DAVIDE, JR.

, J p:

Trust
[G.R. No. 108121. May 10, 1994.]

HERMINIA L. RAMOS and HEIRS OF HERMINIO RAMOS, petitioners, vs. HON. COURT OF APPEALS, SPOUSES HILARIO CELESTINO and LYDIA CELESTINO, respondents.
SYLLABUS

Invoking Rule 45 of the Rules of Court, petitioners seek the review and reversal of the decision of the Court of Appeals of 30 September 1991 1 and its Resolution of 15 December 1992 2 in CA-G.R. CV No. 26544. 3 The challenged decision affirmed the joint decision 4 of Branch 95 of the Regional Trial Court (RTC) of Quezon City in Civil Case No. Q-49272 and LRC Case No. Q3387(86), the dispositive portion of which reads as follows:

"WHEREFORE, in LRC Case No. Q-3387 (86), the Court hereby renders judgment dismissing said case with the petition and claims therein for lack of jurisdiction CIVIL LAW; SPECIAL CONTRACTS; TRUST; RULE IF PROVISIONS IN THE TERMS thereover; and in Civil Case No. Q-49272, the Court hereby renders judgment THEREOF BE AGAINST PUBLIC POLICY. A resulting trust is an "intentenforcing" trust, based on a finding by the court that in view of the relationship dismissing defendant's counterclaim for lack of merit and declaring plaintiffs to of the parties their acts express an intent to have a trust, even though they did be the lawful owners of the subject parcel of land designated as Lot 25, Block 86 of the subdivision plan Psd-68807, with an area of 400 square meters, more not use language to that effect. The trust is said to result in law from the acts or less, situated in Sikatuna Village, Diliman, Quezon City, and covered by of the parties. However, if the purpose of the payor of the consideration in Transfer Certificate of Title No. 204173 of the Registry of Deeds for Quezon having title placed in the name of another was to evade some rule of the City, as well as ordering defendants: (a) to execute a deed of absolute sale in common or statute law, the courts will not assist the payor in achieving his improper purpose be enforcing a resulting trust for him in accordance with the favor of plaintiffs, conveying and transferring the ownership of said parcel of land; (b) to remove whatever improvements defendants have erected on said "clean hands" doctrine. The court generally refuses to give aid to claims from parcel of land; (c) to vacate said parcel of land and deliver possession thereof rights arising out of an illegal transaction, such as where the payor could not to plaintiffs; and, (d) jointly and severally to pay plaintiffs the sum of lawfully take title to land in his own name and he used the grantee as a mere P20,000.00 as attorney's fees, as well as to pay the costs of suit. Further, dummy to hold for him and enable him to evade the land laws, e.g. an alien who is ineligible to hold title to land, who pays for it and has the title put in the finding no satisfactory warrant therefor, the Court also hereby dismisses the rest of plaintiff's claims." 5 name of a citizen. Otherwise stated, as an exception to the law on trusts, "[a] trust or a provision in the terms of a trust is invalid if the enforcement of the Civil Case No. Q-49272 was an action for reconveyance filed by the spouses trust or provision would be against public policy, even though its performance Hilario and Lydia Celestino against Herminia Ramos and the heirs of Herminio does not involve the commission of a criminal or tortious act by the trustee." Ramos praying that the plaintiffs be declared the lawful owners of Lot No. 25, The parties must necessarily be subject to the same limitations on allowable Block 86 of the subdivision plan Psd-68807 located at Sikatuna Village, Diliman, stipulations in ordinary contracts, i.e., their stipulations must not be contrary Quezon City, and that the defendants be ordered to execute a deed of absolute to law, morals, good customs, public order, or public policy. What the parties sale over the lot in favor of the plaintiffs, remove whatever improvements they then cannot expressly provide in their contracts for being contrary to law and have constructed thereon, vacate the lot and deliver its possession to the public policy, they cannot impliedly or implicitly do so in the guise of a resulting plaintiffs, and to pay actual, moral, and exemplary damages, attorney's fees, trust. and the costs of the suit. 6 LRC Rec. Case No. Q-3387(86) was a petition to declare void the order issued on 22 August 1985 by Branch 104 of the RTC of

Quezon City in LRC Case No. Q-3150(85) 7 ordering the cancellation of Transfer Certificate of Title (TCT) No. 204173 upon petition of Herminia Ramos. cdrep

When the corresponding transfer certificate of title Transfer Certificate of Title (TCT) No. 204173 of the Registry of Deeds for Quezon City was issued after the full payment of the purchase price, the certificate was in the name of 'HERMINIO T. RAMOS, of legal age, Filipino, married to Herminia L. Ramos' The facts, as found by the trial court and adopted by the respondent Court of (Exhs. 1-A & 6-A). Herminio and Herminia knew of and consented to the Appeals, are as follows: delivery to Lydia of said title certificate's owner's duplicate copy (Exh. D, also "From the evidence adduced at the joint trial of these related cases, the Court Exh. 1), and said copy since then has been in Lydia's possession and custody. finds that petitioner/plaintiff Lydia Celestino (referred to as Lydia hereinafter), On or about November 26, 1974, Herminio, together with Herminia, executed in Lydia's favor an irrevocable special power of attorney (Exh. E), in sum married to plaintiff Hilario Celestino, was employed in the economic research department of the Central Bank of the Philippines from 1949 to 1983, while the empowering Lydia to sell, mortgage, or lease the subject property and to dispose of the proceeds thereof in any manner she wants. Said special power late Herminio Ramos (Herminio, hereinafter) the deceased spouse of of attorney was executed upon the advice of a realty expert, one Isidro respondent/defendant Herminia L. Ramos (Herminia hereinafter) and Gonzales, as a practical means of giving assurance to Lydia that Herminio, predecessor-in-interest of Herminia and the rest of defendants was employed during his lifetime in the same department of the Central Bank until together with his spouse Herminia, was in good faith and recognized the existing implied trust relationship between them over the subject land, his retirement sometime in 1972. particularly in view of the restriction annotated on the title certificate in sum to Sometime in 1961, the now defunct People's Homesite & Housing Corporation the effect that within one year from said certificate's issuance no transfer or (PHHC) awarded the rights to buy certain parcels of land to employees of the alienation of the property shall be made without the PHHC's written consent Central Bank. As a Central Bank employee, Herminio was awarded the rights to (Exh. 1-B). Cdpr buy the parcel of land designated as Lot 25, Block 86 of the subdivision plan On August 22, 1985, Branch 104 of the Regional Trial Court of the National Psd-68807, with an area of some 400 square meters, and situated in what is Capital Judicial Region in Quezon City (referred to as RTC Branch 104 now known as Sikatuna Village in Diliman, Quezon City. For the price of P3,800.00 payable in installments, Herminio then sold and transferred to Lydia hereinafter) issued in its LTC Case No. Q-3150 (85) an Order (Exh. 9), in sum cancelling and declaring null and void 'the owner's duplicate copy of Transfer his said rights to buy said property, and Lydia paid said price in several Certificate of Title No. 204173 that was lost' and ordering the Register of Deeds installments, the last installment being paid on May 21, 1962 (Exhs. A thru C). Having acquired the rights to buy the property, Lydia assumed the obligation of of Quezon City 'to issue, upon payment of the required fees, another owner's duplicate copy which shall contain annotations in, and memorandum of the paying to the PHHC the purchase price thereof. Thus, Lydia paid to the PHHC the monthly amortizations of P34.11 per month over a period of some 10 years fact that it is issued in the place of the lost certificate of title, in all respect be entitled to like faith and credit as the original duplicate for all purposes of ending sometime in 1974 when she paid the last monthly amortization, Presidential Decree No. 1529' and, accordingly, another owner's duplicate copy thereby effecting the full payment of the purchase of the subject land. During of TCT No. 204173, with a memorandum of said Order of RTC Branch 104 was said period and thereafter, Lydia's friend, Cynthia Camacho, who was then issued by the Register of Deeds of Quezon City (Exhs. 6 and 6-B). Said Order residing at the back of the subject property, acted as the property's caretaker was issued upon Herminia's petition, in sum claiming that the original owner's for Lydia, even as Lydia also had the land fenced. duplicate copy was lost and missing.

After having belatedly learned of the issuance of said Order of RTC Branch 104, Lydia on March 21, 1986 filed her petition herein, docketed as LRC Case No. Q3387 (86), in sum praying that said Order of August 22, 1985 in LRC Case No. Q3150 (85) be declared null and void and without legal effect and that the new owner's duplicate copy issued and delivered to Herminia be cancelled, on the ground that Herminia secured such new owner's duplicate copy thru fraud and misrepresentation because she well knew that the supposedly 'lost' owner's duplicate copy was in Lydia's possession and custody.

49272 and engage their counsel's services therefor, the Court finds that aside from the principal relief sought in the complaint and the costs, recovery by plaintiffs from defendants of the sum of P20,000.00 as reasonable attorney's fees is just and equitable. . . .

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

Ramos knew of and consented to the transaction between her husband and Lydia Celestino as evidenced by the special power of attorney; (2) the alleged special power of attorney showed that the Ramos spouses recognized that it was Lydia Celestino who paid the purchase price of the lot to the PHHC out of her own funds; (3) an implied or resulting trust was created when the property was sold by the People's Homesite and Housing Corporation (PHHC) and issued to Herminio Ramos with the beneficial title vesting in Lydia Celestino since she was the one who paid the purchase price out of her own funds; (4) the plaintiff's action for reconveyance had not prescribed or been barred by laches; (5) the plaintiffs are the lawful owners of the lot, and the defendants are obligated to execute a deed of absolute sale in favor of the former, remove their improvements on the lot, and vacate the premises and deliver the possession of the lot to the former; and (6) attorney's fees are due the plaintiffs. 10 In connection with the first three assigned errors, the appellants maintained in the alternative that even assuming for the sake of argument that Herminio Ramos sold his rights over the lot in question to Lydia Celestino, the transaction was unenforceable or void ab initio and no trust was created in view of the following considerations: the alleged sale was not evidenced by any document, note, or memorandum as required by the Statute of Frauds (Article 1403 (2) (e), Civil Code); no document was introduced to prove the alleged express trust as required in Article 1443 of the Civil Code; the transaction in question did not give rise to an implied trust under the Civil Code; Lydia Celestino is not qualified to acquire the lot in question from the PHHC, a fact she admitted in her testimony; the PHHC did not give its consent to the alleged sale, contrary to the conditions annotated at the back of TCT No. 204173 to the effect that the vendee (Herminio Ramos) cannot sell or encumber the said parcel of land or any part thereof without the written consent of the PHHC; the cause, object, or purpose of the alleged transaction (sale of right over the lot) is contrary to law or the public policy that the award of lands should only be to those who are not yet owners of land in Quezon City, or to morals since the transaction circumvented the policy; and Herminio Ramos had no right to sell the land or any portion thereof without the consent of his wife. 11

As aforestated, the Court of Appeals, in its Decision of 30 September 1991, affirmed the decision of the trial court. In rejecting the appellants' first three assigned errors, it held that (a) the petitioners were unable to overcome the presumption of the authenticity and genuineness of the special power of attorney, a public document duly acknowledged before a notary public; 12 (b) the Statute of Frauds applies only to executory contracts, while the action instituted by the appellees was "for reconveyance based on resulting trust arising from a fully executed sale with nothing left to be done except the formal execution of the deed of conveyance"; "the documentary evidence showing the sale of Herminia [sic] Ramos' right to purchase the lot is well-nigh conclusive"; 13 (c) neither the private respondents nor the trial court made any reference to an express trust under Article 1437 of the Civil Code; what is present in this case is a resulting trust under Article 1448 14 of the Civil Code wherein "the legal title to the lot was taken and given to Herminia Ramos and Herminio Ramos; while the beneficial ownership thereof remained with the plaintiff"; 15 and (d) "restriction of the sale of the property without the approval of the PHHC within one year from the issuance of the title does not militate against and is not element of a resulting trust." 16 As regards the fourth assigned error, the Court of Appeals ruled that the appellees' cause of action for reconveyance had not yet prescribed for "the trust was a continuing and subsisting one" which the special power of attorney recognized; the rule of prescription of implied or resulting trust does not apply where a fiduciary relation exists and the trustee recognizes the trust; and if at all, there was a repudiation of the trust, it "came about only after the death of Herminio when defendants tried to claim the property for themselves in 1985." 17 The appellants then filed a Motion for Reconsideration and for Leave to Submit Additional Evidence, dwelling at length on the admissibility and authenticity of the special power of attorney by reiterating that Herminia Ramos' signature thereon is a forgery and alleging that the copy thereof was not admissible in evidence as it was a mere photocopy and therefore not the best evidence; and that they were able to obtain a certification from the Clerk of Court of the RTC of Manila that Atty. Ulpiano P. Mosalla, before whom the special power of

attorney was acknowledged, was not a duly commissioned notary public for and in the City of Manila. They further reiterated the issues of prescription, the absence of marital consent on the part of Herminia Ramos to the sale of her husband's right over the lot, and the disqualification of Lydia Celestino to purchase the lot. 18 In its Resolution of 15 December 1992, 19 the Court of Appeals denied the aforesaid motion for reconsideration with leave to submit additional evidence. prcd Hence this petition which was filed on 28 December 1992. On 13 December 1993, after the submission of the comment to the petition, the reply thereon, and the rejoinder to the latter, we gave due course to the petition and directed the parties to submit their simultaneous memoranda, which they complied with.

awarding PHHC lots to Central Bank employees who are not residential landowners. Private respondent Lydia Celestino, Herminio's vendee, was disqualified to acquire any PHHC lot because she already owned a residential lot in Quezon City. This issue was raised in the petitioners' special and affirmative defenses in their answer, 21 but the trial court did not meet or resolve it squarely. It assumed that the transaction was valid. The Court of Appeals likewise did not tackle this issue in its Decision of 30 September 1991 and Resolution of 15 December 1992. Just like the trial court, it merely assumed the validity of the transaction. The assumption, however, is without basis. As correctly pointed out by the petitioners, which the private respondents failed to rebut, Lydia Celestino had candidly admitted in her testimony that although she was a Central Bank employee, she was not qualified to acquire any PHHC lot under the agreement entered into between the PHHC and the Central Bank because she is already the owner of a lot in Quezon City. Thus, on cross-examination she declared:

Petitioners (defendants-appellants below) maintain that the Court of Appeals "Q Mrs. witness, you stated that the lots what you call Central Bank erred in holding that (a) petitioner Herminia Ramos' signature on the special power of attorney is genuine; (b) there was an implied trust in this case; and (c) Village were awarded to the employees of the Central Bank but you were not one of the awardees. Why? the action for reconveyance had not yet prescribed. As we see it, the second assigned error unravels the core and decisive issue in this case, i.e., the validity of the transaction involving the lot in question between Herminio Ramos and Lydia Celestino. The petitioners reiterate their thesis before the trial court and the Court of Appeals that no trust was established in this case because (1) there is a restriction expressly imposed by the PHHC in the sale of the land to Herminio Ramos, to wit: "Within a period of one year from the issuance of TCT by virtue of this deed no transfer or alienation whatsoever of the property subject thereof whether in whole or in part shall be made or registered w/out the written consent of the vendor and such transfer or alienation may be made only in favor of person qualified to acquire land under the laws of the Philippines." 20 and (2) even assuming arguendo that Herminio Ramos sold his rights over the lot, the sale was null and void for being contrary to the public policy of A I have here in Quezon City a property in my name and we are not allowed to get another property. Q A So in other words, you are not qualified? Yes, sir."

On further cross-examination, she elaborated on her disqualification. Thus: "ATTY. ESPONAS (continuing): Q You previously testified that the reason you are not one of the awardees of a lot in that subdivision of the Central Bank, the reason was you were not qualified, is it not? A I was not qualified.

Q And the reason why you were not qualified is because you already own did the transfer lack the requisite approval, the same was categorically disapproved by the latter, per its letter of 15 February 1960, because a property in Quezon City, is it not? petitioner, under the policy of the PHHC, is no longer qualified to acquire A I was only telling the truth. Yes. another PHHC lot. Resolution No. 82 of the PHHC, adopted by its Board of Q And again the qualification in order to be qualified or be entitled to an Directors on 23 May 1951, provided that 'the sale of more than one lot per person shall not be permitted.' 25 This policy is supported by the law. One of award in that subdivision of the central bank, you must not be an owner of a the purposes of the PHHC was to acquire, develop, improve, subdivide, lease lot in Quezon City. and sell lands and construct, lease and sell buildings or any interest therein in xxx xxx xxx the cities and populous towns in the Philippines with the object of providing decent housing for those who may be found unable otherwise to provide A Yes, sir, you must not be an owner. themselves therewith." cdll Q A xxx Q xxx WITNESS: And up to now you are an owner of a lot in Quezon City? Yes, the same house that I claimed then. xxx xxx The same awareness of the fatal flaw of the transfer is the most logical explanation why Lydia Celestino took no further action to secure a new transfer certificate of title despite the fact that she had always been in the possession of TCT No. 204173 which was issued to Herminio Ramos on 21 November 1974 yet. 26 Instead of requiring Herminio Ramos to execute a deed of sale in her favor and to obtain the PHHC's conformity thereto, she was satisfied with the special power of attorney, executed five days after the issuance of the title, or on 26 November 1974, authorizing her to "SELL, MORTGAGE, LEASE, LET, or RENT" this lot. 27 Such authority is inconsistent with Lydia Celestino's claim of ownership because the grantor therein, Herminio Ramos, solemnly declared that he is "the owner in fee simple" of the lot described in TCT No. 204173. Finally, it was only on 21 March 1986, more than fifteen years after Herminio Ramos allegedly sold to her his rights over the lot and about twelve years after the certificate of title on the lot was issued to Herminio Ramos, when Lydia Celestino first publicly revealed, by filing LRC Case No. Q-3387(86), that Herminio sold to her his rights thereon. All these merely suggest that Lydia did everything to hide her disqualification to own the lot until she could no longer avoid the dangerous precipice where she was brought by her clandestine transaction with Herminio Ramos. The inevitable conclusion then is that Lydia Celestino, knowing of her disqualification to acquire a lot from the PHHC at the subdivision reserved for

Up to now you are still not qualified to own a lot in that subdivision? xxx xxx

I am not qualified up to now."

Her disqualification is the probable reason why she did not submit for approval by the PHHC the transfer in her favor of Herminio Ramos' right to buy the lot in question. The PHHC's approval was necessary for the validity of the transfer. In Ibay vs. Intermediate Appellate Court, 24 which also involved a transfer of the right of an awardee of a PHHC lot to a party disqualified to acquire a PHHC lot, this Court stated: "There is no need to quibble on or belabor further this point. As squarely ruled by the respondent Court, Exhibit "1" is not to be considered a deed of sale of the property but merely a transfer of Rosita Abando's rights as an applicant to one-half (1/2) of the lot. This is so because at the date of its execution, Rosita was not yet the owner of the lot. The document itself explicitly states that the PHHC is the registered owner of the property. The approval of the PHHC is necessary for the transfer to be valid and effective. In the case at bar, not only

qualified Central Bank employees, tried to get one through the backdoor. Otherwise stated, she wanted to get indirectly that which she could not do so directly. Having acted with evident bad faith, she did not come to court with clean hands when she asked for the reconveyance of the property on the basis of a resulting trust under Article 1448 of the Civil Code. A resulting trust is an "intent-enforcing" trust, based on a finding by the court that in view of the relationship of the parties their acts express an intent to have a trust, even though they did not use language to that effect. The trust is said to result in law from the acts of the parties. However, if the purpose of the payor of the consideration in having title placed in the name of another was to evade some rule of the common or statute law, the courts will not assist the payor in achieving his improper purpose by enforcing a resulting trust for him in accordance with the "clean hands" doctrine. The court generally refuses to give aid to claims from rights arising out of an illegal transaction, such as where the payor could not lawfully take title to land in his own name and he used the grantee as a mere dummy to hold for him and enable him to evade the land laws, 28 e.g., an alien who is ineligible to hold title to land, who pays for it and has the title put in the name of a citizen. Otherwise stated, as an exception to the law on trusts, "[a] trust or a provision in the terms of a trust is invalid if the enforcement of the trust or provision would be against public policy, even though its performance does not involve the commission of a criminal or tortious act by the trustee." 29 The parties must necessarily be subject to the same limitations on allowable stipulations in ordinary contracts, i.e., their stipulations must not be contrary to law, morals, good customs, public order, or public policy. 30 What the parties then cannot expressly provide in their contracts for being contrary to law and public policy, they cannot impliedly or implicitly do so in the guise of a resulting trust. llcd Although the contract should be voided for being contrary to public policy, we deem it equitable to allow the private respondents to recover what they had paid for the land with legal interest thereon commencing from the date of the filing of the complaint in Civil Case No. Q-49272. Thus, she is entitled to the return of the amount she had paid to Herminio in the sum of P3,800.00 and the

refund of the installments she had paid to the PHHC (P34.11 monthly for a period of ten years), with legal interest thereon. The foregoing discussions render unnecessary the resolution of the other issues raised by the parties. WHEREFORE, the instant petition is GRANTED and the respondent Court of Appeals' Decision of 30 September 1991 and Resolution of 17 December 1992 in CA-G.R. CV No. 26544 as well as the joint decision of the Regional Trial Court of Quezon City, Branch 95, in Civil Case No. Q-49272 and LRC Case No. Q3387(86) of 23 February 1990 are REVERSED and SET ASIDE. The latter two cases are ordered DISMISSED. However, the petitioners are ordered to refund to the private respondents within thirty days from the finality of this decision the sum of P3,800.00 and all the installments the latter had paid to the PHHC for the purchase price of the lot in question, with 6% per annum interest thereon computed from the date of the filing of the complaint in Civil Case No. Q-49272 until payment. Let a copy of this decision be furnished the National Housing Authority for its information and appropriate action as it may deem necessary in the premises. SO ORDERED. Cruz, Bellosillo, Quiason and Kapunan, JJ., concur.

[G.R. No. 144516. February 11, 2004.]

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

SYNOPSIS The Development Bank of the Philippines (DBP) Board of Governors, in Resolution, created the DBP Gratuity Plan and set up a retirement fund to cover the benefits due to DBP retiring officials and employees under Com. Act No. 186, as amended. Later the DBP established a Special Loan Program (SLP) availed thru the facilities of the DBP Provident Fund and funded the placements from the Gratuity Plan Fund. Under the SLP, 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 an undertaking specified by the DBP. The earnings thereof shall be applied to the interest due on the gratuity loan and the excess shall then be distributed to the investor-members. Whether this distribution of dividends under the SLP is valid, the Court ruled in the negative. There was no basis for the loans granted to the DBP employees under the SLP as their rights to their gratuities are still inchoate when they availed of the SLP. Prior to retirement, an employee who has served the requisite number of years is eligible for but not yet entitled to retirement benefits. The SLP here enabled certain DBP employees to utilize and earn from their retirement gratuities even before they retired. This constitutes partial release of their retirement benefits contrary to RA 1616 and the Gratuity Plan. CcaASE

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. 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." Rule 64 of the Rules of Court now embodies this procedure. 2. ID.; ID.; ID.; ID.; ID.; THE DEVELOPMENT BANK OF THE PHILIPPINES (DBP) AS SOLE PARTY IN THE PROCEEDINGS BEFORE THE COA IS THE PROPER PARTY TO AVAIL OF THE REMEDY OF CERTIORARI UNDER RULE 65 OF THE RULES OF COURT. 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, or in this case, before the COA. To hold otherwise would open the courts to numerous and endless litigations. Since DBP was the sole party in the proceedings before the COA, DBP is the proper party to avail of the remedy of certiorari. DHCSTa

3. ID.; ID.; ID.; ID.; ID.; ID.; DBP AS REAL PARTY IN INTEREST IN CASE AT BAR. The real party in interest who stands to benefit or suffer from the judgment in the suit must prosecute or defend an action. 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 SYLLABUS incidental interest. 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 1. POLITICAL LAW; CONSTITUTIONAL LAW; CONSTITUTIONAL operation of the Gratuity Plan and the Fund as prescribed in the Agreement. COMMISSIONS; THE COMMISSION ON AUDIT (COA); GOVERNMENT The DBP also possesses a real interest in upholding the legitimacy of the INSTRUMENTALITIES NOT BARRED FROM QUESTIONING COURT DECISIONS OF policies and programs approved by its Board of Directors for the benefit of DBP THE COA THROUGH PETITIONS FOR CERTIORARI UNDER RULE 65 OF THE RULES employees. This includes the SLP and its implementing rules, which the DBP OF COURT. Section 2, Article IX-D of the Constitution does not bar Board of Directors confirmed. government instrumentalities from questioning decisions of the COA. Government agencies and government-owned and controlled corporations 4. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUST; ELUCIDATED. A have long resorted to petitions for certiorari to question rulings of the COA. 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. 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. 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. CDAEHS

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. The Government Service Insurance System Act of 1997 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, 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. In this case, the GSIS Act of 1997 extended the option to retire 5. ID.; ID.; ID.; EXPRESS TRUST; EMPLOYEES TRUST SEPARATE AND under RA 1616 only to employees who had entered government service before DISTINCT FROM DBP, CREATED IN CASE AT BAR. In the present case, the DBP 1 June 1977. The DBP employees who were in the service before this date are Board of Governors' (now Board of Directors) Resolution No. 794 and the easily identifiable. Agreement executed by former DBP Chairman Rafael Sison and the trustees of the Plan created an express trust, specifically, an employees' trust. An 6. POLITICAL LAW; RA NO. 4968 DISALLOWING SUPPLEMENTARY employees' trust is a trust maintained by an employer to provide retirement, RETIREMENT PLAN; NOT APPLICABLE AS AGAINST THE LATER DBP CHARTER pension or other benefits to its employees. It is a separate taxable entity THAT ALLOWS THE SAME. In disallowing the P11,626,414.25 distributed as established for the exclusive benefit of the employees. Resolution No. 794 dividends under the SLP, the COA relied primarily on Republic Act No. 4968 shows that DBP intended to establish a trust fund to cover the retirement ("RA 4968") which took effect on 17 June 1967. Even assuming, however, that benefits of certain employees under Republic Act No. 1616 32 ("RA 1616"). The the SLP constitutes a supplementary retirement plan, RA 4968 does not apply principal and income of the Fund would be separate and distinct from the to the case at bar. The DBP Charter, which took effect on 14 February 1986, funds of DBP. Further, the DBP, as the trustor, vested in the trustees of the expressly authorizes supplementary retirement plans "adopted by and Fund legal title over the Fund as well as control over the investment of the effective in" DBP. Being a special and later law, the DBP Charter prevails over money and assets of the Fund. The powers and duties granted to the trustees RA 4968. The DBP originally adopted the SLP in 1983. The Court cannot strike of the Fund under the Agreement were plainly more than just administrative. down the SLP now based on RA 4968 in view of the subsequent DBP Charter The trustees received and collected any income and profit derived from the authorizing the SLP. cATDIH Fund, and they maintained separate books of account for this purpose. The 7. ID.; CIVIL SERVICE; RETIREMENT BENEFITS; WHEN PROPER. The right 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 to retirement benefits accrues only upon certain prerequisites. First, the conditions imposed by the applicable law in this case, RA 1616 must be and income must be used to satisfy all of the liabilities to the beneficiary officials and employees under the Gratuity Plan. The beneficiaries or cestui que fulfilled. Second, there must be actual retirement. Retirement means there is "a bilateral act of the parties, a voluntary agreement between the employer trust of the Fund are the DBP officials and employees who will retire under and the employees whereby the latter after reaching a certain age agrees Commonwealth Act No. 186 ("CA 186"), as amended by RA 1616. RA 1616

and/or consents to severe his employment with the former." Severance of employment is a condition sine qua non for the release of retirement benefits. Retirement benefits are not meant to recompense employees who are still in the employ of the government. That is the function of salaries and other emoluments. Retirement benefits are in the nature of a reward granted by the State to a government employee who has given the best years of his life to the service of his country. The Gratuity Plan likewise provides that the gratuity benefit of a qualified DBP employee shall only be released "upon retirement under th(e) Plan." As the COA correctly pointed out, this means that retirement benefits "can only be demanded and enjoyed when the employee shall have met the last requisite, that is, actual retirement under the Gratuity Plan."

