G.R. No.

184088 July 6, 2010

IGLESIA EVANGELICA METODISTA EN LAS ISLAS FILIPINAS (IEMELIF) (Corporation Sole),

INC., REV. NESTOR PINEDA, REV. ROBERTO BACANI, BENJAMIN BORLONGAN, JR.,
DANILO SAUR, RICHARD PONTI, ALFREDO MATABANG and all the other members of the
IEMELIF TONDO CONGREGATION of the IEMELIF CORPORATION SOLE, Petitioners,
vs.
BISHOP NATHANAEL LAZARO, REVERENDS HONORIO RIVERA, DANIEL MADUCDOC,
FERDINAND MERCADO, ARCADIO CABILDO, DOMINGO GONZALES, ARTURO LAPUZ,
ADORABLE MANGALINDAN, DANIEL VICTORIA and DAKILA CRUZ, and LAY LEADER
LINGKOD MADUCDOC and CESAR DOMINGO, acting individually and as members of the
Supreme Consistory of Elders and those claiming under the Corporation
Aggregate, Respondents.

DECISION

ABAD, J.:

The present dispute resolves the issue of whether or not a corporation may change its character as
a corporation sole into a corporation aggregate by mere amendment of its articles of incorporation
without first going through the process of dissolution.

The Facts and the Case

In 1909, Bishop Nicolas Zamora established the petitioner Iglesia Evangelica Metodista En Las Islas
Filipinas, Inc. (IEMELIF) as a corporation sole with Bishop Zamora acting as its "General
Superintendent." Thirty-nine years later in 1948, the IEMELIF enacted and registered a by-laws that
established a Supreme Consistory of Elders (the Consistory), made up of church ministers, who
were to serve for four years. The by-laws empowered the Consistory to elect a Gen

eral Superintendent, a General Secretary, a General Evangelist, and a Treasurer General who would
manage the affairs of the organization. For all intents and purposes, the Consistory served as the
IEMELIFs board of directors.

Apparently, although the IEMELIF remained a corporation sole on paper (with all corporate powers
theoretically lodged in the hands of one member, the General Superintendent), it had always acted
like a corporation aggregate. The Consistory exercised IEMELIFs decision-making powers without
ever being challenged. Subsequently, during its 1973 General Conference, the general membership
voted to put things right by changing IEMELIFs organizational structure from a corporation sole to a
corporation aggregate. On May 7, 1973 the Securities and Exchange Commission (SEC) approved
the vote. For some reasons, however, the corporate papers of the IEMELIF remained unaltered as a
corporation sole.

Only in 2001, about 28 years later, did the issue reemerge. In answer to a query from the IEMELIF,
the SEC replied on April 3, 2001 that, although the SEC Commissioner did not in 1948 object to the
conversion of the IEMELIF into a corporation aggregate, that conversion was not properly carried out
and documented. The SEC said that the IEMELIF needed to amend its articles of incorporation for
that purpose.1

Acting on this advice, the Consistory resolved to convert the IEMELIF to a corporation aggregate.
Respondent Bishop Nathanael Lazaro, its General Superintendent, instructed all their congregations
to take up the matter with their respective members for resolution. Subsequently, the general
membership approved the conversion, prompting the IEMELIF to file amended articles of
incorporation with the SEC. Bishop Lazaro filed an affidavit-certification in support of the conversion. 2

Petitioners Reverend Nestor Pineda, et al., which belonged to a faction that did not support the
conversion, filed a civil case for "Enforcement of Property Rights of Corporation Sole, Declaration of
Nullity of Amended Articles of Incorporation from Corporation Sole to Corporation Aggregate with
Application for Preliminary Injunction and/or Temporary Restraining Order" in IEMELIFs name
against respondent members of its Consistory before the Regional Trial Court (RTC) of
Manila.3 Petitioners claim that a complete shift from IEMELIFs status as a corporation sole to a
corporation aggregate required, not just an amendment of the IEMELIFs articles of incorporation,
but a complete dissolution of the existing corporation sole followed by a re-incorporation.

Unimpressed, the RTC dismissed the action in its October 19, 2005 decision. 4 It held that, while the
Corporation Code on Religious Corporations (Chapter II, Title XIII) has no provision governing the
amendment of the articles of incorporation of a corporation sole, its Section 109 provides that
religious corporations shall be governed additionally "by the provisions on non-stock corporations
insofar as they may be applicable." The RTC thus held that Section 16 of the Code 5 that governed
amendments of the articles of incorporation of non-stock corporations applied to corporations sole as
well.

of the IEMELIF membership.

