the Decision [4] dated 29
RURAL BANK OF BAYAWAN, INC., February 2000 of the Regional Trial Court (RTC) of Negros Oriental, Branch 35, in Civil Case
No. 6111, dismissing the complaint of respondents Justina Litania-Hong, her husband
Petitioners, Leopoldo Hong, and her sister Genoveva Litania; and declaring petitioner spouses Perfecta
Present:
Cavile and Jose de la Cruz to be the absolute owners of the parcels of land subjects of this
case. The assailed Resolution of the appellate court denied petitioner spouses Motion for
YNARES-SANTIAGO, J., Reconsideration of its decision.
- versus -
Chairperson,

AUSTRIA-MARTINEZ, The factual and procedural antecedents of the case proceed as follows:

CHICO-NAZARIO,
JUSTINA LITANIA-HONG, accompanied On 5 April 1937, a Deed of Partition[5] was entered into by the heirs of the spouses Bernardo
NACHURA, and
and joined by her husband, LEOPOLDO Cavile and Tranquilina Galon. Said heirs included the legitimate children of Bernardo and
HONG and GENOVEVA LITANIA, PERALTA, JJ. Tranquilina, namely, (1) Susana Cavile, (2) Castor Cavile, and (3) Benedicta Cavile; as well as
Respondents. the children of Bernardo by his previous marriages, specifically: (4) Simplicia Cavile, (5)
Fortunato Cavile, and (6) Vevencia Cavile.[6] Subject of the Deed of Partition were several
Promulgated: parcels of land situated in the Municipality of Tolong, Negros Oriental, which were then
covered by Tax Declarations No. 5615, No. 5729, No. 7143, No. 7421 and No. 7956, all under
the name of Bernardo.
March 13, 2009
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
Of particular interest in this case are the lots covered by Tax Declarations No. 7421 and No.
7956. The lot covered by Tax Declaration No. 7421 was described in the Deed of Partition
as bounded on the North by Simplicio Cavile antes Roman Echaves, on the East by Rio
Bayawan, on the South by Riachuelo Napasu-an, and on the West by Riachuelo Napasu-an y
DECISION Julian Calibug antes Francisco Tacang. The lot covered by Tax Declaration No. 7956 was
identified to be the one bounded on the North by Hilario Navaro, on the East by Silverio
Yunting, on the South by Fortunato Cavile, and on the West by Maximiano Balasabas.
In accordance with the Deed of Partition, the conjugal properties of Bernardo and
Tranquilina were divided into two parts.The first part, corresponding to Bernardos share, was
further divided into six equal shares and distributed among his six heirs. The second part,
corresponding to Tranquilinas share, was subdivided only into three shares and distributed
among her children with Bernardo, i.e., Susana, Castor, and Benedicta.
Also stated in the Deed of Partition was the sale by the other aforementioned legal heirs to
their co-heir Castor of their aliquot shares in the lots covered by Tax Declarations No. 7143,
No. 7421, and No. 7956; thus, making Castor the sole owner of the said properties. Similarly,
the Deed of Partition acknowledged the sale by all the legal heirs to Ulpiano Cavile of their
respective shares in the lot covered by Tax Declaration No. 5729, thus, transferring to the
latter absolute ownership of said parcel of land.
Thereafter, on 5 August 1960, Castor and Susana executed a Confirmation of Extrajudicial
Partition,[7] whereby Castor recognized and confirmed that the lots covered by Tax
Declarations No. 2039 and No. 2040 were the just and lawful shares of Susana in the
properties left by their deceased parents Bernardo and Tranquilina, and that Susana was in
actual possession of the said properties. According to the Confirmation of Extrajudicial
Partition, the lot covered by Tax Declaration No. 2039 was bounded on the North by
Simplicio Cavile, on the East by Rio Bayawan, on the South by Napasu-an, and on the West
by Napasu-an Creek and Julian Calibog; while the one covered by Tax Declaration No. 2040
was bounded on the North by Hilario Navvaro (sic), on the South by Fortunato Cavile, on the
East by Silverio Yunting, and on the West by Maximino (sic) Balasabas.
The descriptions of the lots covered by Tax Declarations No. 2039 and No. 2040 in the
Confirmation of Extrajudicial Partition were strikingly close to those of the lots covered by
Tax Declarations No. 7421 and No. 7956, respectively, in the Deed of Partition.
Fourteen years after the execution of the Confirmation of Extrajudicial Partition in
1960, respondents filed on 23 December 1974 a Complaint for Reconveyance and Recovery
of Property with Damages before the RTC against Perfecta Cavile, the daughter of Castor,
Jose de la Cruz, the husband of Perfecta (hereinafter petitioner spouses), and the Rural Bank
of Bayawan, Inc. The Complaint was docketed as Civil Case No. 6111. [8]
Respondents averred in the Complaint that respondents Justina and Genoveva inherited two
parcels of land, covered by Tax Declarations No. 07408 and No. 07409 (subject lots),[9] from
their mother Susana, who, in turn, inherited the same from her parents Bernardo and
Tranquilina. Respondents invoked the Confirmation of Extrajudicial Partition dated 5 August
1960 wherein Castor purportedly recognized Susanas ownership of the subject lots. Susana
had enjoyed undisputed ownership and possession of the subject lots, paying the realty
taxes due and introducing improvements thereon. Susana was even able to obtain a loan
from the Rural Bank of Dumaguete City sometime in 1960, mortgaging the subject lots as
security for the same.
After Susanas death in 1965, the subject lots were inherited by her daughters, respondents
Justina and Genoveva, who then assumed the mortgage thereon. However, respondents
alleged that Castor and petitioner spouses eventually intruded upon and excluded
respondents from the subject lots. When Castor died in 1968, petitioner spouses continued
their unlawful occupancy of the subject lots, planting on the same and harvesting the
products. Respondents claimed that they exerted efforts to settle the matter, but petitioner
spouses stubbornly refused to accede. In 1974, prior to the filing of the Complaint,
respondents again sought an audience with petitioner spouses, yet the latter only presented
to them the Original Certificates of Title (OCTs) No. FV-4976, [10] No. FV-4977,[11] and No. FV-
4978[12] covering the subject lots, issued by the Registry of Deeds for the Province of Negros
Oriental, on 9 October 1962, in the name of petitioner Perfecta. Respondents were, thus,
constrained to institute Civil Case No. 6111 against petitioner spouses and the Rural Bank of
Bayawan, Inc., seeking the cancellation of the OCTs in the name of petitioner Perfecta or,
alternatively, the reconveyance by petitioner spouses of the subject lots to respondents, plus
award for damages. The Rural Bank of Bayawan, Inc. was impleaded as a defendant in the
Complaint since petitioner spouses mortgaged the subject lots in its favor as security for a
loan in the amount of P42,227.50. However, the bank was later dropped as a party after the
aforesaid loan was settled.

Petitioner spouses countered in their Answer to the Complaint that, by virtue of the Deed of
Partition dated 5 April 1937, the heirs of both Bernardo and Tranquilina took exclusive
possession of their respective shares in the inheritance. Castor fully possessed the lots
covered by Tax Declarations No. 7143, No. 7421 and No. 7956, after his co-heirs sold to him
their shares therein. In 1962, Castor sold to petitioner Perfecta the lots covered by Tax
Declarations No. 7421 and No. 7956, which corresponded to the subject lots in the
Complaint. Following the sale, petitioner Perfecta took possession of the subject lots and
filed with the Bureau of Lands an application for the issuance of title over the same. The
Bureau issued free patent titles over the subject lots in favor of petitioner Perfecta and, by
virtue thereof, she was able to secure on 9 October 1962, OCTs No. FV-4976, No. FV-4977,
and No. FV-4978 in her name.
Petitioner spouses asserted that the Confirmation of Extrajudicial Partition dated 5 August
1960 involving the subject lots was a nullity since said properties were never owned nor
adjudicated in favor of Susana, respondents predecessor-in-interest. Castor and Susana
executed the Confirmation of Extrajudicial Partition merely to accommodate the latter who
then needed security for the loan she was trying to obtain from the Rural Bank
of Dumaguete City. Respondents would not be able to deny the said accommodation
arrangement, given that neither Susana nor respondents actually possessed the subject lots
or applied for titles thereto. Respondents did not even know that the subject lots were
divided into three lots after a Government survey. If Susana and respondents paid realty
taxes for the subject lots, it was only to convince the Rural Bank of Dumaguete to renew
their loan from year to year, secured as it was by the mortgage on the subject lots. Thus,
petitioner spouses posited that no ownership could then be transferred to respondents after
Susanas death.
Trial in Civil Case No. 6111 thereafter ensued before the RTC. [13]
On 29 February 2000, the RTC promulgated its Decision, with the following dispositive
portion:
WHEREFORE, premises considered, judgment is hereby rendered declaring [herein petitioner
spouses] as the absolute owners over the parcels of land in litigation. Consequently, [herein
respondents] complaint is ordered dismissed. [Respondents] counterclaim is likewise
entered dismissed for lack of merit.[14]
The RTC ruled that the petitioner spouses evidence was more worthy of credence in
establishing their ownership of the subject lots.As petitioner Perfecta testified before the
RTC, Castor immediately took possession of the subject lots after the Deed of Partition was
executed in 1937. This fact was supported by the unrebutted testimony of Luciana Navarra,
petitioner Perfectas cousin, who declared that her husband was petitioner Perfectas tenant
on the subject lots since 1947 and that respondents never actually occupied the said
properties. The RTC observed that it was highly questionable and contrary to human
experience that respondents waited nine long years after their ejection from the subject lots
in 1965 before taking any legal step to assert their rights over the same.
The RTC further subscribed to the testimony of Perfecta that the Confirmation of
Extrajudicial Partition was executed by Castor solely to accommodate Susana, enabling her
to obtain a bank loan using the subject lots as collateral. It noted that Susana did not bother
to apply for the issuance of title to the subject lots in her name. Contrarily, it was Perfecta
who applied for and obtained title to the subject lots, which, surprisingly, respondents were
not even aware of. The RTC found that the contemporaneous and subsequent acts of the
parties after the execution of the Confirmation of Extrajudicial Partition evidently
demonstrated their intention to merely accommodate Susana in her loan application. Hence,
the RTC concluded that the Confirmation of Extrajudicial Partition was a simulated contract
which was void and without any legal effect.
Without seeking a reconsideration of the above RTC Decision, respondents challenged the
same by way of appeal before the Court of Appeals, docketed as CA-G.R. CV No. 66873.
On 8 March 2007, the Court of Appeals rendered the assailed Decision in favor of
respondents, the decretal portion of which provides:
 Petitioner spouses filed the instant Petition, raising the following issues for the Courts
consideration:
WHEREFORE, the assailed decision is REVERSED AND SET ASIDE and a new one
entered ORDERING [herein petitioner spouses] and/or their heirs, assigns and
representatives as follows:
I.