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 Fund's accounts then purchased or re-allocated existing securities in the portfolio of the Fund to correspond to the employees' loans. 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 8. ID.; ID.; ID.; ID.; VIOLATED WHEN DBP EMPLOYEES GRANTED LOANS OF employees other than those of private employers are qualified for certain tax THEIR INCHOATE RETIREMENT BENEFITS UNDER A SPECIAL LOAN PROGRAM exemptions pursuant to Section 60 (B) formerly Section 53 (b) of the (SLP). There was thus no basis for the loans granted to DBP employees National Internal Revenue Code. under the SLP. The rights of the recipient DBP employees to their retirement gratuities were still inchoate, if not a mere expectancy, when they availed of 10. ID.; ID.; ID.; ID.; EQUITY CANNOT SUPPLANT THE LAW. DBP invokes the SLP. No portion of their retirement benefits could be considered as justice and equity on behalf of its affected employees. Equity cannot supplant "actually earned" or "outstanding" before retirement. Prior to retirement, an or contravene the law. Further, as evidenced by the letter of former DBP employee who has served the requisite number of years is only eligible for, but Chairman Zalamea, the DBP Board of Directors was well aware of the proscription against the partial release of retirement benefits when it not yet entitled to, retirement benefits. aSIAHC confirmed the SLP. If DBP wants "to enhance and protect the value of . . . (the) 9. ID.; ID.; ID.; ID.; ID.; NOT CONSIDERED NORMAL LOAN TRANSACTION. gratuity benefits" of its employees, DBP must do so by investing the money of The DBP contends that the SLP is merely a normal loan transaction, akin to the Fund in the proper and sound investments, and not by circumventing the loans granted by the GSIS, SSS and the DBP Provident Fund. The records restrictions imposed by law and the Gratuity Plan itself. DEaCSA show otherwise. In a loan transaction or mutuum, the borrower or debtor acquires ownership of the amount borrowed. As the owner, the debtor is then D E C I S I O N free to dispose of or to utilize the sum he loaned, subject to the condition that CARPIO, J p: he should later return the amount with the stipulated interest to the creditor. In contrast, the amount borrowed by a qualified employee under the SLP was The Case not even released to him. The Fund allowed the debtor-employee to "borrow" In this special civil action for certiorari, 1 the Development Bank of the a portion of his gratuity fund credit solely for the purpose of investing it in Philippines ("DBP") seeks to set aside COA Decision No. 98-403 2 dated 6 certain instruments specified by DBP. The debtor-employee could not dispose October 1998 ("COA Decision") and COA Resolution No. 2000-212 3 dated 1 of or utilize the loan in any other way. These instruments were, incidentally, August 2000 issued by the Commission on Audit ("COA"). The COA affirmed some of the same securities where the Fund placed its investments. At the

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. cECTaD

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 Antecedent Facts loan which was initially set at 9% per annum subject to the minimum The DBP is a government financial institution with an original charter, Executive investment rate resulting from the updated actuarial study. The excess or balance of the interest earnings shall then be distributed to the investorOrder No. 81, 5 as amended by Republic Act No. 8523 6 ("DBP Charter"). The members. COA is a constitutional body with the mandate to examine and audit all government instrumentalities and investment of public funds. 7 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 . . . [O]n February 20, 1980, the Development Bank of the Philippines (DBP) Audit Observation Memorandum No. 93-2 dated March 1, 1993, on the ground Board of Governors adopted Resolution No. 794 creating the DBP Gratuity Plan that the distribution of income of the Gratuity Plan Fund (GPF) to future and authorizing the setting up of a retirement fund to cover the benefits due to retirees of DBP is irregular and constituted the use of public funds for private DBP retiring officials and employees under Commonwealth Act No. 186, as purposes which is specifically proscribed under Section 4 of P.D. 1445. 8 amended. The Gratuity Plan was made effective on June 17, 1967 and covered AOM No. 93-2 did "not question the authority of the Bank to set-up the all employees of the Bank as of May 31, 1977. [Gratuity Plan] Fund and have it invested in the Trust Services Department of On February 26, 1980, a Trust Indenture was entered into by and between the the Bank." 9 Apart from requiring the recipients of the P11,626,414.25 to DBP and the Board of Trustees of the Gratuity Plan Fund, vesting in the latter refund their dividends, the Auditor recommended that the DBP record in its the control and administration of the Fund. The trustee, subsequently, books as miscellaneous income the income of the Gratuity Plan Fund ("Fund"). appointed the DBP Trust Services Department (DBP-TSD) as the investment The Auditor reasoned that "the Fund is still owned by the Bank, the Board of manager thru an Investment Management Agreement, with the end in view of Trustees is a mere administrator of the Fund in the same way that the Trust making the income and principal of the Fund sufficient to meet the liabilities of Services Department where the fund was invested was a mere investor and DBP under the Gratuity Plan. neither can the employees, who have still an inchoate interest [i]n the Fund be considered as rightful owner of the Fund." 10 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 In a letter dated 29 July 1996, 11 former DBP Chairman Alfredo C. Antonio Fund. This Special Loan Program was adopted as "part of the benefit program requested then COA Chairman Celso D. Gangan to reconsider AOM No. 93-2. of the Bank to provide financial assistance to qualified members to enhance Chairman Antonio alleged that the express trust created for the benefit of and protect the value of their gratuity benefits" because "Philippine retirement qualified DBP employees under the Trust Agreement 12 ("Agreement") dated laws and the Gratuity Plan do not allow partial payment of retirement 26 February 1980 gave the Fund a separate legal personality. The Agreement benefits." The program was suspended in 1986 but was revived in 1991 thru transferred legal title over the Fund to the Board of Trustees and all earnings of DBP Board Resolution No. 066 dated January 5, 1991. the Fund accrue only to the Fund. Thus, Chairman Antonio contended that the income of the Fund is not the income of DBP. The COA Decision sets forth the undisputed facts of this case as follows:

Chairman Antonio also asked COA to lift the disallowance of the P11,626,414.25 distributed as dividends under the SLP on the ground that the latter was simply a normal loan transaction. He compared the SLP to loans granted by other gratuity and retirement funds, like the GSIS, SSS and DBP Provident Fund. The Ruling of the Commission on Audit On 6 October 1998, the COA en banc affirmed AOM No. 93-2, as follows: The Gratuity Plan Fund is supposed to be accorded separate personality under the administration of the Board of Trustees but that concept has been effectively eliminated when the Special Loan Program was adopted. . . . The Special Loan Program earns for the GPF an interest of 9% per annum, subject to adjustment after actuarial valuation. The investment scheme managed by the TSD accumulated more than that as evidenced by the payment of P4,568,971.84 in 1991 and P7,057,442.41 in 1992, to the memberborrowers. In effect, the program is grossly disadvantageous to the government because it deprived the GPF of higher investment earnings by the unwarranted entanglement of its resources under the loan program in the guise of giving financial assistance to the availing employees. . . . Retirement benefits may only be availed of upon retirement. It can only be demanded and enjoyed when the employee shall have met the last requisite, that is, actual retirement under the Gratuity Plan. During employment, the prospective retiree shall only have an inchoate right over the benefits. There can be no partial payment or enjoyment of the benefits, in whatever guise, before actual retirement. . . . PREMISES CONSIDERED, the instant request for reconsideration of the disallowance amounting to P11,626,414.25 has to be, as it is hereby, denied. 13 In its Resolution of 1 August 2000, the COA also denied DBP's second motion for reconsideration. Citing the Court's ruling in Conte v. COA, 14 the COA

concluded that the SLP was actually a supplementary retirement benefit in the guise of "financial assistance," thus: At any rate, the Special Loan Program is not just an ordinary and regular transaction of the Gratuity Plan Fund, as the Bank innocently represents. . . . It is a systematic investment mix conveniently implemented in a special loan program with the least participation of the beneficiaries, by merely filing an application and then wait for the distribution of net earnings. The real objective, of course, is to give financial assistance to augment the value of the gratuity benefits, and this has the same effect as the proscribed supplementary pension/retirement plan under Section 28 (b) of C(ommonwealth) A(ct) 186. This Commission may now draw authority from the case of Conte, et al v. Commission on Audit (264 SCRA 19 [1996]) where the Supreme Court declared that "financial assistance" granted to retiring employees constitute supplementary retirement or pension benefits. It was there stated: ". . . Said Sec. 28 (b) as amended by R.A. 4968 in no uncertain terms bars the creation of any insurance or retirement plan other than the GSIS for government officers and employees, in order to prevent the undue and iniquitous proliferation of such plans. It is beyond cavil that Res. 56 contravenes the said provision of law and is therefore, invalid, void and of no effect. To ignore this and rule otherwise would be tantamount to permitting every other government office or agency to put up its own supplementary retirement benefit plan under the guise of such "financial assistance." 15 Hence, the instant petition filed by DBP. The Issues The DBP invokes justice and equity on behalf of its employees because of prevailing economic conditions. The DBP reiterates that the income of the Fund should be treated and recorded as separate from the income of DBP itself, and charges that COA committed grave abuse of discretion:

1. IN CONCLUDING THAT THE ADOPTION OF THE SPECIAL LOAN PROGRAM CONSTITUTES A CIRCUMVENTION OF PHILIPPINE RETIREMENT LAWS; 2. IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM IS GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT; 3. IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM CONSTITUTES A SUPPLEMENTARY RETIREMENT BENEFIT. 16 The Office of the Solicitor General ("OSG"), arguing on behalf of the COA, questions the standing of the DBP to file the instant petition. The OSG claims that the trustees of the Fund or the DBP employees themselves should pursue this certiorari proceeding since they would be the ones to return the dividends and not DBP.

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 COA's ruling and leave the matter of questioning COA's 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 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 expressly provides that a government agency aggrieved by a COA decision, Fund is income of DBP; and (3) whether the distribution of dividends under the 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 SLP is valid. Rules of Court now embodies this procedure, to wit: TICDSc The Ruling of the Court SEC. 2. Mode of review. A judgment or final order or resolution of the The petition is partly meritorious. 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 The standing of DBP to file this petition for certiorari hereinafter provided. As DBP correctly argued, the COA en banc implicitly recognized DBP's standing when it ruled on DBP's 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: 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 DBP's 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; . . . 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 Bank's 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

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

e. To promulgate, from time to time, such rules not inconsistent with the In the present case, DBP, as the trustor, vested in the trustees of the Fund legal conditions of this Agreement . . .. title over the Fund as well as control over the investment of the money and To do all acts which, in their judgment, are needful or desirable for the assets of the Fund. The powers and duties granted to the trustees of the Fund f. proper and advantageous control and management of the Fund . . .. 36 under the Agreement were plainly more than just administrative, to wit: (Emphasis supplied) 1. The BANK hereby vests the control and administration of the Fund in Clearly, the trustees received and collected any income and profit derived from the TRUSTEES for the accomplishment of the purposes for which said Fund is the Fund, and they maintained separate books of account for this purpose. The intended in defraying the benefits of the PLAN in accordance with its principal and income of the Fund will not revert to DBP even if the trust is provisions, and the TRUSTEES hereby accept the trust . . . subsequently modified or terminated. The Agreement states that the principal 2. The TRUSTEES shall receive and hold legal title to the money and/or and income must be used to satisfy all of the liabilities to the beneficiary property comprising the Fund, and shall hold the same in trust for its officials and employees under the Gratuity Plan, as follows: beneficiaries, in accordance with, and for the uses and purposes stated in the 5. The BANK reserves the right at any time and from time to time (1) to provisions of the PLAN. modify or amend in whole or in part by written directions to the TRUSTEES, any 3. Without in any sense limiting the general powers of management and and all of the provisions of this Trust Agreement, or (2) to terminate this Trust administration given to TRUSTEES by our laws and as supplementary thereto, Agreement upon thirty (30) days' prior notice in writing to the TRUSTEES; the TRUSTEES shall manage, administer, and maintain the Fund with full power provided, however, that no modification or amendment which affects the rights, duties, or responsibilities of the TRUSTEES may be made without the and authority: TRUSTEES' consent; and provided, that such termination, modification, or xxx xxx xxx amendment prior to the satisfaction of all liabilities with respect to eligible b. To invest and reinvest at any time all or any part of the Fund in any real 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 estate (situated within the Philippines), housing project, stocks, bonds, exclusive benefit of eligible employees and workers as provided for in the 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 PLAN. In the event of termination of this Trust Agreement, all cash, securities, and other property then constituting the Fund less any amounts constituting therefrom; accrued benefits to the eligible employees, charges, and expenses payable c. To keep and maintain accurate books of account and/or records of the from the Fund, shall be paid over or delivered by the TRUSTEES to the Fund . . .. 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 Fund's trustees. The records show that the Fund's 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 Fund's 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 Fund's trustees. Thus, COA's directive to record the income of the Fund in DBP's 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, COA's subsequent directive would divest the Fund of income, and defeat the purpose for the Fund's 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 control by the government, are hereby declared inoperative or abolished: Provided, That the rights of those who are already eligible to retire thereunder shall not be affected. Even assuming, however, that the SLP constitutes a supplementary retirement plan, RA 4968 does not apply to the case at bar. The DBP Charter, which took effect on 14 February 1986, expressly authorizes supplementary retirement plans "adopted by and effective in" DBP, thus: SEC. 34. Separation Benefits. All those who shall retire from the service or are separated therefrom on account of the reorganization of the Bank under the provisions of this Charter shall be entitled to all gratuities and benefits provided for under existing laws and/or supplementary retirement plans adopted by and effective in the Bank: Provided, that any separation benefits and incentives which may be granted by the Bank subsequent to June 1, 1986, which may be in addition to those provided under existing laws and previous retirement programs of the Bank prior to the said date, for those personnel referred to in this section shall be funded by the National Government;

Provided, further, that, any supplementary retirement plan adopted by the Bank after the effectivity of this Chapter shall require the prior approval of the Minister of Finance. IHaSED xxx xxx xxx.

inflation or erosion in the value of the peso. This is being proposed since Philippine retirement laws and the Gratuity Plan do not allow partial payment of retirement benefits, even the portion already earned, ahead of actual retirement. 50 (Emphasis supplied) As Chairman Zalamea himself noted, neither the Gratuity Plan nor our laws on retirement allow the partial payment of retirement benefits ahead of actual retirement. It appears that DBP sought to circumvent these restrictions through the SLP, which released a portion of an employee's retirement benefits to him in the form of a loan. Certainly, the DBP did this for laudable reasons, to address the concerns of DBP employees on the devaluation of their retirement benefits. The remaining question is whether RA 1616 and the Gratuity Plan allow this scheme. We rule that it is not allowed. The right to retirement benefits accrues only upon certain prerequisites. First, the conditions imposed by the applicable law in this case, RA 1616 must be fulfilled. 51 Second, there must be actual retirement. 52 Retirement means there is "a bilateral act of the parties, a voluntary agreement between the employer and the employees whereby the latter after reaching a certain age agrees and/or consents to severe his employment with the former." 53

SEC. 37. Repealing Clause. All acts, executive orders, administrative orders, proclamations, rules and regulations or parts thereof inconsistent with any of the provisions of this charter are hereby repealed or modified accordingly. 46 (Emphasis supplied) Being a special and later law, the DBP Charter 47 prevails over RA 4968. The DBP originally adopted the SLP in 1983. The Court cannot strike down the SLP now based on RA 4968 in view of the subsequent DBP Charter authorizing the SLP. Nevertheless, the Court upholds the COA's disallowance of the P11,626,414.25 in dividends distributed under the SLP. According to DBP Board Resolution No. 0036 dated 25 January 1991, the "SLP allows a prospective retiree to utilize in the form of a loan, a portion of their outstanding equity in the Gratuity Plan Fund and to invest [the] proceeds in a profitable investment or undertaking." 48 The basis of the loanable amount was an employee's gratuity fund credit, 49 that is to say, what an employee would receive if he retired at the time he availed of the loan.

Severance of employment is a condition sine qua non for the release of retirement benefits. Retirement benefits are not meant to recompense In his letter dated 26 October 1983 proposing the confirmation of the SLP, then employees who are still in the employ of the government. That is the function of salaries and other emoluments. 54 Retirement benefits are in the nature of DBP Chairman Cesar B. Zalamea stated that: a reward granted by the State to a government employee who has given the The primary objective of this proposal therefore is to counteract the best years of his life to the service of his country. 55 unavoidable decrease in the value of the said retirement benefits through the The Gratuity Plan likewise provides that the gratuity benefit of a qualified DBP following scheme: employee shall only be released "upon retirement under th(e) Plan." 56 As the I. To allow a prospective retiree the option to utilize in the form of a COA correctly pointed out, this means that retirement benefits "can only be loan, a portion of his standing equity in the Gratuity Fund and to invest it in a demanded and enjoyed when the employee shall have met the last requisite, profitable investment or undertaking. The income or appreciation in value will that is, actual retirement under the Gratuity Plan." 57 be for his own account and should provide him the desired hedge against

There was thus no basis for the loans granted to DBP employees under the SLP. The rights of the recipient DBP employees to their retirement gratuities were still inchoate, if not a mere expectancy, when they availed of the SLP. No portion of their retirement benefits could be considered as "actually earned" or "outstanding" before retirement. Prior to retirement, an employee who has served the requisite number of years is only eligible for, but not yet entitled to, retirement benefits. The DBP contends that the SLP is merely a normal loan transaction, akin to the loans granted by the GSIS, SSS and the DBP Provident Fund. The records show otherwise.

xxx

xxx

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 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 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 In the present case, the Fund allowed the debtor-employee to "borrow" a or to utilize the sum he loaned, 59 subject to the condition that he should later 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 return the amount with the stipulated interest to the creditor. 60 of or utilize the loan in any other way. These instruments were, incidentally, In contrast, the amount borrowed by a qualified employee under the SLP was 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 not even released to him. The implementing rules of the SLP state that: loan to DBP-TSD so that the amount could be commingled with the loans of The loan shall be available strictly for the purpose of investment in the other employees. The DBP-TSD the same department which handled and following investment instruments: had custody of the Fund's accounts then purchased or re-allocated existing securities in the portfolio of the Fund to correspond to the employees' loans. a. 182 or 364-day term Time deposits with DBP b. c. 182 or 364-day T-bills/CB Bills 182 or 364-day term DBP Blue Chip Fund 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 debtoremployee 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 investment shall be registered in the name of DBP-TSD in trust for availeeinvestor 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. xxx LOANABLE TERMS xxx

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.

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 . . . (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.

(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 xxx xxx

(B) Exception. The tax imposed by this Title shall not apply to employee's trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: . . . (Emphasis supplied) EcDTIH 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 . . ., the Bank's 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

[G.R. No. 161237. January 14, 2009.]

PERFECTO MACABABBAD, Jr., * DECEASED, SUBSTITUTED BY HIS HEIRS SOPHIA MACABABBAD, GLENN M. MACABABBAD, PERFECTO VENER M. MACABABBAD III AND MARY GRACE MACABABBAD, AND SPS. CHUA SENG LIN AND SAY UN AY, petitioners, vs. FERNANDO G. MASIRAG, FAUSTINA G. MASIRAG, CORAZON G. MASIRAG, LEONOR G. MASIRAG, and LEONCIO M. GOYAGOY, respondents.

under the guise of purported instrument, nomenclature "EXTRA-JUDICIAL SETTLEMENT WITH SIMULTANEOUS SALE OF PORTION OF REGISTERED LAND (Lot 4144)", dated December 3, 1967, a falsification defined and penalized under Art. 172 in relation to Art. 171, Revised Penal Code, by "causing it to appear that persons (the plaintiffs herein [the respondents in this case]) have participated in any act or proceeding when they (the plaintiffs herein [the respondents in this case]) did not in fact so participate" in the "EXTRA-JUDICIAL SETTLEMENT WITH SIMULTANEOUS SALE OF PORTION OF REGISTERED LAND (Lot 4144" covered by Original Certificate of Title No. 1946) [sic]. 9 ASaTHc

FRANCISCA MASIRAG BACCAY, PURA MASIRAG FERRER-MELAD, and SANTIAGO The amended complaint essentially alleged the following: 10 MASIRAG, intervenors- respondents. The deceased spouses Pedro Masirag (Pedro) and Pantaleona Tulauan DECISION (Pantaleona) were the original registered owners of Lot No. 4144 of the Cadastral Survey of Tuguegarao (Lot No. 4144), as evidenced by Original BRION, J p: Certificate of Title (OCT) No. 1946. 11 Lot No. 4144 contained an area of 6,423 square meters. Before us is the Petition for Review on Certiorari filed by Perfecto Macababbad, Jr. 1 (Macababbad) and the spouses Chua Seng Lin (Chua) and Say Un Ay (Say) (collectively called the petitioners), praying that we nullify the Decision 2 of the Court of Appeals (CA) and the Resolution 3 denying the motion for reconsideration that followed. The assailed decision reversed the dismissal Order 4 of the Regional Trial Court (RTC), Branch 4, Tuguegarao City, Cagayan, remanding the case for further trial. cHATSI BACKGROUND On April 28, 1999, respondents Fernando Masirag (Fernando), Faustina Masirag (Faustina), Corazon Masirag (Corazon), Leonor Masirag (Leonor) and Leoncio Masirag Goyagoy (Leoncio) (collectively called the respondents), filed with the RTC a complaint 5 against Macababbad, Chua and Say. 6 On May 10, 1999, they amended their complaint to allege new matters. 7 The respondents alleged that their complaint is an action for: quieting of title, nullity of titles, reconveyance, damages and attorney's fees 8 against the defendants [petitioners here] . . . who cabal themselves in mala fides of badges of fraud dishonesty, deceit, misrepresentations, bad faith, Pedro and Pantaleona had eight (8) children, namely, Valeriano, Domingo, Pablo, Victoria, Vicenta, Inicio, Maxima and Maria. Respondents Fernando, Faustina, Corazon and Leonor Masirag are the children of Valeriano and Alfora Goyagoy, while Leoncio is the son of Vicenta and Braulio Goyagoy. The respondents allegedly did not know of the demise of their respective parents; they only learned of the inheritance due from their parents in the first week of March 1999 when their relative, Pilar Quinto, informed respondent Fernando and his wife Barbara Balisi about it. They immediately hired a lawyer to investigate the matter. The investigation disclosed that the petitioners falsified a document entitled "Extra-judicial Settlement with Simultaneous Sale of Portion of Registered Land (Lot 4144) dated December 3, 1967" 12 (hereinafter referred to as the extrajudicial settlement of estate and sale) so that the respondents were deprived of their shares in Lot No. 4144. The document purportedly bore the respondents' signatures, making them appear to have participated in the execution of the document when they did not; they did not even know the petitioners. The document ostensibly conveyed the subject property to

Macababbad for the sum of P1,800.00. 13 Subsequently, OCT No. 1946 was cancelled and Lot No. 4144 was registered in the names of its new owners under Transfer Certificate of Title (TCT) No. 13408, 14 presumably after the death of Pedro and Pantaleona. However, despite the supposed sale to Macababbad, his name did not appear on the face of TCT No. 13408. 15 Despite his exclusion from TCT No. 13408, his "Petition for another owner's duplicate copy of TCT No. 13408", filed in the Court of First Instance of Cagayan, was granted on July 27, 1982. 16 CaAIES Subsequently, Macababbad registered portions of Lot No. 4144 in his name and sold other portions to third parties. 17 On May 18, 1972, Chua filed a petition for the cancellation of TCT No. T-13408 and the issuance of a title evidencing his ownership over a subdivided portion of Lot No. 4144 covering 803.50 square meters. On May 23, 1972, TCT No. T18403 was issued in his name. 18 2009jur Based on these allegations, the respondents asked: (1) that the extrajudicial settlement of estate and sale be declared null and void ab initio and without force and effect, and that Chua be ordered and directed to execute the necessary deed of reconveyance of the land; if they refuse, that the Clerk of Court be required to do so; (2) the issuance of a new TCT in respondents' name and the cancellation of Macababbad's and Chua's certificates of title; and (3) that the petitioners be ordered to pay damages and attorney's fees. 2009jur Macababbad filed a motion to dismiss the amended complaint on July 14, 1999, while Chua and Say filed an "Appearance with Motion to Dismiss" on September 28, 1999. On December 14, 1999, the RTC granted the motion of Francisca Masirag Baccay, Pura Masirag Ferrer-Melad, and Santiago Masirag for leave to intervene and to admit their complaint-in-intervention. The motion alleged that they have common inheritance rights with the respondents over the disputed property. STDEcA THE RTC RULING

The RTC, after initially denying the motion to dismiss, reconsidered its ruling and dismissed the complaint in its Order 19 dated May 29, 2000 on the grounds that: 1) the action, which was filed 32 years after the property was partitioned and after a portion was sold to Macababbad, had already prescribed; and 2) there was failure to implead indispensable parties, namely, the other heirs of Pedro and Pantaleona and the persons who have already acquired title to portions of the subject property in good faith. 20 The respondents appealed the RTC's order dated May 29, 2000 to the CA on the following grounds: I. THE COURT A QUO ERRED IN DISMISSING THE CASE II. THE COURT A QUO ERRED IN INTERPRETING THE NATURE OF APPELLANTS' CAUSE OF ACTION AS THAT DESIGNATED IN THE COMPLAINT'S TITLE AND NOT IN (SIC) THE ALLEGATIONS IN THE COMPLAINT 21 TaDAHE The petitioners moved to dismiss the appeal primarily on the ground that the errors the respondents raised involved pure questions of law that should be brought before the Supreme Court via a petition for review on certiorari under Rule 45 of the Rules of Court. The respondents insisted that their appeal involved mixed questions of fact and law and thus fell within the purview of the CA's appellate jurisdiction. THE CA DECISION 22 The CA ignored 23 the jurisdictional issue raised by the petitioners in their motion to dismiss, took cognizance of the appeal, and focused on the following issues: 1) whether the complaint stated a cause of action; and 2) whether the cause of action had been waived, abandoned or extinguished. The appellate court reversed and set aside the RTC's dismissal of the complaint. On the first issue, it ruled that the complaint "carve(d) out a sufficient and adequate cause of action . . . . One can read through the

verbosity of the initiatory pleading to discern that a fraud was committed by the defendants on certain heirs of the original owners of the property and that, as a result, the plaintiffs were deprived of interests that should have gone to them as successors-in-interest of these parties. A positive deception has been alleged to violate legal rights. This is the ultimate essential fact that remains after all the clutter is removed from the pleading. Directed against the defendants, there is enough to support a definitive adjudication." 24 IECcaA

The respondents' argument that there was no failure to implead indispensable parties since the other heirs of Pedro and Pantaleona who were not impleaded were not indispensable parties in light of the respondents' admission that the extra-judicial settlement is valid with respect to the other heirs who sold their shares to Perfecto Macababbad is erroneous because innocent purchasers for value of portions of Lot 4144 who are also indispensable parties were not impleaded; 30 2009jur The CA erred in reconciling Civil Code provisions Article 1456 and Article 1410, in relation to Article 1409; 31 The CA erred in saying that the Extra-judicial Partition was an inexistent and void contract because it could not be said that none of the heirs intended to be bound by the contract. 32 cDHCAE The respondents argued in their Comment that: 33 The appeal was brought on mixed questions of fact and law involving prescription, laches and indispensable parties; The non-inclusion of indispensable parties is not a ground to dismiss the claim; The respondents' action is not for reconveyance. Rather, it is an action to declare the sale of their respective shares null and void; An action for the nullity of an instrument prescribes in four (4) years from discovery of the fraud. Discovery was made in 1999, while the complaint was also lodged in 1999. Hence, the action had not yet been barred by prescription; Laches had not set in because the action was immediately filed after discovery of the fraud. EIcSDC OUR RULING

On the second issue, the CA applied the Civil Code provision on implied trust, i.e., that a person who acquires a piece of property through fraud is considered a trustee of an implied trust for the benefit of the person from whom the property came. Reconciling this legal provision with Article 1409 (which defines void contracts) and Article 1410 (which provides that an action to declare a contract null and void is imprescriptible), the CA ruled that the respondents' cause of action had not prescribed, because "in assailing the extrajudicial partition as void, the [respondents] have the right to bring the action unfettered by a prescriptive period." 25 THE PETITION FOR REVIEW ON CERTIORARI The Third Division of this Court initially denied 26 the petition for review on certiorari for the petitioners' failure to show any reversible error committed by the CA. However, it subsequently reinstated the petition. In their motion for reconsideration, the petitioners clarified the grounds for their petition, as follows: A. THE HONORABLE COURT OF APPEALS DID NOT HAVE JURISDICTION TO PASS UPON AND RULE ON THE APPEAL TAKEN BY THE RESPONDENTS IN CA-GR CV NO. 68541. 27 aTcIAS In the alternative, ex abundanti cautela, the petitioners alleged other reversible errors summarized as follows: 28

The RTC dismissal on the ground that indispensable parties were not We find the petition devoid of merit. impleaded has already become final and executory because the CA did not pass upon this ground; 29

Questions of Fact v. Questions of Law A question of law arises when there is doubt as to what the law is on a certain state of facts while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. 34 A question of law may be resolved by the court without reviewing or evaluating the evidence. 35 No examination of the probative value of the evidence would be necessary to resolve a question of law. 36 The opposite is true with respect to questions of fact, which necessitate a calibration of the evidence. 37 The nature of the issues to be raised on appeal can be gleaned from the appellant's notice of appeal filed in the trial court and in his or her brief as appellant in the appellate court. 38 In their Notice of Appeal, the respondents manifested their intention to appeal the assailed RTC order on legal grounds and "on the basis of the environmental facts". 39 Further, in their Brief, the petitioners argued that the RTC erred in ruling that their cause of action had prescribed and that they had "slept on their rights". 40 All these indicate that questions of facts were involved, or were at least raised, in the respondents' appeal with the CA. IaECcH In Crisostomo v. Garcia, 41 this Court ruled that prescription may either be a question of law or fact; it is a question of fact when the doubt or difference arises as to the truth or falsity of an allegation of fact; it is a question of law when there is doubt or controversy as to what the law is on a given state of facts. The test of whether a question is one of law or fact is not the appellation given to the question by the party raising the issue; the test is whether the appellate court can determine the issue raised without reviewing or evaluating the evidence. Prescription, evidently, is a question of fact where there is a need to determine the veracity of factual matters such as the date when the period to bring the action commenced to run. 42 Ingjug-Tiro v. Casals 43 instructively tells us too that a summary or outright dismissal of an action is not proper where there are factual matters in dispute which require presentation and appreciation of evidence. In this cited case whose fact situation is similar to the present case, albeit with a very slight and minor variation, we considered the improvident dismissal of a complaint based

on prescription and laches to be improper because the following must still be proven by the complaining parties: first, that they were the co-heirs and co-owners of the inherited property; second, that their co-heirs-co-owners sold their hereditary rights thereto without their knowledge and consent; third, that forgery, fraud and deceit were committed in the execution of the Deed of Extrajudicial Settlement and Confirmation of Sale since Francisco Ingjug who allegedly executed the deed in 1967 actually died in 1963, hence, the thumbprint found in the document could not be his; fourth, that Eufemio Ingjug who signed the deed of sale is not the son of Mamerto Ingjug, and, therefore, not an heir entitled to participate in the disposition of the inheritance; fifth, that respondents have not paid the taxes since the execution of the sale in 1965 until the present date and the land in question is still declared for taxation purposes in the name of Mamerto Ingjug, the original registered owner, as of 1998; sixth, that respondents had not taken possession of the land subject of the complaint nor introduced any improvement thereon; and seventh, that respondents are not innocent purchasers for value. TAaIDH As in Ingjug-Tiro, the present case involves factual issues that require trial on the merits. This situation rules out a summary dismissal of the complaint. Proper Mode of Appeal Since the appeal raised mixed questions of fact and law, no error can be imputed on the respondents for invoking the appellate jurisdiction of the CA through an ordinary appeal. Rule 41, Sec. 2 of the Rules of Court provides: Modes of appeal. (a) Ordinary appeal The appeal to the Court of Appeals in cases decided by the Regional Trial Court in the exercise of its original jurisdiction shall be taken by filing a notice of appeal with the court which rendered the judgment or final order appealed from and serving a copy thereof upon the adverse party.