Petitioners Pineda, et al. appealed the RTC decision to the Court of Appeals (CA). 6 On October 31,
2007 the CA rendered a decision,7 affirming that of the RTC. Petitioners moved for reconsideration,
but the CA denied it by its resolution of August 1, 2008, 8 hence, the present petition for review before
this Court.

The Issue Presented

The only issue presented in this case is whether or not the CA erred in affirming the RTC ruling that
a corporation sole may be converted into a corporation aggregate by mere amendment of its articles
of incorporation.

The Courts Ruling

Petitioners Pineda, et al. insist that, since the Corporation Code does not have any provision that
allows a corporation sole to convert into a corporation aggregate by mere amendment of its articles
of incorporation, the conversion can take place only by first dissolving IEMELIF, the corporation sole,
and afterwards by creating a new corporation in its place.
Religious corporations are governed by Sections 109 through 116 of the Corporation Code. In a
2009 case involving IEMELIF, the Court distinguished a corporation sole from a corporation
aggregate.9 Citing Section 110 of the Corporation Code, the Court said that a corporation sole is
"one formed by the chief archbishop, bishop, priest, minister, rabbi or other presiding elder of a
religious denomination, sect, or church, for the purpose of administering or managing, as trustee, the
affairs, properties and temporalities of such religious denomination, sect or church." A corporation
aggregate formed for the same purpose, on the other hand, consists of two or more persons.

True, the Corporation Code provides no specific mechanism for amending the articles of
incorporation of a corporation sole. But, as the RTC correctly held, Section 109 of the Corporation
Code allows the application to religious corporations of the general provisions governing non-stock
corporations.

For non-stock corporations, the power to amend its articles of incorporation lies in its members. The
code requires two-thirds of their votes for the approval of such an amendment. So how will this
requirement apply to a corporation sole that has technically but one member (the head of the
religious organization) who holds in his hands its broad corporate powers over the properties, rights,
and interests of his religious organization?

Although a non-stock corporation has a personality that is distinct from those of its members
who established it, its articles of incorporation cannot be amended solely through the action
of its board of trustees. The amendment needs the concurrence of at least two-thirds of its
membership. If such approval mechanism is made to operate in a corporation sole, its one
member in whom all the powers of the corporation technically belongs, needs to get the
concurrence of two-thirds of its membership. The one member, here the General
Superintendent, is but a trustee, according to Section 110 of the Corporation Code, of its
membership. 1avvphi1

There is no point to dissolving the corporation sole of one member to enable the corporation
aggregate to emerge from it. Whether it is a non-stock corporation or a corporation sole, the
corporate being remains distinct from its members, whatever be their number. The increase in the
number of its corporate membership does not change the complexion of its corporate responsibility
to third parties. The one member, with the concurrence of two-thirds of the membership of the
organization for whom he acts as trustee, can self-will the amendment. He can, with membership
concurrence, increase the technical number of the members of the corporation from "sole" or one to
the greater number authorized by its amended articles.

Here, the evidence shows that the IEMELIFs General Superintendent, respondent Bishop Lazaro,
who embodied the corporation sole, had obtained, not only the approval of the Consistory that drew
up corporate policies, but also that of the required two-thirds vote of its membership.
1avvphi1

The amendment of the articles of incorporation, as correctly put by the CA, requires merely that a)
the amendment is not contrary to any provision or requirement under the Corporation Code, and that
b) it is for a legitimate purpose. Section 17 of the Corporation Code 10 provides that amendment shall
be disapproved if, among others, the prescribed form of the articles of incorporation or amendment
to it is not observed, or if the purpose or purposes of the corporation are patently unconstitutional,
illegal, immoral, or contrary to government rules and regulations, or if the required percentage of
ownership is not complied with. These impediments do not appear in the case of IEMELIF.

Besides, as the CA noted, the IEMELIF worked out the amendment of its articles of incorporation
upon the initiative and advice of the SEC. The latters interpretation and application of the
Corporation Code is entitled to respect and recognition, barring any divergence from applicable laws.
Considering its experience and specialized capabilities in the area of corporation law, the SECs prior
action on the IEMELIF issue should be accorded great weight.

WHEREFORE, the Court DENIES the petition and AFFIRMS the October 31, 2007 decision and
August 1, 2008 resolution of the Court of Appeals in CA-G.R. SP 92640.