1. To reconvey to [herein respondents] the possession and title to the litigated

parcels of land.
2. Upon reconveyance of the litigated properties, the Register of Deeds of
Dumaguete City is ordered to cancel Certificate of Title No. 4877 (sic), 4976 and 4978 and to
issue a new certificate to [respondents] or their successors in interest.
WHETHER [OR NOT] THE HONORABLE COURT OF APPEALS ACTED IN ACCORDANCE WITH
LAW IN RULING THAT EXTRANEOUS EVIDENCE IN THE FORM OF AN AFFIDAVIT, THE
CONFIRMATION OF EXTRAJUDICIAL PARTITION, MAY BE ADMITTED IN EVIDENCE TO VARY
THE TERMS OF A JUDICIALLY DECLARED VALID AGREEMENT ENTITLED DEED OF PARTITION?

3. With costs against [petitioner spouses].[15]

II.

WHETHER [OR NOT] THE HONORABLE COURT OF APPEALS COMMITTED A LEGAL ERROR IN
The Court of Appeals agreed in the respondents contention that the Confirmation of NOT DISMISSING THE COMPLAINT ON THE GROUND OF RES JUDICATA?
Extrajudicial Partition was not a simulated document. The said document should be entitled
to utmost respect, credence, and weight as it was executed by and between parties who had
firsthand knowledge of the Deed of Partition of 1937. Moreover, the Confirmation of
Extrajudicial Partition constituted evidence that was of the highest probative value against
the declarant, Castor, because it was a declaration against his proprietary interest. Other III.
than petitioner Perfectas testimony, the appellate court found no other proof extant in the
records to establish that the Confirmation of Extrajudicial Partition was a simulated
document or that it did not express the true intent of the parties. The Court of Appeals WHETHER [OR NOT] THE COMPLAINT FILED BY THE RESPONDENTS SHOULD BE DISMISSED
likewise highlighted the fact that Castor did not attempt to have the subject lots declared in ON THE GROUND OF FORUM-SHOPPING?
his name during his lifetime and that petitioner Perfecta herself admitted that she only
started paying real estate taxes for the subject lots in 1993. It was Susana and, later, her
children, respondents Justina and Genoveva, who had been paying for the realty taxes on IV.
the subject lots since 1937.

WHETHER [OR NOT] THE FREE PATENT TITLES ISSUED TO THE PETITIONERS MAY BE
[16]
Petitioner spouses filed a Motion for Reconsideration of the foregoing Decision, but it was RECONVEYED TO THE RESPONDENTS?[18]
denied by the Court of Appeals in a Resolution [17] dated 3 September 2007.

Essentially, the Court finds that the fundamental issue that must be settled in this case is
who, among the parties herein, have the better right to the subject lots.
The Court notes prefatorily that in resolving the present case, an examination of the
respective evidence of the parties must necessarily be undertaken. Although the jurisdiction
of the Court in a petition for review on certiorari under Rule 45 of the Rules of Court is
limited to reviewing only errors of law, we find that an exception[19] to this rule is present in
the instant case in that the Court of Appeals made findings of fact which were contrary to
those of the RTC.
the shares of his co-heirs in the subject lots. Petitioner Perfecta testified before the trial
court that right after the execution of said Deed, she and her father, Castor, assumed
possession of the subject lots, planting coconuts, rice, and corn thereon. [24] She additionally
testified that realty taxes on the subject lots had since been paid by Castor and,
subsequently, by her.[25]Possession of the subject lots by Castor and petitioner spouses was
corroborated by the testimony of Luciana Navarra, who insisted that respondents never
occupied the said lots.[26] Finally, petitioner spouses presented OCTs No. FV-4976, No. FV-
4977, and No. FV-4978, covering the subject lots, issued by the Registry of Deeds for the
Province of Negros Oriental on 9 October 1962 in the name of petitioner Perfecta.
After a careful evaluation of the evidence adduced by the parties in the instant case, the
Court rules in favor of petitioner spouses.

Before proceeding, the Court further establishes as a foregone fact, there being no issue
raised on the matter, that the subject lots covered by Tax Declarations No. 07408 and No.
At this point, let it be stated that the validity and due execution of the Deed of Partition
07409 described in the Complaint in Civil Case No. 6111 are the very same lots covered by
executed in 1937 is not directly assailed in this case, thus, the Court need not pass upon the
Tax Declarations No. 7956 and No. 7421 included in the Deed of Partition, and by Tax
same. Under the said Deed of Partition, the other heirs of Bernardo and Tranquilina clearly
Declarations No. 2040 and No. 2039 subject of the Confirmation of Extrajudicial Partition.
and unequivocally sold their shares in the subject lots to Castor, petitioner Perfectas
father. What appeared to be the clear right of ownership of Castor over the subject lots was
put in doubt by the execution of the Confirmation of Extrajudicial Partition by Castor and his
Respondents, as plaintiffs before the RTC in Civil Case No. 6111, sought the reconveyance sister Susana in 1960. Respondents, children and heirs of Susana, base their claim of
and recovery of the subject lots purportedly illegally usurped by petitioner spouses who ownership of the subject lots on the said document, while petitioner spouses denounce the
succeeded in having the same titled in the name of petitioner Perfecta. Respondent Justina same to be simulated, executed for purposes other than to transfer ownership of the subject
testified in open court that the subject lots were inherited by her and co-respondent lots, and cannot legally alter the terms of the previously duly executed Deed of Partition.
Genovevas mother, Susana, from their grandparents, Bernardo and Tranquilina. [20] As proof
of Susanas ownership of the subject lots, respondents presented the Confirmation of
Extrajudicial Partition executed on 5 August 1960 by Castor and Susana. In said document,
As held by the Court of Appeals, the Confirmation of Extrajudicial Partition partakes of the
Castor ostensibly recognized and confirmed Susanas ownership and possession of the
nature of an admission against a persons proprietary interest. [27] As such, the same may be
subject lots.[21] Tax declarations[22] covering the subject lots in the names of Susana and
admitted as evidence against Castor and petitioner spouses, his successors-in-interest. The
respondents were also offered to the court a quo to lend support to respondents claims of
theory under which declarations against interest are received in evidence, notwithstanding
ownership.
that they are hearsay, is that the necessity of the occasion renders the reception of such
evidence advisable and, further, that the reliability of such declaration asserts facts which
are against his own pecuniary or moral interest. [28]
On the other hand, to prove their entitlement to the subject lots, petitioner spouses
presented before the RTC the Deed of Partition [23] entered into by the heirs of spouses
Bernardo and Tranquilina on 5 April 1937. By virtue thereof, Castor acquired through sale
Nevertheless, the Confirmation of Extrajudicial Partition is just one piece of evidence against
petitioner spouses. It must still be considered and weighed together with respondents other
Other than the Confirmation of Extrajudicial Partition, respondents were only able to
evidence vis--vis petitioner spouses evidence. In civil cases, the party having the burden of
present as evidence of their title to the subject lots tax declarations covering the same,
proof must establish his case by a preponderance of evidence. Preponderance of evidence is
previously, in the name of Susana and, subsequently, in their own names. We find such tax
the weight, credit, and value of the aggregate evidence on either side and is usually
declarations insufficient to establish respondents ownership of the subject lots. That the
considered to be synonymous with the term greater weight of the evidence or greater
disputed property has been declared for taxation purposes in the name of any party does
weight of the credible evidence. Preponderance of evidence is a phrase which, in the last
not necessarily prove ownership. Jurisprudence is consistent that tax declarations are not
analysis, means probability of the truth. It is evidence which is more convincing to the court
conclusive evidence of ownership of the properties stated therein. A disclaimer is even
as worthy of belief than that which is offered in opposition thereto. [29] Rule 133, Section 1 of
printed on the face of such tax declarations that they are "issued only in connection with
the Rules of Court provides the guidelines in determining preponderance of evidence, thus:
real property taxation [and] should not be considered as title to the property." At best, tax
declarations are indicia of possession in the concept of an owner. [30] Conversely, non-
declaration of a property for tax purposes does not necessarily negate ownership. [31]
In civil cases, the party having the burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance or superior weight of
evidence on the issues involved lies, the court may consider all the facts and circumstances
On the other hand, the Court is at a loss as to how the Court of Appeals failed to give due
of the case, the witnesses manner of testifying, their intelligence, their means and
consideration to the Torrens titles issued in the name of petitioner Perfecta when it
opportunity of knowing the facts to which they are testifying, the nature of the facts to
rendered its assailed Decision.
which they testify, the probability or improbability of their testimony, their interest or want
of interest, and also their personal credibility so far as the same may legitimately appear
upon the trial. The court may also consider the number of witnesses, though the
preponderance is not necessarily with the greater number. Sometime in 1962, petitioner Perfecta applied for and was granted by the Bureau of Lands
free patents over the subject lots.Pursuant thereto, Original Certificates of Title No. FV-4976,
No. FV-4977, and No. FV-4978, covering the subject lots, were issued by the Registry of
Deeds for the Province of Negros Oriental, on 9 October 1962, in the name of petitioner
Perfecta. Given this crucial fact, the Court pronounces that respondents Complaint for
Herein, despite the admission made by Castor in the Confirmation of Extrajudicial Partition reconveyance of the subject lots and damages filed only on 23 December 1974 is already
against his own interest, the Court is still convinced that the evidence adduced by the barred.
petitioner spouses preponderated over that of the respondents.