In Murillo v. Consul, 44 this Court had the occasion to clarify the three (3) modes of appeal from decisions of the RTC, namely: (1) ordinary appeal or appeal by writ of error, where judgment was rendered in a civil or criminal action by the RTC in the exercise of original jurisdiction, covered by Rule 41; (2) petition for review, where judgment was rendered by the RTC in the exercise of appellate jurisdiction, covered by Rule 42; and (3) petition for review to the Supreme Court under Rule 45 of the Rules of Court. The first mode of appeal is taken to the CA on questions of fact or mixed questions of fact and law. The second mode of appeal is brought to the CA on questions of fact, of law, or mixed questions of fact and law. The third mode of appeal is elevated to the Supreme Court only on questions of law. DAETHc Prescription A ruling on prescription necessarily requires an analysis of the plaintiff's cause of action based on the allegations of the complaint and the documents attached as its integral parts. A motion to dismiss based on prescription hypothetically admits the allegations relevant and material to the resolution of this issue, but not the other facts of the case. 45 Unfortunately, both the respondents' complaint and amended complaint are poorly worded, verbose, and prone to misunderstanding. In addition, therefore, to the complaint, we deem it appropriate to consider the clarifications made in their appeal brief by the petitioners relating to the intent of their complaint. We deem this step appropriate since there were no matters raised for the first time on appeal and their restatement was aptly supported by the allegations of the RTC complaint. The respondents argue in their Appellant's Brief that: 2009jur

theirs which appeared in the Extrajudicial Settlement with Simultaneo[u]s Sale of Portion of Registered Land (Lot 4144) were forged. DHaECI As appellants represented 2 of the 8 children of the deceased original owners of the land in question who were Pedro Masirag and Pantaleona Talauan, the sale is perfectly valid with respect to the other 6 children, and void ab initio with respect to the appellants. 46 The respondents likewise argue that their action is one for the annulment of the extrajudicial settlement of estate and sale bearing their forged signatures. They contend that their action had not yet prescribed because an action to declare an instrument null and void is imprescriptible. In their Comment to the petition for review, however, the respondents modified their position and argued that the sale to the petitioners pursuant to the extrajudicial settlement of estate and sale was void because it was carried out through fraud; thus, the appropriate prescription period is four (4) years from the discovery of fraud. Under this argument, respondents posit that their cause of action had not yet prescribed because they only learned of the extrajudicial settlement of estate and sale in March 1999; they filed their complaint the following month. 2009jur The petitioners, on the other hand, argue that the relevant prescriptive period here is ten (10) years from the date of the registration of title, this being an action for reconveyance based on an implied or constructive trust. AcHEaS

We believe and so hold that the respondents' amended complaint sufficiently pleaded a cause to declare the nullity of the extrajudicial settlement of estate and sale, as they claimed in their amended complaint. Without prejudging the issue of the merits of the respondents' claim and on the assumption that the . . . Although reconveyance was mentioned in the title, reconveyance of which petitioners already hypothetically admitted the allegations of the complaint connotes that there was a mistake in titling the land in question in the name of when they filed a motion to dismiss based on prescription, the transfer may be the registered owner indicated therein, but in the allegations in the body of the null and void if indeed it is established that respondents had not given their allegations in the body of the instant complaint, it clearly appears that the consent and that the deed is a forgery or is absolutely fictitious. As the nullity nature of the cause of action of appellants, [sic] they wanted to get back their of the extrajudicial settlement of estate and sale has been raised and is the respective shares in the subject inheritance because they did not sell said primary issue, the action to secure this result will not prescribe pursuant to shares to appellee Perfecto Macababbad as the signatures purported to be Article 1410 of the Civil Code.

Based on this conclusion, the necessary question that next arises is: What then is the effect of the issuance of TCTs in the name of petitioners? In other words, does the issuance of the certificates of titles convert the action to one of reconveyance of titled land which, under settled jurisprudence, prescribes in ten (10) years? Precedents say it does not; the action remains imprescriptible, the issuance of the certificates of titles notwithstanding. Ingjug-Tiro is again instructive on this point: IDCcEa

party capable of being contracted with. Hence, if any one party to a supposed contract was already dead at the time of its execution, such contract is undoubtedly simulated and false and therefore null and void by reason of its having been made after the death of the party who appears as one of the contracting parties therein. The death of a person terminates contractual capacity. 2009jur

In actions for reconveyance of the property predicated on the fact that the conveyance complained of was null and void ab initio, a claim of prescription of action would be unavailing. "The action or defense for the declaration of the Article 1458 of the New Civil Code provides: "By the contract of sale one of the inexistence of a contract does not prescribe." Neither could laches be invoked contracting parties obligates himself of transfer the ownership of and to deliver in the case at bar. Laches is a doctrine in equity and our courts are basically a determinate thing, and the other to pay therefor a price certain in money or courts of law and not courts of equity. Equity, which has been aptly described its equivalent." It is essential that the vendors be the owners of the property as "justice outside legality", should be applied only in the absence of, and sold otherwise they cannot dispose that which does not belong to them. As the never against, statutory law. Aequetas nunguam contravenit legis. The positive Romans put it: "Nemo dat quod non habet". No one can give more than what mandate of Art. 1410 of the New Civil; Code conferring imprescriptibility to he has. The sale of the realty to respondents is null and void insofar as it actions for declaration of the inexistence of a contract should preempt and prejudiced petitioners' interests and participation therein. At best, only the prevail over all abstract arguments based only on equity. Certainly, laches ownership of the shares of Luisa, Maria and Guillerma in the disputed property cannot be set up to resist the enforcement of an imprescriptible legal right, and could have been transferred to respondents. petitioners can validly vindicate their inheritance despite the lapse of time. 47 AEIcTD Consequently, respondents could not have acquired ownership over the land to the extent of the shares of petitioners. The issuance of a certificate of title in We have a similar ruling in Heirs of Rosa Dumaliang v. Serban. 48 their favor could not vest upon them ownership of the entire property; neither could it validate the purchase thereof which is null and void. Registration does The respondents' action is therefore imprescriptible and the CA committed no not vest title; it is merely the evidence of such title. Our land registration laws reversible error in so ruling. do not give the holder any better title than what he actually has. Being null and Laches void, the sale to respondents of the petitioners' shares produced no legal effects whatsoever. IDSaTE Dismissal based on laches cannot also apply in this case, as it has never reached Similarly, the claim that Francisco Ingjug died in 1963 but appeared to be a party to the Extrajudicial Settlement and Confirmation of Sale executed in 1967 would be fatal to the validity of the contract, if proved by clear and convincing evidence. Contracting parties must be juristic entities at the time of the consummation of the contract. Stated otherwise, to form a valid and legal agreement it is necessary that there be a party capable of contracting and the presentation of evidence stage and what the RTC had for its consideration were merely the parties' pleadings. Laches is evidentiary in nature and cannot be established by mere allegations in the pleadings. 49 Without solid evidentiary basis, laches cannot be a valid ground to dismiss the respondents' complaint. Non-joinder of Indispensable parties is not a

Ground for a Motion to Dismiss The RTC dismissed the respondents' amended complaint because indispensable parties were not impleaded. The respondents argue that since the extrajudicial settlement of estate and sale was valid with respect to the other heirs who executed it, those heirs are not indispensable parties in this case. Innocent purchasers for value to whom title has passed from Macababbad and the spouses Chua and Say are likewise not indispensable parties since the titles sought to be recovered here are still under the name of the petitioners. AIaHES We also find the RTC dismissal Order on this ground erroneous. Rule 3, Section 11 of the Rules of Court provides that neither misjoinder nor nonjoinder of parties is a ground for the dismissal of an action, thus: Sec. 11. Misjoinder and non-joinder of parties. Neither misjoinder nor nonjoinder of parties is ground for dismissal of an action. Parties may be dropped or added by order of the court on motion of any party or on its own initiative at any stage of the action and on such terms as are just. Any claim against a misjoined party may be severed and proceeded with separately. 2009jur In Domingo v. Scheer, 50 this Court held that the proper remedy when a party is left out is to implead the indispensable party at any stage of the action. The court, either motu proprio or upon the motion of a party, may order the inclusion of the indispensable party or give the plaintiff opportunity to amend his complaint in order to include indispensable parties. If the plaintiff to whom the order to include the indispensable party is directed refuses to comply with the order of the court, the complaint may be dismissed upon motion of the defendant or upon the court's own motion. 51 Only upon unjustified failure or refusal to obey the order to include or to amend is the action dismissed. 52 STcEIC Rule 3, Sec. 7 of the Rules of Court defines indispensable parties as those who are parties in interest without whom no final determination can be had of an action. 53 They are those parties who possess such an interest in the controversy that a final decree would necessarily affect their rights so that the

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

Quisumbing, Carpio Morales, Tinga and Velasco, Jr., JJ., concur.

[G.R. No. 178645. January 30, 2009.]

LINA PEALBER, petitioner, vs. QUIRINO RAMOS, LETICIA PEALBER, and BARTEX INC., respondents.
CHICO-NAZARIO, J p: Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the Decision 1 dated 15 December 2006 of the Court of Appeals in CAG.R. CV No. 69731. Said Decision reversed and set aside the Decision 2 dated 19 January 2000 of the Regional Trial Court (RTC) of Tuguegarao City, Branch 2, in Civil Case No. 3672, which declared petitioner Lina Pealber the owner of the Bonifacio property subject of this case and ordered respondent spouses Quirino Ramos and Leticia Pealber to reconvey the same to petitioner. cSITDa

was cancelled on 13 May 1983 and TCT No. T-58043 5 was issued in its stead in the name of respondent spouses Ramos. Upon verification, petitioner learned that the basis for the cancellation of her title was a Deed of Donation of a Registered Land, Residential House and Camarin, 6 which petitioner purportedly executed in favor of respondent spouses Ramos on 27 April 1983. Petitioner insisted that her signature on the said Deed of Donation was a forgery as she did not donate any property to respondent spouses Ramos. When petitioner confronted the respondent spouses Ramos about the false donation, the latter pleaded that they would just pay for the Ugac properties in the amount of P1 Million. Petitioner agreed to the proposition of the respondent spouses Ramos. TAIaHE

Subsequently, around 10 January 1987, 7 petitioner found out that the respondent spouses Ramos were selling the Ugac properties to respondent Bartex, Inc. Petitioner then sent her son, Johnson Paredes (Johnson), 8 to The factual and procedural antecedents of the case are set forth hereunder. caution respondent Bartex, Inc. that respondent spouses Ramos were not the lawful owners of the said properties. Johnson was allegedly able to convey Petitioner is the mother of respondent Leticia and the mother-in-law of petitioner's caveat to a representative of respondent Bartex, Inc. Petitioner respondent Quirino, husband of Leticia. Respondent Bartex, Inc., on the other hand, is a domestic corporation which bought from respondent spouses Ramos also warned respondent spouses Ramos not to sell the Ugac properties anymore, otherwise, she would file the necessary action against them. The one of the two properties involved in this case. respondent spouses Ramos then assured her that they would do no such thing. On 18 February 1987, petitioner filed before the RTC a Complaint for As a precaution, petitioner executed an Affidavit of Adverse Claim over the Declaration of Nullity of Deeds and Titles, Reconveyance, Damages, [with] Ugac Properties on 19 January 1987 and caused the same to be annotated on Application for a Writ of Preliminary Prohibitory Injunction against the TCT No. T-58043 on the same day. Despite petitioner's warnings, respondent respondents. 3 It was docketed as Civil Case No. 3672. CASaEc spouses Ramos still executed in favor of respondent Bartex, Inc. a Deed of Absolute Sale 9 over the Ugac properties on 12 January 1987 for a total price of First Cause of Action P150,000.00. As a result, TCT No. T-58043 in the name of respondent spouses Ramos was cancelled and TCT No. T-68825 10 in the name of respondent Firstly, petitioner alleged in her Complaint that she was the owner of a parcel Bartex, Inc. was issued on 20 January 1987. TaDIHc of land situated in Ugac Norte, Tuguegarao, Cagayan, with an area of 1,457 sq.m. and covered by Transfer Certificate of Title (TCT) No. T-43373 4 of the Petitioner contended that the Deed of Absolute Sale executed by respondent Register of Deeds for the Province of Cagayan, registered in petitioner's name. spouses Ramos in favor of respondent Bartex, Inc. did not convey any valid A residential house and a warehouse were constructed on the said parcel of title, not only because respondent Bartex, Inc. was a buyer in bad faith, but land which petitioner also claimed to own (the land and the improvements also because respondent spouses Ramos did not own the Ugac properties. thereon shall be hereinafter referred to as the Ugac properties). Petitioner Thus, petitioner prayed for the declaration of nullity of (1) the Deed of averred that in the middle part of 1986, she discovered that TCT No. T-43373

Donation of a Registered Land, Residential House and Camarin purportedly executed by petitioner in favor respondent spouses Ramos; (2) TCT No. T58043, issued in the name of respondent spouses Ramos; (3) the Deed of Absolute Sale executed by the respondent spouses Ramos in favor of respondent Bartex, Inc.; and (4) TCT No. T-68825, issued in the name of respondent Bartex, Inc. Should petitioner's prayer not be granted, petitioner sought in the alternative that respondent spouses Ramos be ordered to pay the assessed value of the Ugac properties, which was about P1.5 Million. Petitioner further prayed that TCT No. T-43373, in her name, be declared valid and active. 2009jur Second Cause of Action Secondly, petitioner claimed that for many years prior to 1984, she operated a hardware store in a building she owned along Bonifacio St., Tuguegarao, Cagayan. However, the commercial lot (Bonifacio property) upon which the building stood is owned by and registered in the name of Maria Mendoza (Mendoza), from whom petitioner rented the same. TADcCS On 22 March 1982, petitioner allowed respondent spouses Ramos to manage the hardware store. Thereafter, in 1984, Mendoza put the Bonifacio property up for sale. As petitioner did not have available cash to buy the property, she allegedly entered into a verbal agreement with respondent spouses Ramos with the following terms: [1.] The lot would be bought [by herein respondent spouses Ramos] for and in behalf of [herein petitioner]; [2.] The consideration of P80,000.00 for said lot would be paid by [respondent spouses Ramos] from the accumulated earnings of the store; [3.] Since [respondent spouses Ramos] have the better credit standing, they would be made to appear in the Deed of Sale as the 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 bigger building and expand the business of [petitioner]. HETDAC

In accordance with the above agreement, respondent spouses Ramos allegedly entered into a contract of sale 11 with Mendoza over the Bonifacio property, 12 and on 24 October 1984, TCT No. T-62769 13 covering said property was issued in the names of respondent spouses Ramos. On 20 September 1984, respondent spouses Ramos returned the management of the hardware store to petitioner. On the bases of receipts and disbursements, petitioner asserted that the Bonifacio property was fully paid out of the funds of the store and if respondent spouses Ramos had given any amount for the purchase price of the said property, they had already sufficiently reimbursed themselves from the funds of the store. Consequently, petitioner demanded from respondent spouses Ramos the reconveyance of the title to the Bonifacio property to her but the latter unjustifiably refused. CITcSH Petitioner insisted that respondent spouses Ramos were, in reality, mere trustees of the Bonifacio property, thus, they were under a moral and legal obligation to reconvey title over the said property to her. Petitioner, therefore, prayed that she be declared the owner of the Bonifacio property; TCT No. T62769, in the name of respondent spouses, be declared null and void; and the Register of Deeds for the Province of Cagayan be directed to issue another title in her name. On 2 March 1987, respondent spouses Ramos accordingly filed before the RTC their Answer 14 to petitioner's Complaint. As regards the first cause of action, respondent spouses Ramos alleged that petitioner, together with her son, Johnson, and the latter's wife, Maria Teresa Paredes, mortgaged the Ugac properties to the Development Bank of the Philippines (DBP) on 19 August 1990 for the amount of P150,000.00. When the mortgage was about to be foreclosed because of the failure of petitioner to pay the mortgage debt, petitioner asked respondent spouses Ramos to redeem the mortgaged property or pay her mortgage debt to DBP. In return, petitioner promised to cede, convey and transfer full ownership of the Ugac properties to them. Respondent spouses Ramos paid the mortgage debt and, in compliance with her promise, petitioner voluntarily transferred the Ugac properties to the former by way of a Deed of Donation dated 27 April 1983. After accepting the

donation and having the Deed of Donation registered, TCT No. T-58043 was issued to respondent spouses Ramos and they then took actual and physical possession of the Ugac properties. Respondent spouses Ramos asserted that petitioner had always been aware of their intention to sell the Ugac properties as they posted placards thereon stating that the said properties were for sale. Respondent spouses Ramos further averred that petitioner also knew that they finally sold the Ugac properties to respondent Bartex, Inc. for P150,000.00. Thus, respondent spouses Ramos maintained that petitioner was not entitled to any reimbursement for the Ugac properties. ASTIED With regard to petitioner's second cause of action involving the Bonifacio property, respondent spouses Ramos contended that they were given not only the management, but also the full ownership of the hardware store by the petitioner, on the condition that the stocks and merchandise of the store will be inventoried, and out of the proceeds of the sales thereof, respondent spouses Ramos shall pay petitioner's outstanding obligations and liabilities. After settling and paying the obligations and liabilities of petitioner, respondent spouses Ramos bought the Bonifacio property from Mendoza out of their own funds.

Ugac properties and they only vacated the same after the consummation of the sale to respondent Bartex, Inc. Respondent Bartex, Inc. claimed that the sale of the Ugac properties by respondent spouses Ramos to the corporation was already consummated on 12 January 1987, and the documents conveying the said properties were by then being processed for registration, when petitioner caused the annotation of an adverse claim at the back of TCT No. T58043 on 19 January 1987. As respondent Bartex, Inc. was never aware of any imperfection in the title of respondent spouses Ramos over the Ugac properties, it claimed that it was an innocent purchaser in good faith. cSCADE Trial of the case thereafter ensued. On 19 January 2000, the RTC promulgated its decision, ruling on petitioner's first cause of action in this wise:

On the first cause of action, the Court finds the testimony of [herein petitioner] Lina Penalber (sic) denying her execution of the deed of donation over the Ugac property in favor of [herein respondent spouses] Quirino Ramos and Leticia Penalber-Ramos (sic) insufficient to support the said cause of action. A notarial document is, by law, entitled to full faith and credit upon its face Lastly, even if petitioner and respondent spouses Ramos belonged to the same (Arrieta v. Llosa, 282 SCRA 248) and a high degree of proof is needed to overthrow the presumption of truth in the recitals contained in a public family, the spouses Ramos faulted petitioner for failing to exert efforts to arrive at an amicable settlement of their dispute. Hence, respondent spouses Ramos document executed with all legal formalities (People vs. Fabro, 277 SCRA 19). Hence, in order to contradict the facts contained in a notarial document and sought, by way of a counterclaim against petitioner, moral and exemplary the presumption of regularity in its favor, these (sic) must be evidence that is damages and attorney's fees, for allegedly filing a false, flimsy and frivolous clear, convincing and more than merely preponderant (Calahat vs. complaint. DAaEIc Intermediate Appellate Court, 241 SCRA 356). In the case at bench, [petitioner] On 27 April 1987, respondent Bartex, Inc. filed before the RTC its own Answer claims that she did not execute the deed of donation over the Ugac property in to petitioner's Complaint, alleging, inter alia, that when a representative of the favor of [respondent spouses Ramos]. Such denial, by itself, is not sufficient to corporation inquired about the Ugac properties for sale, respondent spouses overcome the presumption of regularity of the notarial deed of donation and Ramos presented their owner's duplicate copy of TCT No. T-58043, together its entitlement to full faith and credit. While it is true that, generally, the party with the tax declarations covering the parcel of land and the buildings thereon. who asserts the affirmative side of a proposition has the burden of proof, Respondent Bartex, Inc. even verified the title and tax declarations covering which in this instance is (sic) the [respondent spouses Ramos] who are the Ugac properties with the Register of Deeds and the Office of the Municipal asserting the validity of the deed of donation, [respondent spouses Ramos] can Assessor as to any cloud, encumbrance or lien on the properties, but none merely rely on the above-stated presumption given to notarial documents and were found. Respondent spouses Ramos were then actually occupying the need not present any evidence to support their claim of validity and due

execution of the notarized deed of donation. On the other hand, [petitioner], in addition to her allegation that she did not execute any such deed of donation in favor of [respondent spouses Ramos] should have had her allegedly falsified signature on the deed of donation examined by qualified handwriting experts to prove that, indeed, she did not execute the same. Her failure to do so results in the failure of her cause. 15 (Emphasis ours.) IDETCA With respect to petitioner's second cause of action, the RTC adjudged that: On the second cause of action, the Court finds the evidence preponderantly in favor of the [herein petitioner]. The evidence on record shows that when [petitioner] allowed [herein respondent spouses Ramos] full management of the hardware store located on the Bonifacio property in March, 1982 (sic) an inventory of the stocks in trade in the said store was made showing stocks worth P226,951.05 * and when she got back the store from [respondent spouses Ramos] on September 1984, another inventory was made [on] the stocks in trade in the said store showing, stocks worth P110,005.88 * or a difference of P116,946.17. * The only reason for an 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], all that is needed to be done is to deduct the value of the stocks present at the store when management was returned to [petitioner] in September 1984 from the value of the stocks found in the hardware store when said management was given to [respondent spouses Ramos] in 1982. [Petitioner] claims that the purchase price for the Bonifacio property was to be taken from the proceeds of sales from the hardware store which, as the evidence on record stands[,] shows a balance in her favor of more than P116,000.00. [Respondent spouses Ramos] contend that said amount was expended to pay off [petitioner's] obligations to her suppliers. The record, however, is totally silent on 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] from the proceeds of the sales of her stocks in the hardware store would be applied to the purchase price of the Bonifacio property is supported 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] and that there was a difference of P116,000.00 plus which was due to her. 16 (Emphasis ours.) DHSCTI Thus, the RTC decreed: WHEREFORE, in view of all the foregoing, judgment is hereby rendered: 1. Finding the evidence on record insufficient to prove the [herein petitioner's] first cause of action, and, hence, dismissing the same; 2. On the second cause of action, in favor of the [petitioner] and against the [herein respondent spouses Ramos]; 2.1 Declaring the [petitioner] the owner of Lot 2-B of subdivision plan PST2-01-019316 (sic) with an area of 195 square meters situated along Bonifacio Street, Tuguegarao, Cagayan; and HESIcT 2.2 Ordering the [respondent spouses Ramos] to reconvey to the [petitioner] the said property (Bonifacio property). With costs de oficio. 17 (Emphasis ours.) On 22 February 2000, respondent spouses Ramos filed with the RTC a Motion for Reconsideration 18 of the afore-mentioned decision, assailing the ruling of the RTC on petitioner's second cause of action on the ground that the alleged express trust created between them and petitioner involving the Bonifacio property could not be proven by parol evidence. In an Order 19 dated 17 July 2000, the RTC denied respondent spouses Ramos' Motion for Reconsideration for lack of merit, ratiocinating that respondent spouses Ramos failed to interpose timely objections when petitioner testified on their alleged verbal agreement regarding the purchase of the Bonifacio property. As such, respondent spouses Ramos were deemed to have waived such objections, which cannot be raised anymore in their Motion for Reconsideration. The RTC then reiterated its finding that petitioner's evidence clearly established her

second cause of action. Additionally, the RTC held that the requirement that Php116,946.17, were actually sold or not. It may have been taken without the parties exert earnest efforts towards an amicable settlement of the dispute actually being sold. CcHDSA had likewise been waived by the respondents as they filed no motion regarding It is a basic rule of evidence that bare allegations, unsubstantiated by evidence, the same before the trial. SHaIDE are not equivalent to proof. As between [petitioner's] bare allegation of a On 24 July 2000, respondent spouses Ramos elevated their case to the Court of verbal trust agreement, and the deed of absolute sale between Maria Mendoza Appeals, insofar as the ruling of the RTC on petitioner's second cause of action and [respondent spouses Ramos], the latter should prevail. was concerned. 20 The appeal was docketed as CA-G.R. CV No. 69731. Although oral testimony is allowed to prove that a trust exists, contrary to the On 15 December 2006, the Court of Appeals rendered the assailed Decision in contention of [respondent spouses Ramos], and the court may rely on parol evidence to arrive at a conclusion that an express trust exists, what is crucial is favor of respondent spouses Ramos. the intention to create a trust. While oftentimes the intention is manifested by Finding merit in the appeal, the appellate court observed that the second cause the trustor in express or explicit language, such intention may be manifested of action involved not only the petitioner and her daughter, but also her son-in- by inference from what the trustor has said or done, from the nature of the law, who was not covered by the term "family relations" under Article 150 21 transaction, or from the circumstances surrounding the creation of the of the Family Code. Therefore, Article 151 22 of the Family Code, requiring the purported trust. aSDCIE exertion of earnest efforts toward a compromise, did not apply as the impediment arising from the said provision was limited only to suits between However, an inference of the intention to create a trust, made from language, members of the same family or those encompassed in the term "family conduct or circumstances, must be made with reasonable certainty. It cannot rest on vague, uncertain or indefinite declarations. An inference of intention to relations" under Article 150. aTCAcI create a trust, predicated only on circumstances, can be made only where they The Court of Appeals also declared that petitioner failed to prove her claim admit of no other interpretation. Here, [petitioner] failed to establish with with the required quantum of evidence. According to the Court of Appeals: reasonable certainty her claim that the purchase of the subject lot was pursuant to a verbal trust agreement with [respondent spouses Ramos]. 23 It appears that before management of the store was transferred to [herein (Emphasis ours.) respondent spouses Ramos], a beginning inventory of the stocks of the hardware store was made by [herein petitioner's] other children showing stocks amounting to Php226,951.05. After management of the hardware store was returned to [petitioner], a second inventory was made with stocks amounting to Php110,004.88 showing a difference of Php116,946.15. Contrary, however, to the finding of the trial court, We find that said inventory showing such difference is not conclusive proof to show that the said amount was used to pay the purchase price of the subject lot. In fact, as testified by Johnson Paredes, son of [petitioner] who made the computation on the alleged inventories, it is not known if the goods, representing the amount of Thus, the Court of Appeals disposed of the case as follows: WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED and the Decision dated 19 January 2000 of the Regional Trial Court (RTC) of Tuguegarao City, Branch 2, with respect to the second cause of action or the Bonifacio Property in 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] complaint. 24 TADaES

On 12 January 2007, petitioner sought reconsideration 25 of the foregoing Decision, but it was denied by the appellate court in a Resolution 26 dated 31 May 2007. To have the ruling of the Court of Appeals overturned, petitioner brought her case before us through the instant Petition, raising the following issues: (1) whether the existence of a trust agreement between her and respondent spouses Ramos was clearly established, and (2) whether such trust agreement was valid and enforceable. At the outset, it is apparent that petitioner is raising questions of fact in the instant Petition. Be it noted that in a petition for review under Rule 45 of the Rules of Court, only questions of law must be entertained. A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. 27 When the doubt or difference arises as to the truth or falsehood of alleged facts or when the query necessarily solicits 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, questions or errors of fact are raised. 28 The rule that only questions of law may be raised in a petition for review under Rule 45, however, admits of certain exceptions, 29 among which is when the findings of the trial court are grounded entirely on speculation, surmise and conjecture. As will be discussed further, we find the afore-mentioned exception to be applicable in the present Petition, thus, warranting a departure from the general rule. HCSEIT In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which is vested in another, but the word "trust" is frequently employed to indicate duties, relations, and responsibilities which are not strictly technical trusts. 30 A person who establishes a trust is called the trustor; one in whom confidence is reposed is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary. 31 There is a fiduciary relation between the trustee and the beneficiary (cestui que trust) as regards certain property, real, personal, money or choses in action. 32

Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law. 33 Express trusts are those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a trust. 34 No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. 35 However, in accordance with Article 1443 of the Civil Code, when an express trust concerns an immovable property or any interest therein, the same may not be proved by parol or oral evidence. 36 AIaHES In the instant case, petitioner maintains that she was able to prove the existence of a trust agreement between her and respondent spouses Ramos. She calls attention to the fact that respondent spouses Ramos could not account for the P116,946.15 difference in the beginning inventory and the second inventory of the stocks of the hardware store, and they failed to present proof to support their allegation that the amount was used to pay the other obligations of petitioner. As respondent spouses Ramos never denied the existence of the P116,946.15 difference, petitioner contends that they have the burden of proving where this amount had gone, if indeed they did not use the same to buy the Bonifacio property. Petitioner asserts that given the respondent spouses Ramos' failure to discharge such burden, the only conclusion would be that they did use the amount to purchase the Bonifacio property. Petitioner further alleges that based on the verbal agreement between her and respondent spouses Ramos, a trust agreement was created and that the same is valid and enforceable. Petitioner claims that she is the trustor for it was she who entrusted the Bonifacio property to respondent spouses Ramos as the trustees, with the condition that the same be used to secure a loan, the proceeds of which would be used to build a bigger building to expand petitioner's business. Petitioner maintains that a trust agreement was clearly intended by the parties when petitioner left the management of the hardware store to respondent spouses Ramos, with the agreement that the proceeds from the sales from said store be used to buy the lot upon which the store

stands. The respondent spouses Ramos' assumption of the management of the hardware store and their eventual purchase of the Bonifacio property indubitably shows that respondent spouses Ramos honored their obligation under the verbal agreement. Such being the case, it behooved for the respondent spouses Ramos to hold the Bonifacio property for petitioner's benefit.