SO ORDERED.

2. G.R. No. 179096 February 06, 2013

JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko, Sr., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH, Respondent.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by petitioner Joseph Goyanko, Jr., administrator
of the Estate of Joseph Goyanko, Sr., to nullify the decision2 dated February 20, 2007 and the
resolution3 dated July 31, 2007 of the Court of Appeals (CA) in CA-G.R. CV. No. 00257 affirming the
decision4 of the Regional Trial Court of Cebu City, Branch 16(RTC) in Civil Case No. CEB-22277.
The RTC dismissed the petitioners complaint for recovery of sum money against United Coconut
Planters Bank, Mango Avenue Branch (UCPB).

The Factual Antecedents

In 1995, the late Joseph Goyanko, Sr. (Goyanko) invested Two Million Pesos (P2,000,000.00) with
Philippine Asia Lending Investors, Inc. family, represented by the petitioner, and his illegitimate
family presented conflicting claims to PALII for the release of the investment. Pending the
investigation of the conflicting claims, PALII deposited the proceeds of the investment with UCPB on
October 29, 19965 under the name "Phil Asia: ITF (In Trust For) The Heirs of Joseph Goyanko,
Sr." (ACCOUNT). On September 27, 1997, the deposit under the ACCOUNT was P1,509,318.76.

On December 11, 1997, UCPB allowed PALII to withdraw One Million Five Hundred Thousand
Pesos (P1,500,000.00) from the Account, leaving a balance of only P9,318.76. When UCPB refused
the demand to restore the amount withdrawn plus legal interest from December 11, 1997, the
petitioner filed a complaint before the RTC. In its answer to the complaint, UCPB admitted, among
others, the opening of the ACCOUNT under the name "ITF (In Trust For) The Heirs of Joseph
Goyanko, Sr.," (ITF HEIRS) and the withdrawal on December 11, 1997.
 The RTC Ruling

In its August 27, 2003 decision, the RTC dismissed the petitioners complaint and awarded UCPB
attorneys fees, litigation expenses and the costs of the suit.6 The RTC did not consider the words
"ITF HEIRS" sufficient to charge UCPB with knowledge of any trust relation between PALII and
Goyankos heirs (HEIRS). It concluded that UCPB merely performed its duty as a depository bank in
allowing PALII to withdraw from the ACCOUNT, as the contract of deposit was officially only between
PALII, in its own capacity, and UCPB. The petitioner appealed his case to the CA.

The CAs Ruling

Before the CA, the petitioner maintained that by opening the ACCOUNT, PALII established a trust
by which it was the "trustee" and the HEIRS are the "trustors-beneficiaries;" thus, UCPB
should be liable for allowing the withdrawal.

The CA partially granted the petitioners appeal. It affirmed the August 27, 2003 decision of the RTC,
but deleted the award of attorneys fees and litigation expenses. The CA held that no express trust
was created between the HEIRS and PALII. For a trust to be established, the law requires, among
others, a competent trustor and trustee and a clear intention to create a trust, which were absent in
this case. Quoting the RTC with approval, the CA noted that the contract of deposit was only
between PALII in its own capacity and UCPB, and the words "ITF HEIRS" were insufficient to
establish the existence of a trust. The CA concluded that as no trust existed, expressly or impliedly,
UCPB is not liable for the amount withdrawn.7

In its July 31, 2007 resolution,8 the CA denied the petitioners motion for reconsideration. Hence, the
petitioners present recourse.

The Petition

The petitioner argues in his petition that: first, an express trust was created, as clearly shown by
PALIIs March 28, 1996 and November 15, 1996 letters.9 Citing jurisprudence, the petitioner
emphasizes that from the established definition of a trust, 10 PALII is clearly the trustor as it created
the trust; UCPB is the trustee as it is the party in whom confidence is reposed as regards the
property for the benefit of another; and the HEIRS are the beneficiaries as they are the persons for
whose benefit the trust is created.11 Also, quoting Development Bank of the Philippines v.
Commission on Audit,12 the petitioner argues that the naming of the cestui que trust is not necessary
as it suffices that they are adequately certain or identifiable. 13

Second, UCPB was negligent and in bad faith in allowing the withdrawal and in failing to inquire into
the nature of the ACCOUNT.14 The petitioner maintains that the surrounding facts, the testimony of
UCPBs witness, and UCPBs own records showed that: (1) UCPB was aware of the trust relation
between PALII and the HEIRS; and (2) PALII held the ACCOUNT in a trust capacity. Finally, the CA
erred in affirming the RTCs dismissal of his case for lack of cause of action. The petitioner insists
that since an express trust clearly exists, UCPB, the trustee, should not have allowed the withdrawal.