In analyzing the two vital documents in this case, the Court discerns that while the Deed of
Partition clearly explained how Castor came to fully own the subject lots, the Confirmation
of Extrajudicial Partition, even though confirming Susanas ownership of the subject lots,
failed to shed light on why or how the said properties wholly pertained to her when her
parents Bernardo and Tranquilina clearly had other heirs who also had shares in the
inheritance.
A Torrens title issued on the basis of the free patents become as indefeasible as one which
was judicially secured upon the expiration of one year from date of issuance of the patent.
[32]
However, this indefeasibility cannot be a bar to an investigation by the State as to how
such title has been acquired, if the purpose of the investigation is to determine whether or
not fraud has been committed in securing the title. Indeed, one who succeeds in
fraudulently acquiring title to public land should not be allowed to benefit from it. [33]
On this matter, Section 101 of Commonwealth Act No. 141 [34] provides that all actions for the
reversion to the government of lands of the public domain or improvements thereon shall
be instituted by the Solicitor General or the officer acting in his stead, in the proper courts,
in the name of the Commonwealth [now Republic] of the Philippines. Such is the rule
because whether the grant of a free patent is in conformity with the law or not is a question
which the government may raise, but until it is so raised by the government and set aside,
another claiming party may not question it. The legality of the grant is a question between
the grantee and the government. [35] Thus, private parties, like respondents in the instant
case, cannot challenge the validity of the patent and the corresponding title, as they had no
personality to file the suit.
Although jurisprudence recognizes an exception to this case, the respondents may not avail
themselves of the same.
Verily, an aggrieved party may still file an action for reconveyance based on implied or
constructive trust, which prescribes in 10 years from the date of the issuance of the
Certificate of Title over the property, provided that the property has not been acquired by an
innocent purchaser for value. An action for reconveyance is one that seeks to transfer
property, wrongfully or fraudulently registered by another, to its rightful and legal owner.
[36]
If the registered owner, be he the patentee or his successor-in-interest to whom the free
patent was transferred, knew that the parcel of land described in the patent and in the
Torrens title belonged to another, who together with his predecessors-in-interest had been
in possession thereof, and if the patentee and his successor-in-interest were never in
possession thereof, the true owner may bring an action to have the ownership of or title to
the land judicially settled. The court in the exercise of its equity jurisdiction, without
ordering the cancellation of the Torrens titled issued upon the patent, may direct the
defendant, the registered owner, to reconvey the parcel of land to the plaintiff who has been
found to be the true owner thereof. [37]
In the instant case, respondents brought the action for reconveyance of the subject lots
before the RTC only on 23 December 2004, or more than 12 years after the Torrens titles
were issued in favor of petitioner Perfecta on 9 October 1962. The remedy is, therefore,
already time-barred.
And even if respondents Complaint was filed on time, the Court would still rule that
respondents failed to satisfactorily prove that they were in possession of the subject lots
prior to the grant of free patents and issuance of Torrens titles over the same in favor
petitioner Perfecta. The bare testimony of respondent Justina that Susana had been in the
peaceful and undisturbed possession of the subject lots since 1937 up to the time of her
death in 1965 was entirely bereft of substantiation and details. No information was provided
as to how said possession of the subject lots was actually exercised or demonstrated by
Susana. In contrast, the possession of the subject lots by Castor, and later on by petitioner
spouses, was established not just by the testimony of petitioner Perfecta, but was
corroborated by the testimony of Luciana Navarra, whose husband was a tenant working on
the subject lots. Petitioner spouses possessed the subject lots by planting thereon coconuts,
rice, and corn - a claim which respondents were unable to refute.
Furthermore, respondents allegation that petitioner Perfecta committed fraud and breach of
trust in her free patent application is specious. The fact that the document evidencing the
sale of the subject lots by Castor to petitioner Perfecta was not presented does not
automatically mean that said contract was never in existence. Also undeserving of much
consideration without sufficient proof is respondents averment that the subject lots were
private lands which could no longer be granted to any person via free patent.Respondents
ought to remember that mere allegation of fraud is not enough. Specific, intentional acts to
deceive and deprive another party of his right, or in some manner injure him, must be
alleged and proved.[38] Also, the issuance by Bureau of Lands of free patents over the subject
property to petitioner Perfecta enjoys the presumption of regularity.
WHEREFORE, premises considered, the Petition for Review under Rule 45 of the Rules of
Court is hereby GRANTED. The assailed Decision dated 8 March 2007 and Resolution dated 3
September 2007 of the Court of Appeals in CA-G.R. CV No. 66873 are hereby REVERSED AND
SET ASIDE. The Decision dated 29 February 2000 of the RTC of Negros Oriental, Branch 35, in
Civil Case No. 6111 is hereby REINSTATED. No costs.
SO ORDERED.
FIRST DIVISION This is a petition for review on certiorari under Rule 45 of the Rules of Court against the
Decision[1] of the Court of Appeals (CA) in CA-G.R. No. 66053 dated July 27, 2004 and the
Resolution therein dated October 18, 2004.

ALEJANDRO B. TY, G.R. No. 165696

The facts are stated in the CA Decision:
Petitioner,

Present:
On May 19, 1988, Alexander Ty, son of Alejandro B. Ty and Bella Torres, died of cancer at the
PUNO, C.J., Chairperson, age of 34. He was survived by his wife, Sylvia Ty, and his only daughter, Krizia Katrina Ty. A
few months after his death, a petition for the settlement of his intestate estate was filed by
CARPIO, Sylvia Ty in the Regional Trial Court of Quezon City.
CORONA,*

- versus - AZCUNA, Meanwhile, on July 20, 1989, upon petition of Sylvia Ty, as Administratrix, for settlement
LEONARDO-DE CASTRO, JJ. and distribution of the intestate estate of Alexander in the County of Los Angeles, the
Superior Court of California ordered the distribution of the Hollywood condominium unit,
the Montebello lot, and the 1986 Toyota pick-up truck to Sylvia Ty and Krizia Katrina Ty.
SYLVIA S. TY, in her capacity Promulgated:

as Administratrix of the Intestate On November 23, 1990, Sylvia Ty submitted to the intestate Court in Quezon City an
Estate of Alexander Ty, April 30, 2008 inventory of the assets of Alexanders estate, consisting of shares of stocks and a schedule of
real estate properties, which included the following:
Respondent.
1. EDSA Property a parcel of land with an area of 1,728 square meters situated in
X ----------------------------------------------------------------------------------------- X EDSA, Greenhills, Mandaluyong, Metro Manila, registered in the name of Alexander Ty when
he was still single, and covered by TCT No. 0006585;

2. Meridien Condominium A residential condominium with an area of 167.5 square

meters situated in 29 Annapolis Street, Greenhills, Mandaluyong, Metro Manila, registered
DECISION in the name of the spouses Alexander Ty and Sylvia Ty, and covered by Condominium
Certificate of Title No. 3395;