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 their objection to the parol evidence as they failed to timely object when petitioner testified on the said verbal agreement. The requirement in Article 1443 that the express trust concerning an immovable or an interest therein be in writing is merely for purposes 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 of frauds is Petitioner's arguments fail to persuade. descriptive of statutes which require certain classes of contracts to be in It bears stressing that petitioner has the burden of proving her cause of action writing. The statute does not deprive the parties of the right to contract with respect to the matters therein involved, but merely regulates the formalities of in the instant case and she may not rely on the weakness of the defense of respondent spouses Ramos. Burden of proof is the duty of any party to present the contract necessary to render it enforceable. 41 The effect of nonevidence to establish his claim or defense by the amount of evidence required compliance is simply that no action can be proved unless the requirement is complied with. Oral evidence of the contract will be excluded upon timely by law, which is preponderance of evidence in civil cases. Preponderance of evidence 37 is the weight, credit, and value of the aggregate evidence on either objection. But if the parties to the action, during the trial, make no objection to side and is usually considered to be synonymous with the term "greater weight the admissibility of the oral evidence to support the contract covered by the statute, and thereby permit such contract to be proved orally, it will be just as of the evidence" or "greater weight of the credible evidence". It is evidence binding upon the parties as if it had been reduced to writing. 42 HcACST which is more convincing to the court as worthy of belief than that which is offered in opposition thereto. 38 Therefore, the party, whether plaintiff or Per petitioner's testimony, 43 the Bonifacio property was offered for sale by its defendant, who asserts the affirmative of the issue has the burden of proof to owner Mendoza. Petitioner told respondent spouses Ramos that she was going obtain a favorable judgment. For the plaintiff, the burden of proof never parts. to buy the lot, but the title to the same will be in the latter's names. The money 39 For the defendant, an affirmative defense is one which is not a denial of an from the hardware store managed by respondent spouses Ramos shall be used essential ingredient in the plaintiff's cause of action, but one which, if to buy the Bonifacio property, which shall then be mortgaged by the established, will be a good defense i.e., an avoidance of the claim. 40 TcIHDa respondent spouses Ramos so that they could obtain a loan for building a From the allegations of the petitioner's Complaint in Civil Case No. 3672, the alleged verbal trust agreement between petitioner and respondent spouses Ramos is in the nature of an express trust as petitioner explicitly agreed therein to allow the respondent spouses Ramos to acquire title to the Bonifacio property in their names, but to hold the same property for petitioner's benefit. Given that the alleged trust concerns an immovable property, however, respondent spouses Ramos counter that the same is unenforceable since the agreement was made verbally and no parol evidence may be admitted to prove the existence of an express trust concerning an immovable property or any interest therein. bigger store. The purchase price of P80,000.00 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 P80,000.00 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. CSTDIE Similarly, Johnson testified 44 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 P226,951.05. 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 P110,004.88. The difference of P116,946.16 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. Nevertheless, while 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. cAEaSC Petitioner's allegations as to the existence of an express trust agreement with respondent spouses Ramos, supported only by her own and her son Johnson's testimonies, do not hold water. As correctly ruled by the Court of Appeals, a resulting difference of P116,946.15 in the beginning inventory of the stocks of the hardware store (before management was transferred to respondent spouses Ramos) and the second inventory thereof (after management was returned to petitioner), by itself, is not conclusive proof that the said amount was used to pay the purchase price of the Bonifacio property, such as would make it the property of petitioner held merely in trust by respondent spouses Ramos. Such a conclusion adopted by the RTC is purely speculative and non sequitur. The resulting difference in the two inventories might have been caused by other factors and the same is capable of other interpretations (e.g., that the amount thereof may have been written off as business losses due to a bad economic condition, or that the stocks of the store might have been damaged or otherwise their purchase prices have increased dramatically, etc.),

the exclusion of which rested upon the shoulders of petitioner alone who has the burden of proof in the instant case. This petitioner miserably failed to do. The fact that respondent spouses Ramos never denied the P116,946.15 difference, or that they failed to present proof that they indeed used the said amount to pay the other obligations and liabilities of petitioner is not sufficient to discharge petitioner's burden to prove the existence of the alleged express trust agreement. WHEREFORE, premises considered, the instant Petition for Review on Certiorari under Rule 45 of the Rules of Court is hereby DENIED. The assailed Decision of the Court of Appeals in CA-G.R. CV No. 69731 dated 15 December 2006 is hereby AFFIRMED. Costs against petitioner. SO ORDERED. Austria-Martinez, Tinga, * Nachura and Peralta, JJ., concur.

Plaintiffs filed their original complaint in the CFI of Bataan against defendants, asking for the annulment of the donation to Juan S. Salao of a share in the BENITA SALAO, assisted by her husband, GREGORIO fishpond and for reconveyance to them of the property as Valentin Salao's MARCELO; ALMARIO ALCURIZA, ARTURO ALCURIZA, OSCAR supposed 1/3 share in the 145 hectares of the fishpond registered in the name of Juan Y. Salao, Sr. and Ambrosia Salao. ALCURIZA and ANITA ALCURIZA, the latter two being [G.R. No. L-26699. March 16, 1976.]

minors are represented by guardian ad litem, ARTURO ALCURIZA, plaintiffs-appellants, vs. JUAN S. SALAO, later substituted by PABLO P. SALAO, Administrator of the Intestate of JUAN S. SALAO; now MERCEDES P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO VDA. DE SANTOS, LUCIANA P. SALAO, RESTITUTO P. SALAO, ISABEL SALAO DE SANTOS, and PABLO P. SALAO, as successors-ininterest of the late JUAN S. SALAO, together with PABLO P. SALAO, Administrator, defendants-appellants.
SYNOPSIS The question of ownership over the Calunuran fishpond, with an area of 47 hectares, located in that part of Lubao which later became a part of Bataan, and one of the several properties left by the parties predecessors, has given rise to the present controversy. Plaintiffs' version is that Juan Y. Salao, Jr., his sister Alejandra and Ambrosia and their nephew Valentin Salao were engaged by joint venture in the fishpond business; that the funds used by them were earnings of the properties supposedly inherited from their father, and that these earnings were used in the acquisition of the Calunuran fishpond. On the other hand, the defendants contend that the fishpond in question consisted of lands purchased by Juan Y. Salao, Sr., and Ambrosia Salao who had secured a Torrens Title for the Calunuran fishpond in 1911 and who exercised dominical rights over it to the exclusion of their nephew Valentin Salao.

Juan S. Salao, Jr., in his answer with counterclaim, pleaded as a defense the indefeasibility of the Torrens title secured by his father and aunt. He also invoked the Statute of Frauds, prescription and laches. Upon his death, he was substituted by his widow, children and the administrator of his estate, the now defendants. The trial court found that there was no community of property among Juan Salao, Sr., Ambrosia Salao and Valentin Salao when the Calunuran lands were acquired; that a co-ownership over the real properties of Valentina Ignacio existed among her heirs after her death in 1914; that the co-ownership was administered by Ambrosia Salao and that it subsisted up to 1918, when her estate was partitioned among her 3 children and grandson, Valentin Salao. If further held that the donation was validly executed. Both parties appealed, the plaintiffs, because their action for reconveyance was dismissed, and the defendants, because their counterclaim for damages was likewise dismissed. The Court of Appeals elevated the case to the Supreme Court as the amount involved exceeded P200,000.00.

The Supreme Court affirmed the trial court's dismissal of plaintiffs' complaint, ruling that there was no resulting trust over the questioned property as the plaintiffs failed to measure up to the yardstick that a trust must be proven by clear, satisfactory and convincing evidence and even assuming that there was an implied trust, plaintiffs' action for reconveyance is barred by prescription or laches, as a result of which, they have no right and personality to question the The property was sold a retro and later redeemed. Since then, several of the validity of the donation made to Juan S. Salao, Jr. The Court likewise affirmed parties have died and their estates partitioned and thereafter, interest over the the dismissal of defendants' claim for damages since the circumstances of the fishpond has been the bone of contention whether or not the same was case do not show that plaintiffs' action was manifestly frivolous or primarily held in trust for Valentin Salao by Juan Y. Salao, Sr. and Ambrosia Salao and intended to harass the defendants. whether the property can still be subject to an action for reconveyance.

Judgment affirmed. SYLLABUS 1. APPEAL; FORMAL REQUISITES; RULE 46, RULES OF COURT. An appellant's brief should contain "a subject index of the matter in the brief with a digest of the argument and page reference" to the contents of the brief. Lawyers for appellants, when they prepare their briefs, would do well to read and re-read Sec. 16 of Rule 46. If they comply strictly with the formal requirements prescribed therein, they might make a competent and luminous presentation of their clients' case and lighten the burden of the Court. 2. PLEADINGS; ANSWER; CONTENTS. Under section 6, Rule 9 of the 1940 Rules of Court the answer should "contain either a specific denial or a statement of matters in avoidance of the cause or causes of action asserted in the complaint." Section 7 of the same rule requires the defendant to "deal specifically with each material allegation of fact the truth of which he does not admit and, whenever practicable, shall set forth the substance of the matters which he will rely upon to support his denial." Material averments in the complaint, other than those as to the amount of damage, shall be deemed admitted when not specifically denied" (Sec. 8). "The defendant may set forth by answer as many affirmative defenses as he may have. All such grounds of defenses as would raise issues of fact not arising upon the preceding pleading must be specifically pleaded" (Sec. 9).

admission of the allegations of the complaint and which justifies judgment on the pleadings. 5. ID.; ID.; SUBSTANTIAL COMPLIANCE WITH REQUIREMENTS; INSTANT CASE. Where the answer setting forth defendant's positive defenses contained matters in avoidance of plaintiff's cause of action which supported his denials thereof, the contention that there was in effect an admission of plaintiff's allegation that there was co-ownership cover the questioned property is unfounded. The answer substantially complied with Rule 9 of the 1940 Rules of Court where obviously defendant did so because he found it impracticable to state piecemeal his open version as to the acquisition of the questioned properties or to make a tedious and repetitious recital of the ultimate facts contradicting the allegations of the plaintiff's cause of action. 6. TRUST; DEFINITION. In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which is vested in another. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards the property for the benefit of the another person is know as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary. There is a fiduciary relation between the trustee and the cestui que trust as regards certain property, real, personal, money or chooses in action.

7. ID.; KINDS OF; EXPRESS AND IMPLIED TRUSTS, DISTINGUISHED. "Trusts are either express or implied. Express trusts are created by the 3. ID.; ID.; AFFIRMATIVE AND NEGATIVE DEFENSES DISTINGUISHED. A intention of the trust or or of the parties. Implied trusts come into being by negative defense is the specific denial of the material fact or facts alleged in operation of law." (Art. 1441, Civil Code). "No express trust concerning an the complaint essential to the plaintiff's cause or causes of action. On the other immovable or any interest therein may be proven by parol evidence. An hand, an affirmative defense is an allegation of new matter which, while implied trust may be proven by oral evidence" (Arts. 1443 and 1457). "No admitting the material allegations of the complaint, expressly or implied, would particular words are required for the creation of an express trust, it being nevertheless prevent or bar recovery by the plaintiff. It includes all matters set sufficient that a trust is clearly intended" (Art. 1444). "Express trusts are those up "by way of confession and avoidance." (Sec. 5, Rules 6, Rules of Court). which are created by the direct and positive acts of the parties, by some writing or deed, or will or by words either expressly or impliedly evincing an 4. ID.; ID.; GENERAL DENIAL, EFFECT OF. An answer containing the intention to create a trust" (89 C.J.S. 722). "Implied trusts are those which, statement that it denied "generally and specifically each and every paragraph without being expressed, are deducible from the nature of the transaction as of the complaint" is really a general denial which is tantamount to an matters of intent, or which are superinduced on the transaction by operation

of law as matters of equity, independently of the particular intention of the parties" (89 C.J.S. 724). They are ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722). 8. ID.; ID.; RESULTING AND CONSTRUCTIVE TRUST DISTINGUISHED. A resulting trust is broadly defined as a trust which is raised or created by the act or construction of law, but in its more restricted sense it is a trust raised by implication of law and presumed always to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction, but not expressed in the deed or instrument of conveyance (89 C. J. S.725). On the other hand, a constructive trust is a trust "raised by construction of law, or arising by operation of law." In a more restricted sense and as contradistinguished from a resulting trust, a constructive trust is "a trust not created by any words, either expressly or impliedly evincing a direct intention to create a trust, but by the constructions of equity in order to satisfy the demands of justice." It does not arise "by agreement or intention, but by operation of law." (89 C.J.S. 726-727). 9. ID.; PROOF OF; PAROL EVIDENCE CANNOT BE AVAILED OF TO PROVE AN EXPRESS TRUST CONCERNING REALTY; CASE AT BAR. Not a scintilla of documentary evidence was presented by the plaintiffs to prove that there was an express trust over the Calunuran fishpond in favor of Valentin Salao. Purely parol evidence was offered by them to prove the alleged trust. Their claim that in the oral partition in 1919 of the two fishponds the Calunuran fishpond was assigned to Valentin Salao is legally untenable. It is legally indefensible because the terms of Art. 1443 of the Civil Code are peremptory and unmistakable; parol evidence cannot be used to prove an express trust concerning realty. Plaintiffs utterly failed to measure up to the yardstick that a trust must be proven by clear, satisfactory and convincing evidence. It cannot rest on vague and uncertain evidence or on loose, equivocal or indefinite declarations. 10. ID.; ID.; IMPLIED TRUST MAY BE PROVEN BY ORAL EVIDENCE. Article 1457 of the Civil Code allows an implied trust to be proven by oral evidence. Trustworthy oral evidence is required to prove an implied trust because oral evidence can be easily fabricated.

11. ID.; NO TRUST CREATED OVER QUESTIONED PROPERTY. There was no resulting trust in this case because there never was any intention on the part of Juan Y. Salao, Sr., Ambrosia Salao and Valentin Salao to create any trust. There was no constructive trust because the registration of the two fishponds in the names of Juan and Ambrosia was vitiated by fraud or mistake. This is not a case where to satisfy the demands of justice it is necessary to consider the Calunuran fishpond as being held in trust by the heirs of Juan Y. Salao, Sr. for the heirs of Valentin Salao. 12. ID.; RECONVEYANCE OF PROPERTY HELD IN TRUST; PLAINTIFFS ACTION BARRED BY PRESCRIPTION OR LACHES. Under Act No. 190, whose statute of limitation would apply if there were an implied trust in this case, the longest period of extinctive prescription was only ten years. The Calunuran fishpond was registered in 1911. The written extrajudicial demand for its reconveyance was made by the plaintiffs in 1951. Their action was filed in 1952 or after the lapse of more than forty bears from the date of registration. The plaintiffs and their predecessor-in-interest, Valentin Salao slept on their rights, if they had any rights at all. 13. ID.; ID.; ID.; RULING ON THE VALIDITY OF DONATION UNNECESSARY. Where the Court has reached the conclusion that the plaintiffs are not entitled to the reconveyance of the Calunuran fishpond, it is no longer necessary to pass upon the validity of the donation made by Ambrosia Salao to Juan S. Salao, Jr. of her half-share in the two fishponds. Plaintiffs have no right and personality to assail that donation. 14. ACTIONS; PARTIES; GOOD FAITH IN FILING SUIT SHOWN. The record shows that the plaintiffs presented fifteen witnesses during the protracted trial of the case and that they fought tenaciously, incurring considerable expenses therefor. Their causes of action turned out to be unfounded, yet the pertinacity and vigor with which they pressed their claim were considered to indicate their sincerity and good faith. 15. DAMAGES; MORAL DAMAGES; AWARD THEREOF NOT JUST AND PROPER IN INSTANT CASE. Where it cannot be concluded with certitude that plaintiffs' action was manifestly frivolous or was primarily intended to harass

the defendants does not appear to be just and proper. The worries and anxiety of a defendants an award for moral damages to the defendants does not appear to be just and proper. The worries and anxiety of a defendant in a litigation that was not maliciously instituted are not the moral damages contemplated in the law. 16. ATTORNEYS' FEES; AWARD THEREOF NOT JUST AND PROPER IN INSTANT CASE. Where it is conceded that the plaintiffs acted in good faith in filing their action, there would be no basis for adjudging them liable to the defendants for attorneys' fees and litigation expenses. It is not sound public policy to set a premium on the right to litigate. An adverse decision does not ipso facto justify the award of attorney's fees to the winning party. AQUINO, J p: This litigation regarding a forty-seven-hectare fishpond located at Sitio Calunuran, Hermosa, Bataan involves the law of trusts and prescription. The facts are as follows: The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal begot four children named Patricio, Alejandra, Juan (Banli) and Ambrosia. Manuel Salao died in 1885. His eldest son, Patricio, died in 1886 survived by his only child, Valentin Salao.

Nature of Land meters (1) One-half interest in a fishpond which she had inherited from her parents, Feliciano Ignacio and Damiana Mendoza, and the other half of which was owned by her co-owner, Josefa Sta. Ana Fishpond inherited from her parents Fishpond inherited from her parents Fishpond with a bodega for salt Fishpond with an area of one hectare, 12 acres and 5 centares purchased from Bernabe and Honorata Ignacio by Valentina Ignacio on November 9, 1895 with a bodega for salt Fishpond One-half interest in a fishpond with a total area of 10,424 square meters, the other half was owned by A. Aguinaldo Riceland Riceland purchased by Valentina Ignacio from Eduardo Salao on January 27, 1890 with a house and two camarins thereon Riceland in the name of Ambrosia Salao, with an area of 11,678 square meters, of which 2,173 square meters were sold to Justa Yongco

Area in square

21,700 7,418 6,989 50,469

(2) (3) (4) (5)

11,205 8,000

(6) (7)

5,217 50,454

There is no documentary evidence as to what properties formed part of Manuel Salao's estate, if any. His widow died on May 28, 1914. After her death, (8) her estate was administered by her daughter Ambrosia. (9) It was partitioned extrajudicially in a deed dated December 29, 1918 but notarized on May 22, 1919 (Exh. 21). The deed was signed by her four legal heirs, namely, her three children, Alejandra, Juan and Ambrosia, and her grandson, Valentin Salao, in representation of his deceased father, Patricio. The lands left by Valentina Ignacio, all located at Barrio Dampalit, were as follows: prcd

8,065

(10)

9,505

Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had engaged in the fishpond business. Where they obtained the capital is not shown in any documentary evidence. Plaintiffs' version is that Valentin Salao and Alejandra To each of the legal heirs of Valentina Ignacio was adjudicated a distributive Salao were included in that joint venture, that the funds used were the share valued at P8,135.25. In satisfaction of his distributive share, Valentin earnings of the properties supposedly inherited from Manuel Salao, and that Salao (who was then already forty-eight years old) was given the biggest those earnings were used in the acquisition of the Calunuran fishpond. There is fishpond with an area of 50,469 square meters, a smaller fishpond with an area no documentary evidence to support that theory. of 6,989 square meters and the riceland with a net area of 9,905 square meters. Those parcels of land had an aggregate appraised value of P13,501 On the other hand, the defendants contend that the Calunuran fishpond which exceeded Valentin's distributive share. So in the deed of partition he was consisted of lands purchased by Juan Y. Salao, Sr. and Ambrosia Salao in 1905, directed to pay to his co-heirs the sum of P5,365.75. That arrangement, which 1906, 1907 and 1908 as shown in their Exhibits 8, 9, 10 and 13. But this point is was obviously intended to avoid the fragmentation of the lands, was beneficial disputed by the plaintiffs. to Valentin. However, there can be no controversy as to the fact that after Juan Y. Salao, Sr. In that deed of partition (Exh. 21) it was noted that "desde la muerte de and Ambrosia Salao secured a Torrens title for the Calunuran fishpond in 1911 Valentina Ignacio y Mendoza, ha venido administrando sus bienes la referida they exercised dominical rights over it to the exclusion of their nephew, Ambrosia Salao" "cuya administracion lo ha sido a satisfaccion de todos los Valentin Salao. herederos y por designacion los mismos". It was expressly stipulated that Thus, on December 1, 1911 Ambrosia Salao sold under pacto de retro for P800 Ambrosia Salao was not obligated to render any accounting of her the Calunuran fishpond to Vicente Villongco. The period of redemption was administration "en consideracion al resultado satisfactorio de sus gestiones, one year. In the deed of sale (Exh. 19) Ambrosia confirmed that she and her mejoradas los bienes y pagadas por ella las contribuciones" pages 2 and 11, brother Juan were the dueos proindivisos of the said pesqueria. On December Exh. 21). 7, 1911 Villongco, the vendee a retro, conveyed the same fishpond to By virtue of the partition the heirs became "dueos absolutos de sus Ambrosia by way of lease for an annual canon of P128 (Exh. 19-a). respectivas propiedades, y podran inmediatamente tomar posesion de sus After the fishpond was redeemed from Villongco or on June 8, 1914 Ambrosia bienes, en la forma como se han distribuido y llevado a cabo las and Juan sold it under pacto de retro to Eligio Naval for the sum of P3,360. The adjudicaciones" (page 20, Exh. 21). period of redemption was also one year (Exh. 20). The fishpond was later The documentary evidence proves that in 1911 or prior to the death of redeemed and Naval reconveyed it to the vendors a retro in a document dated Valentina Ignacio her two children, Juan Y. Salao, Sr. and Ambrosia Salao, October 5, 1916 (Exh. 20-a). llcd secured a Torrens title, OCT No. 185 of the Registry of Deeds of Pampanga, in The 1930 survey shown in the computation sheets of the Bureau of Lands their names for a forty-seven-hectare fishpond located at Sitio Calunuran, reveals that the Calunuran fishpond has an area of 479,205 square meters and Lubao, Pampanga (Exh. 14). It is also known as Lot No. 540 of the Hermosa that it was claimed by Juan Salao and Ambrosia Salao, while the Pinaganacan cadastre because that part of Lubao later became a part of Bataan. fishpond (subsequently acquired by Juan and Ambrosia) has an area of 975,952 The Calunuran fishpond is the bone of contention in this case. square meters (Exh. 22).

TOTAL 179,022 square meters

Likewise, there is no controversy as to the fact that on May 27, 1911 Ambrosia Salao bought for four thousand pesos from the heirs of Engracio Santiago a parcel of swampland planted to bakawan and nipa with an area of 96 hectares, 57 ares and 73 centares located at Sitio Lewa, Barrio Pinaganacan, Lubao, Pampanga (Exh. 17-d). The record of Civil Case No. 136, General Land Registration Office Record No. 12144, Court of First Instance of Pampanga shows that Ambrosia Salao and Juan Salao filed an application for the registration of that land in their names on January 15, 1916. They alleged in their petition that "han adquirido dicho terreno por partes iguales y por la compra a los herederos del finado, Don Engracio Santiago" (Exh. 17-a). At the hearing on October 26, 1916 before Judge Percy M. Moir, Ambrosia testified for the applicants. On that same day Judge Moir rendered a decision, stating, inter alia, that the heirs of Engracio Santiago had sold the land to Ambrosia Salao and Juan Salao. Judge Moir "ordena la adjudicacion y registro del terreno solicitado a nombre de Juan Salao, mayor de edad y de estado casado y de s esposa Diega Santiago y Ambrosia Salao, de estado soltera y mayor de edad, en participaciones iguales" (Exh. 17-e). On November 28, 1916 Judge Moir ordered the issuance of a decree for the said land. The decree was issued on February 21, 1917. On March 12, 1917 Original Certificate of Title No. 472 of the Registry of Deeds of Pampanga was issued in the names of Juan Salao and Ambrosia Salao.

Victorina Salao-Alcuriza (Exh. 32). His estate consisted of the two fishponds which he had inherited in 1918 from his grandmother, Valentina Ignacio. If it were true that he had a one-third interest in the Calunuran and Lewa fishponds with a total area of 145 hectares registered in 1911 and 1917 in the names of his aunt and uncle, Ambrosia Salao and Juan Y. Salao, Sr., respectively, it is strange that no mention of such interest was made in the extrajudicial partition of his estate in 1934. It is relevant to mention that on April 8, 1940 Ambrosia Salao donated to her grandniece, plaintiff Benita Salao, three lots located at Barrio Dampalit with a total area of 5,832 square meters (Exh. L). As donee Benita Salao signed the deed of donation. On that occasion she could have asked Ambrosia Salao to deliver to her and to the children of her sister, Victorina, the Calunuran fishpond if it were true that it was held in trust by Ambrosia as the share of Benita's father in the alleged joint venture.

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

On September 30, 1944 or during the Japanese occupation and about a year That Pinaganacan or Lewa fishpond later became Cadastral Lot No. 544 of the before Ambrosia Salao's death on September 14, 1945 due to senility (she was Hermosa cadastre (Exh. 23). It adjoins the Calunuran fishpond (See sketch, Exh. allegedly eighty-five years old when she died), she donated her one-half proindiviso share in the two fishponds in question to her nephew, Juan S. 1). Salao, Jr. (Juani). At that time she was living with Juani's family. He was already Juan Y. Salao, Sr. died on November 3, 1931 at the age of eighty years (Exh. C). the owner of the other half of the said fishponds, having inherited it from his His nephew, Valentin Salao, died on February 9, 1933 at the age of sixty years father, Juan Y. Salao, Sr. (Banli). The deed of donation included other pieces of according to the death certificate (Exh. A. However, if according to Exhibit 21, real property owned by Ambrosia. She reserved for herself the usufruct over he was forty-eight years old in 1918, he would be sixty-three years old in 1933). the said properties during her lifetime (Exh. 2 or M). The intestate estate of Valentin Salao was partitioned extrajudicially on December 28, 1934 between his two daughters, Benita Salao-Marcelo and The said deed of donation was registered only on April 5, 1950 (page 39, Defendants' Record on Appeal).

The lawyer of Benita Salao and the children of Victorina Salao in a letter dated January 26, 1951 informed Juan S. Salao, Jr. that his clients had a one-third share in the two fishponds and that when Juani took possession thereof in 1945, he refused to give Benita and Victorina's children their one-third share of the net fruits which allegedly amounted to P200,000 (Exh. K). Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated that Valentin Salao did not have any interest in the two fishponds and that the sole owners thereof were his father Banli and his aunt Ambrosia, as shown in the Torrens titles issued in 1911 and 1917, and that he (Juani) was the donee of Ambrosia's one-half share (Exh. K-1).

printed pages it made a laborious recital of the testimonies of plaintiffs' fourteen witnesses, Gregorio Marcelo, Norberto Crisostomo, Leonardo Mangali, Fidel de la Cruz, Dionisio Manalili, Ambrosio Manalili, Policarpio Sapno, Elias Manies, Basilio Atienza, Benita Salao, Emilio Cagui, Damaso de la Pea, Arturo Alcuriza and Francisco Buensuceso, and the testimonies of defendants' six witnesses, Marcos Galicia, Juan Galicia, Tiburcio Lingad, Doctor Wenceslao Pascual, Ciriaco Ramirez and Pablo P. Salao. (Plaintiffs presented Regino Nicodemus as a fifteenth witness, a rebuttal witness).

The trial court found that there was no community of property among Juan Y. Salao, Sr., Ambrosia Salao and Valentin Salao when the Calunuran and Pinaganacan (Lewa) lands were acquired; that a co-ownership over the real Benita Salao and her nephews and niece filed their original complaint against properties of Valentina Ignacio existed among her heirs after her death in Juan S. Salao, Jr. on January 9, 1952 in the Court of First Instance of Bataan 1914; that the co-ownership was administered by Ambrosia Salao and that it (Exh. 36). They amended their complaint on January 28, 1955. They asked for subsisted up to 1918 when her estate was partitioned among her three the annulment of the donation to Juan S. Salao, Jr. and for the reconveyance to children and her grandson, Valentin Salao. them of the Calunuran fishpond as Valentin Salao's supposed one-third share in the 145 hectares of fishpond registered in the names of Juan Y. Salao, Sr. and The trial court surmised that the co-ownership which existed from 1914 to 1918 misled the plaintiffs and their witnesses and caused them to believe Ambrosia Salao. erroneously that there was a co-ownership in 1905 or thereabouts. The trial Juan S. Salao, Jr. in his answer pleaded as a defense the indefeasibility of the court speculated that if Valentin had a hand in the conversion into fishponds of Torrens title secured by his father and aunt. He also invoked the Statute of the Calunuran and Lewa lands, he must have done so on a salary or profitFrauds, prescription and laches. As counter-claims, he asked for moral damages sharing basis. It conjectured that Valentin's children and grandchildren were amounting to P200,000, attorney's fees and litigation expenses of not less than given by Ambrosia Salao a portion of the earnings of the fishponds as a reward P22,000 and reimbursement of the premiums which he has been paying on his for his services or because of Ambrosia's affection for her grandnieces. bond for the lifting of the receivership. Juan S. Salao, Jr. died in 1958 at the age of seventy-one. He was substituted by his widow, Mercedes Pascual, and his six The trial court rationalized that Valentin's omission during his lifetime to assail the Torrens titles of Juan and Ambrosia signified that "he was not a co-owner" children and by the administrator of his estate. of the fishponds. It did not give credence to the testimonies of plaintiffs' In the intestate proceedings for the settlement of his estate the two fishponds witnesses because their memories could not be trusted and because no strong in question were adjudicated to his seven legal heirs in equal shares with the documentary evidence supported the declarations. Moreover, the parties condition that the properties would remain under administration during the involved in the alleged trust were already dead. pendency of this case (page 181, Defendants' Record on Appeal). It also held that the donation was validly executed and that even if it were void After trial the lower court in its decision consisting of one hundred ten printed Juan S. Salao, Jr., the donee, would nevertheless be the sole legal heir of the pages dismissed the amended complaint and the counter-claim. In sixty-seven

donor, Ambrosia Salao, and would inherit the properties donated to him. LexLib Both parties appealed. The plaintiffs appealed because their action for reconveyance was dismissed. The defendants appealed because their counterclaim for damages was dismissed. The appeals, which deal with factual and legal issues, were made to the Court of Appeals. However, as the amounts involved exceed two hundred thousand pesos, the Court of Appeals elevated the case to this Court in its resolution of October 3, 1966 (CA-G.R. No. 30014-R). Plaintiffs' appeal. An appellant's brief should contain "a subject index of the matter in the brief with a digest of the argument and page references" to the contents of the brief (Sec. 16[a] Rule 46, 1964 Rules of Court; Sec. 17, Rule 48, 1940 Rules of Court). The plaintiffs in their appellants' brief consisting of 302 pages did not comply with that requirement. Their statements of the case and the facts do not contain "page references to the record" as required in section 16[c] and [d] of Rule 46, formerly section 17, Rule 48 of the 1940 Rules of Court. Lawyers for appellants, when they prepare their briefs, would do well to read and re-read section 16 of Rule 46. If they comply strictly with the formal requirements prescribed in section 16, they might make a competent and luminous presentation of their clients' case and lighten the burden of the Court.

and Arnalot vs. Johnson, 21 Phil. 308, 395; See In re Almacen, L-27654, February 18, 1970, 31 SCRA 562, 573). Plaintiffs' first assignment of error raised a procedural issue. In paragraphs 1 to 14 of their first cause of action they made certain averments to establish their theory that Valentin Salao had a one-third interest in the two-fishponds which were registered in the names of Juan Y. Salao, Sr. (Banli) and Ambrosia Salao. Juan S. Salao, Jr. (Juani) in his answer "specifically" denied "each and all the allegations" in paragraphs 1 to 10 and 12 of the first cause of action with the qualification that Original Certificates of Title Nos. 185 and 472 were issued "more than 37 years ago" in the names of Juan (Banli) and Ambrosia under the circumstances set forth in Juan S. Salao, Jr.'s "positive defenses" and "not under the circumstances stated in the amended complaint". The plaintiffs contend that the answer of Juan S. Salao, Jr. was in effect an admission of the allegations in their first cause of action that there was a coownership among Ambrosia, Juan, Alejandra and Valentin, all surnamed Salao, regarding the Dampalit property as early as 1904 or 1905; that the common funds were invested in the acquisition of the two fishponds; that the 47hectare Calunuran fishpond was verbally adjudicated to Valentin Salao in the 1919 partition and that there was a verbal stipulation to register "said lands in the name only of Juan Y. Salao".