The Case for UCPB

UCPB posits, in defense, that the ACCOUNT involves an ordinary deposit contract between PALII
and UCPB only, which created a debtor-creditor relationship obligating UCPB to return the proceeds
to the account holder-PALII. Thus, it was not negligent in handling the ACCOUNT when it allowed
the withdrawal. The mere designation of the ACCOUNT as "ITF" is insufficient to establish the
existence of an express trust or charge it with knowledge of the relation between PALII and the
HEIRS.

UCPB also argues that the petitioner changed the theory of his case. Before the CA, the petitioner
argued that the HEIRS are the trustors-beneficiaries, and PALII is the trustee. Here, the petitioner
maintains that PALII is the trustor, UCPB is the trustee, and the HEIRS are the beneficiaries.
Contrary to the petitioners assertion, the records failed to show that PALII and UCPB executed a
trust agreement, and PALIIs letters made it clear that PALII, on its own, intended to turn-over the
proceeds of the ACCOUNT to its rightful owners.

The Courts Ruling

The issue before us is whether UCPB should be held liable for the amount withdrawn because a
trust agreement existed between PALII and UCPB, in favor of the HEIRS, when PALII opened the
ACCOUNT with UCPB.

We rule in the negative.

We first address the procedural issues. We stress the settled rule that a petition for review
on certiorari under Rule 45 of the Rules of Court resolves only questions of law, not questions of
fact.15 A question, to be one of law, must not examine the probative value of the evidence presented
by the parties;16 otherwise, the question is one of fact.17 Whether an express trust exists in this case
is a question of fact whose resolution is not proper in a petition under Rule 45. Reinforcing this is the
equally settled rule that factual findings of the lower tribunals are conclusive on the parties and are
not generally reviewable by this Court,18 especially when, as here, the CA affirmed these findings.
The plain reason is that this Court is not a trier of facts.19 While this Court has, at times, permitted
exceptions from the restriction,20 we find that none of these exceptions obtain in the present case.

Second, we find that the petitioner changed the theory of his case. The petitioner argued before the
lower courts that an express trust exists between PALII as the trustee and the HEIRS as the trustor-
beneficiary.21 The petitioner now asserts that the express trust exists between PALII as the trustor
and UCPB as the trustee, with the HEIRS as the beneficiaries.22 At this stage of the case, such
change of theory is simply not allowed as it violates basic rules of fair play, justice and due process.
Our rulings are clear - "a party who deliberately adopts a certain theory upon which the case was
decided by the lower court will not be permitted to change [it] on appeal"; 23otherwise, the lower
courts will effectively be deprived of the opportunity to decide the merits of the case fairly.24Besides,
courts of justice are devoid of jurisdiction to resolve a question not in issue. 25 For these reasons, the
petition must fail. Independently of these, the petition must still be denied.

No express trust exists; UCPB exercised the required diligence in handling the ACCOUNT;
petitioner has no cause of action against UCPB
A trust, either express or implied,26 is the fiduciary relationship "x x x between one person having an
equitable ownership of property and another person owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of certain duties and the exercise
of certain powers by the latter."27Express or direct trusts are created by the direct and positive acts of
the trustor or of the parties.28 No written words are required to create an express trust. This is clear
from Article 1444 of the Civil Code,29 but, the creation of an express trust must be firmly shown; it
cannot be assumed from loose and vague declarations or circumstances capable of other
interpretations.30

In Rizal Surety & Insurance Co. v. CA,31 we laid down the requirements before an express trust will
be recognized:

Basically, these elements include a competent trustor and trustee, an ascertainable trust res,
and sufficiently certain beneficiaries. xxx each of the above elements is required to be
established, and, if any one of them is missing, it is fatal to the trusts (sic). Furthermore,
there must be a present and complete disposition of the trust property, notwithstanding that
the enjoyment in the beneficiary will take place in the future. It is essential, too, that the purpose
be an active one to prevent trust from being executed into a legal estate or interest, and one that is
not in contravention of some prohibition of statute or rule of public policy. There must also be some
power of administration other than a mere duty to perform a contract although the contract is
for a thirdparty beneficiary. A declaration of terms is essential, and these must be stated with
reasonable certainty in order that the trustee may administer, and that the court, if called upon
so to do, may enforce, the trust. [emphasis ours]