3. Wack-Wack Property A residential land with an area of 1,584 square meters

AZCUNA, J.:
situated in Notre Dame, Wack-Wack, Mandaluyong, Metro Manila, registered in the name of
the spouses Alexander Ty and Sylvia Ty, and covered by TCT No. 62670.
 On November 4, 1992, Sylvia Ty asked the intestate Court to sell or mortgage the
properties of the estate in order to pay the additional estate tax of P4,714,560.02 assessed
by the BIR.
Apparently, this action did not sit well with her father-in-law, the plaintiff-appellee, for
on December 16, 1992, Alejandro Ty, father of the deceased Alexander Ty, filed a complaint
for recovery of properties with prayer for preliminary injunction and/or temporary
restraining order. Docketed as Civil Case No. 62714, of the Regional Trial Court of Pasig,
Branch 166, the complaint named Sylvia Ty as defendant in her capacity as [Administratrix]
of the Intestate Estate of Alexander Ty.
Forthwith, on December 28, 1992, defendant Sylvia Ty, as Administratrix of the Intestate
Estate of Alexander Ty, tendered her opposition to the application for preliminary
injunction. She claimed that plaintiff Alejandro Ty had no actual or existing right, which
entitles him to the writ of preliminary injunction, for the reason that no express trust
concerning an immovable maybe proved by parole evidence under the law. In addition,
Sylvia Ty argued that the claim is barred by laches, and more than that, that irreparable
injury will be suffered by the estate of Alexander Ty should the injunction be issued.
To the aforementioned opposition, plaintiff filed a reply, reiterating the arguments set
forth in his complaint, and denying that his cause of action is barred by laches.
In an order dated February 26, 1993, the Regional Trial Court granted the application for
a writ of preliminary injunction.
As to the complaint for recovery of properties, it is asserted by plaintiff Alejandro Ty that
he owns the EDSA property, as well as the Meridien Condominium, and the Wack-Wack
property, which were included in the inventory of the estate of Alexander Ty. Plaintiff alleged
that on March 17, 1976, he bought the EDSA property from a certain Purificacion Z. Yujuico;
and that he registered the said property in the name of his son, Alexander Ty, who was to
hold said property in trust for his brothers and sisters in the event of his (plaintiffs) sudden
demise. Plaintiff further alleged that at the time the EDSA property was purchased, his son
and name-sake was still studying in the United States, and was financially dependent on him.
As to the two other properties, plaintiff averred that he bought the Meridien
Condominium sometime in 1985 and the Wack-Wack property sometime in 1987; that titles
to the aforementioned properties were also placed in the name of his son, Alexander Ty,
who was also to hold these properties in trust for his brothers and sisters. Plaintiff asserted
that at [the] time the subject properties were purchased, Alexander Ty and Sylvia Ty were
earning minimal income, and were thus financially incapable of purchasing said
properties. To bolster his claim, plaintiff presented the income tax returns of Alexander from
1980-1984, and the profit and loss statement of defendants Joji San General Merchandising
from 1981-1984.
Plaintiff added that defendant acted in bad faith in including the subject properties in
the inventory of Alexander Tys estate, for she was well aware that Alexander was simply
holding the said properties in trust for his siblings.
In her answer, defendant denied that the subject properties were held in trust by
Alexander Ty for his siblings. She contended that, contrary to plaintiffs allegations, Alexander
purchased the EDSA property with his own money; that Alexander was financially capable of
purchasing the EDSA property as he had been managing the family corporations ever since
he was 18 years old, aside from the fact that he was personally into the business of
importing luxury cars. As to the Meridien Condominium and Wack-Wack property, defendant
likewise argued that she and Alexander Ty, having been engaged in various profitable
business endeavors, they had the financial capacity to acquire said properties.
By way of affirmative defenses, defendant asserted that the alleged verbal trust
agreement over the subject properties between the plaintiff and Alexander Ty is not
enforceable under the Statute of Frauds; that plaintiff is barred from proving the alleged
verbal trust under the Dead Mans Statute; that the claim is also barred by laches; that
defendants title over the subject properties cannot be the subject of a collateral attack; and
that plaintiff and counsel are engaged in forum-shopping.
In her counterclaim, defendant prayed that plaintiff be sentenced to pay attorneys fees
and costs of litigation.
On November 9, 1993, a motion for leave to intervene, and a complaint-in-intervention
were filed by Angelina Piguing-Ty, legal wife of plaintiff Alejandro Ty. In this motion, plaintiff-
intervenor prayed that she be allowed to intervene on the ground that the subject
properties were acquired during the subsistence of her marriage with the plaintiff, hence
said properties are conjugal. On April 27, 1994, the trial court issued an Order granting the
aforementioned motion.
During the hearing, plaintiff presented in evidence the petition filed by defendant in
Special Proceedings No. Q-88-648; the income tax returns and confirmation receipts of
Alexander Ty from 1980-1984; the profit and loss statement of defendants Joji San General
Merchandising from 1981-1984; the deed of sale of the EDSA property dated March 17,
1976; the TCTs and CCT of the subject properties; petty cash vouchers, official receipts and
checks to show the plaintiff paid for the security and renovation expenses of both the
Meridien Condominium and the Wack-Wack property; checks issued by plaintiff to
defendant between June 1988 November 1991 to show that plaintiff provided financial
support to defendant in the amount of P51,000.00; and the articles of incorporations of
various corporations, to prove that he, plaintiff, had put up several corporations.
Defendant for her presented in evidence the petition dated September 6, 1988 in Special
Proceedings No. Q-88-648; the TCTs and CCT of the subject properties; the deed of sale of
stock dated July 27, 1988 between the ABT Enterprises, Incorporated, and plaintiff; the
transcript of stenographic notes dated January 5, 1993 in SEC Case No. 4361; the minutes of
the meetings, and the articles of incorporation of various corporations; the construction
agreement between the defendant and the Home Construction, for the renovation of the
Wack-Wack property; the letters of Home Construction to defendant requesting for payment
of billings and official receipts of the same, to show that defendant paid for the renovation
of the Wack-Wack property; the agreement between Drago Daic Development International,
Incorporated, and the spouses Alexander Ty and Sylvia Ty, dated March, 1987, for the sale of
the Wack-Wack property covered by TCT No. 55206 in favor of the late Alexander Ty and the
defendant; a photograph of Krizia S. Ty; business cards of Alexander Ty; the Order and the
Decree No. 10 of the Superior Court of California, dated July 20, 1989; the agreement
between Gerry L. Contreras and the Spouses Alexander Ty and Sylvia Ty, dated January 26,
1988, for the Architectural Finishing and Interior Design of the Wack-Wack property; official
receipts of the Gercon Enterprises; obituaries published in several newspapers; and a letter
addressed to Drago Daic dated February 10, 1987. [2]
Furthermore, the following findings of facts of the court a quo,
the Regional Trial Court of Pasig City, Branch 166 (RTC), in Civil Case No. 62714, were
adopted by the CA, thus:
We adopt the findings of the trial court in respect to the testimonies of the witnesses
who testified in this case, thus:
The gist of the testimony of defendant as adverse witness for the plaintiff:
Defendant and Alexander met in Los Angeles, USA in 1975. Alexander was then only 22
years old. They married in 1981. Alexander was born in 1954. He finished high school at
the St. Stephen High School in 1973. Immediately after his graduation from high school,
Alexander went to the USA to study. He was a full-time student at
the Woodberry College where he took up a business administration course. Alexander
graduated from the said college in 1977. He came back to the Philippines and started
working in the Union Ajinomoto, Apha Electronics Marketing Corporation and ABT
Enterprises. After their marriage in 1981, Alexander and defendant lived with plaintiff at the
latters residence at 118 Scout Alcaraz St.[,] Quezon City. Plaintiff has been engaged in
manufacturing and trading business for almost 50 years. Plaintiff has established several
corporations. While in the USA, Alexander stayed in his own house in Montebello,California,
which he acquired during his college days. Alexander was a stockholder of companies owned
by plaintiffs family and got yearly dividend therefrom. Alexander was an officer in the said
companies and obtained benefits and bonuses therefrom. As stockholder of Ajinomoto,
Royal Porcelain, Cartier and other companies, he obtained stock dividends. Alexander
engaged in buy and sell of cars. Defendant cannot give the exact amount how much
Alexander was getting from the corporation since 1981. In 1981, defendant engaged in retail
merchandising i.e., imported jewelry and clothes. Defendant leased two (2) units at the
Greenhills Shoppesville. Defendant had dividends from the family business which is real
estate and from another corporation which is Perway. During their marriage, defendant
never received allowance from Alexander. The Wack-Wack property cost P5.5
million. A Car Care Center was established by Alexander and defendant was one of the
stockholders. Defendant and Alexander spent for the improvement of the Wack-Wack
property. Defendant and Alexander did not live in the condominium unit because they
followed the Chinese tradition and lived with plaintiff up to the death of
Alexander. Defendant and Alexander started putting improvements in the Wack-Wack
property in 1988, or a few months before Alexander died.
The gist of the testimony of Conchita Sarmiento:
In 1966, Conchita Sarmiento was employed in the Union Chemicals as secretary of
plaintiff who was the president. Sarmiento prepared the checks for the school expenses and
allowances of plaintiffs children and their spouses. Sarmiento is familiar with the Wack-Wack
property. Plaintiff bought the Wack-Wack property and paid the architect and spent for the
materials and labor in connection with the construction of the Wack-Wack property (Exhs. M
to Z inclusive; Exhs. AA to ZZ, inclusive; Exhs. AAA to ZZZ, inclusive; Exhs. AAAA to FFFF,
inclusive). Plaintiff entrusted to Alexander the supervision of the construction of the Wack-
Wack property, so that Exhibit M shows that the payment was received from
Alexander. Plaintiff visited the Wack-Wack property several times and even pointed the room
which he intended to occupy. Sarmiento was told by plaintiff that it was very expensive to
maintain the house. The documents, referring to the numerous exhibits, were in the
possession of plaintiff because they were forwarded to him for payment. Sarmiento knows
the residential condominium unit because in 1987 plaintiff purchased the materials and
equipments for its renovation, as shown by Exhs. GGGG to QQQQ inclusive. Plaintiff
supported defendant after the death of Alexander, as shown by Exhs. RRRR to TTTT
inclusive. Sarmiento was plaintiffs secretary and assisted him in his official and personal
affairs. Sarmiento knew that Alexander was receiving a monthly allowance in the amount
of P5,000.00 from Alpha.
The gist of the testimony of the plaintiff:
Plaintiff is 77 years old and has been engaged in business for about 50 years. Plaintiff
established several trading companies and manufacturing firms. The articles of incorporation
of the companies are shown in Exhs. UUUUU (Manila Paper Mills, Inc.); UUUUU-1 (Union
Chemicals Inc.); UUUUU-2 (Starlight Industrial Company Inc.); UUUUU-3 (Hitachi Union,
Inc.); UUUUU-4 (Philippine Crystal Manufacturing Corp.). Alexander completed his
elementary education in 1969 at the age of 15 years and finished high school education in
1973. Alexander left in 1973 for the USA to study in the Woodberry College in Los
Angeles. Alexander returned to the Philippines in 1977. When Alexander was 18 years old,
he was still in high school, a full-time student. Alexander did not participate in the business
operation. While in High School Alexander, during his free time attended to his hobby about
cars Mustang, Thunderbird and Corvette. Alexander was not employed. Plaintiff took care of
Alexanders financial needs. Alexander was plaintiffs trusted son because he lived with him
from childhood until his death. In 1977 when Alexander returned to the Philippines from
the USA, he did not seek employment. Alexander relied on plaintiff for support. After
Alexander married defendant, he put up a Beer Garden and a Car CareCenter. Plaintiff
provided the capital. The Beer Garden did not make money and was closed after Alexanders
death. Defendant and Alexander lived with plaintiff in Quezon City and he spent for their
needs. Plaintiff purchased with his own money the subject properties. The EDSA property
was for investment purposes. When plaintiff accompanied Alexander to the USA in 1973, he
told Alexander that he will buy some properties in Alexanders name, so that if something
happens to him, Alexander will distribute the proceeds to his siblings. When the EDSA
property was bought, Alexander was in the USA. Plaintiff paid the real estate taxes. With
plaintiffs permission, Alexander put up his Beer Garden and Car Care Center in the EDSA
property. It was Alexander who encouraged plaintiff to buy the condominium unit because
Alexander knew the developer. The condominium unit was also for investment
purposes. Plaintiff gave Alexander the money to buy the condominium unit. After sometime,
Alexander and defendant asked plaintiffs permission for them to occupy the condominium
unit. Plaintiff spent for the renovation of the condominium unit. It was Alexander who
encouraged plaintiff to buy the Wack-Wack property. Plaintiff spent for the renovation of the
condominium unit. It was Alexander who encouraged plaintiff to buy the Wack-Wack
property. Plaintiff paid the price and the realty taxes. Plaintiff spent for the completion of the
unfinished house on the Wack-Wack property. Plaintiff bought the Wack-Wack property
because he intended to transfer his residence from Quezon City to Mandaluyong. During the
construction of the house on the Wack-Wack property plaintiff together with Conchita
Sarmiento, used to go to the site. Plaintiff even told Sarmiento the room which he wanted to
occupy. Alexander and defendant were not in a financial position to buy the subject
properties because Alexander was receiving only minimal allowance and defendant was only
earning some money from her small stall in Greenhills. Plaintiff paid for defendants and
Alexander income taxes (Exhs. B, C, D, E, and F). Plaintiff kept the Income Tax Returns of
defendant and Alexander in his files. It was one of plaintiffs lawyers who told him that the
subject properties were included in the estate of Alexander. Plaintiff called up defendant and
told her about the subject properties but she ignored him so that plaintiff was saddened and
shocked. Plaintiff gave defendant monthly support of P 51, 000.00 (Exhs. RRRR to TTTTT,
inclusive) P 50,000.00 for defendant and P1,000.00 for the yaya. The Wack-Wack property
cost about P5.5 million.
The gist of the testimony of Robert Bassig:
He is 73 years old and a real estate broker. Bassig acted as broker in the sale of the EDSA
property from Purificacion Yujuico to plaintiff. In the Deed of Sale (Exh. G) it was the name of
Alexander that was placed as the vendee, as desired by plaintiff. The price was paid by
plaintiff. Bassig never talked with Alexander. He does not know Alexander.
The gist of the testimony of Tom Adarne as witness for defendant:
Adarne is 45 years old and an architect. He was a friend of Alexander. Adarne was
engaged by defendant for the preparation of the plans of the Wack-Wack property. The
contractor who won the bidding was Home Construction, Inc. The Agreement (Exh. 26) was
entered into by defendant and Home Construction Inc. The amount of P955,555.00 (Exh. 26-
A) was for the initial scope of the work. There were several letter-proposals made by Home