That contention is unfounded. Under section 6, Rule 9 of the 1940 Rules of Court the answer should "contain either a specific denial or a statement of matters in avoidance of the cause or causes of action asserted in the complaint". Section 7 of the same rule requires the defendant to "deal What Justice Fisher said in 1918 is still true now: "The pressure of work upon specifically with each material allegation of fact the truth of which he does not this Court is so great that we cannot, in justice to other litigants, undertake to admit and, whenever practicable, shall set forth the substance of the matters make an examination of the voluminous transcript of the testimony (1,553 pages in this case, twenty-one witnesses having testified), unless the attorneys which he will rely upon to support his denial". "Material averments in the who desire us to make such examination have themselves taken the trouble to complaint, other than those as to the amount of damage, shall be deemed admitted when not specifically denied" (Sec. 8). "The defendant may set forth read the record and brief it in accordance with our rules" (Palarca vs. Baguisi, 38 Phil. 177, 181), As noted in an old case, this Court decides hundreds of cases by answer as many affirmative defenses as he may have. All such grounds of defenses as would raise issues of fact not arising upon the preceding pleading every year and in addition resolves in minute orders an exceptionally must be specifically pleaded" (Sec. 9). considerable number of petitions, motions and interlocutory matters (Alzua

What defendant Juan S. Salao, Jr. did in his answer was to set forth in his "positive defenses" the matters in avoidance of plaintiffs' first cause of action which supported his denials of paragraphs 1 to 10 and 12 of the first cause of action. Obviously, he did so because he found it impracticable to state piecemeal his own version as to the acquisition of the two fishponds or to make a tedious and repetitious recital of the ultimate facts contradicting the allegations of the first cause of action. We hold that in doing so he substantially complied with Rule 9 of the 1940 Rules of Court. It may be noted that under the present Rules of Court a "negative defense is the specific denial of the material fact or facts alleged in the complaint essential to the plaintiff's cause or causes of action". On the other hand, "an affirmative defense is an allegation of new matter which, while admitting the material allegations of the complaint, expressly or impliedly, would nevertheless prevent or bar recovery by the plaintiff". Affirmative defenses include all matters set up "by way of confession and avoidance". (Sec. 5, Rule 6, Rules of Court). The case of El Hogar Filipino vs. Santos Investments, 74 Phil. 79 and similar cases is distinguishable from the instant case. In the El Hogar case the defendant filed a laconic answer containing the statement that it denied "generally and specifically each and every allegation contained in each and every paragraph of the complaint". It did not set forth in its answer any matter by way of confession and avoidance. It did not interpose any affirmative defenses. Under those circumstances, it was held that defendant's specific denial was really a general denial which was tantamount to an admission of the allegations of the complaint and which justified judgment on the pleadings. That is not the situation in this case. The other nine assignments of error of the plaintiffs may be reduced to the decisive issue of whether the Calunuran fishpond was held in trust for Valentin Salao by Juan Y. Salao, Sr. and Ambrosia Salao. That issue is tied up with the question of whether plaintiffs' action for reconveyance had already prescribed.

The plaintiffs contend that their action is "to enforce a trust which defendant" Juan S. Salao, Jr. allegedly violated. The existence of a trust was not definitely alleged in plaintiffs' complaint. They mentioned trust for the first time on page 2 of their appellants' brief. To determine if the plaintiffs have a cause of action for the enforcement of a trust, it is necessary to make some exegesis on the nature of trusts ( fideicomisos). Trusts in Anglo-American jurisprudence were derived from the fideicommissa of the Roman law (Government of the Philippine Islands vs. Abadilla, 46 Phil. 642, 646). "In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which is vested in another, but the word 'trust' is frequently employed to indicate duties, relations, and responsibilities which are not strictly technical trusts" (89 C.J.S. 712)."A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary" (Art. 1440, Civil Code). There is a fiduciary relation between the trustee and the cestui que trust as regards certain property, real, personal, money or choses in action (Pacheco vs. Arro, 85 Phil. 505). "Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law" (Art. 1441, Civil Code). "No express trusts concerning an immovable or any interest therein may be proven by parol evidence. An implied trust may be proven by oral evidence" (Ibid, Arts. 1443 and 1457). "No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-19012, October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a trust" (89 C.J.S. 722).

"Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent, or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties" (89 C.J.S. 724). They are ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722). "A resulting trust is broadly defined as a trust which is raised or created by the act or construction of law, but in its more restricted sense it is a trust raised by implication of law and presumed always to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction, but not expressed in the deed or instrument of conveyance" (89 C.J.S. 725). Examples of resulting trusts are found in articles 1448 to 1455 of the Civil Code. (See Padilla vs. Court of Appeals, L-31569, September 28, 1973, 53 SCRA 168, 179; Martinez vs. Grao, 42 Phil. 35).

trust. Their claim that in the oral partition in 1919 of the two fishponds the Calunuran fishpond was assigned to Valentin Salao is legally untenable. It is legally indefensible because the terms of article 1443 of the Civil Code (already in force when the action herein was instituted) are peremptory and unmistakable: parol evidence cannot be used to prove an express trust concerning realty. Is plaintiffs' massive oral evidence sufficient to prove an implied trust, resulting or constructive, regarding the two fishponds?

Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust. The trial court's firm conclusion that there was no community of property during the lifetime of Valentina Ignacio or before 1914 is substantiated by defendants' documentary evidence. The existence of the alleged co-ownership over the lands supposedly inherited from Manuel Salao On the other hand, a constructive trust is a trust "raised by construction of law, in 1885 is the basis of plaintiffs' contention that the Calunuran fishpond was or arising by operation of law". In a more restricted sense and as held in trust for Valentin Salao. contradistinguished from a resulting trust, a constructive trust is "a trust not created by any words, either expressly or impliedly evincing a direct intention But that co-ownership was not proven by any competent evidence. It is quite to create a trust, but by the construction of equity in order to satisfy the improbable because the alleged estate of Manuel Salao was likewise not demands of justice". It does not arise "by agreement or intention, but by satisfactorily proven. The plaintiffs alleged in their original complaint that there operation of law." (89 C.J.S. 726-727). was a co-ownership over two hectares of land left by Manuel Salao. In their Thus, "if property is acquired through mistake or fraud, the person obtaining it amended complaint, they alleged that the co-ownership was over seven is by force of law, considered a trustee of an implied trust for the benefit of the hectares of fishponds located in Barrio Dampalit, Malabon, Rizal. In their brief they alleged that the fishponds, ricelands and saltbeds owned in common in person from whom the property comes" (Art. 1456, Civil Code). Barrio Dampalit had an area of twenty-eight hectares, of which sixteen Or "if a person obtains legal title to property by fraud or concealment, courts of hectares pertained to Valentina Ignacio and eleven hectares represented equity will impress upon the title a so-called constructive trust in favor of the Manuel Salao's estate. defrauded party". Such a constructive trust is not a trust in the technical sense. They theorized that the eleven hectares "were, and necessarily, the nucleus, (Gayondato vs. Treasurer of the P.I., 49 Phil. 244). LibLex nay the very root, of the property now in litigation" (page 6, plaintiffsNot a scintilla of documentary evidence was presented by the plaintiffs to appellants' brief). But the eleven hectares were not proven by any trustworthy prove that there was an express trust over the Calunuran fishpond in favor of evidence. Benita Salao's testimony that in 1918 or 1919 Juan, Ambrosia, Valentin Salao. Purely parol evidence was offered by them to prove the alleged Alejandra and Valentin partitioned twenty-eight hectares of lands located in

Barrio Dampalit is not credible. As noted by the defendants, Manuel Salao was not even mentioned in plaintiffs' complaints. The 1919 partition of Valentina Ignacio's estate covered about seventeen hectares of fishponds and ricelands (Exh. 21). If at the time that partition was made there were eleven hectares of land in Barrio Dampalit belonging to Manuel Salao, who died in 1885, those eleven hectares would have been partitioned in writing as in the case of the seventeen hectares belonging to Valentina Ignacio's estate. It is incredible that the forty-seven-hectare Calunuran fishpond would be adjudicated to Valentin Salao merely by word of mouth. Incredible because for the partition of the seventeen hectares of land left by Valentina Ignacio an elaborate "Escritura de Particion" consisting of twenty-two pages had to be executed by the four Salao heirs. Surely, for the partition of one hundred fortyfive hectares of fishponds among three of the same Salao heirs an oral adjudication would not have sufficed. The improbability of the alleged oral partition becomes more evident when it is borne in mind that the two fishponds were registered land and "the act of registration" is "the operative act" that conveys and affects the land (Sec. 50, Act No. 496). That means that any transaction affecting the registered land should be evidenced by a registerable deed. The fact that Valentin Salao and his successors-in-interest, the plaintiffs, never bothered for a period of nearly forty years to procure any documentary evidence to establish his supposed interest or participation in the two fishponds is very suggestive of the absence of such interest. The matter may be viewed from another angle. As already stated, the deed of partition for Valentina Ignacio's estate was notarized in 1919 (Exh. 21). The plaintiffs assert that the two fishponds were verbally partitioned also in 1919 and that the Calunuran fishpond was assigned to Valentin Salao as his share. Now, in the partition of Valentina Ignacio's estate Valentin was obligated to pay P3,355.25 to ambrosia Salao. If, according to the plaintiffs, Ambrosia administered the two fishponds and was the custodian of its earnings, then it

could have been easily stipulated in the deed partitioning Valentina Ignacio's estate that the amount due from Valentin would just be deducted by Ambrosia from his share of the earnings of the two fishponds. There was no such stipulation. Not a shred of documentary evidence shows Valentin's participation in the two fishponds. The plaintiffs utterly failed to measure up to the yardstick that a trust must be proven by clear, satisfactory and convincing evidence. It cannot rest on vague and uncertain evidence or on loose, equivocal or indefinite declarations (De Leon vs. Molo-Peckson, 116 Phil. 1267, 1273). "Trust and trustee; establishment of trust by parol evidence; certainty of proof . Where a trust is to be established by oral proof, the testimony supporting it must be sufficiently strong to prove the right of the alleged beneficiary with as much certainty as if a document proving the trust were shown. A trust cannot be established, contrary to the recitals of a Torrens title, upon vague and inconclusive proof ." (Syllabus, Suarez vs. Tirambulo, 59 Phil. 303). "Trusts; evidence needed to establish trust on parol testimony. In order to establish a trust in real property by parol evidence, the proof should be as fully convincing as if the act giving rise to the trust obligation were proven by an authentic document. Such a trust cannot be established upon testimony consisting in large part of insecure surmises based on ancient hearsay." (Syllabus, Santa Juana vs. Del Rosario, 50 Phil. 110). The foregoing rulings are good under article 1457 of the Civil Code which, as already noted, allows an implied trust to be proven by oral evidence. Trustworthy oral evidence is required to prove an implied trust because oral evidence can be easily fabricated. On the other hand, a Torrens title is generally a conclusive evidence of the ownership of the land referred to therein (Sec. 47, Act 496). A strong presumption exists that Torrens titles were regularly issued and that they are valid. In order to maintain an action for reconveyance, proof as to the fiduciary relation of the parties must be clear and convincing (Yumul vs. Rivera and Dizon, 64 Phil. 13, 17-18).

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

persuasive of a want of merit but may, according to the circumstances, be destructive of the right itself." (Buenaventura vs. David, 37 Phil. 435, 440-441). Having reached the conclusion that the plaintiffs are not entitled to the reconveyance of the Calunuran fishpond, it is no longer necessary to pass upon the validity of the donation made by Ambrosia Salao to Juan S. Salao, Jr. of her one-half share in the two fishponds. The plaintiffs have no right and personality to assail that donation.

There was no resulting trust in this case because there never was any intention on the part of Juan Y. Salao, Sr., Ambrosia Salao and Valentin Salao to create any trust. There was no constructive trust because the registration of the two fishponds in the names of Juan and Ambrosia was not vitiated by fraud or Even if the donation were declared void, the plaintiffs would not have any mistake. This is not a case where to satisfy the demands of justice it is necessary to consider the Calunuran fishpond as being held in trust by the heirs successional rights to Ambrosia's share. The sole legal heir of Ambrosia was her nephew, Juan, Jr., her nearest relative within the third degree. Valentin Salao, of Juan Y. Salao, Sr. for the heirs of Valentin Salao. if living in 1945 when Ambrosia died, would have been also her legal heir, And even assuming that there was an implied trust, plaintiffs' action is clearly together with his first cousin, Juan Jr. (Juani). Benita Salao, the daughter of barred by prescription or laches (Ramos vs. Ramos, L-19872, December 3, Valentin, could not represent him in the succession to the estate of Ambrosia 1974, 61 SCRA 284; Quiiano vs. Court of Appeals, L-23024, May 31, 1971, 39 since in the collateral line; representation takes place only in favor of the SCRA 221; Varsity Hills, Inc. vs. Navarro, L-30889, February 29, 1972, 43 SCRA children of brothers or sisters, whether they be of the full or half blood (Art. 972, Civil Code). The nephew excludes a grandniece like Benita Salao or great503; Alzona vs. Capunitan and Reyes, 114 Phil 377). grandnephews like the plaintiffs Alcuriza (Pavia vs. Iturralde, 5 Phil. 176). Under Act No. 190, whose statute of limitation would apply if there were an implied trust in this case, the longest period of extinctive prescription was only The trial court did not err in dismissing plaintiffs' complaint. ten years (Sec 40; Diaz vs. Gorricho and Aguado, 103 Phil. 261, 266). Defendants' appeal. The defendants dispute the lower court's finding that The Calunuran fishpond was registered in 1911. The written extrajudicial the plaintiffs filed their action in good faith. The defendants contend that they demand for its reconveyance was made by the plaintiffs in 1951. Their action are entitled to damages because the plaintiffs acted maliciously or in bad faith was filed in 1952 or after the lapse of more than forty years from the date of in suing them. They ask for P25,000 attorney's fees and litigation expenses and, registration. The plaintiffs and their predecessor-in-interest, Valentin Salao, in addition, moral damages. slept on their rights, if they had any rights at all. Vigilanti prospiciunt jura or the law protects him who is watchful of his rights (92 C.J.S. 1011, citing Esguerra vs. We hold that defendants' appeal is not meritorious. The record shows that the plaintiffs presented fifteen witnesses during the protracted trial of this case Tecson, 21 Phil. 518, 521). which lasted from 1954 to 1959. They fought tenaciously. They obviously "Undue delay in the enforcement of a right is strongly persuasive of a lack of incurred considerable expenses in prosecuting their case. Although their causes merit in the claim, since it is human nature for a person to assert his rights of action turned out to be unfounded, yet the pertinacity and vigor with which more strongly when they are threatened or invaded". "Laches or unreasonable they pressed their claim indicate their sincerity and good faith. delay on the part of a plaintiff in seeking to enforce a right is not only There is the further consideration that the parties were descendants of common ancestors, the spouses Manuel Salao and Valentina Ignacio, and that

plaintiffs' action was based on their honest supposition that the funds used in the acquisition of the lands in litigation were earnings of the properties allegedly inherited from Manuel Salao. Considering those circumstances, it cannot be concluded with certitude that plaintiffs' action was manifestly frivolous or was primarily intended to harass the defendants. An award for damages to the defendants does not appear to be just and proper. The worries and anxiety of a defendant in a litigation that was not maliciously instituted are not the moral damages contemplated in the law (Solis & Yarisantos vs. Salvador, L-17022, August 14, 1965, 14 SCRA 887; Ramos vs. Ramos, supra). The instant case is not among the cases mentioned in articles 2219 and 2220 of the Civil Code wherein moral damages may be recovered. Nor can it be regarded as analogous to any of the cases mentioned in those articles. "The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously." (Barreto vs. Arevalo, 99 Phil. 771, 779). The defendants invoke article 2208 (4) (11) of the Civil Code which provides that attorney's fees may be recovered "in case of a clearly unfounded civil action or proceeding against the plaintiff" (defendant is a plaintiff in his counterclaim) or "in any other case where the court deems it just and equitable" that attorney's fees should be awarded. But once it is conceded that the plaintiffs acted in good faith in filing their action there would be no basis for adjudging them liable to the defendants for attorney's fees and litigation expenses (See Rizal Surety & Insurance Co., Inc. vs. Court of Appeals, L-23729, May 16, 1967, 20 SCRA 61). It is not sound public policy to set a premium on the right to litigate. An adverse decision does not ipso facto justify the award of attorney's fees to the

winning party (Herrera vs. Luy Kim Guan, 110 Phil. 1020, 1028; Heirs of Justiva vs. Gustilo, 61 O.G. 6959). The trial court's judgment is affirmed. No pronouncement as to costs. SO ORDERED. Barredo, (Chairman), Antonio, Concepcion, Jr. and Martin, JJ., concur. Fernando (Chairman, of the Second Division), J., took no part. Martin, J., was designated to sit in the Second Division.

[G.R. No. 97995. January 21, 1993.]

PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS AND B.P. MATA AND CO., INC., respondents.
SYLLABUS 1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUSTS; EXPRESS TRUST DISTINGUISHED FROM IMPLIED TRUST. Trusts are either express or implied. While express trusts are created by the intention of the trustor or of the parties, implied trusts come into being by operation of law. Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of the intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. 2. ID.; ID.; ID.; KINDS OF IMPLIED TRUSTS; RESULTING TRUST DISTINGUISHED FROM CONSTRUCTIVE TRUST. Implied trusts are subdivided into resulting and constructive trusts. A resulting trust is a trust raised by implication of law and presumed always to have been contemplated by the parties, the intention of which is found in the nature of the transaction, but not expressed in the deed or instrument of conveyance. Examples of resulting trusts are found in Articles 1448 to 1455 of the Civil Code. On the other hand, a constructive trust is one not created by words either expressly or impliedly, but by construction of equity in order to satisfy the demands of justice. An example of a constructive trust is Article 1456 quoted above.

so-called trustee neither accepts any trust nor intends holding the property for the beneficiary. In the case at bar, Mata, in receiving the US$14,000 in its account through IBAA, had no intent of holding the same for a supposed beneficiary or cestui que trust, namely PNB. But under Article 1456, the law construes a trust, namely a constructive trust, for the benefit of the person from whom the property comes, in this case PNB, for reasons of justice and equity. 4. ID.; ID.; ID.; ID.; MISTAKE GIVING RISE TO CONSTRUCTIVE TRUST MAY BE COMMITTED EITHER BY GRANTOR OR GRANTEE. We agree with petitioner's stand that under Article 1456, the law does not make any distinction since mutual mistake is a possibility on either side on the side of either the grantor or the grantee. Thus, it was error to conclude that in a constructive trust, only the person obtaining the property commits a mistake. This is because it is also possible that a grantor, like PNB in the case at hand, may commit the mistake.

5. ID.; ID.; ID.; ID.; RESULTING OR CONSTRUCTIVE TRUST MAY BE BARRED BY PRESCRIPTION AND ALSO BY LACHES; LACHES DISTINGUISHED FROM PRESCRIPTION; CASE AT BAR. Proceeding now to the issue of whether or not petitioner may still claim the US$14,000 it erroneously paid private respondent under a constructive trust, we rule in the negative. Although we are aware that only seven (7) years lapsed after petitioner erroneously credited private respondent with the said amount and that under Article 1144, petitioner is well within the prescriptive period for the enforcement of a constructive or implied trust, we rule that petitioner's claim cannot prosper since it is already barred 3. ID.; ID.; ID.; ID.; CONSTRUCTIVE TRUST UNDER ARTICLE 1456 OF THE by laches. It is a well-settled rule now that an action to enforce an implied NEW CIVIL CODE NOT A TRUST IN THE TECHNICAL SENSE; REASON THEREFOR; trust, whether resulting or constructive, may be barred not only by prescription CASE AT BAR. A deeper analysis of Article 1456 reveals that it is not a trust in but also by laches. While prescription is concerned with the fact of delay, the technical sense for in a typical trust, confidence is reposed in one person laches deals with the effect of unreasonable delay. It is amazing that it took who is named a trustee for the benefit of another who is called the cestui que petitioner almost seven years before it discovered that it had erroneously paid trust, respecting property which is held by the trustee for the benefit of the private respondent. Petitioner would attribute its mistake to the heavy volume cestui que trust. A constructive trust, unlike an express trust, does not emanate of international transactions handled by the Cable and Remittance Division of from, or generate a fiduciary relation. While in an express trust, a beneficiary the International Department of PNB. Such specious reasoning is not and a trustee are linked by confidential or fiduciary relations, in a constructive persuasive. It is unbelievable for a bank, and a government bank at that, which trust, there is neither a promise nor any fiduciary relation to speak of and the

regularly publishes its balanced financial statements annually or more frequently, by the quarter, to notice its error only seven years later. As a universal bank with worldwide operations, PNB cannot afford to commit such costly mistakes. Moreover, as between parties where negligence is imputable to one and not to the other, the former must perforce bear the consequences of its neglect. Hence, petitioner should bear the cost of its own negligence. 6. ID.; QUASI-CONTRACTS; QUASI-CONTRACTUAL RELATIONS MAY BE FORCED UPON PARTIES WHOSE CONSENT THERETO IS PRESUMED, TO AVOID CASE OF UNJUST ENRICHMENT; SOLUTION INDEBITI; REQUISITES; CASE AT BAR. the Civil Code does not confine itself exclusively to the quasi-contracts enumerated from Articles 2144 to 2175 but is open to the possibility that, absent a pre-existing relationship, there being neither crime nor quasi-delict, a quasi-contractual relation may be forced upon the parties to avoid a case of unjust enrichment. There being no express consent, in the sense of a meeting of minds between the parties, there is no contract to speak of. However, in view of the peculiar circumstances or factual environment, consent is presume to the end that a recipient of benefits or favors resulting from lawful, voluntary and unilateral acts of another may not be unjustly enriched at the expense of another. Undoubtedly, the instant case fulfills the indispensable requisites of solutio indebiti as defined in Article 2154: that something (in this case money) has been received when there was no right to demand it and (2) the same was unduly delivered through mistake. There is a presumption that there was a mistake in the payment "if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause." In the case at bar, a payment in the corrected amount of US$1,400 through Cashier's Check No. 269522 had already been made by PNB for the account of Mata on February 25, 1975. Strangely, however, fourteen days later, PNB effected another payment through Cashier's Check No. 270271 in the amount of US$14,000, this time purporting to be another transmittal of reimbursement from Star Kist, private respondent's foreign principal. 7. ID.; AMERICAN JURISPRUDENCE ON CONSTRUCTIVE TRUST AND QUASI-CONTRACTS. Under American Law, a court of equity does not

consider a constructive trustee for all purposes as though he were in reality a trustee; although it will force him to return the property, it will not impose upon him the numerous fiduciary obligations ordinarily demanded from a trustee of an express trust. It must be borne in mind that in an express trust, the trustee has active duties of management while in a constructive trust, the duty is merely to surrender the property. Still applying American case law, quasi-contractual obligations give rise to a personal liability ordinarily enforceable by an action at law, while constructive trusts are enforceable by a proceeding in equity to compel the defendant to surrender specific property. To be sure, the distinction is more procedural than substantive. Further reflection on these concepts reveals that a constructive "trust" is as much a misnomer as a "quasi-contract," so far removed are they from trusts and contracts proper, respectively. In the case of a constructive trust, as in the case of quasi-contract, a relationship is "forced" by operation of law upon the parties, not because of any intention on their part but in order to prevent unjust enrichment, thus giving rise to certain obligations not within the contemplation of the parties. Although we are not quite in accord with the opinion that "the trusts known to American and English equity jurisprudence are derived from the fidei commissa of the Roman Law," it is safe to state that their roots are firmly grounded on such Civil Law principles as expressed in the Latin maxim, "Nemo cum alterius detrimento locupletari potest," particularly the concept of constructive trust. DECISION ROMERO, J p: Rarely is this Court confronted with a case calling for the delineation in broad strokes of the distinctions between such closely allied concepts as the quasicontract called "solutio indebiti" under the venerable Spanish Civil Code and the species of implied trust denominated "constructive trusts," commonly regarded as of Anglo-American origin. Such a case is the one presented to us now which has highlighted more of the affinity and less of the dissimilarity between the two concepts as to lead the legal scholar into the error of interchanging the two. Presented below are the factual circumstances that

brought into juxtaposition the twin institutions of the Civil Law quasi-contract and the Anglo-American trust. Private Respondent B. P. Mata & Co. Inc. (Mata), is a private corporation engaged in providing goods and services to shipping companies. Since 1966, it has acted as a manning or crewing agent for several foreign firms, one of which is Star Kist Foods, Inc., USA (Star Kist). As part of their agreement, Mata makes advances for the crew's medical expenses, National Seaman's Board fees, Seaman's Welfare fund, and standby fees and for the crew's basic personal needs. Subsequently, Mata sends monthly billings to its foreign principal Star Kist, which in turn reimburses Mata by sending a telegraphic transfer through banks for credit to the latter's account. Against this background, on February 21, 1975, Security Pacific National Bank (SEPAC) of Los Angeles which had an agency arrangement with Philippine National Bank (PNB), transmitted a cable message to the International Department of PNB to pay the amount of US$14,000 to Mata by crediting the latter's account with the Insular Bank of Asia and America (IBAA), per order of Star Kist. Upon receipt of this cabled message on February 24, 1975, PNB's International Department noticed an error and sent a service message to SEPAC Bank. The latter replied with instructions that the amount of US$14,000 should only be for US$1,400. cdll On the basis of the cable message dated February 24, 1975, Cashier's Check No. 269522 in the amount of US$1,400 (P9,772.96) representing reimbursement from Star Kist, was issued by the Star Kist for the account of Mata on February 25, 1975 through the Insular Bank of Asia and America (IBAA). However, fourteen days after or on March 11, 1975, PNB effected another payment through Cashier's Check No. 270271 in the amount of US$14,000 (P97,878.60) purporting to be another transmittal of reimbursement from Star Kist, private respondent's foreign principal.

Six years later, or more specifically, on May 13, 1981, PNB requested Mata for refund of US$14,000 (P97,878.60) after it discovered its error in effecting the second payment. Cdpr On February 4, 1982, PNB filed a civil case for collection and refund of US$14,000 against Mata arguing that based on a constructive trust under Article 1456 of the Civil Code, it has a right to recover the said amount it erroneously credited to respondent Mata. 1 After trial, the Regional Trial Court of Manila rendered judgment dismissing the complaint ruling that the instant case falls squarely under Article 2154 on solutio indebiti and not under Article 1456 on constructive trust. The lower court rules out constructive trust, applying strictly the technical definition of a trust as "a right of property, real or personal, held by one party for the benefit of another; that there is a fiduciary relation between a trustee and a cestui que trust as regards certain property, real, personal, money or choses in action." 2 In affirming the lower court, the appellate court added in its opinion that under Article 2154 on solutio indebiti, the person who makes the payment is the one who commits the mistake vis-a-vis the recipient who is unaware of such a mistake. 3 Consequently, recipient is duty bound to return the amount paid by mistake. But the appellate court concluded that petitioner's demand for the return of US$14,000 cannot prosper because its cause of action had already prescribed under Article 1145, paragraph 2 of the Civil Code which states: "The following actions must be commenced within six years: xxx (2) xxx xxx

Upon a quasi-contract."