Under these standards, we hold that no express trust was created. First, while an ascertainable
trust res and sufficiently certain beneficiaries may exist, a competent trustor and trustee do
not. Second, UCPB, as trustee of the ACCOUNT, was never under any equitable duty to deal with or
given any power of administration over it. On the contrary, it was PALII that undertook the duty to
hold the title to the ACCOUNT for the benefit of the HEIRS. Third, PALII, as the trustor, did not have
the right to the beneficial enjoyment of the ACCOUNT. Finally, the terms by which UCPB is to
administer the ACCOUNT was not shown with reasonable certainty. While we agree with the
petitioner that a trusts beneficiaries need not be particularly identified for a trust to exist, the
intention to create an express trust must first be firmly established, along with the other
elements laid above; absent these, no express trust exists.

Contrary to the petitioners contention, PALIIs letters and UCPBs records established UCPBs
participation as a mere depositary of the proceeds of the investment. In the March 28, 1996 letter,
PALII manifested its intention to pursue an active role in and up to the turnover of those proceeds to
their rightful owners,32 while in the November 15, 1996 letter, PALII begged the petitioner to trust it
with the safekeeping of the investment proceeds and documents.33 Had it been PALIIs intention to
create a trust in favor of the HEIRS, it would have relinquished any right or claim over the proceeds
in UCPBs favor as the trustee. As matters stand, PALII never did.

UCPBs records and the testimony of UCPBs witness34 likewise lead us to the same conclusion.
While the words "ITF HEIRS" may have created the impression that a trust account was created, a
closer scrutiny reveals that it is an ordinary savings account. 35 We give credence to UCPBs
explanation that the word "ITF" was merely used to distinguish the ACCOUNT from PALIIs other
accounts with UCPB. A trust can be created without using the word "trust" or "trustee," but the mere
use of these words does not automatically reveal an intention to create a trust. 36If at all, these words
showed a trustee-beneficiary relationship between PALII and the HEIRS.

Contrary to the petitioners position, UCPB did not become a trustee by the mere opening of the
ACCOUNT. While this may seem to be the case, by reason of the fiduciary nature of the banks
1wphi1

relationship with its depositors,37 this fiduciary relationship does not "convert the contract between
the bank and its depositors from a simple loan to a trust agreement, whether express or implied." 38 It
simply means that the bank is obliged to observe "high standards of integrity and performance" in
complying with its obligations under the contract of simple loan. 39 Per Article 1980 of the Civil
Code,40 a creditor-debtor relationship exists between the bank and its depositor.41 The savings
deposit agreement is between the bank and the depositor; 42 by receiving the deposit, the bank
impliedly agrees to pay upon demand and only upon the depositors order.43

Since the records and the petitioners own admission showed that the ACCOUNT was opened by
PALII, UCPBs receipt of the deposit signified that it agreed to pay PALII upon its demand and only
upon its order. Thus, when UCPB allowed PALII to withdraw from the ACCOUNT, it was merely
performing its contractual obligation under their savings deposit agreement. No negligence or bad
faith44 can be imputed to UCPB for this action. As far as UCPB was concerned, PALII is the account
holder and not the HEIRS. As we held in Falton Iron Works Co. v. China Banking Corporation.45 the
banks duty is to its creditor-depositor and not to third persons. Third persons, like the HEIRS here,
who may have a right to the money deposited, cannot hold the bank responsible unless there is a
court order or garnishment.46 The petitioners recourse is to go before a court of competent
jurisdiction to prove his valid right over the money deposited.

In these lights, we find the third assignment of error mooted. A cause of action requires that there be
a right existing in favor of the plaintiff, the defendants obligation to respect that right, and an act or
omission of the defendant in breach of that right.47 We reiterate that UCPBs obligation was towards
PALII as its creditor-depositor. While the HEIRS may have a valid claim over the proceeds of the
investment, the obligation to turn-over those proceeds lies with PALII. Since no trust exists the
petitioners complaint was correctly dismissed and the CA did not commit any reversible error in
affirming the RTC decision. One final note, the burden to prove the existence of an express trust lies
with the petitioner.48 For his failure to discharge this burden, the petition must fail.