Construction (Exhs. 27-34-A, inclusive). There were receipts issued by Home Construction
Inc. (Exhs. 35, 36 and 37). The proposal were accepted and performed. The renovation
started in 1992 and was finished in 1993 or early 1994.
The gist of the testimony of Rosanna Regalado:
Regalado is 43 years old and a real estate broker. Regalado is a close friend of
defendant. Regalado acted as broker in the sale of the Wack-Wack property between
defendant and Alexander and the owner. The sale Agreement (Exh. 38) is dated March 5,
1987. The price is P5.5 million in Far East Bank and Trust Company managers checks. The
four (4) checks mentioned in paragraph 1 of the Agreement were issued by Alexander but
she is not sure because it was long time ago.
The gist of the testimony of Sylvia Ty:
She is 40 years old, businesswoman and residing at 675 Notre Dame, Wack-
Wack Village, Mandaluyong City. Sylvia and Alexander have a daughter named Krizia Katrina
Ty, who is 16 years old. Krizia is in 11th grade at Brent International School. Alexander was an
executive in several companies as shown by his business cards (Exhs. 40, 40-A, 40-B, 40-C,
40-D, 40-E, 40-F, and 40-G). Before defendant and Alexander got married, the latter acquired
a condominium unit in Los Angeles, USA, another property in Montebello, California and the
EDSA property. The properties in the USA were already settled and adjudicated in
defendants favor (Exhs. 41 and 41-A). Defendant did not bring any property into the
marriage. After the marriage, defendant engaged in selling imported clothes and eventually
bought four (4) units of stall in Shoppesville Greenhills and derived a monthly income
of P50,000.00. the price for one (1) unit was provided by defendants mother. The other
three (3) units came from the house and lot at Wack-Wack Village. The P3.5 million
managers check was purchased by Alexander. The sale Agreement was signed by Alexander
and defendant (Exhs. 38-A and 38-B). After the purchase, defendant and Alexander
continued the construction of the property. After Alexanders death, defendant continued
the construction. The first architect that defendant and Alexander engaged was Gerry
Contreras (Exhs. 42, 42-A and 42-A-1 to 42-A-7). The post-dated checks issued by Alexander
were changed with the checks of plaintiff. After the death of Alexander, defendant engaged
the services of Architect Tom Adarne. Home Construction, Inc. was contracted to continue
the renovation. Defendant and Alexander made payments to Contreras from January to May
1998 (Exhs. 43, 43-A to 43-H, inclusive). A general contractor by the name of Nogoy was
issued some receipts (Exhs. 43-J and 43-K). a receipt was also issued by Taniog (Exh. 43-
L). the payments were made by defendant and Alexander from the latters accounts. The
Agreement with Home Construction Inc. (Exhs. 26) shows defendants signature (Exh. 26-
A). the additional works were covered by the progress billings (Exhs. 27 to 34-A). Defendant
paid them from her account. The total contract amount was P5,049,283.04. The total
expenses, including the furnishings, etc. reached the amount of P8 to 10 million and were
paid from defendants and Alexanders funds. After the death of Alexander, plaintiff made
payments for the renovation of the house (Exh. M) which plaintiff considered as advantages
but plaintiff did not make any claim for reimbursement from the estate of
Alexander. Defendants relationship with plaintiff became strained when he asked her to
waive her right over the Union Ajinomoto shares. Alexander was a friend of Danding
Cojuangco and was able to import luxury cars. Alexander made a written offer to purchase
the Wack-Wack property. Alexander graduated from the Woodberry College in 1978 or 1979
and returned to the Philippines in 1979 defendant returned to the Philippines about six (6)
months later. Plaintiff was financially well off or wealthy. Alexander was very close to plaintiff
and he was the most trusted son and the only one who grew up in plaintiffs house. Plaintiff
observed Chinese traditions. Alexander was not totally dependent on plaintiff because he
had his own earnings. Upon his return from the USA, Alexander acquired the properties in
the USA while studying there. At the time of his death, Alexander was vice president of
Union Ajinomoto. Defendant could not say how much was the compensation of Alexander
from Union Ajinomoto. Defendant could not also say how much did Alexander earn as vice
president of Royal Porcelain Corporation. Alexander was the treasurer of Polymark Paper
Industries. Alexander was the one handling everything for plaintiff in Horn Blower Sales
Enterprises, Hi-Professional Drilling, Round Consumer, MVR Picture Tubes, ABT
Enterprises. Plaintiff supported defendant and her daughter in the amount of P51,000.00
per month from 1988-1990. Defendant did not offer to reimburse plaintiff the advances he
made on the renovation of the Wack-Wack property because their relationship became
strained over the Ajinomoto shares. Defendant could not produce the billings which were
indicated in the post-dated checks paid to Architect Contreras. After the birth of her child,
defendant engaged in the boutique business. Defendant could not recall how much she
acquired the boutique (for). In 1983 or 1984 defendant started to earn P50,000.00 a
month. The properties in the USA which were acquired by Alexander while still single were
known to plaintiff but the latter did not demand the return of the titles to him. The Transfer
Certificates of Title of the Wack-Wack and EDSA properties were given to defendant and
Alexander. The Condominium Certificate of Title was also given to defendant and
Alexander. The plaintiff did not demand the return of the said titles.
The gist of the testimony of Atty. Mario Ongkiko:
Atty. Ongkiko prepared the Deed of Sale of the EDSA property. There was only one Deed
of Sale regarding the said property. The plaintiff was not the person introduced to him by
Yujuico as the buyer.[3]
On January 7, 2000, the RTC rendered its decision, disposing as follows:
WHEREFORE, judgment is hereby rendered:
1. Declaring plaintiff as the true and lawful owner of the subject properties, as follows:
A. A parcel of land with an area of 1728 square meters, situated along EDSA
Greenhills, Mandaluyong City, covered by TCT No. 006585.
B. A residential land with an area of 1584 square meters, together with the improvements
thereon, situated in Notre Dame, Wack-Wack Village, Mandaluyong City, covered by TCT No.
62670.
C. A residential condominium unit with an area of 167.5 square meters, situated in 29
Annapolis St., Greenhills, Mandaluyong City, covered by Condominium Certificate Title No.
3395.
2. Ordering the defendant to transfer or convey the subject properties in favor of plaintiff
and the Register of Deeds for Mandaluyong City to transfer and issue in the name of plaintiff
the corresponding certificates of title.
3. Ordering the defendant to pay plaintiff the amount of P100,000.00, as moral damages
and P200,000.00, as attorneys fees plus the cost of the suit.
SO ORDERED.[4]
Respondent herein, Sylvia S. Ty, appealed from the RTC Decision to the CA, assigning the
following as errors:
I.
THE TRIAL COURT ERRED IN HOLDING THAT APPELLEE PURCHASED THE EDSA PROPERTY
BUT PLACED TITLE THERETO IN THE NAME OF ALEXANDER T. TY, SO THAT AN EXPRESS TRUST
WAS CREATED BETWEEN APPELLEE, AS TRUSTOR AND ALEXANDER AS TRUSTEE IN FAVOR OF
THE LATTERS SIBLINGS, AS BENEFICIARIES EVEN WITHOUT ANY WRITING THEREOF;
ALTERNATIVELY, THE TRIAL COURT ERRED IN ANY CASE IN HOLDING THAT AN IMPLIED TRUST
EXISTED BETWEEN APPELLEE AND ALEXANDER TY IN FAVOR OF APPELLEE UNDER THE SAME
CIRCUMSTANCES.
II.
THE TRIAL COURT ERRED IN HOLDING THAT APPELLEE PURCHASED THE WACK-WACK
AND MERIDIEN CONDOMINIUM PROPERTIES BUT PLACED ITS TITLES THERETO IN THE
NAMES OF SPOUSES ALEXANDER AND APPELLANT BECAUSE HE WAS FINANCIALLY CAPABLE
OF PAYING FOR THE PROPERTIES WHILE ALEXANDER OR HIS WIFE, APPELLANT SYLVIA S. TY,
WERE INCAPABLE. HENCE, A RESULTING TRUST WAS CREATED BETWEEN APPELLEE AND HIS
SON, ALEXANDER, WITH THE FORMER, AS OWNER-TRUSTOR AND BENEFICIARY AND THE
LATTER AS TRUSTEE CONCERNING THE PROPERTIES.
III.
THE TRIAL COURT ERRED IN AWARDING MORAL DAMAGES OF P100,000 AND
ATTORNEYS FEES OF P200,000 IN FAVOR OF APPELLEE AND AGAINST DEFENDANT-
APPELLANT IN HER CAPACITY AS ADMINISTRATRIX OF THE INTESTATE ESTATE OF ALEXANDER
TY, INSTEAD OF AWARDING APPELLANT IN HER COUNTERCLAIM ATTORNEYS FEES AND
EXPENSES OF LITIGATION INCURRED BY HER IN DEFENDING HER HUSBANDS ESTATE AGAINST
THE UNJUST SUIT OF HER FATHER-IN-LAW, HEREIN APPELLEE, WHO DISCRIMINATED
AGAINST HIS GRAND DAUGHTER KRIZIA KATRINA ON ACCOUNT OF HER SEX.
The arguments in the respective briefs of appellant and appellee are summarized by the
CA Decision, as well as other preliminary matters raised and tackled, thus:
In her Brief, defendant-appellant pointed out that, based on plaintiff-appellees testimony,
he actually intended to establish an express trust; but that the trial court instead found that
an implied trust existed with respect to the acquisition of the subject properties, citing Art.
1448 of the Civil Code of the Philippines.
It is defendant-appellants contention that the trial court erred: In applying Art. 1448 on
implied trust, as plaintiff-appellee did not present a shred of evidence to prove that the
money used to acquire said properties came from him; and in holding that both she and her
late husband were financially incapable of purchasing said properties. On the contrary,
defendant-appellant claimed that she was able to show that she and her late husband had
the financial capacity to purchase said properties.
Defendant-appellant likewise questioned the admission of the testimony of plaintiff-
appellee, citing the Dead Mans Statute; she also questioned the admission of her late
husbands income tax returns, citing Section 71 of the NIRC and the case of Vera v. Cusi, Jr.
On July 10, 2001, plaintiff-appellee filed his appellees Brief, whereunder he argued: That
the trial court did not err in finding that the subject properties are owned by him; that the
said properties were merely registered in Alexanders name, in trust for his siblings, as it was
plaintiff-appellee who actually purchased the subject properties he having the financial
capacity to acquire the subject properties, while Alexander and defendant-appellant had no
financial capacity to do so; that defendant-appellant should be sentenced to pay him moral
damages for the mental anguish, serious anxiety, wounded feelings, moral shock and similar
injury by him suffered, on account of defendant-appellants wrongful acts; and that
defendant appellant should also pay for attorneys fees and litigation expenses by him
incurred in litigating this case.
In a nutshell, it is plaintiff-appellees thesis that in 1973, when he accompanied his son,
Alexander, to America, he told his son that he would put some of the properties in
Alexanders name, so that if death overtakes him (plaintiff-appellee), Alexander would
distribute the proceeds of the property among his siblings. According to plaintiff-appellee,
the three properties subject of this case are the very properties he placed in the name of his
son and name-sake; that after the death of Alexander, he reminded his daughter-in-law, the
defendant appellant herein, that the subject properties were only placed in Alexanders
name for Alexander to hold trust for his siblings; but that she rejected his entreaty, and
refused to reconvey said properties to plaintiff-appellee, thereby compelling him to sue out a
case for reconveyance.
On September 5, 2001, defendant-appellant filed her reply Brief and a motion to admit
additional evidence. Thereafter, several motions and pleadings were filed by both
parties. Plaintiff-appellee filed a motion for early resolution dated May 17, 2002 while
defendant-appellant filed a motion to resolve dated August 6, 2003 and a motion to resolve
incident dated August 12, 2003.
Plaintiff-appellee then filed a comment on the motion to resolve incident, to which
defendant-appellant tendered a reply. Not to be outdone, the former filed a rejoinder.
Thus, on February 13, 2004, this Court issued a resolution, to set the case for the
reception of additional evidence for the defendant-appellant.
In support of her motion to admit additional evidence, defendant-appellant presented
receipts of payment of real estate taxes for the years 1987 to 2004, obviously for the
purpose of proving that she and her late husband in their own right were financially capable
of acquiring the contested properties. Plaintiff-appellee however did not present any
countervailing evidence.
Per resolution of March 25, 2004, this Court directed both parties to submit their
respective memorandum of authorities in amplification of their respective positions
regarding the admissibility of the additional evidence.
Defendant-appellant in her memorandum prayed that the additional evidence be
considered in resolving the appeal in the interest of truth and substantial justice. Plaintiff-
appellee, on the other hand, in his memorandum, argued that the additional evidence
presented by the defendant-appellant is forgotten evidence, which can lo longer be
admitted, much less considered, in this appeal. Thereafter, the case was submitted for
decision.
Before taking up the main issue, we deem it expedient to address some collateral issues,
which the parties had raised, to wit: (a) the admissibility of the additional evidence
presented to this Court, (b) the admissibility of plaintiffs testimony, (c) the admissibility of
the income tax return, and (d) laches.
On the propriety of the reception of additional evidence, this Court falls backs (sic) upon
the holding of the High Court in Alegre v. Reyes, 161 SCRA 226 (1961) to the effect that even
as there is no specific provision in the Rules of Court governing motions to reopen a civil
case for the reception of additional evidence after the case has been submitted for decision,
but before judgment is actually rendered, nevertheless such reopening is controlled by no
other principle than that of the paramount interest of justice, and rests entirely upon the
sound judicial discretion of the court. At any rate, this Court rules that the tax declaration
receipts for the EDSA property for the years 1987-1997, and 1999; for the Wack-Wack
property for the years 1986-1987, 1990-1999; and for the Meridien Condominium for the
years 1993-1998 cannot be admitted as they are deemed forgotten evidence. Indeed, these
pieces of evidence should have been presented during the hearing before the trial court.
However, this Court in the interest of truth and justice must hold, as it hereby holds, that
the tax declaration receipts for the EDSA property for the years 2000-2004; the Wack-Wack
property for the years 2000-2004; and the Meridien Condominium for the years 2000-2001
may be admitted to show that to this date, it is the defendant-appellant, acting as an
administratrix, who has been paying the real estate taxes on the aforestated properties.
As regards the admissibility of plaintiff-appellees testimony, this Court agrees with the
trial court that:
Defendants argument to the effect that plaintiffs testimony proving that the deceased
Alexander Ty was financially dependent on him is inadmissible in evidence because he is
barred by the Dead Mans Statute (Rule 130, Sec. 20, Rules of Court) for making such
testimony, is untenable. A reading of pages 10 to 45 of the TSN, taken on November 16,
1998, which contain the direct-examination testimony of plaintiff, and pages 27, 28, 30, 34,
35, 37, 39, 40 of the TSN, taken on January 15, 1999; page 6 of the TSN taken on December
11, 1998, pages 8, 10, 11, 12, 14, 23 24 of TSN, taken on taken on February 19, 1999; and
pages 4,5,6,7,8,11,25 and 27 of the TSN taken on March 22, 1999, will show that defendants
lawyer did not object to the plaintiff as witness against defendant, and that plaintiff was
exhaustively cross-examined by defendants counsel regarding the questioned testimony,
hence, the same is not covered by the Dead Mans Statute (Marella v. Reyes, 12 Phil.
1; Abrenica v. Gonda and De Gracia, 34 Phil. 739; Tongco v. Vianzon, 50 Phil. 698).
A perusal of the transcript of stenographic notes will show that counsel for defendant-
appellant was not able to object during the testimony of plaintiff-appellee. The only time
that counsel for defendant-appellant interposed his objection was during the examination of
Rosemarie Ty, a witness (not a party) to this case. Thus the Dead Mans Statute cannot apply.
With regard to the income tax returns filed by the late Alexander Ty, this Court holds that