This is because petitioner's complaint was filed only on February 4, 1982, almost seven years after March 11, 1975 when petitioner mistakenly made payment to private respondent. Hence, the instant petition for certiorari proceeding seeking to annul the decision of the appellate court on the basis that Mata's obligation to return

US$14,000 is governed, in the alternative, by either Article 1456 on constructive trust or Article 2154 of the Civil Code on quasi-contract. 4 Article 1456 of the Civil Code provides: "If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes."

nature of the transaction, but not expressed in the deed or instrument of conveyance. 9 Examples of resulting trusts are found in Articles 1448 to 1455 of the Civil Code. 10 On the other hand, a constructive trust is one not created by words either expressly or impliedly, but by construction of equity in order to satisfy the demands of justice. An example of a constructive trust is Article 1456 quoted above. 11

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense 12 for in a typical trust, confidence is reposed in one person who is On the other hand, Article 2154 states: named a trustee for the benefit of another who is called the cestui que trust, "If something is received when there is no right to demand it, and it was unduly respecting property which is held by the trustee for the benefit of the cestui delivered through mistake, the obligation to return it arises." que trust. 13 A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary Petitioner naturally opts for an interpretation under constructive trust as its and a trustee are linked by confidential or fiduciary relations, in a constructive action filed on February 4, 1982 can still prosper, as it is well within the trust, there is neither a promise nor any fiduciary relation to speak of and the prescriptive period of ten (10) years as provided by Article 1144, paragraph 2 of so-called trustee neither accepts any trust nor intends holding the property for the Civil Code. 5 the beneficiary. 14 If it is to be construed as a case of payment by mistake or solutio indebiti, then the prescriptive period for quasi-contracts of six years applies, as provided by Article 1145. As pointed out by the appellate court, petitioner's cause of action thereunder shall have prescribed, having been brought almost seven years after the cause of action accrued. However, even assuming that the instant case constitutes a constructive trust and prescription has not set in, the present action has already been barred by laches. cdphil To recall, trusts are either express or implied. While express trusts are created by the intention of the trustor or of the parties, implied trusts come into being by operation of law. 6 Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of the intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. 7 In turn, implied trusts are subdivided into resulting and constructive trusts. 8 A resulting trust is a trust raised by implication of law and presumed always to have been contemplated by the parties, the intention of which is found in the In the case at bar, Mata, in receiving the US$14,000 in its account through IBAA, had no intent of holding the same for a supposed beneficiary or cestui que trust, namely PNB. But under Article 1456, the law construes a trust, namely a constructive trust, for the benefit of the person from whom the property comes, in this case PNB, for reasons of justice and equity. At this juncture, a historical note on the codal provisions on trust and quasicontracts is in order. Originally, under the Spanish Civil Code, there were only two kinds of quasi contracts: negotiorum gestio and solutio indebiti. But the Code Commission, mindful of the position of the eminent Spanish jurist, Manresa, that "the number of quasi contracts may be indefinite," added Section 3 entitled "Other Quasi-Contracts." 15 Moreover, even as Article 2142 of the Civil Code defines a quasi-contract, the succeeding article provides that: "The provisions for quasi-contracts in this

Chapter do not exclude other quasi-contracts which may come within the purview of the preceding article." 16 Indubitably, the Civil Code does not confine itself exclusively to the quasicontracts enumerated from Articles 2144 to 2175 but is open to the possibility that, absent a pre-existing relationship, there being neither crime nor quasidelict, a quasi-contractual relation may be forced upon the parties to avoid a case of unjust enrichment. 17 There being no express consent, in the sense of a meeting of minds between the parties, there is no contract to speak of. However, in view of the peculiar circumstances or factual environment, consent is presume to the end that a recipient of benefits or favors resulting from lawful, voluntary and unilateral acts of another may not be unjustly enriched at the expense of another. LexLib Undoubtedly, the instant case fulfills the indispensable requisites of solutio indebiti as defined in Article 2154: that something (in this case money) has been received when there was no right to demand it and (2) the same was unduly delivered through mistake. There is a presumption that there was a mistake in the payment "if something which had never been due or had already been paid was delivered; but he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause." 18

implied trusts, which includes constructive trusts, on top of quasi-contracts, both of which embody the principle of equity above strict legalism. 20 In analyzing the law on trusts, it would be instructive to refer to AngloAmerican jurisprudence on the subject. Under American Law, a court of equity does not consider a constructive trustee for all purposes as though he were in reality a trustee; although it will force him to return the property, it will not impose upon him the numerous fiduciary obligations ordinarily demanded from a trustee of an express trust. 21 It must be borne in mind that in an express trust, the trustee has active duties of management while in a constructive trust, the duty is merely to surrender the property. Still applying American case law, quasi-contractual obligations give rise to a personal liability ordinarily enforceable by an action at law, while constructive trusts are enforceable by a proceeding in equity to compel the defendant to surrender specific property. To be sure, the distinction is more procedural than substantive. 22 Further reflection on these concepts reveals that a constructive "trust" is as much a misnomer as a "quasi-contract," so far removed are they from trusts and contracts proper, respectively. In the case of a constructive trust, as in the case of quasi-contract, a relationship is "forced" by operation of law upon the parties, not because of any intention on their part but in order to prevent unjust enrichment, thus giving rise to certain obligations not within the contemplation of the parties. 23

In the case at bar, a payment in the corrected amount of US$1,400 through Cashier's Check No. 269522 had already been made by PNB for the account of Mata on February 25, 1975. Strangely, however, fourteen days later, PNB Although we are not quite in accord with the opinion that "the trusts known to effected another payment through Cashier's Check No. 270271 in the amount of US$14,000, this time purporting to be another transmittal of reimbursement American and English equity jurisprudence are derived from the fidei commissa of the Roman Law," 24 it is safe to state that their roots are firmly grounded on from Star Kist, private respondent's foreign principal. such Civil Law principles as expressed in the Latin maxim, "Nemo cum alterius While the principle of undue enrichment or solutio indebiti, is not new, having detrimento locupletari potest," 25 particularly the concept of constructive been incorporated in the subject on quasi-contracts in Title XVI of Book IV of trust. the Spanish Civil Code entitled "Obligations incurred without contract," 19 the Returning to the instant case, while petitioner may indeed opt to avail of an chapter on Trusts is fairly recent, having been introduced by the Code Commission in 1949. Although the concept of trusts is nowhere to be found in action to enforce a constructive trust or the quasi-contract of solutio indebiti, it the Spanish Civil Code, the framers of our present Civil Code incorporated

has been deprived of a choice, for prescription has effectively blocked quasiquarter, to notice its error only seven years later. As a universal bank with contract as an alternative, leaving only constructive trust as the feasible option. worldwide operations, PNB cannot afford to commit such costly mistakes. Moreover, as between parties where negligence is imputable to one and not to Petitioner argues that the lower and appellate courts cannot indulge in the other, the former must perforce bear the consequences of its neglect. semantics by holding that in Article 1456 the recipient commits the mistake Hence, petitioner should bear the cost of its own negligence. while in Article 2154, the recipient commits on mistake. 26 On the other hand, private respondent, invoking the appellate court's reasoning, would impress WHEREFORE, the decision of the Court of Appeals dismissing petitioner's claim upon us that under Article 1456, there can be no mutual mistake. against private respondent is AFFIRMED. Consequently, private respondent contends that the case at bar is one of Costs against petitioner. solutio indebiti and not a constructive trust. cdrep We agree with petitioner's stand that under Article 1456, the law does not make any distinction since mutual mistake is a possibility on either side on the side of either the grantor or the grantee. 27 Thus, it was error to conclude that in a constructive trust, only the person obtaining the property commits a mistake. This is because it is also possible that a grantor, like PNB in the case at hand, may commit the mistake. Proceeding now to the issue of whether or not petitioner may still claim the US$14,000 it erroneously paid private respondent under a constructive trust, we rule in the negative. Although we are aware that only seven (7) years lapsed after petitioner erroneously credited private respondent with the said amount and that under Article 1144, petitioner is well within the prescriptive period for the enforcement of a constructive or implied trust, we rule that petitioner's claim cannot prosper since it is already barred by laches. It is a well-settled rule now that an action to enforce an implied trust, whether resulting or constructive, may be barred not only by prescription but also by laches. 28 While prescription is concerned with the fact of delay, laches deals with the effect of unreasonable delay. 29 It is amazing that it took petitioner almost seven years before it discovered that it had erroneously paid private respondent. Petitioner would attribute its mistake to the heavy volume of international transactions handled by the Cable and Remittance Division of the International Department of PNB. Such specious reasoning is not persuasive. It is unbelievable for a bank, and a government bank at that, which regularly publishes its balanced financial statements annually or more frequently, by the SO ORDERED. Bidin, Davide, Jr. and Melo, JJ ., concur. Gutierrez, Jr., J ., in the result.

[G.R. No. L-45645. June 28, 1983.]

FRANCISCO A. TONGOY, for himself and as Judicial Administrator of the Estate of the Late Luis D. Tongoy and Ma. Rosario Araneta Vda. de Tongoy, petitioners, vs. THE HONORABLE COURT OF APPEALS, MERCEDES T. SONORA, JUAN T. SONORA, JESUS T. SONORA, TRINIDAD T. SONORA, RICARDO P. TONGOY, CRESENCIANO P. TONGOY, AMADO P. TONGOY, and NORBERTO P. TONGOY, respondents.
SYLLABUS 1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF THE APPELLATE COURT, BINDING ON APPEAL; CASE AT BAR, NOT AN EXCEPTION. The Court of Appeals found enough convincing evidence not barred by the aforecited survivorship rule to time effect that the transfers made by the co-owners in favor of Luis D. Tongoy were simulated. All these findings of fact, as general rule, are conclusive upon US and beyond OUR power to review. It has been well-settled that the jurisdiction of the Supreme Court in cases brought to IT from the Court of appeals is limited to reviewing and revising errors of law imputed to it, its findings of fact being conclusive a as matter of general principle (Chan vs. C.A., 33 SCRA 737, 744; Alquiza vs. Alquisa, 22 SCRA 494, 497). The proofs submitted by petitioners do not place the factual findings of the Court of appeals under any of the recognized to the aforesaid general rule. 2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; VOID CONTRACTS; EFFECTS. A void or in existent contract is one which has no force and effect from the very beginning, as if it has never been into. and which cannot be validated either by time or by ratification (p. 592, Civil Code of the Philippines, Vol. IV, Tolentino, 1973 Ed.). A void contract procedures no effect what so ever either against or in favor of anyone; it does not create, modify or extinguish the juridical relation to which refers. 3. ID.; ID.; ID.; SIMULATED CONTRACTS; CHARACTERISTICS THEREOF. Time characteristic of simulation is the fact that the apparent contract is not really desired nor intended to produce legal effects nor any way alter the

juridical situation of the parties. Thus, where a person, in order to place his Property beyond the reach of his creditors, simulates to transfer of it to another, he does not really intend to divest himself of his title and control of the property; hence, the does of transfer is but a sham. This characteristics of simulation was defined by this Court in this case of Rodriguez vs. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908. 4. ID.; ID.; ID.; FUNDAMENTAL CHARACTERISTICS. The following are the most fundamental characteristics of avoid or inexistent contracts: 1) As a general rule, they produce no legal effects whatsoever in accordance with the principle "quod nullum est nullum producit effectum." 2) They are not susceptible of ratification. 3) The right to set up the defense inexistent or absolute -nullity cannot be waived or renounce. 4) The action or defense for the declaration of their inexistence or absolute nullity is imprescriptible. 5) Time inexistence or absolute nullity of a contract cannot be invoked by a person whose interest are not directly affected (p.444, Comments and jurisprudence on obligation and contracts, Jurado, 1969 Ed., emphasis supplied) 5. ID.; ID.; ID.; CANNOT BE CURED BY RATIFICATION. The nullity of these contracts is definite and cannot be cured by ratification. The nullity is permanent, even if the cause thereof has created to exist, or even when the parties have complied with the contracts spontaneously 6. ID.; ID.; ID.; DEED OF TRANSFER EXECUTED TO RESTRUCTURE MORTGAGE TO PREVENT ITS FORECLOSURE, VOID CONTRACT. Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy were from the very beginning. absolutely simulated or fictitious, since the same were made merely for the purpose of restructuring the mortgage over the subject properties and thus preventing the foreclosure by the PNB. 7. ID.; ID.; ID.; SIMULATED TRANSFER CANNOT GIVE RISE TO IMPLIED TRUST. The is no implied trust that was generated by the simulated transfers; because being fictitious or simulated, the transfers were null and void ab initio- from the very beginning-and thus vested no rights whatsoever in

favor in Luis Tongoy or his heirs. That which is inexistent cannot give life to anything. 8. ID.; PRESCRIPTION ; ACTION FOR RECONVEYANCE BASED ON IMPLIED TRUST PRESCRIBED IN YEARS. But even assuming arguendo that such an implied trust exist between Luis Tongoy as trustee and the private respondent as cestui que trust, still the rights of private respondent to claim reconveyance is not barred by prescription or laches. Implied or constructive trusts prescribe in ten years. The prescriptibility of an action for reconveyance based on implied or constructive trust, is now a settled question in this jurisdiction. It prescribes in ten years (Boniga vs. Soler, et al., 2 SCRA 755; J.M. Tauzan and Co., Inc. vs. Magdangal, 4 SCRA 88, special attention to footnotes). 9. ID.; ID.; ID.; CASE AT BAR. Considering that the implied trust resulted from the simulated sales which were made for the purpose of enabling the transferee, Luis D. Tongoy, to save the properties from foreclosure for the benefit of the co-workers it would not do to apply the theory of constructive notice resulting from the registration in the trustee's name. Hence, the tenyear prescriptive period old not be counted from the date of registration in the name of the trustee, as contemplated in the earlier case of Juan vs. Zuiga (4 SCRA 1221). Rather, it should be counted from the date of recording of the release of mortgage in the Registry of Deeds, on which dates May 5, 1958 the cestui que trust were charged with the knowledge of the settlement of the mortgage obligation, the attainment of the purpose for which the trust was constituted. 10. REMEDIAL LAW; SPECIAL PROCEEDINGS; ADMINISTRATORS OF ESTATE OF DECEASED; OBLIGATION TO RENDER ACCOUNTING OF FRUITS OF PROPERTIES SUBJECT OF ADMINISTRATION; CASE AT BAR. Petitioner Francisco A. Tongoy as successor-in-interest and/or administration of the estate of the late Luis D. Tongoy, is under obligation to return the shares of his co-heirs and co-owners in the subject properties and, until it is done, to render an accounting of the fruits thereof from the time that the obligation to make a return arose, which in the case should be May 5, 1958, the date of registration of the document of release of mortgage. Hence, We find no evidence of abuse of discretion on the part of respondent Court of Appeals when it ordered such

accounting from May 5,1958, as well as the imposition of legal interest on the fruits and income corresponding to the shares that should have been returned to the private respondents, from the date of actual demand which has been made on January 26, 1966 by the demand letter (Exh. TT) of respondent Jesus T. Sonora to deceased Luis D. Tongoy. 11. CIVIL LAW; DAMAGES; ATTORNEY'S FEES; AWARD PROPER WHERE PARTY COMPELLED TO LITIGATE. With respect to the award of attorney's fees in the sum of P20,000.00, the same appears to have been made, considering that private respondent were unnecessarily compelled to litigate (Flordelis vs. Mar, 114 SCRA 41; Sarsosa Vda. de Barsobin vs. Cuenco, 113 SCRA 547; Phil. Air Lines vs. Phil. 1017). 12. ID.; PATERNITY AND FILIATION; CONTINUOUS POSSESSION OF STATUS ONLY A GROUND TO COMPEL. Of course, the overwhelming evidence found by respondent Court of Appeals conclusively shows that respondent Amado, Ricardo, Cresenciano and Norberto have been in continuous possession of the status of natural, or even legitimated, children. Still, it recognizes the fact that such continuous possession of status is not, per se, a sufficient acknowledgment but only a ground to compel recognition (Alabat vs. Alabat, 21 SCRA 1479; Pua vs. Chan, 21 SCRA 753; Larena vs. Rubio, 43 Phil. 1017). 13. ID.; ID.; NATURAL CHILDREN; LIBERAL VIEW IN FAVOR THEREOF. It is time that WE, too, take a liberal view in favor of natural children who, because they enjoy the blessings and privileges of an acknowledged natural child and even of a legitimated child, found it rather awkward, if not unnecessary, to institute an action for recognition against their natural parents who, without their asking, have been showering them with the same love, care and material support as are accorded to legitimate children. The right to participate in their father's inheritance should necessarily follow. 14. ID.; SUCCESSION; LAW APPLICABLE WHERE DECEDENT DIED BEFORE THE EFFECTIVITY OF THE CIVIL CODE. The contention that the said respondent-Tongoys have prescribed, is without merit. The death Francisco Tongoy having occurred on September 15,1926, the provisions of the Spanish

Civil Code is applicable to this case, following the doctrine laid down in Villaluz vs. Neme (7 SCRA 27). DECISION MAKASIAR, J p: This is a petition for certiorari, to review the decision of respondent Court of Appeals in CA-G.R. No. 45336-R, entitled "Mercedes T. Sonora, et al. versus Francisco A. Tongoy, et al.", promulgated on December 3, 1975.

"By the time this case was commenced. the late Francisco Tongoy's aforesaid two children by his first marriage, Patricio D. Tongoy and Luis D. Tongoy, have themselves died. It is claimed that Patricio D. Tongoy left three acknowledged natural children named Fernando, Estrella and Salvacion, all surnamed Tongoy. On the other hand, there is no question that Luis D. Tongoy left behind a son, Francisco A. Tongoy, and a surviving spouse, Ma. Rosario Araneta Vda. de Tongoy.

"The following antecedents are also undisputed, though by no means equally submitted as the complete facts, nor seen in identical lights: On April 17, 1918, The antecedent facts which are not controverted are quoted in the questioned Hacienda Pulo was mortgaged by its registered co owners to the Philippine decision, as follows: National Bank (PNB), Bacolod Branch, as security for a loan of P11,000.00 payable in ten (10) years at 8% interest per annum. The mortgagors however "The case is basically an action for reconveyance respecting two (2) parcels of were unable to keep up with the yearly amortizations. as a result of which the land in Bacolod City. The first is Lot No. 1397 of the Cadastral Survey of PNB instituted judicial foreclosure proceedings over Hacienda Pulo on June 18, Bacolod, otherwise known as Hacienda Pulo, containing an area of 727,650 1931. To avoid foreclosure, one of the co-owners and mortgagors, Jose square meters and originally registered under original Certificate of Title No. Tongoy, proposed to the PNB an amortization plan that would enable them to 2947 in the names of Francisco Tongoy, Jose Tongoy, Ana Tongoy, Teresa liquidate their account. But, on December 23, 1932, the PNB Branch Manager Tongoy and Jovita Tongoy in pro-indiviso equal shares. Said co-owners were all in Bacolod advised Jose Tongoy by letter that the latter's proposal was rejected children of the late Juan Aniceto Tongoy. The second is Lot No. 1395 of the and that the foreclosure suit had to continue. As a matter of fact, the suit was Cadastral Survey of Bacolod, briefly referred to as Cuaycong property, pursued to finality up to the Supreme Court which affirmed on July 31, 1935 containing an area of 163,754 square meters, and formerly covered by Original the decision of the CFI giving the PNB the right to foreclose the mortgage on Certificate of Title No. 2674 in the name of Basilisa Cuaycong. Hacienda Pulo. In the meantime, Patricio D. Tongoy and Luis Tongoy executed on April 29, 1933 a Declaration of Inheritance wherein they declared "Of the original registered co-owners of Hacienda Pulo, three died without themselves as the only heirs of the late Francisco Tongoy and thereby entitled issue, namely: Jose Tongoy, who died a widower on March 11, 1961; Ana Tongoy, who also died single on February 6, 1957, and Teresa Tongoy who also to the latter's share in Hacienda Pulo. On March 13, 1934, Ana Tongoy, Teresa died single on November 3, 1949. The other two registered co-owners, namely, Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio Tongoy executed an 'Escritura de Venta' (Exh. 2 or Exh. W, which by its terms Francisco Tongoy and Jovita Tongoy, were survived by children. Francisco Tongoy, who died on September 15, 1926, had six children; Patricio D. Tongoy transferred for consideration their rights and interests over Hacienda Pulo in and Luis D. Tongoy by the first marriage; Amado P. Tongoy, Ricardo P. Tongoy; favor of Luis D. Tongoy. Thereafter, on October 23, 1935 and November 5, 1935, respectively, Jesus Sonora and Jose Tongoy followed suit by each Cresenciano P. Tongoy and Norberto P. Tongoy by his second wife Antonina executing a similar 'Escritura de Venta' (Exhs. 3 or DD and 5 or AA) pertaining Pabello whom he subsequently married sometime after the birth of their to their corresponding rights and interests over Hacienda Pulo in favor also of children. For her part, Jovita Tongoy (Jovita Tongoy de Sonora), who died on May 14, 1915, had from children: Mercedes T. Sonora, Juan T. Sonora, Jesus T. Luis D. Tongoy. In the case of Jose Tongoy, the execution of the 'Escritura de Venta' (Exh. 5 or AA) was preceded by the execution on October 14, 1935 of an Sonora and Trinidad T. Sonora.

Assignment of Rights (Exh. 4 or Z) in favor of Luis D. Tongoy by the Pacific Commercial Company as judgment lien-holder (subordinate to the PNB mortgage) of Jose Tongoy's share in Hacienda Polo. On the basis of the foregoing documents, Hacienda Pulo was placed on November 8, 1935 in the name of Luis D. Tongoy, married to Maria Rosario Araneta, under Transfer Certificate of Title No. 20154 (Exh. 20). In the following year, the title of the adjacent Cuaycong property also came under the name of Luis D. Tongoy, married to Maria Rosario Araneta, per Transfer Certificate of Title No. 21522, by virtue of an 'Escritura de Venta' (Exh. 6) executed in his favor by the owner Basilisa Cuaycong on June 22, 1936 purportedly for P4,000.00. On June 26, 1936, Luis D. Tongoy executed a real estate mortgage over the Cuaycong property in favor of the PNB, Bacolod Branch, as security for loan of P4,500.00. Three days thereafter, on June 29, 1936, he also executed a real estate mortgage over Hacienda Pulo in favor of the same bank to secure an indebtedness of P21,000.00, payable for a period of fifteen (15) years at 8% per annum. After two decades, on April 17, 1956, Luis D. Tongoy paid off all his obligations with the PNB, amounting to a balance of P34,410.00, including the mortgage obligations on the Cuaycong property and Hacienda Pulo. However, it was only on April 22, 1958 that a release of real estate mortgage was executed by the bank in favor of Luis D. Tongoy. On February 5, 1966, Luis D. Tongoy died at the Lourdes Hospital in Manila, leaving as heirs his wife Maria Rosario Araneta and his son Francisco A. Tongoy. Just before his death, however, Luis D. Tongoy received a letter from Jesus T. Sonora, dated January 26, 1966, demanding the return of the shares in the properties to the coowners. prLL "Not long after the death of Luis D. Tongoy, the case now before Us was instituted in the court below on complaint filed on June 2, 1966 by Mercedes T. Sonora, Juan T. Sonora **, Jesus T. Sonora, Trinidad T. Sonora, Ricardo P. Tongoy and Cresenciano P. Tongoy. Named principally as defendants were Francisco A. Tongoy, for himself and as judicial administrator of the estate of the late Luis D. Tongoy, and Maria Rosario Araneta Vda. de Tongoy. Also impleaded as defendants, because of their unwillingness to join as plaintiffs were Amado P. Tongoy, Norberto P. Tongoy ** and Fernando P. Tongoy. Alleging in sum that plaintiffs and/or their predecessors transferred their

interests on the two lots in question to Luis D. Tongoy by means of simulated sales, pursuant to a trust arrangement whereby the latter would return such interests after the mortgage obligations thereon had been settled, the complaint prayed that 'judgment be rendered in favor of the plaintiffs and against the defendants '(a) Declaring that the HACIENDA PULO, Lot 1397-B-3 now covered by T.C.T. No. 29152, Bacolod City, and the former Cuaycong property, Lot 1395 now covered by T.C.T. No. T-824 (RT-4049) (21522), Bacolod City, as trust estate belonging to the plaintiffs and the defendants in the proportion set forth in Par. 26 of this complaint; '(b) Ordering the Register of Deeds of Bacolod City to cancel T.C.T. No. 29152 and T.C.T. No. T-824 (RT-4049) (21522), Bacolod City, and to issue new ones in the names of the plaintiffs and defendants in the proportions set forth in Par. 26 thereof, based on the original area of HACIENDA PULO; '(c) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy to render an accounting to the plaintiffs of the income of the above two properties from the year 1958 to the present and to deliver to each plaintiff his corresponding share with legal interest thereon from 1958 and until the same shall have been folly paid; '(d) Ordering the defendants Francisco Tongoy and Ma. Rosario Araneta Vda. de Tongoy to pay to the plaintiffs as and for attorney's fees an amount equivalent to twenty four per cent (24%) of the rightful shares of the plaintiffs over the original HACIENDA PULO and the Cuaycong property, including the income thereof from 1958 to the present; and '(e) Ordering the defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy to pay the costs of this suit. 'Plaintiffs also pray for such other and further remedies just and equitable in the premises.' "Defendants Francisco A. Tongoy and Ma. Rosario Vda. de Tongoy filed separate answers, denying in effect plaintiffs' causes of action, and

maintaining, among others, that the sale to Luis D. Tongoy of the two lots in question was genuine and for a valuable consideration, and that no trust agreement of whatever nature existed between him and the plaintiffs. As affirmative defenses, defendants also raised laches, prescription, estoppel, and the statute of frauds against plaintiffs. Answering defendants counter claimed for damages against plaintiffs for allegedly bringing an unfounded and malicious complaint. "For their part, defendants Norberto Tongoy and Amado Tongoy filed an answer under oath, admitting every allegation of the complaint. On the other hand, defendant Fernando Tongoy originally joined Francisco A. Tongoy in the latter's answer, but after the case was submitted and was pending decision, the former filed a verified answer also admitting every allegation of the complaint. "Meanwhile, before the case went to trial, a motion to intervene as defendants was filed by and was granted to Salvacion Tongoy and Estrella Tongoy, alleging they were sisters of the full blood of Fernando Tongoy. Said intervenors filed an answer similarly admitting every allegation of the complaint.

'SO ORDERED.' "Upon motion of plaintiffs, the foregoing dispositive portion of the decision was subsequently clarified by the trial court through its order of January 9, 1969 in the following tenor: 'Considering the motion for clarification of decision dated November 7, 1968 and the opposition thereto, and with the view to avoid further controversy with respect to the share of each heir, the dispositive portion of the decision is hereby clarified in the sense that, the proportionate legal share of Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy and the heirs of Norberto P. Tongoy, in Hda. Pulo and Cuaycong property consist of 4/5 of the whole trust estate, leaving 1/5 of the same to the heirs of Luis D. Tongoy. 'SO ORDERED.'" (pp. 157-166, Vol. 1, rec.).

Both parties appealed the decision of the lower court to respondent appellate court. Plaintiffs-appellants Mercedes T. Sonora, Jesus T. Sonora, Trinidad T. Sonora and the heirs of Juan T. Sonora questioned the lower court's decision dismissing their complaint on ground of prescription, and assailed it insofar as "After trial on the merits, the lower court rendered its decision on October 15, it held that the agreement created among the Tongoy-Sonora family in 1931 was an implied, and not an express, trust; that their action had prescribed; that 1968 finding the existence of an implied trust in favor of plaintiffs, but at the same time holding their action for reconveyance barred by prescription, except the defendants-appellants were not ordered to render an accounting of the in the case of Amado P. Tongoy, Ricardo P. Tongoy, Cresenciano P. Tongoy, and fruits and income of the properties in trust; and that defendants were not ordered to pay the attorney's fees of plaintiffs-appellants. For their part, Norberto P. Tongoy, who were adjudged entitled to reconveyance of their defendants-appellants Francisco A. Tongoy and Ma. Rosario Araneta Vda. de corresponding shares in the property left by their father Francisco Tongoy Tongoy not only refuted the errors assigned by plaintiffs-appellants, but also having been excluded therefrom in the partition had during their minority, and assailed the findings that there was preponderance of evidence in support of not having otherwise signed any deed of transfer over such shares. The the existence of an implied trust; that Ricardo P. Tongoy, Amado P, Tongoy and dispositive portion of the decision reads: Norberto P. Tongoy are the legitimate half-brothers of the late Luis D. Tongoy; 'IN VIEW OF ALL THE FOREGOING considerations, judgment is hereby rendered that their shares in Hacienda Pulo and Cuaycong property should be dismissing the complaint, with respect to Mercedes, Juan, Jesus and Trinidad, reconveyed to them by defendants-appellants; and that an execution was all surnamed Sonora. The defendants Francisco Tongoy and Rosario Araneta ordered pending appeal. LLphil Vda. de Tongoy are hereby ordered to reconvey the proportionate shares of Ricardo P., Cresenciano P., Amado P., and Norberto P., all surnamed Tongoy in On December 3, 1975, respondent court rendered the questioned decision, the dispositive portion of which is as follows: Hda. Pulo and the Cuaycong property. Without damages and costs.

"WHEREFORE, judgment is hereby rendered modifying the judgment and Orders appealed from by ordering Maria Rosario Araneta Vda. de Tongoy and Francisco A. Tongoy "1) To reconvey to Mercedes T. Sonora, Juan T. Sonora (as substituted and represented by his heirs), Jesus T. Sonora and Trinidad T. Sonora each a 7/60th portion of both Hacienda Pulo and the Cuaycong property, based on their original shares; "2) To reconvey to Ricardo P. Tongoy, Cresenciano P. Tongoy, Amado P. Tongoy and Norberto P. Tongoy (as substituted and represented by his heirs each a 14/135th portion of both Hacienda Pulo and the Cuaycong property, also based on their original shares; provided that the 12 hectares already reconveyed to them by virtue of the Order for execution pending appeal of the judgment shall be duly deducted; "3) To render an accounting to the parties named in pars. 1 and 2 above with respect to the income of Hacienda Polo and the Cuaycong property from May 5, 1958 up to the time the reconveyances as herein directed are made; and to deliver or pay to each of said parties their proportionate shares of the income, if any, with legal interest thereon from the date of filing of the complaint in this case, January 26, 1966, until the same is paid; "4) To pay unto the parties mentioned in par. 1 above attorney's fees in the sum of P20,000.00; and "5) To pay the costs.