WHEREFORE, in view of these considerations, we hereby DENY the petition and AFFIRM the
decision dated February 20, 2007 and the resolution dated July 31, 2007 of the Court of Appeals in
CA-G.R. CV. No. 00257. Costs against the petitioner.

SO ORDERED:

3. G.R. No. 156448 February 23, 2011

SPS. MOISES and CLEMENCIA ANDRADA, Petitioners,

vs.
PILHINO SALES CORPORATION, represented by its Branch Manager, JOJO S.
SAET, Respondent.

DECISION

BERSAMIN, J.:

An appeal by petition for review on certiorari under Rule 45 shall raise only questions of law. Thus,
the herein petition for review must fail for raising a question essentially of fact.

Antecedents

On December 28, 1990, respondent Pilhino Sales Corporation (Pilhino) sued Jose Andrada, Jr. and
his wife, Maxima, in the Regional Trial Court in Davao City (RTC) to recover the principal sum
of P240,863.00, plus interest and incidental charges (Civil Case No. 20,489-90). Upon Pilhinos
application, the RTC issued a writ of preliminary attachment, which came to be implemented against
a Hino truck and a Fuso truck both owned by Jose Andrada, Jr. However, the levies on attachment
were lifted after Jose filed a counter-attachment bond.

In due course, the RTC rendered a decision against Jose Andrada, Jr. and his wife. Pilhino opted to
enforce the writ of execution against the properties of the Andradas instead of claiming against the
counter-attachment bond considering that the premium on the bond had not been paid. As a result,
the sheriff seized the Hino truck and sold it at the ensuing public auction, with Pilhino as the highest
bidder. However, the Hino truck could not be transferred to Pilhinos name due to its having been
already registered in the name of petitioner Moises Andrada. It appears that the Hino truck had been
meanwhile sold by Jose Andrada, Jr. to Moises Andrada, which sale was unknown to Pilhino, and
that Moises had mortgaged the truck to BA Finance Corporation (BA Finance) to secure his own
obligation.

BA Finance sued Moises Andrada for his failure to pay the loan (Civil Case No. 5117). After a
decision was rendered in the action in favor of BA Finance, a writ of execution issued, by which the
sheriff levied upon and seized the Hino truck while it was in the possession of Pilhino and sold it at
public auction, with BA Finance as the highest bidder.

Consequently, Pilhino instituted this action in the RTC in Davao City against Spouses Jose Andrada,
Jr. and Maxima Andrada, Spouses Moises Andrada and Clemencia Andrada, Jose Andrada, Sr., BA
Finance, Land Transportation Office (in Surallah, South Cotabato), and the Registrar of Deeds of
General Santos City to annul the following: (a) the deed of sale between Jose Andrada, Jr. and
Moises Andrada; (b) the chattel mortgage involving the Hino truck between Moises Andrada and BA
Finance; (c) the deed of conveyance executed by Jose Andrada, Jr. in favor of his father, Jose
Andrada, Sr., involving a hard-top jeep; and (d) the certificate of registration of the Hino truck in the
name of Moises Andrada as well as the registration of the chattel mortgage with the Registry of
Deeds of General Santos City. The action was docketed as Civil Case No. 21,898-93.

Of the Andradas who were defendants in Civil Case No. 21,898-93, only Moises Andrada and his
wife filed their responsive pleading. Later on, Jose Andrada, Jr. and his wife and Pilhino submitted a
compromise agreement dated August 20, 1993. They submitted a second compromise agreement
dated March 4, 1994 because the first was found to be defective and incomplete. The RTC
thereafter rendered a partial judgment on March 21, 1994 based on the second compromise
agreement. After that, further proceedings were taken in Civil Case No. 21,898-93 only with respect
to Moises Andrada and his wife, and BA Finance.

Moises Andrada and his wife averred as defenses that they had already acquired the Hino truck from
Jose Andrada, Jr. free from any lien or encumbrance prior to its seizure by the sheriff pursuant to the
writ of execution issued in Civil Case No. 20,489-90; that their acquisition had been made in good
faith, considering that at the time of the sale the preliminary attachment had already been lifted; and
that Pilhinos recourse was to proceed against the counter-attachment bond.

For its part, BA Finance claimed lack of knowledge of the truth of the material allegations of the
complaint of Pilhino; and insisted that the Hino truck had been validly mortgaged to it by Moises
Andrada, the lawful owner, to secure his own valid obligation.