the same are admissible in evidence. Neither Section 71 of the NIRC nor the case of Vera v.
Cusi applies in this case. The income tax returns were neither obtained nor copied from the
Bureau of Internal Revenue, nor produced in court pursuant to a court order; rather these
were produced by plaintiff-appellee from his own files, as he was the one who kept custody
of the said income tax returns. Hence, the trial court did not err in admitting the income tax
returns as evidence.
Anent the issue of laches, this Court finds that the plaintiff-appellee is not guilty of
laches. There is laches when: (1) the conduct of the defendant or one under whom he
claims, gave rise to the situation complained of; (2) there was delay in asserting a right after
knowledge defendants conduct and after an opportunity to sue; (3) defendant had no
knowledge or notice that the complainant would assert his right; and (4) there is injury or
prejudice to the defendant in the event relief is accorded to the complainant. These
conditions do not obtain here.
In this case, there was no delay on the part of plaintiff-appellee in instituting the
complaint for recovery of real properties. The case was files four years after Alexanders
death; two years after the inventory of assets of Alexanders estate was submitted to the
intestate court; and one month after defendant-appellant filed a motion to sell or mortgage
the real estate properties. Clearly, such length of time was not unreasonable. [5]
The CA then turned to the critical, crucial and pivotal issue of whether a trust, express or
implied, was established by the plaintiff-appellee in favor of his late son and name-sake
Alexander Ty.
The CA proceeded to distinguish express from implied trust, then found that no express
trust can be involved here since nothing in writing was presented to prove it and the case
involves real property. It then stated that it disagrees with the court a quos application of
Art. 1448 of the Civil Code on implied trust, the so-called purchase money resulting trust,
stating that the very Article provides the exception that obtains when the person to whom
the title is conveyed is the child, legitimate or illegitimate, of the one paying the price of the
sale, in which case no trust is implied by law, it being disputably presumed that there is a gift
in favor of the child.
The CA therefore reasoned that even assuming that plaintiff-appellee paid at least part
of the price of the EDSA property, the law still presumes that the conveyance was a
discretion (a gift of devise) in favor of Alexander.
As to plaintiff-appellees argument that there was no donation as shown by his exercise
of dominion over the property, the CA held that no credible evidence was presented to
substantiate the claim.
Regarding the residence condominium and the Wack-Wack property, the CA stated that
it did not agree either with the findings of the trial court that an implied trust was created
over these properties.
The CA went over the testimonies of plaintiff-appellee and the witness Conchita
Sarmiento presented to show that spouses Alexander and Sylvia S. Ty were financially
dependent of plaintiff-appellee and did not have the financial means or wherewithals to
purchase these properties. It stated:
Consider this testimony of plaintiff-appellee:
Q During the time that Alex was staying with you, did you ever come to know that Alexander
and his wife did go to the States?
A Yes, sir. But I do not know the exact date. But they told me they want to go to America for
check up.
Q Was that the only time that Alexander went to the States?
A Only that time, sir. Previously, he did not tell me. That last he come (sic) to me and
tell [sic] me that he will go to America for check up. That is the only thing I know.
Q Would you say for the past five years before his death Alex and his wife were going to the
States at least once a year?
A I cannot say exactly. They just come to me and say that I [sic] will go to bakasyon. They are
already grown people. They dont have to tell me where they want to go.
Q You are saying that Alexander did not ask you for assistance whenever he goes to the
States?
A Sometimes Yes.
Q In what form?
A I gave him peso, sir.
Q For what purpose?
A Pocket money, sir.
There is no evidence at all that it was plaintiff-appellee who spent for the cancer
treatment abroad of his son. Nor is there evidence that he paid for the trips abroad of
Alexander and the defendant-appellant. Admittedly, he only gave his son Alexander pocket
money once in a while. Simply put, Alexander was not financially dependent upon the
plaintiff-appellee, given that Alexander could afford the costs of his cancer treatment
abroad, this on top of the trips he made to the United States at least once a year for five
successive years without the support of his father.
The fact that Alexander stayed with his father, the plaintiff-appellee in this case, even
after he married Sylvia and begot Krizia, does not at all prove that Alexander was dependent
on plaintiff-appellee. Neither does it necessarily mean that it was plaintiff-appellee who was
supporting Alexanders family. If anything, plaintiff-appellee in his testimony admitted that
Alexander and his family went to live with him in observance of Chinese traditions.
In addition, the income tax returns of Alexander from 1980-1984, and the profit and loss
statement of defendant-appellants Joji San General Merchandising from 1981-1984, are not
enough to prove that the spouses were not financially capable of purchasing the said
properties. Reason: These did not include passive income earned by these two, such as
interests on bank deposits, royalties, cash dividends, and earnings from stock trading as well
as income from abroad as was pointed out by the defendant-appellant. More importantly,
the said documents only covered the years 1980-1984. The income of the spouses from
1985 to 1987 was not shown. Hence, it is entirely possible that at the time the properties in
question were purchased, or acquired, Alexander and defendant-appellant had sufficient
funds, considering that Alexander worked in various capacities in the family corporations,
and his own business enterprises, while defendant-appellant had thriving businesses of her
own, from which she acquired commercial properties.
And this is not even to say that plaintiff-appellee is this case failed to adduce conclusive,
incontrovertible proof that the money use to purchase the two properties really came from
him; or that he paid for the price of the two properties in order to have the beneficial
interest or estate in the said properties.
A critical examination of the testimony of plaintiff-appellees witness, Conchita
Sarmiento, must also show that this witness did not have actual knowledge as to who
actually purchased the Wack-Wack property and the Meridien Condominium. Her testimony
that plaintiff-appellee visited the Wack-Wack property and paid for the costs of the
construction of the improvements over the said property, in the very nature of things, does
not prove that it was the plaintiff-appellee who in fact purchased the Wack-Wack property. [6]
On the other hand, the CA found defendant-appellants evidence convincing:
In contrast, Rosana Regalado had actual knowledge of the transaction she testified to,
considering that she was the real estate broker who negotiated the sale of the Wack-Wack
property between its previous owner Drago Daic and the spouses Alexander and Sylvia Ty. In
her testimony, she confirmed that the checks, which were issued to pay for the purchase
price of the Wack-Wack property, were signed and issued by Alexander, thereby
corroborating the testimony of defendant-appellant on this point.
Significantly, during the trial, Conchita Sarmiento identified some receipts wherein the
payor was the late Alexander Ty. Apparently, prior to the death of Alexander, it was
Alexander himself who was paying for the construction of the Wack-Wack property; and that
the only time plaintiff-appellee paid for the costs of the construction was when Alexander
died.
Quite compelling is the testimony of defendant-appellant in this respect:
Q And after the death and burial of your husband, will you tell this Honorable Court what
happened to the construction of this residence in Wack-Wack?
A Well, of course, during the period I was mourning and I was reorganizing myself and my
life, so I was not mainly focused on the construction, so it took a couple of months before I
realized that the post-dated checks issued by my husband was changed through checks by
my father-in-law Mr. Alejandro Ty.
Q And did you had [sic] any conversation with Mr. Alejandro Ty regarding as to why he did
that?
A Yes, sir, that was the beginning of our misunderstanding, so I decided to hire a lawyer and
that is Atty. Ongkiko, to be able to settle my estate and to protect myself from with the
checks that they changed that my husband issued to Architect Gerry Contreras.
Q Was there any point in time that you yourself took over the construction?
A Yes, sir, right after a year of that property after I was more settled.
Q And did you engaged [sic] the services of any professional or construction company for
the purpose?
A Yes, sir.
Q Who was that?
A Architect Tom Adarme.
Q What is his first name, if you recall?
A Architect Tommy Adarme.
Q And was there any company or office which helped Architect Adarme in the continuation
of the construction?
A Yes, I also signed a contract with Architect Adarme and he hired Home Construction to
finish the renovation and completion of the construction in Wack-Wack, sir.
Q Do you have any document to show that you yourself overtook personally the
continuation of the construction of your residence?
A Yes, sir I have the whole construction documents and also the documents through Arch.
Gerry Contreras, that contract that we signed.
In other words, plaintiff-appellee took over the management of the construction of the
Wack-Wack property only because defendant-appellant was still in mourning. And, If ever
plaintiff-appellee did pay for the costs of the construction after the death of Alexander, it
would be stretching logic to absurd proportions to say that such fact proved that he owns
the subject property. If at all, it only shows that he is entitled to reimbursement for what he
had spent for the construction.[7]
Accordingly, the CA concluded, as follows:
Going by the records, we hold that plaintiff-appellee in this case was not able to show by
clear preponderance of evidence that his son and the defendant-appellant were not
financially capable of purchasing said property. Neither was plaintiff-appellee able to prove
by clear preponderance of evidence (i.e., credible documentary evidence) that the money
used to purchase the said properties really came from him. (And even if we assume that it
came from him, it would still not establish an implied trust, as it would again be considered a
donation, or a gift, by express mandate of the saving clause of Art. 1448 of the Civil Code, as
heretofore stated).
If anything, what is clear from the evidence at bench is that Alexander and the
defendant-appellant were not exactly bereft of the means, the financial capability or
resources, in their own right, to purchase, or acquire, the Meridien Condominium and the
Wack-Wack property.
The evidence on record shows that Alexander Ty was 31 years old when he purchased
the Meridien Condominium and was 33 years old when he purchased the Wack-Wack
property. In short, when he purchased these properties, he had already been working for at
least nine years. He had a car care business and a beer garden business. He was actively
engaged in the business dealings of several family corporations, from which he received
emoluments and other benefits. As a matter of fact, Alexander and plaintiff-appellee had
common interest in various family corporations of which they were stockholders, and
officers and directors, such as: International Paper Industries, Inc.; Agro-Industries Specialists
Services, Inc.; Hi-Professional Drillings and Manufacturing, Inc.; MVR-TV Picture Tube, Inc.;
Crown Consumer Products, Inc.; Philippine Crystal Manufacturing Corporation; and Union
Emporium, Inc.
Furthermore, at the time of his death, the son Alexander was Vice-President of Union
Ajinomoto (Exh. 40); Executive Vice-President of Royal Porcelain Corporation (Exh. 40-A);
Treasurer of Polymart Paper Industries, Inc. (Exh. 40-B); General Manager of Hornblower
Sales Enterprises and Intercontinental Paper Industries, Inc. (Exh. 40-C); President of High
Professional Drilling and Manufacturing, Inc. (Exh. 40-D); President of Crown Consumer
Products, Inc. (Exh. 40-E); (Executive Vice-President of MVR-TV Picture Tube, Inc. (Exh.40-F);
and Director of ABT Enterprise, Inc. (Exh. 40-G). He even had a controlling interest in ABT
Enterprises, which has a majority interest in Union Ajinomoto, Inc.
 What is more, the tax declaration receipts for the Wack-Wack property covering the this score, can hardly merit the descriptive attributes sufficiently strong, or clear and
years 2000-2004, and the tax declaration receipts for the Meridien Condominium covering satisfactory, or trustworthy.
the years 2000-2001, showed that to his date it is still the estate of Alexander that is paying
If only to emphasize and reiterate what the Supreme Court has in the past declared
for the real estate taxes thereon.
about implied trusts, these case law rulings are worth mentioning
In the context of this formidable circumstances, we are constrained to overturn the
Where a trust is to be established by oral proof, the testimony supporting it must be
judgment of the trial court, which made these findings:
sufficiently strong to prove that the right of the alleged beneficiary with as much certainty as
Based on the facts at hand and the applicable law, the ineluctable conclusion is that a if a document were shown. A trust cannot be established, contrary to the recitals of
fiduciary relationship or an implied trust existed between plaintiff and Alexander Ty with the a Torrens title, upon vague and inconclusive proof.
former as the owner, trustor and beneficiary and the latter as the trustee, concerning the
As a rule, the burden of proving the existence of a trust is on the party asserting its
subject real properties. The death of Alexander automatically extinguished the said fiduciary
existence, and such proof must be clear and satisfactorily show the existence of the trust
relationship, hence, plaintiffs instant action to recover the subject properties from the
and its elements. While implied trusts may be proved by oral evidence, the evidence must
intestate estate of Alexander Ty is meritorious.
be trustworthy and received by the courts with extreme caution and should not be made to
We do not agree. To belabor a point, we are not persuaded that an implied trust was rest on loose, equivocal or indefinite declarations. Trustworthy evidence is required because
created concerning the subject properties. On the assumption, as elsewhere indicated, the oral evidence can easily be fabricated.
plaintiff-appellee at the very least, paid for part of its purchase price, the EDSA property is
The route to the reversal of the trial courts finding that an implied trust had been
presumed to be a gift, or donation, in favor of Alexander Ty, defendant-appellants late
constituted over the subject realties is, thus, indubitably clear.
husband, following the saving clause or exception in Art. 1448 of the Civil Code. To repeat, it
is the saving clause, or exception, not the general rule, that should here apply, the late As a final point, this Court finds that the plaintiff-appellee is not entitled to moral damages,
Alexander Ty being the son of Plaintiff-appellee. attorneys fees and costs of litigation, considering that the instant case is clearly a vexatious
and unfounded suit by him filed against the estate of the late Alejandro Ty. Hence, all these
Nor are we convinced, given the state of the evidence on record, that the plaintiff-
awards in the judgment a quo are hereby DELETED. [8]
appellee paid for the price of the Meridien Condominium and the Wack-Wack
property. Therefore, the general rule announced in the first sentence of Art. 1448 of the Civil
Code has no application in this case. Or, if the article is to be applied at all, it should be the
exception, or the saving clause, that ought to apply here, the deceased Alexander Ty being The CA therefore reversed and set aside the judgment appealed from and entered
the son, as stated, of plaintiff-appellee. another one dismissing the complaint.