II. The Court of Appeals erred in finding that the purchase price for the Cuaycong property was paid by Jose Tongoy and that said property was also covered by a trust in favor of respondents. III. Conceding, for the sake of argument, that respondents have adequately proven an implied trust in their favor, the Court of Appeals erred in not finding that the rights of respondents have prescribed, or are barred by laches. IV. The Court of Appeals erred in finding that the respondents Tongoy are the legitimated children of Francisco Tongoy. V. Granting arguendo that respondents Tongoy are the legitimated children of Francisco Tongoy, the Court of Appeals erred in not finding that their action against petitioners has prescribed. VI. The Court of Appeals erred in ordering petitioners to pay attorney's fees of P20,000.00. VII. The Court of Appeals erred in declaring that execution pending appeal in favor of respondents Tongoys was justified. I It appears to US that the first and second errors assigned by petitioners are questions of fact which are beyond OUR power to review. Thus, as found by the respondent Court of Appeals: "xxx xxx xxx

"SO ORDERED" (pp. 207-208, Vol. I, rec.). Petitioners Francisco A. Tongoy and Ma. Rosario Araneta Vda. de Tongoy (defendants-appellants) have come before Us on petition for review on certiorari with the following assignments of errors (pp. 23 24, Brief for Petitioners):

"We shall consider first the appeal interposed by plaintiffs-appellants. The basic issues underlying the disputed errors raised suggest themselves as follows: 1) whether or not the conveyance respecting the questioned lots made in favor of Luis D. Tongoy in 1934 and 1935 were conceived pursuant to a trust agreement among the parties; 2) if so, whether the trust created was an I. The Court of Appeals erred in finding that there was a trust constituted express or implied trust; and 3) if the trust was not an express trust, whether on Hacienda Pulo. the action to enforce it has prescribed.

"The first two issues indicated above will be considered together as a matter of 'Luis D. Tongoy' logical necessity, being so closely interlocked. To begin with, the trial court 'Jose Tongoy signed the deed because he incurred the obligation with the found and ruled that the transfers made in favor of Luis D. Tongoy were Pacific and paid it. In releasing the second mortgage, Luis Tongoy paid only clothed with an implied trust, arriving at this conclusion as follows: P100.00 and the deed was in favor of Luis Tongoy. This was done in order "to 'The Court finds that there is preponderance of evidence in support of the avoid many expenses" of both Jose and Luis as obviously referred to in the existence of constructive, implied or tacit trust. The hacienda could have been word "WE". leased to third persons and the rentals would have been sufficient to liquidate the outstanding obligation in favor of the Philippine National Bank. But the co- 'Those two transactions with nominal considerations are irrefutable and palpable evidence of the existence of constructive or implied trust. owners agreed to give the administration of the property to Atty. Luis D. Tongoy, so that the latter can continue giving support to the Tongoy-Sonora 'Another significant factor in support of the existence of constructive trust is family and at the same time, pay the amortization in favor of the Philippine the fact that in 1933-34, when proposals for amicable settlement with the National Bank, in the same manner that Jose Tongoy did. And of course, if the Philippine National Bank were being formulated and considered, Luis D. administration is successful, Luis D. Tongoy would benefit with the profits of Tongoy was yet a neophite (sic) in the practice of law, and he was still a the hacienda. Simulated deeds of conveyance in favor of Luis D. Tongoy were bachelor. It was proven that it was Jose Tongoy, the administrator of Hda. Pulo, executed to facilitate and expedite the transaction with the Philippine National who provided for his expenses when he studied law, when he married Maria Bank. Luis D. Tongoy supported the Tongoy-Sonora family, defrayed the Araneta, the latter's property were leased and the rentals were not sufficient expenses of Dr. Jesus Sonora and Atty. Ricardo P. Tongoy, in their studies. Luis to cover all the considerations stated in the deeds of sale executed by the coTongoy even gave Sonoras their shares in the "beneficacion" although the owners of Hda. Pulo, no matter how inadequate were the amounts so stated. "beneficacion" were included in the deeds of sale. The amount of These circumstances fortified the assertion of Judge Arboleda that Luis D. consideration of the one-fifth (1/5) share of Jose Tongoy is one hundred Tongoy at that time was in no condition to pay the purchase price of the (P100.00) pesos only. Likewise the consideration of the sale of the interests of property sold. the Pacific Commercial Company is only P100.00 despite the fact that Jose Tongoy paid in full his indebtedness in favor of said company. The letter of Luis 'But the Court considers the evidence of execution of express trust agreement D. Tongoy dated November 5, 1935 (Exhibit 'BB-1') is very significant, the tenor insufficient. Express trust agreement was never mentioned in the plaintiffs' pleading nor its existence asserted during the pre-trial hearings. It was only of which is quoted hereunder: during the trial on the merits when Atty. Eduardo P. Arboleda went on to 'Dear Brother Jose: testify that he prepared the deed of trust agreement. 'Herewith is the deed which the bank sent for us to sign. The bank made me pay the Pacific the sum of P100.00 so as not to sell anymore the land in public auction. This deed is for the purpose of dispensing with the transfer of title to the land in the name of the bank, this way we will avoid many expenses. Yours, 'Indeed the most formidable weapon the plaintiff could have used in destroying the "impregnable walls of the defense castle consisting of public documents" is testimony of Atty. Eduardo P. Arboleda. He is most qualified and in a knowable position to testify as to the truth of the existence of the trust agreement, because he was not only the partner of the late Luis D. Tongoy in their practice of law especially during the time he prepared and/or notarized

the deeds of sale but he was also his colleague in the City Council. But however forceful would be the impact of his testimony, it did not go beyond the establishment of constructive or implied trust agreement. In the first place, if it is true that written trust agreement was prepared by him and signed by Luis D. Tongoy for the security of the vendor, why is it that only two copies of the agreement were prepared, one copy furnished Jose Tongoy and the other kept by Luis Tongoy, instead of making five copies and furnished copy to each coowner, or at least one copy would have been kept by him? Why is it that when Atty. Arboleda invited Mrs. Maria Rosario Araneta Vda. de Tongoy and her son to see him in his house, Atty. Arboleda did not reveal or mention the fact of the existence of a written trust agreement signed by the late Luis D. Tongoy? The revelation of the existence of a written trust agreement would have been a vital and controlling factor in the amicable settlement of the case, which Atty. Arboleda would have played an effective role as an unbiased mediator. Why did not Atty. Arboleda state the precise context of the written agreements; its form and the language it was written, knowing as he should, the rigid requirements of proving the contents of a lost document. It is strange that when Mrs. Maria Rosario Araneta Vda. de Tongoy and her son were in the house of Atty. Arboleda, in compliance with his invitation for the supposed friendly settlement of the case, Atty. Arboleda did not even submit proposals for equitable arbitration of the case. On the other hand, according to Mrs. Tongoy, Mrs. Arboleda intimated her desire to have Atty. Arboleda be taken in. The Court refuses to believe that Judge Arboleda was aware of the alleged intimations of Mrs. Arboleda, otherwise he would not have tolerated or permitted her to indulge in such an embarrassing and uncalled for intrusion. The plaintiffs evidently took such ungainly insinuations with levity so much so that they did not think it necessary to bring Mrs. Arboleda to Court to refute this fact.' "The parties, on either side of this appeal take issue with the conclusion that there was an implied trust, one side maintaining that no trust existed at all, the other that the trust was an express trust. "To begin with, We do not think the trial court erred in its ultimate conclusion that the transfers of the two lots in question made in favor of the late Luis D.

Tongoy by his co-owners in 1933 and 1934 created an implied trust in favor of the latter. While, on one hand, the evidence presented by plaintiffs-appellants to prove an express trust agreement accompanying the aforesaid transfers of the lots are incompetent, if not inadequate, the record bears sufficiently clear and convincing evidence that the transfers were only simulated to enable Luis D. Tongoy to save Hacienda Pulo from foreclosure for the benefit of the coowners, including himself. Referring in more detail to the evidence on the supposed express trust, it is true that plaintiffs-appellants Jesus T. Sonora, Ricardo P. Tongoy, Mercedes T. Sonora and Trinidad T. Sonora have testified with some vividness on the holding of a family conference in December 1931 among the co-owners of Hacienda Pulo to decide on steps to be taken vis-a-vis the impending foreclosure of the hacienda by the PNB upon the unpaid mortgage obligation thereon. Accordingly, the co-owners had agreed to entrust the administration and management of Hacienda Pulo to Luis D. Tongoy who had newly emerged as the lawyer in the family. Thereafter, on the representation of Luis D. Tongoy that the bank wanted to deal with only one person it being inconvenient at time to transact with many persons, specially when some had to be out of town the co-owners agreed to make simulated transfers of their participation in Hacienda Pulo to him. As the evidence stands, even if the same were competent, it does not appear that there was an express agreement among the co-owners for Luis D. Tongoy to hold Hacienda Pulo in trust, although from all the circumstances just indicated such a trust may be implied under the law Art. 1453, Civil Code; also see Cuaycong vs. Cuaycong, L-21616, December 11, 1967, 21 SCRA 1192, 11971198). But, whatever may be the nature of the trust suggested in the testimonies adverted to, the same are incompetent as proof thereof amend the timely objections of defendants-appellees to the introduction of such testimonial evidence on the basis of the survivorship rule. The witnesses being themselves parties to the instant case, suing the representatives of the deceased Luis D. Tongoy upon a demand against the latter's estate, said witnesses are barred by the objections of defendants-appellees from testifying on matters of fact occurring before the death of the deceased (Sec. 20[a], Rule 130), more particularly where such occurrences consist of verbal agreements or statements made by or in the presence of the deceased.

"Neither has the existence of the alleged contra-documento by which Luis D. Tongoy supposedly acknowledged the transfers to be simulated and bound himself to return the shares of his co-owners after the mortgage on the Hacienda had been discharged - been satisfactorily established to merit consideration as proof of the supposed express trust. We can hardly add to the sound observations of the trial court in rejecting the evidence to the effect as insufficient, except to note further that at least plaintiffs-appellants Mercedes T. Sonora and Trinidad T. Sonora have testified having been apprised of the document and its contents when Luis D. Tongoy supposedly delivered one copy to Jose Tongoy. And yet as the trial court noted, no express trust agreement was ever mentioned in plaintiffs-appellants' pleadings or at the pre-trial. "Nevertheless, there is on record enough convincing evidence not barred by the survivorship rule, that the transfers made by the co-owners in favor of Luis D. Tongoy were simulated and that an implied or resulting trust thereby came into existence, binding the latter to make reconveyance of the co-owners' shares after the mortgage indebtedness on Hacienda Pulo has been discharged. Thus it appears beyond doubt that Hacienda Polo has been the source of livelihood to the co-owners and their dependents, when the subject transfers were made. It is most unlikely that all of the several other co-owners should have come at the same time to one mind about disposing of their participation to the hacienda, when the same counted so much in their subsistence and self-esteem. Only extreme necessity would have forced the coowners to act in unison towards earnestly parting with their shares, taking into account the meager considerations mentioned in the deeds of transfer which at their most generous gave to each co-owner only P2,000.00 for a 1/5 part of the hacienda. As it appears to Us, the impending foreclosure on the mortgage for P11,000.00 could not have created such necessity. Independent of testimony to the effect, it is not hard to surmise that the hacienda could have been leased to others on terms that would leave satisfied the mortgage obligation. Moreover, as it turned out, the PNB was amenable. and did actually accede, to a restructuring of the mortgage loan in favor of Luis D. Tongoy, thereby saving the hacienda from foreclosure. As a matter of fact, the coowners must have been posted on the attitude of the bank regarding the overdue mortgage loan, and its willingness to renew or restructure the same

upon certain conditions. Under such circumstances, it is more reasonable to conclude that there was no compelling reason for the other co owners to sell out their birthrights to Luis D. Tongoy, and that the purported transfers were, as claimed by them in reality simulated pursuant to the suggestion that the bank wanted to deal with only one person. In fact, as recited in the Escritura de Venta (Exh. AA) executed between Luis. D. Tongoy and Jose Tongoy, it appears that the series of transfers made in favor of the former by the co-owners of Hacienda Polo followed and was made pursuant to a prior arrangement made with the PNB by Luis D. Tongoy to redeem the shares or participation of his coowners. That this was readily assented to in the anxiety to save and preserve Hacienda Pulo for all its co-owners appears very likely anent undisputed evidence that the said co-owners had been used to entrusting the management thereof to one among them, dating back to the time of Francisco Tongoy who once acted as administrator, followed by Jose Tongoy, before Luis D. Tongoy himself took over the hacienda. "Strongly supported the theory that the transfers were only simulated to enable Luis D. Tongoy (to) have effective control and management of the hacienda for the benefit of all the co-owners is preponderant evidence to the effect that he was in no financial condition at the time to purchase the hacienda. Witness Eduardo Arboleda who was a law partner of Luis D. Tongoy when the transfers were made, and who is not a party in this case, emphatically testified that Luis D. Tongoy could not have produced the money required for the purchase from his law practice then. On the other hand, the suggestion that his wife Ma. Rosario Araneta had enough income from her landed properties to sufficiently augment Luis D. Tongoy's income from his practice is belied by evidence that such properties were leased, and the rentals collected in advance, for eleven (11) crop years beginning 1931 (Exh. EEE), when they were not yet married. "The financial incapacity of Luis D. Tongoy intertwines, and together gains strength, with proof that the co-owners as transferors in the several deeds of sale did not receive the considerations stated therein. In addition to the testimony of the notary public, Eduardo P. Arboleda, that no consideration as recited in the deeds of transfer were ever paid in his presence, all the

transferors who testified including Jesus T. Sonora, Mercedes T. Sonora and Trinidad T. Sonora all denied having received the respective considerations allegedly given them. While said transferors are parties in this case, it has been held that the survivorship rule has no application where the testimony offered is to the effect that a thing did not occur (Nantz vs. Agbulos, CA-G.R. No. 4098R, January 13, 1951; Mendoza v. C. Vda. de Goitia, 54 Phil. 557, cited by Mora, Comments on the Rules of Court, 1970 ed., Vol. 5, p. 174). "Also of some significance is the fact that the deeds of transfer executed by Ana Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora, and Patricio Tongoy (Exh. W) as well as that by Jesus Sonora (Exh. DD), did not even bother to clarify whether Luis D. Tongoy as transferee of his co-owners' share was assuming the indebtedness owing to the PNB upon the mortgage on Hacienda Pulo. In an honest-to-goodness sale, it would have been most unlikely that the transferors would have paid no attention to this detail, least of all where, as in this case, the transfers ware apparently prompted by the inability of the co-owners to discharge the mortgage obligation and were being pressed for payment. "Furthermore, the tenor of the letter from Luis D. Tongoy to Jose Tongoy, dated November 5, 1935 (Exhibit Bb-1), as heretofore quote with portions of the decision on appeal, is very revealing of the fact that the steps taken to place Hacienda Pulo in the name of Luis D. Tongoy were made for the benefit not only of himself but for the other co-owners as well. Thus, the letter ends with the clause 'this way we will avoid many expenses.' "Finally, it is not without significance that the co-owners and their dependents continued to survive apparently from the sustenance from Hacienda Pulo for a long time following the alleged transfers in favor of Luis D. Tongoy. In fact, it does not appear possible that Jesus T. Sonora and Ricardo P. Tongoy could have finished medicine and law, respectively, without support from Luis D. Tongoy as administrator of the common property. "All the foregoing, considered together, constitute clear and convincing evidence that the transfers made in favor of Luis D. Tongoy by his co-owners were only simulated, under circumstances giving rise to an implied or resulting

trust whereby Luis D. Tongoy is bound to hold title in trust for the benefit of his co-owners (cf. de Buencamino, et al. vs. De Matias, et al., L-19397, April 30, 1966, 16 SCRA 849) " [pp. 170-181, Vol. I, rec.]. The Court of Appeals found enough convincing evidence not barred by the aforecited survivorship rule to the effect that the transfers made by the coowners in favor of Luis D. Tongoy were simulated. All these findings of fact, as a general rule, are conclusive upon US and beyond OUR power to review. It has been well-settled that the jurisdiction of the Supreme Court in cases brought to IT from the Court of Appeals is limited to reviewing and revising errors of law imputed to it, its findings of fact being conclusive as a matter of general principle (Chan vs. C.A., 33 SCRA 737, 744; Alquiza vs. Alquiza, 22 SCRA 494, 497). LibLex The proofs submitted by petitioners do not place the factual findings of the Court of Appeals under any of the recognized exceptions to the aforesaid general rule. I The initial crucial issue therefore is whether or not the rights of herein respondents over subject properties, which were the subjects of simulated or fictitious transactions, have already prescribed. The negative answer to the aforesaid query is found in Articles 1409 and 1410 of the New Civil Code. Said provision state thus: "Art. 1409. The following contracts are inexistent and void from the beginning: "xxx "2) "xxx xxx xxx

Those which are absolutely simulated or fictitious;. xxx xxx

"These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived" (italics supplied).

"Art. 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe." The characteristic of simulation is the fact that the apparent contract is not really desired nor intended to produce legal effects nor in any way alter the juridical situation of the parties. Thus, where a person, in order to place his property beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest himself of his title and control of the property; hence, the deed of transfer is but a sham. This characteristic of simulation was defined by this Court in the case of Rodriguez vs. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908. prLL A void or inexistent contract is one which has no force and effect from the very beginning, as if it had never been entered into, and which cannot be validated either by time or by ratification (p. 592, Civil Code of the Philippines, Vol. IV, Tolentino, 1973 Ed.). A void contract produces no effect whatsoever either against or in favor of anyone; hence, it does not create, modify or extinguish the juridical relation to which it refers (p. 594, Tolentino, supra). The following are the most fundamental characteristics of void or inexistent contracts: 1) As a general rule, they produce no legal effects whatsoever in accordance with the principle "quod nullum est nullum producit effectum."

The nullity of these contracts is definite and cannot he cured by ratification. The nullity is permanent, even if the cause thereof has ceased to exist, or even when the parties have complied with the contract spontaneously (p. 595, Tolentino, supra). In Eugenio vs. Perdido, et al., No. L-7083, May 19, 1955, 97 Phil. 41, this Court thus reiterated: "Under the existing classification, such contract would be "inexisting' and the 'action or defense for declaration' of such inexistence 'does not prescribe' (Art. 1410 New Civil Code). While it is true that this is a new provision of the New Civil Code, it is nevertheless a principle recognized since Tipton vs. Velasco, 6 Phil. 67 that 'mere lapse of time cannot give efficacy to contracts that are null and void.'" Consistently, this Court held that "where the sale of a homestead is null and void, the action to recover the same does not prescribe because mere lapse of time cannot give efficacy to the contracts that are null and void and inexistent" (Angeles, et al. vs. Court of Appeals, et al., No. L-11024, January 31, 1958, 102 Phil. 1006). In the much later case of Guiang vs. Kintanar (Nos. L-49634-36, July 25, 1981, 106 SCRA 49), this Court enunciated thus:

"It is of no consequence, pursuant to the same article, that petitioners, the Guiang spouses. executed on August 21, 1975, apparently in ratification of the impugned agreement, the deeds of sale covering the two lots already referred 2) They are not susceptible of ratification. to and that petitioners actually received to part or in whole the money 3) The right to set up the defense of inexistence or absolute nullity cannot consideration stipulated therein, for according to the same Article 1409, contracts contemplated therein, as the one We are dealing with, 'cannot be be waived or renounced. ratified nor the defense of its illegality be waived.' Neither is it material, much 4) The action or defense for the declaration of their inexistence or less decisive, that petitioners had not earlier judicially moved to have the same absolute nullity is imprescriptible. annulled or set aside. Under Article 1410 of the Civil Code, '(t)he action or defense for declaration of the inexistence of a contract does not prescribe.'" 5) The inexistence or absolute nullity of a contract cannot be invoked by a person whose interests are not directly affected (p. 444, Comments and Evidently, therefore, the deeds of transfer executed in favor of Luis Tongoy Jurisprudence on Obligations and Contracts, Jurado, 1969 Ed.; italics supplied). were from the very beginning absolutely simulated or fictitious, since the same

were made merely for the purpose of restructuring the mortgage over the subject properties and thus preventing the foreclosure by the PNB. Considering the law and jurisprudence on simulated or fictitious contracts as aforestated, the within action for reconveyance instituted by herein respondents which is anchored on the said simulated deeds of transfer cannot and should not be barred by prescription. No amount of time could accord validity or efficacy to such fictitious transactions, the defect of which is permanent. Cdpr There is no implied trust that was generated by the simulated transfers; because being fictitious or simulated, the transfers were null and void ab initio from the very beginning and thus vested no rights whatsoever in favor of Luis Tongoy or his heirs. That which is inexistent cannot give life to anything at all. II But even assuming arguendo that such an implied trust exists between Luis Tongoy as trustee and the private respondents as cestui que trust, still the rights of private respondents to claim reconveyance is not barred by prescription or laches. Petitioners maintain that, even conceding that respondents have adequately proven an implied trust in their favor, their rights have already prescribed, since actions to enforce an implied trust created under the old Civil Code prescribes in ten years. "Under Act No. 190, whose statute of limitation would apply if there were an implied trust as in this case, the longest period of extinctive prescription was only ten years" (Salao vs. Salao, 20 SCRA 84; Diaz vs. Gorricho and Aguado, 103 Phil. 261, 226). On the other hand, private respondents contend that prescription cannot operate against the cestui que trust in favor of the trustee, and that actions against a trustee to recover trust property held by him are imprescriptible (Manalang vs. Canlas, 50 OG 1980). They also cite other pre-war cases to

bolster this contention, among which are: Camacho vs. Municipality of Baliwag, 28 Phil. 46; Uy vs. Cho Jan Ling, 19 Phil. 202 [pls- see pp. 258-259, Brief for Respondents, p. 398, rec.]. They further allege that possession of a trustee is, in law, possession of the cestui que trust and, therefore, it cannot be a good ground for title by prescription (Laguna vs. Levantino, 71 Phil. 566; Cortez vs. Oliva, 33 Phil. 480, cited on p. 261, Brief for Respondents, supra). The rule now obtaining in this jurisdiction is aptly discussed in the case of Bueno vs. Reyes (27 SCRA 1179, 1183), where the Court through then Mr. Justice Makalintal, held: LLjur "While there are some decisions which hold that an action upon a trust is unprescriptible, without distinguishing between express and implied trusts, the better rule, as laid down by this Court in other decisions, is that prescription does supervene where the trust is merely an implied one. The reason has been expressed by Mr. Justice J.B.L. Reyes in J.M. Tuazon and Co., Inc. vs. Magdangal, 4 SCRA 84, 88, as follows: 'Under Section 40 of the Old Code of Civil Procedure, all actions for recovery of real property prescribe in ten years, excepting only actions based on continuing or subsisting trusts that were considered by section 38 as unprescriptible. As held in the case of Diaz vs. Gorricho, L-11229, March 29, 1958, however, the continuing or subsisting trusts contemplated in Sec. 38 of the Code of Civil Procedure referred only to express unrepudiated trusts, and did not include constructive trusts (that are imposed by law) where no fiduciary relation exists and the trustee does not recognize the trust at all.'" This doctrine has been reiterated in the latter case of Escay vs. C.A. (61 SCRA 370, 387), where WE held that implied or constructive trusts prescribe in ten years. "The prescriptibility of an action for reconveyance based on implied or constructive trust, is now a settled question in this jurisdiction. It prescribes in ten years" (Boaga vs. Soler, et al., 2 SCRA 755; J.M. Tuazon and Co., Inc. vs. Magdangal, 4 SCRA 88, special attention to footnotes).

Following such proposition that an action for reconveyance such as the instant case is subject to prescription in ten years, both the trial court and respondent appellate court are correct in applying the ten-year prescriptive period.

shares, there being no proof that plaintiffs-appellants otherwise learned of the payment of the obligation earlier. More precisely then the prescriptive period should be reckoned from May 5, 1958 when the release of the mortgage was recorded in the Registry of Deeds, which is to say that the present complaint The question, however, is, from what time should such period be counted? was still filed within the period on June 4, 1966" (p. 35 of questioned Decision, The facts of the case at bar reveal that the title to Hacienda Pulo was registered on p. 191, rec.). in the name of Luis D. Tongoy with the issuance of TCT No. 20154 on Consequently, petitioner Francisco A. Tongoy as successor-in-interest and/or November 8, 1935; that the title to the adjacent Cuaycong property was administrator of the estate of the late Luis D. Tongoy, is under obligation to transferred to Luis D. Tongoy with the issuance of TCT No. 21522 on June 22, return the shares of his co-heirs and co-owners in the subject properties and, 1936. The properties were mortgaged in the year 1936 by said Luis D. Tongoy until it is done, to render an accounting of the fruits thereof from the time that for P4,500.00 and P21,000.00; respectively, for a period of fifteen years; that the obligation to make a return arose, which in this case should be May 5, the mortgage obligations to the PNB were fully paid on April 17, 1956; that the 1958, the date of registration of the document of release of mortgage. release of mortgage was recorded in the Registry of Deeds on May 5, 1958; and Hence, WE find no evidence of abuse of discretion on the part of respondent that the case for reconveyance was filed in the trial court on June 2, 1966. Court of Appeals when it ordered such accounting from May 5, 1958, as well as Considering that the implied trust resulted from the simulated sales which the imposition of legal interest on the fruits and income corresponding to the were made for the purpose of enabling the transferee, Luis D. Tongoy, to save shares that should have been returned to the private respondents, from the the properties from foreclosure for the benefit of the co-owners, it would not date of actual demand which has been determined to have been made on do to apply the theory of constructive notice resulting from the registration in January 26, 1966 by the demand letter (Exh. TT) of respondent Jesus T. Sonora the trustee's name. Hence, the ten-year prescriptive period should not be to deceased Luis D. Tongoy. counted from the date of registration in the name of the trustee, as contemplated in the earlier case of Juan vs. Zuiga (4 SCRA 1221). Rather, it III should be counted from the date of recording of the release of mortgage in the With respect to the award of attorney's fees in the sum of P20,000.00, the Registry of Deeds, on which date May 5, 1958 the cestui que trust were charged with the knowledge of the settlement of the mortgage obligation, the same appears to have been properly made, considering that private respondents were unnecessarily compelled to litigate (Flordelis vs. Mar, 114 attainment of the purpose for which the trust was constituted. cdphil SCRA 41; Sarsosa Vda. de Barsobin vs. Cuenco, 113 SCRA 547; Phil. Air Lines vs. C.A., 106 SCRA 393). As pointed out in the questioned decision of the Court of Indeed, as respondent Court of Appeals had correctly held: Appeals: ". . . as already indicated, the ten-year prescriptive period for bringing the action to enforce the trust or for reconveyance of plaintiffs-appellants' shares "As for the claim for attorney's fees, the same appears to be well taken in the should be tolled from the registration of the release of the mortgage light of the findings WE have made considering that prevailing plaintiffsobligation, since only by that time could plaintiffs-appellants be charged with appellants were forced to litigate to enforce their rights, and that equity under constructive knowledge of the liquidation of the mortgage obligations, when it all the circumstances so dictate, said plaintiffs-appellants should recover became incumbent upon them to expect and demand the return of their

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

hardly to be expected of appellees, having been reared as legitimate children of their parents and treated as such by everybody, to bring an action to compel their parents to acknowledge them. In the hitherto cited case of Ramos vs. Ramos, supra, the Supreme Court showed the way out of patent injustice and inequity that might result in some cases simply because of the implacable insistence on the technical amenities for acknowledgment. Thus, it held 'Unacknowledged natural children have no rights whatsoever (Buenaventura vs. Urbano, 5 Phil. 1; Siguiong vs. Siguiong, 8 Phil. 5, 11; Infante vs. Figueras, 4 Phil. 738; Crisolo vs. Macadaeg, 94 Phil. 862). The fact that the plaintiffs, as natural children of Martin Ramos, received shares in his estate implied that they were acknowledged. Obviously, defendants Agustin Ramos and Granada Ramos and the late Jose Ramos and members of his family had treated them as his children. Presumably, that fact was well-known in the community. Under the circumstances, Agustin Ramos and Granada Ramos and the heirs of Jose Ramos, are estopped from attacking plaintiffs' status as acknowledged natural children (See Arts. 283 [4] and 2666 [3], New Civil Code). [Ramos vs. Ramos, supra].' "With the same logic, estoppel should also operate in this case in favor of appellees, considering, as already explained in detail, that they have always been treated as acknowledged and legitimated children of the second marriage of Francisco Tongoy, not only by their presumed parents who raised them as their children, but also by the entire Tongoy-Sonora clan, including Luis D. Tongoy himself who had furnished sustenance to the clan in his capacity as administrator of Hacienda Pulo and had in fact supported the law studies of appellee Ricardo P. Tongoy in Manila, the same way he did with Jesus T. Sonora in his medical studies. As already pointed out, even defendants-appellants have not questioned the fact that appellees are half-brothers of Luis D. Tongoy. As a matter of fact, that are really children of Francisco Tongoy and Antonina Pabello, and only the technicality that their acknowledgment as natural children has not been formalized in any of the modes prescribed by law appears to stand in the way of granting them their hereditary rights. But estoppel, as already indicated, precludes defendants-appellants from attacking appellees' status as acknowledged natural or legitimated children of Francisco

Tongoy. In addition to estoppel, this is decidedly one instance when technicality should give way to conscience, equity and justice (cf. Vda. de Sta. Ana vs. Rivera, L-22070, October 29, 1966, 18 SCRA 588)" [pp. 196-198, Vol. I, rec.]. It is time that WE, too, take a liberal view in favor of natural children who, because they enjoy the blessings and privileges of an acknowledged natural child and even of a legitimated child, found it rather awkward, if not unnecessary, to institute an action for recognition against their natural parents, who, without their asking, have been showering them with the same love, care and material support as are accorded to legitimate children. The right to participate in their father's inheritance should necessarily follow. The contention that the rights of the said respondents-Tongoys have prescribed, is without merit. The death of Francisco Tongoy having occurred on September 15, 1926, the provisions of the Spanish Civil Code is applicable to this case, following the doctrine laid down in Villaluz vs. Neme (7 SCRA 27) where this Court, through Mr. Justice Paredes, held: "Considering that Maria Rocabo died (on February 17, 1937) during the regime of the Spanish Civil Code. the distribution of her properties should be governed by said Code, wherein it is provided that between co-heirs, the act to demand the partition of the inheritance does not prescribe (Art. 1965 [Old Civil Code]; Baysa, et al. vs. Baysa, 53 Off. Gaz. 7272). Verily, the 3 living sisters were possessing the property as administratices of the other co-heirs, plaintiffsappellants herein, who have the right to vindicate their inheritance regardless of the lapse of time (Sevilla vs. De los Angeles, L-7745, 51 Off. Gaz. 5590, and cases cited therein)." Even following the more recent doctrine enunciated in Gerona vs. de Guzman (11 SCRA 153) that "an action for reconveyance of real property based upon a constructive or implied trust, resulting from fraud, may be barred by the statute of limitations" (Candelaria vs. Romero, L-12149, Sept. 30, 1960; Alzona vs. Capunita, L-10220, Feb. 28, 1962)", and that "the action therefor may be filed within four years from the discovery of the fraud . . .", said period may not be applied to this case in view of its peculiar circumstances. The registration of

the properties in the name of Luis D. Tongoy on November 8, 1935 cannot be considered as constructive notice to the whole world of the fraud. llcd It will be noted that the foreclosure on the original mortgage over Hacienda Pulo was instituted by PNB as early as June 18, 1931, from which time the members of the Tongoy-Sonora clan had been in constant conference to save the property. At that time all the respondents-Tongoys were still minors (except Amado, who was already 23 years old then), so that there could be truth to the allegation that their exclusion in the Declaration of Inheritance executed by Patricio and Luis Tongoy on April 29, 1933 was made to facilitate matters - as part of the general plan arrived at after the family conferences to transfer the administration of the property to the latter. The events that followed were obviously in pursuance of such plan, thus:

June 26, 1936 Luis D. Tongoy executed a real estate mortgage over the Cuaycong property in favor of the PNB to secure a loan of P4,500.00; and June 29, 1936 Luis D. Tongoy executed a real estate mortgage over Hacienda Pulo to secure a loan of P21,000.00 payable for fifteen years.