On March 25, 1998, the RTC, citing the compromise agreement between Pilhino and Jose Andrada,
Jr. that had settled all the claims of Pilhino against Jose Andrada, Jr., and the good faith of Pilhino
and BA Finance in filing their respective actions, rendered its decision in Civil Case No. 21,898-
93,1 disposing:

WHEREFORE, judgment is rendered dismissing this case insofar as the spouses Moises Andrada
and Clemencia Andrada, Jose Andrada, Sr. and BA Finance Corporation, now accordingly BA
Savings Bank, including the counterclaims.

SO ORDERED.

Spouses Moises and Clemencia Andrada appealed the decision rendered on March 25, 1998 to the
extent that the RTC thereby: (a) dismissed their counterclaim; (b) declared that the deed of sale of
the Hino truck between Jose Andrada, Jr. and Moises Andrada had been simulated; and (c)
approved the compromise agreement between Pilhino and Spouses Jose Andrada, Jr. and Maxima
Andrada.

On December 13, 2001, the Court of Appeals (CA) promulgated its decision, as follows: 2

WHEREFORE, the judgment appealed from is AFFIRMED with the modification that the sale of the
Hino truck by defendant Jose Andrada, Jr. in favor of defendant-appellant Moises Andrada is
declared valid, subject to the rights of BA Finance as mortgagee and highest bidder.

SO ORDERED.

Spouses Moises and Clemencia Andrada are now before the Court via petition for review on
certiorari to pose the following issues: 3

1. Whether or not Pilhino should be held liable for the damages the petitioners sustained
from Pilhinos levy on execution upon the Hino truck under Civil Case No. 20,489-90; and
 2. Whether or not Pilhino was guilty of bad faith when it proceeded with the levy on execution
upon the Hino truck owned by Moises Andrada.

Ruling

We find no merit in the petition for review.

The petitioners assail the decision promulgated by the CA to the extent that it denied their claim for
the damages they had sought by way of counterclaim. They anchored their claim on Article 21 of the
Civil Code, which provides that "any person who willfully causes loss or injury to another in a
manner that is contrary to morals, good customs or public policy shall compensate the latter for
damage."

Article 21 of the Civil Code, in conjunction with Article 19 of the Civil Code, is part of the cause of
action known in this jurisdiction as "abuse of rights." The elements of abuse of rights are: (a) there is
a legal right or duty; (b) exercised in bad faith; and (c) for the sole intent of prejudicing or injuring
another.4

In its assailed decision, the CA found that Pilhino had acted in good faith in bringing Civil Case No.
21,898-93 to annul the deed of sale involving the Hino truck executed by Jose Andrada, Jr. in favor
of Moises Andrada, considering that Pilhino had "believed that the sale in favor of defendants-
appellants [had been] resorted to so that Jose Andrada [might] evade his obligations." 5 The CA
concluded that no remedy was available for any damages that the petitioners sustained from the
filing of Civil Case No. 21,898-93 against them because "the law affords no remedy for such
damages resulting from an act which does not amount to a legal injury or wrong." 6

Worthy to note is that the CAs finding and conclusion rested on the RTCs own persuasion that the
sale of the Hino truck to Moises Andrada had been simulated. 7

Yet, the petitioners still insist in this appeal that both lower courts erred in their conclusion on the
absence of bad faith on the part of Pilhino.

We cannot side with the petitioners. Their insistence, which represents their disagreement with the
CAs declaration that the second and third elements of abuse of rights, supra, were not established,
requires the consideration and review of factual issues. Hence, this appeal cannot succeed, for an
appeal by petition for review on certiorari cannot determine factual issues. In the exercise of its
power of review, the Court is not a trier of facts and does not normally undertake the re-examination
of the evidence presented by the contending parties during the trial. Perforce, the findings of fact by
the CA are conclusive and binding on the Court. This restriction of the review to questions of law has
been institutionalized in Section 1, Rule 45 of the Rules of Court, viz:

Section 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment or final order or resolution of the Court of Appeals, the Sandiganbayan, the Regional Trial
Court or other courts whenever authorized by law, may file with the Supreme Court a verified petition
for review on certiorari. The petition shall raise only questions of law which must be distinctly set
forth. (1a, 2a)8
It is true that the Court has, at times, allowed exceptions from the restriction. Among the recognized
exceptions are the following, to wit:9

(a) When the findings are grounded entirely on speculation, surmises, or conjectures;

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

(c) When there is grave abuse of discretion;

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

(e) When the findings of facts are conflicting;

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

(g) When the CAs findings are contrary to those by the trial court;

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

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

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

(k) When the CA manifestly overlooked certain relevant facts not disputed by the parties,
which, if properly considered, would justify a different conclusion.