To sum up: Since plaintiff-appellee has erected his case upon Art. 1448 of the Civil Code, On October 18, 2004 the CA resolved to deny therein plaintiff-appellees motion for
a prime example of an implied trust, viz.: that it was he who allegedly paid for the purchase reconsideration.[9]
price of some of the realties subject of this case, legal title or estate over which he allegedly Hence, this petition.
granted or conveyed unto his son and namesake, Alexander Ty, for the latter to hold these
realties in trust for his siblings in case of his (plaintiff-appellees) demise, plaintiff-appellee is Petitioner submits the following grounds:
charged with the burden of establishing the existence of an implied trust by evidence
described or categorized as sufficiently strong, clear and satisfactory, or trustworthy. As will
be presently discussed. Sad to say, plaintiff-appellee has miserably failed to discharge that
burden. For, if the records are any indication, the evidence adduced by plaintiff-appellee on
IN REVERSING THE TRIAL COURTS JUDGMENT, THE COURT OF APPEALS
 Petitioner contends that the EDSA property, while registered in the name of his son
Alexander Ty, is covered by an implied trust in his favor under Article 1448 of the Civil
1. MADE FACTUAL FINDINGS GROUNDED ON MANIFESTLY MISTAKEN INFERENCES,
Code. This, petitioner argues, is because he paid the price when the property was purchased
SPECULATIONS, SURMISES, OR CONJECTURES OR PREMISED ON THE ABSENCE OF, OR ARE
and did so for the purpose of having the beneficial interest of the property.
CONTRADICTED BY, THE EVIDENCE ON RECORD, AND WITHOUT CITATIONS OF THE SPECIFIC
EVIDENCE ON WHICH THEY ARE BASED.