When the mortgages were constituted. respondents Cresenciano Tongoy and Norberto Tongoy were still minors, while respondent Amado Tongoy became of age on August 19, 1931, and Ricardo Tongoy attained majority age on August 12, 1935. Still, considering that such transfer of the properties in the name of Luis D. Tongoy was made in pursuance of the master plan to save them from foreclosure, the said respondents were precluded from doing anything to assert their rights. It was only upon failure of the herein petitioner, as administrator and/or successor-in-interest of Luis D. Tongoy, to return the March 13, 1934 An Escritura de Venta (Exh. 2 or W) was executed in favor of properties that the prescriptive period should begin to run. Luis D. Tongoy by Ana Tongoy, Teresa Tongoy, Mercedes Sonora, Trinidad Sonora, Juan Sonora and Patricio Tongoy, transferring their rights and interests As above demonstrated, the prescriptive period is ten years from the date of recording on May 5, 1958 of the release of mortgage in the Registry of Deeds. over Hacienda Pulo to the former. October 23, 1935 An Escritura de Venta (Exh. 3 or DD) was executed by Jesus Sonora, likewise transferring his rights and interests over Hacienda Pulo to Luis D. Tongoy; WHEREFORE, THE JUDGMENT APPEALED FROM IS HEREBY AFFIRMED IN TOTO. SO ORDERED.

Guerrero and Escolin, JJ., concur. "November 5, 1935 An Escritura de Venta (Exh. 5 or AA) was also executed Aquino and Abad Santos, JJ., in the result. by Jose Tongoy in favor of Luis D. Tongoy for the same purpose; (Note: This was preceded by the execution on October 14, 1935 of an Assignment of Rights Concepcion, Jr., and De Castro, JJ., took no part. [4 or Z] in favor of Luis D. Tongoy by the Pacific Commercial Company as judgment lien-holder [subordinate of the PNB mortgage] of Jose Tongoy on Footnotes Hacienda Pulo. ** During the pendency of the case below, the defendant Norberto P. "November 5, 1935 Hacienda Pulo was placed in the name of Luis D. Tongoy Tongoy died and was substituted by his widow Eva Mabugat Tongoy, all his married to Ma. Rosario Araneta with the issuance of TCT 20154 (Exh. 20); children Madonna, Majesty and Francisco, all surnamed Tongoy. Subsequently, plaintiff Juan T. Sonora also died and was substituted by his widow Elisa Cuison June 22, 1936 An Escritura de Venta was executed by Basilisa Cuaycong over Sonora and his children Clarabelle and Romulo, both surnamed Sonora. the Cuaycong property in favor of Luis D. Tongoy, thereby resulting in the issuance of TCT No. 21522 in the name of Luis D. Tongoy married to Ma. Rosario Araneta;

C o p y r i g h t 1 9 9 4 - 1 9 9 9 C D T e c h n o l o g i e s A s i a, I n c.

[G.R. No. 52064. December 26, 1984.]

JULIANA CARAGAY-LAYNO, Assisted by Her Husband, BENITO LAYNO, petitioner, vs. HONORABLE COURT OF APPEALS and SALVADOR ESTRADA as Administrator of the Estate of the Deceased, MARIANO DE VERA, respondents.
SYLLABUS 1. CIVIL LAW; LAND REGISTRATION; TORRENS TITLE; MERE POSSESSION THEREOF NOT CONCLUSIVE AS TO HOLDER'S TRUE OWNERSHIP OF ALL PROPERTY DESCRIBED THEREIN. The foregoing conclusion does not necessarily wreak havoc on the indefensibility of a Torrens title. For, mere possession of a certificate of title under the Torrens System is not conclusive as to the holder s true ownership of all the property described therein for he does not by virtue of said certificate alone become the owner of the land illegally included. A Land Registration Court has no jurisdiction to decree a lot to persons who have never asserted any right of ownership over lt. 2. ID.; PRESCRIPTION; AN ACTION TO QUIET TITLE TO PROPERTY IN ONE'S POSSESSION IS IMPRESCRIPTIBLE. Prescription cannot be invoked against JULIANA for the reason that as lawful possessor and owner of the Disputed Portion, her cause of action for reconveyance which, in effect seeks to quiet title to the property, falls within settled jurisprudence that an action to quiet title to property in one's possession is imprescriptible (Sapto, et al. vs. Fabiana, 103 Phil. 683, 687 [1958]). Her undisturbed possession over a period of fiftytwo (52) years gave her a continuing right to seek the aid of a Court of equity to determine the nature of the adverse claim of a third party and the effect on her own title. DECISION MELENCIO-HERRERA, J p: Respondent Appellate Court, then the Court of Appeals, affirmed in toto the judgment of the former Court of First Instance of Pangasinan, Branch III, at Dagupan adjudging private respondent entitled to recover possession of a

parcel of land and ordering petitioners, as defendants below, to vacate the premises. Petitioners, as paupers, now seek a reversal of that judgment. It was established by a relocation survey that the Disputed Portion is a 3,732 square-meter-area of a bigger parcel of sugar and coconut land (Lot No. 1, Psu24206 [Case No. 44, GLRO Rec. No. 117]), with a total area of 8,752 square meters, situated at Calasiao, Pangasinan. The entire parcel is covered by Original Certificate of Title No. 63, and includes the adjoining Lots 2 and 3, issued on 11 September 1947 in the name of Mariano M. DE VERA, who died in 1951 without issue. His intestate estate was administered first by his widow as later by her nephew, respondent Salvador Estrada. Petitioner, JULIANA Caragay, and the decedent, Mariano DE VERA, were first cousins, "both orphans, who lived together under one roof in the care of a common aunt." As Administratrix, DE VERA's widow filed in Special Proceedings No. 4058 of the former Court of First Instance of Pangasinan, Branch III, an Inventory of all properties of the deceased, which included "a parcel of land in the poblacion of Calasiao, Pangasinan, containing an area of 5,417 square meters, more or less, and covered by Tax Declaration No. 12664." Because of the discrepancy in area mentioned in the Inventory as 5,147 square meters (as filed by the widow), and that in the title as 8,752 square meters, ESTRADA repaired to the Disputed Property and found that the northwestern portion, subsequently surveyed to be 3,732 square meters, was occupied by petitioner-spouses Juliana Caragay Layno and Benito Layno. ESTRADA demanded that they vacate the Disputed Portion since it was titled in the name of the deceased DE VERA, but petitioners refused claiming that the land belonged to them and, before them, to JULIANA's father Juan Caragay. ESTRADA then instituted suit against JULIANA for the recovery of the Disputed Portion (Civil Case No. D-2007) which she resisted, mainly on the ground that the Disputed Portion had been fraudulently or mistakenly included in OCT No. 63, so that an implied or constructive trust existed in her favor. She then

counterclaimed for reconveyance of property in the sense that title be issued in her favor. LLphil After hearing, the Trial Court rendered judgment ordering JULIANA to vacate the Disputed Portion. On appeal, respondent Appellate Court affirmed the Decision in toto. Before us, JULIANA takes issue with the following finding of respondent Court: "Although Section 102 of Act 496 allows a Petition to compel a trustee to reconvey a registered land to the cestui que trust (Severino vs. Severino, 44 Phil. 343; Escobar vs. Locsin, 74 Phil. 86) this remedy is no longer available to Juliana Caragay. Mariano de Vera's land, Lot 1, Psu-24206, was registered on September 11, 1947 (Exhibit 'C') and it was only on March 28, 1967 when the defendants filed their original answer that Caragay sought the reconveyance to her of the 3,732 square meters. Thus, her claim for reconveyance base on implied or constructive trust has prescribed after 10 years (Bananga vs. Soler, L-15717, June 30, 1961; J.M. Tuason & Co. vs. Magdangal, L-15539, Jan. 30, 1962; Alzona vs. Capunitan, 4 SCRA 450). In other words, Mariano de Vera's Original Certificate of Title No. 63 (Exhibit 'C') has become indefeasible." 1 We are constrained to reverse. The evidence discloses that the Disputed Portion was originally possessed openly, continuously and uninterruptedly in the concept of an owner by Juan Caragay, the deceased rather of JULIANA, and had been declared in his name under Tax Declaration No. 28694 beginning with the year 1921 (Exhibit "2-C"), later revised by Tax Declaration No. 2298 in 1951 (Exhibit "2-B"). Upon the demise of her father in 1914, JULIANA adjudicated the property to herself as his sole heir in 1968 (Exhibit "4") and declared it in her name under Tax Declaration No. 22522 beginning with the year 1959 (Exhibit "2-A"), later cancelled by TD No. 3539 in 1966 (Exhibit "2"). Realty taxes were also religiously paid from 1938 to 1972 (Exhibits "3-A" to "3-H"). Tacking the previous possession of her father to her own, they had been in actual, open, continuous and uninterrupted possession in the concept of owner for about forty five (45) years, until said possession was disturbed in 1966 when

ESTRADA informed JULIANA that the Disputed Portion was registered in Mariano DE VERA's name. To substantiate her claim of fraud in the inclusion of the Disputed Portion in OCT No. 68, JULIANA, an unlettered woman, declared that during his lifetime, DE VERA, her first cousin, and whom she regarded as a father as he was much older, borrowed from her the Tax Declaration of her land purportedly to be used as collateral for his loan and sugar quota application; that relying on her cousin's assurances, she acceded to his request and was made to sign some documents the contents of which she did not ever know because of her ignorance; that she discovered the fraudulent inclusion of the Disputed Portion in OCT No. 63 only in 1966 when ESTRADA so informed her and sought to eject them. Of significance is the fact, as disclosed by the evidence, that for twenty (20) years from the date of registration of title in 1947 up to 1967 when this suit for recovery of possession was instituted, neither the deceased DE VERA up to the time of his death in 1951, nor his successors-in-interest, had taken steps to possess or lay adverse claim to the Disputed Portion. They may, therefore be said to be guilty of laches as would effectively derail their cause of action. Administrator ESTRADA tools interest in recovering the said portion only when he noticed the discrepancy in areas in the Inventory of Property and in the title. Inasmuch as DE VERA had failed to assert any rights over the Disputed Portion during his lifetime, nor did he nor his successors-in-interest possess it for a single moment; but that, JULIANA had been in actual, continuous and open possession thereof to the exclusion of all and sundry, the inescapable inference is, fraud having been unsubstantiated, that it had been erroneously included in OCT No. 63. The mistake is confirmed by the fact that deducting 3,732 sq. ms., the area of the Disputed Portion from 8,752 sq. ms., the area of Lot 1 in OCT No. 63, the difference is 5,020 sq. ms., which closely approximates the area of 5,147 sq. ms., indicated in the Inventory of Property of DE VERA. In fact, the widow by limiting the area in said Inventory to only 5,147 sq. ms., in effect, recognized and admitted that the Disputed Portion of 3,132 sq. ms. did not form part of the decedent's estate.

The foregoing conclusion does not necessarily wreak havoc on the indefeasibility of a Torrens title. For, mere possession of a certificate of title under the Torrens System is not conclusive as to the holder's true ownership of all the property described therein for he does not by virtue of said certificate alone become the owner of the land illegally included. 2 A Land Registration Court has no jurisdiction to decree a lot to persons who have never asserted any right of ownership over it. cdrep " . . . Obviously then, the inclusion of said area in the title of Lot No. 8151 is void and of no effect for a land registration Court has no jurisdiction to decree a lot to persons who have put no claim in it and who have never asserted any right of ownership over it. The Land Registration Act as well as the Cadastral Act protects only the holders of a title in good faith and does not permit its provisions to be used as a shield for the commission of fraud, or that one should enrich himself at the expense of another." 3 JULIANA, whose property had been wrongfully registered in the name of another, but which had not yet passed into the hands of third parties, can properly seek its reconveyance. "The remedy of the landowner whose property has been wrongfully or erroneously registered in another's name is, after one year from the date of the decree, not to set aside the decree, but, respecting the decree as incontrovertible and no longer open to review, to bring an ordinary action in the ordinary court of justice for reconveyance or, if the property has passed into the hands of an innocent purchaser for value, for damages." 4 Prescription cannot be invoked against JULIANA for the reason that as lawful possessor and owner of the Disputed Portion, her cause of action for reconveyance which, in effect, seeks to quiet title to the property, falls within settled jurisprudence that an action to quiet title to property in one's possession is imprescriptible. 5 Her undisturbed possession over a period of fifty two (52) years gave her a continuing right to seek the aid of a Court of equity to determine the nature of the adverse claim of a third party and the effect on her own title. 6

Besides, under the circumstances, JULIANA's right to quiet title, to seek reconveyance, and to annul OCT. No. 63 accused only in 1966 when she was made aware of a claim adverse to her own. It was only then that the statutory period of prescription may be said to have commenced to run against her, following the pronouncement in Faja vs. Court of Appeals, supra, a case almost identical to this one. " . . . Inasmuch as it is alleged in paragraph 3 of Frial's complaint, that Felipa Faja has been in possession of the property since 1945 up to the present for a period of 30 years, her cause of action for reconveyance, which in effect seeks to quiet her title to the property, falls within that rule. If at all, the period of prescription began to run against Felipa Faja only from the time she was served with copy of the complaint in 1975 giving her notice that the property she was occupying was titled in the name of Indelecio Frial. There is settled jurisprudence that one who is in actual possession of a piece of land claiming to be owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of third party and its effect on his own title, which right can be claimed only by one who is in possession. No better situation can be conceived at the moment for Us to apply this rule on equity than that of herein petitioners whose mother, Felipa Faja, as in possession of the litigated property for no less than 30 years and was suddenly confronted with a claim that the land she had been occupying and cultivating all these years, was titled in the name of a third person. We hold that in such a situation the right to quiet title to the property, to seek its reconveyance and annul any certificate of title covering it, accrued only from the time the one in possession was made aware of a claim adverse to his own, and it is only then that the statutory period of prescription commences to run against such possessor." WHEREFORE, the judgment under review is hereby REVERSED and SET ASIDE, and another one entered ordering private respondent Salvador Estrada, as Administrator of the Estate of the Deceased, Mariano de Vera, to cause the segregation of the disputed portion of 3,732 square meters forming part of Lot

No. 1, Psu-24206, Case No. 44, GLRO Rec. No. 117, presently occupied by petitioner Juliana Caragay-Layno, and to reconvey the same to said petitioner. After the segregation shall have been accomplished, the Register of Deeds of Pangasinan is hereby ordered to issue a new certificate of title covering said 3,732 sq. m. portion in favor of petitioner, and another certificate of title in favor of the Estate of the deceased, Mariano de Vera covering the remaining portion of 5,0520 square meters. No costs. cdll SO ORDERED. Teehankee, Plana, De la Fuente and Cuevas, * JJ ., concur. Relova and Gutierrez, Jr., JJ ., took no part. Footnotes 1. Rollo, p. 33.

2. Ledesma vs. Municipality of Iloilo, 49 Phil. 769 (1926), cited in Vda. de Recinto vs. Inciong, 77 SCRA 201 (1977). 3. 4. 5. 6. Vda. de Recinto vs. Inciong, supra. Ibid. Sapto, et al. vs. Fabiana, 103 Phil. 683, 687 (1958). Faja vs. Court of Appeals, 75 SCRA 441 (1977).

* Justice Serafin R. Cuevas was designated to sit in the First Division per Special Order No. 307, dated November 26, 1984.

C o p y r i g h t 1 9 9 4 - 1 9 9 9 C D T e c h n o l o g i e s A s i a, I n c.

3. ID.; ID.; ID.; RELATION OF CO-OWNERSHIP; TERMINATION THEREOF BY PRESCRIPTION MUST BE PRECEDED BY REPUDIATION. This Court is not RUSTICO ADILLE, petitioner, vs. THE HONORABLE COURT unaware of the well-established principle that prescription bars any demand OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO, on property (owned in common) held by another (co-owner) following the required number of years. In that event, the party in possession acquires title DOMINGO ASEJO, JOSEFA ASEJO, and SANTIAGO ASEJO, to the property and the state of co-ownership is ended. In the case at bar, the respondents. property was registered in 1955 by the petitioner, solely in his name, while the SYLLABUS claim of the private respondents was presented in 1974. Has prescription then, 1. CIVIL LAW; SALES; RIGHT OF REPURCHASE EXERCISED BY A CO-OWNER; set in? We hold in the negative. Prescription, as a mode of terminating a PERTAINS TO HIS SHARE ALONE; OWNERSHIP OVER THE ENTIRE PROPERTY relation of co-ownership, must have been preceded by repudiation (of the coNOT VESTED IN FAVOR OF REDEEMING CO-OWNER. The result is that the ownership). property remains to be in a condition of co-ownership. While a vendee a retro, 4. ID.; ID.; ID.; ID.; ID.; REQUISITES ON THE ACT OF REPUDIATION. The under Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by one co-heir or co-owner of the property in its act of repudiation, in turn, is subject to certain conditions: (1) a co-owner totality does not vest in him ownership over it. Failure on the part of all the co- repudiates the co-ownership; (2) such an act of repudiation is clearly made known to the other co-owners; (3) the evidence thereon is clear and owners to redeem it entitles the vendee a retro to retain the property and conclusive; and (4) he has been in possession through open, continuous, consolidate title thereto in his name. But the provision does not give to the exclusive, and notorious possession of the property for the period required by redeeming co-owner the right to the entire property. It does not provide for a law. The instant case shows that the petitioner had not complied with these mode of terminating a co-ownership. requisites. We are not convinced that he had repudiated the co-ownership; on 2. ID.; ID.; ID.; EXISTING CO-OWNERSHIP NOT TERMINATED EVEN the contrary, he had deliberately kept the private respondents in the dark by THOUGH THE LATTER SECURED TITLE OVER THE PARCEL IN HIS NAME. feigning sole heirship over the estate under dispute. He cannot therefore be Neither does the fact that the petitioner had succeeded in securing title over said to have "made known" his efforts to deny the co-ownership. the parcel in his name terminate the existing co-ownership. While his halfID.; LAND REGISTRATION; REGISTRATION UNDER THE TORRENS brothers and sisters are, as we said, liable to him for reimbursement as and for 5. SYSTEM, NOT A MEANS TO SHIELD FRAUD. It is true that registration under their shares in redemption expenses, he cannot claim exclusive right to the the Torrens system is constructive notice of title, but it has likewise been our property owned in common. Registration of property is not a means of holding that the Torrens title does not furnish a shield for fraud. It is therefore acquiring ownership. It operates as a mere notice of existing title, that is, if no argument to say that the act of registration is equivalent to notice of there is one. The petitioner must then be said to be a trustee of the property repudiation, assuming there was one, notwithstanding the long-standing rule on behalf of the private respondents. The Civil Code states: ART. 1456. If that registration operates as a universal notice of title. property is acquired through mistake or fraud, the person obtaining it is, by [G.R. No. L-44546. January 29, 1988.] force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. 6. ID.; ID.; CONSTRUCTIVE TRUST: ACTION TO ENFORCE IT RECKONED FROM ACTUAL DISCOVERY OF THE ACT OF DEFRAUDATION. For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over the estate registered in 1955. While actions to enforce a constructive trust

prescribes in ten years, reckoned from the date of the registration of the property, we, as we said, are not prepared to count the period from such a date in this case. We note the petitioner's sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza with the consequence that he was able to secure title in his name also." Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the petitioner's act of defraudation. According to the respondent Court of Appeals, they came to know [of it] apparently only during the progress of the litigation." Hence, prescription is not a bar.

The task of this Court, however, is not to judge the wisdom of values; the burden of reconstructing the social order is shouldered by the political leadership and the people themselves. The parties have come to this Court for relief and accordingly, our responsibility is to give them that relief pursuant to the decree of law. The antecedent facts are quoted from the decision 2 appealed from: xxx xxx xxx

. . . [Th]e land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi City with an area of some 11,325 sq. m. originally belonged to one Felisa Alzul as her own private property; she married twice in her lifetime; the 7. REMEDIAL LAW; CIVIL PROCEDURE; PRESCRIPTION AS AN AFFIRMATIVE first, with one Bernabe Adille, with whom she had as an only child, herein DEFENSE; DEEMED WAIVED IF NOT PLEADED IN A MOTION TO DISMISS OR IN defendant Rustico Adille; in her second marriage with one Procopio Asejo, her THE ANSWER. Moreover, and as a rule, prescription is an affirmative children were herein plaintiffs, now, sometime in 1939, said Felisa sold the defense that must be pleaded either in a motion to dismiss or in the answer property in pacto de retro to certain 3rd persons, period of repurchase being 3 otherwise it is deemed waived, and here, the petitioner never raised that years, but she died in 1942 without being able to redeem and after her death, defense. There are recognized exceptions to this rule, but the petitioner has but during the period of redemption, herein defendant repurchased, by himself not shown why they apply. alone, and after that, he executed a deed of extra-judicial partition representing himself to be the only heir and child of his mother Felisa with the DECISION consequence that he was able to secure title in his name alone also, so that OCT. No. 21137 in the name of his mother was transferred to his name, that SARMIENTO, J p: was in 1955; that was why after some efforts of compromise had failed, his In issue herein are property and property rights, a familiar subject of half-brothers and sisters, herein plaintiffs, filed present case for partition with controversy and a wellspring of enormous conflict that has led not only to accounting on the position that he was only a trustee on an implied trust when protracted legal entanglements but to even more bitter consequences, like he redeemed, and this is the evidence, but as it also turned out that one of strained relationships and even the forfeiture of lives. It is a question that plaintiffs, Emeteria Asejo was occupying a portion, defendant counterclaimed likewise reflects a tragic commentary on prevailing social and cultural values for her to vacate that, and institutions, where, as one observer notes, wealth and its accumulation are the basis of self-fulfillment and where property is held as sacred as life itself. "It Well then, after hearing the evidence, trial Judge sustained defendant in his is in the defense of his property," says this modern thinker, that one "will position that he was and became absolute owner, he was not a trustee, and mobilize his deepest protective devices, and anybody that threatens his therefore, dismissed case and also condemned plaintiff occupant, Emeteria to vacate; it is because of this that plaintiffs have come here and contend that possessions will arouse his most passionate enmity." 1 trial court erred in:

"I. II.

. . . declaring the defendant absolute owner of the property; . . . not ordering the partition of the property; and

Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement from the remaining co-owners. 6 There is no doubt that redemption of property entails a necessary expense. Under the Civil Code: ART. 488. Each co-owner shall have a right to compel the other coowners to contribute to the expenses of preservation of the thing or right owned in common and to the taxes. Any one of the latter may exempt himself from this obligation by renouncing so much of his undivided interest as may be equivalent to his share of the expenses and taxes. No such waiver shall be made if it is prejudicial to the co-ownership.

III. . . . ordering one of the plaintiffs who is in possession of the portion of the property to vacate the land, p. 1 Appellant's brief. which can be reduced to simple question of whether or not on the basis of evidence and law, judgment appealed from should be maintained. 3 xxx xxx xxx

The respondent Court of Appeals reversed the trial court, 4 and ruled for the plaintiffs-appellants, the private respondents herein. The petitioner now appeals, by way of certiorari, from the Appellate Court's decision.

The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by one co-heir or coowner of the property in its totality does not vest in him ownership over it. We required the private respondents to file a comment and thereafter, having Failure on the part of all the co-owners to redeem it entitles the vendee a retro given due course to the petition, directed the parties to file their briefs. Only to retain the property and consolidate title thereto in his name. 7 But the the petitioner, however, filed a brief, and the private respondents having failed provision does not give to the redeeming co-owner the right to the entire to file one, we declared the case submitted for decision. property. It does not provide for a mode of terminating a co-ownership. The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the property held in common? cdphil Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name terminate the existing co-ownership. While his halfEssentially, it is the petitioner's contention that the property subject of dispute brothers and sisters are, as we said, liable to him for reimbursement as and for devolved upon him upon the failure of his co-heirs to join him in its redemption their shares in redemption expenses, he cannot claim exclusive right to the within the period required by law. He relies on the provisions of Article 1515 of property owned in common. Registration of property is not a means of acquiring ownership. It operates as a mere notice of existing title, that is, if the old Civil Code, Article 1613 of the present Code, giving the vendee a retro there is one. the right to demand redemption of the entire property. There is no merit in this petition. The right of repurchase may be exercised by a co-owner with respect to his share alone. 5 While the records show that the petitioner redeemed the property in its entirety, shouldering the expenses therefor, that did not make him the owner of all of it. In other words, it did not put to end the existing state of co-ownership. The petitioner must then be said to be a trustee of the property on behalf of the private respondents. The Civil Code states: ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. We agree with the respondent Court of Appeals that fraud attended the registration of the property. The petitioner's pretension that he was the sole

heir to the land in the affidavit of extrajudicial settlement he executed preliminary to the registration thereof betrays a clear effort on his part to defraud his brothers and sisters and to exercise sole dominion over the property. The aforequoted provision therefore applies. It is the view of the respondent Court that the petitioner, in taking over the property, did so either on behalf of his co-heirs, in which event, he had constituted himself a negotiorum gestor under Article 2144 of the Civil Code, or for his exclusive benefit, in which case, he is guilty of fraud, and must act as trustee, the private respondents being the beneficiaries, under the Article 1456. The evidence, of course, points to the second alternative the petitioner having asserted claims of exclusive ownership over the property and having acted in fraud of his co-heirs. He cannot therefore be said to have assumed the mere management of the property abandoned by his co-heirs, the situation Article 2144 of the Code contemplates. In any case, as the respondent Court itself affirms, the result would be the same whether it is one or the other. The petitioner would remain liable to the private respondents, his co-heirs. This Court is not unaware of the well-established principle that prescription bars any demand on property (owned in common) held by another (co-owner) following the required number of years. In that event, the party in possession acquires title to the property and the state of co-ownership is ended. 8 In the case at bar, the property was registered in 1955 by the petitioner, solely in his name, while the claim of the private respondents was presented in 1974. Has prescription then, set in? We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have been preceded by repudiation (of the co-ownership). The act of repudiation, in turn, is subject to certain conditions: (1) a co-owner repudiates the co-ownership; (2) such an act of repudiation is clearly made known to the other co-owners; (3) the evidence thereon is clear and conclusive; and (4) he has been in possession through open, continuous, exclusive, and notorious possession of the property for the period required by law. 9

The instant case shows that the petitioner had not complied with these requisites. We are not convinced that he had repudiated the co-ownership; on the contrary, he had deliberately kept the private respondents in the dark by feigning sole heirship over the estate under dispute. He cannot therefore be said to have "made known" his efforts to deny the co-ownership. Moreover, one of the private respondents, Emeteria Asejo, is occupying a portion of the land up to the present, yet, the petitioner has not taken pains to eject her therefrom. As a matter of fact, he sought to recover possession of that portion Emeteria is occupying only as a counterclaim, and only after the private respondents had first sought judicial relief. prcd It is true that registration under the Torrens system is constructive notice of title, 10 but it has likewise been our holding that the Torrens title does not furnish a shield for fraud. 11 It is therefore no argument to say that the act of registration is equivalent to notice of repudiation, assuming there was one, notwithstanding the long-standing rule that registration operates as a universal notice of title. For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over the estate registered in 1955. While actions to enforce a constructive trust prescribes in ten years, 12 reckoned from the date of the registration of the property, 13 we, as we said, are not prepared to count the period from such a date in this case. We note the petitioner's sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza with the consequence that he was able to secure title in his name also." 14 Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the petitioner's act of defraudation. 15 According to the respondent Court of Appeals, they came to know [of it] apparently only during the progress of the litigation." 16 Hence, prescription is not a bar. Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a motion to dismiss or in the answer otherwise it is deemed waived, 17 and here, the petitioner never raised that defense. 18 There are

recognized exceptions to this rule, but the petitioner has not shown why they apply. LLpr WHEREFORE, there being no reversible error committed by the respondent Court of Appeals, the petition is DENIED. The Decision sought to be reviewed is hereby AFFIRMED in toto. No pronouncement as to costs. SO ORDERED. Yap (Chairman), Melencio-Herrera, Paras and Padilla, JJ., concur.