Article 1448 of the Civil Code provides:

2. RULED THAT THERE WAS A PRESUMED DONATION, WHICH IS A MATTER NEVER

RAISED AS AN ISSUE IN THE CASE AS IT, IN FACT, CONFLICTS WITH THE PARTIES RESPECTIVE
Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to
THEORIES OF THE CASE, AND THUS DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF
one party but the price is paid by another for the purpose of having the beneficial interest of
JUDICIAL PROCEEDINGS AS TO CALL FOR THIS HONORABLE COURTS EXERCISE OF ITS POWER
the property. The former is the trustee, while the latter is the beneficiary. However, if the
OF SUPERVISION.
person to whom the title is conveyed is a child, legitimate or illegitimate, of one paying the
price of the sale, no trust is implied by law, it being disputably presumed that there is a gift
in favor of the child.
3. APPLIED THE PROVISION ON PRESUMPTIVE DONATION IN FAVOR OF A CHILD IN
ARTICLE 1448 OF THE CIVIL CODE DESPITE AB TYS EXPRESS DECLARATION THAT HE DID NOT
INTEND TO DONATE THE SUBJECT PROPERTIES TO ALEXANDER AND THUS DECIDED A
The CA conceded that at least part of the purchase price of the EDSA property came from
QUESTION OF SUBSTANCE NOT THERETOFORE DETERMINED BY THIS HONORABLE COURT.
petitioner. However, it ruled out the existence of an implied trust because of the last
sentence of Article 1448: x x x However, if the person to whom the title is conveyed is a
child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by
4. REQUIRED THAT THE IMPLIED TRUST BE PROVEN WITH DOCUMENTARY
law, it being disputably presumed that there is a gift in favor of the child.
EVIDENCE AND THUS DECIDED A QUESTION OF SUBSTANCE IN A WAY NOT IN ACCORD WITH
LAW AND JURISPRUDENCE.[10]

Petitioner now claims that in so ruling, the CA departed from jurisprudence in that such was
not the theory of the parties.

The Court disposes of the petition, as follows:

Petitioner, however, forgets that it was he who invoked Article 1448 of the Civil Code to
claim the existence of an implied trust. But Article 1448 itself, in providing for the so-called
purchase money resulting trust, also provides the parameters of such trust and adds, in the
same breath, the proviso: However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, NO TRUST IS IMPLIED BY
The EDSA Property LAW, it being disputably presumed that there is a gift in favor of the child. (Emphasis
supplied.)
Stated otherwise, the outcome is the necessary consequence of petitioners theory and
argument and is inextricably linked to it by the law itself.
The CA, therefore, did not err in simply applying the law.
Article 1448 of the Civil Code is clear. If the person to whom the title is conveyed is the child
of the one paying the price of the sale, and in this case this is undisputed, NO TRUST IS
IMPLIED BY LAW. The law, instead, disputably presumes a donation in favor of the child.
On the question of whether or not petitioner intended a donation, the CA found that
petitioner failed to prove the contrary. This is a factual finding which this Court sees no
reason the record to reverse.
The net effect of all the foregoing is that respondent is obliged to collate into the mass of the
estate of petitioner, in the event of his death, the EDSA property as an advance of
Alexanders share in the estate of his father, [11] to the extent that petitioner provided a part of
its purchase price.
The Meridien Condominium and the Wack-Wack property.
Petitioner would have this Court overturn the finding of the CA that as regards the Meridien
Condominium and the Wack-Wack property, petitioner failed to show that the money used
to purchase the same came from him.
Again, this is clearly a factual finding and petitioner has advanced no convincing argument
for this Court to alter the findings reached by the CA.
The appellate court reached its findings by a thorough and painstaking review of the records
and has supported its conclusions point by point, providing citations from the records. This
Court is not inclined to reverse the same.
Among the facts cited by the CA are the sources of income of Alexander Ty who had been
working for nine years when he purchased these two properties, who had a car care
business, and was actively engaged in the business dealings of several family corporations,
from which he received emoluments and other benefits. [12]
The CA, therefore, ruled that with respect to the Meridien Condominium and the Wack-
Wack property, no implied trust was created because there was no showing that part of the
purchase price was paid by petitioner and, on the contrary, the evidence showed that
Alexander Ty had the means to pay for the same.
WHEREFORE, the petition is PARTLY GRANTED in that the Decision of the Court of Appeals
dated July 27, 2004 and its Resolution dated October 18, 2004, in CA-G.R. No. 66053,
are AFFIRMED, with the MODIFICATION that respondent is obliged to collate into the mass
of the estate of petitioner, in the event of his death, the EDSA property as an advance of
Alexander Tys share in the estate of his father, to the extent that petitioner provided a part
of its purchase price.
No costs.
SO ORDERED.