However, the circumstances of this case do not warrant reversing or modifying the findings of the
CA, which are consistent with the established facts. Verily, the petitioners did not prove the
concurrence of the elements of abuse of rights.

The petitioners further seek attorneys fees based on Article 2208 (4) of the Civil Code, which
provides that "in the absence of stipulation, attorneys fees and expenses of litigation, other than
judicial costs, cannot be recovered, except xxx (4) in cases of clearly unfounded civil action or
proceeding against the plaintiff xxx."

The petitioners are not entitled to attorneys fees.

It is well accepted in this jurisdiction that no premium should be placed on the right to litigate and
that not every winning party is entitled to an automatic grant of attorneys fees. 10 Indeed, before the
effectivity of the new Civil Code, such fees could not be recovered in the absence of a stipulation. 11 It
was only with the advent of the new Civil Code that the right to collect attorneys fees in the
instances mentioned in Article 2208 was recognized, 12and such fees are now included in the concept
of actual damages.13 One such instance is where the defendant is guilty of gross and evident bad
faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim. 14This is a corollary of
the general principle expressed in Article 19 of the Civil Code that everyone must, in the
performance of his duties, observe honesty and good faith and the rule embodied in Article 1170 that
anyone guilty of fraud (bad faith) in the performance of his obligation shall be liable for damages.

But, as noted by the Court in Morales v. Court of Appeals,15 the award of attorneys fees is the
exception rather than the rule. The power of a court to award attorneys fees under Article 2208 of
the Civil Code demands factual, legal, and equitable justification; its basis cannot be left to
speculation and conjecture.16 The general rule is that attorneys fees cannot be recovered as part of
damages because of the policy that no premium should be placed on the right to litigate. 17 1avvphi1

Herein, the element of bad faith on the part of Pilhino in commencing and prosecuting Civil Case No.
21,898-93, which was necessary to predicate the lawful grant of attorneys fees based on Article
2208 (4) of the Civil Code, was not established. Accordingly, the petitioners demand for attorneys
fees must fail.

WHEREFORE, we deny the petition for review on certiorari for its lack of merit, and affirm the
decision of the Court of Appeals.

SO ORDERED.

4. G.R. No. 158143 September 21, 2011

PHILIPPINE COMMERCIAL INTERNATIONAL BANK, Petitioner,

vs.
ANTONIO B. BALMACEDA and ROLANDO N. RAMOS, Respondents.

DECISION

BRION, J.:

Before us is a petition for review on certiorari,1 filed by the Philippine Commercial International
Bank2 (Bank or PCIB), to reverse and set aside the decision3 dated April 29, 2003 of the Court of
Appeals (CA) in CA-G.R. CV No. 69955. The CA overturned the September 22, 2000 decision of the
Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case No. 93-3181, which held
respondent Rolando Ramos liable to PCIB for the amount of P895,000.00.

FACTUAL ANTECEDENTS

On September 10, 1993, PCIB filed an action for recovery of sum of money with damages before the
RTC against Antonio Balmaceda, the Branch Manager of its Sta. Cruz, Manila branch. In its
complaint, PCIB alleged that between 1991 and 1993, Balmaceda, by taking advantage of his
position as branch manager, fraudulently obtained and encashed 31 Managers checks in the total
amount of Ten Million Seven Hundred Eighty Two Thousand One Hundred Fifty Pesos
(P10,782,150.00).
On February 28, 1994, PCIB moved to be allowed to file an amended complaint to implead Rolando
Ramos as one of the recipients of a portion of the proceeds from Balmacedas alleged fraud. PCIB
also increased the number of fraudulently obtained and encashed Managers checks to 34, in the
total amount of Eleven Million Nine Hundred Thirty Seven Thousand One Hundred Fifty Pesos
(P11,937,150.00). The RTC granted this motion.

Since Balmaceda did not file an Answer, he was declared in default. On the other hand, Ramos filed
an Answer denying any knowledge of Balmacedas scheme. According to Ramos, he is a reputable
businessman engaged in the business of buying and selling fighting cocks, and Balmaceda was one
of his clients. Ramos admitted receiving money from Balmaceda as payment for the fighting cocks
that he sold to Balmaceda, but maintained that he had no knowledge of the source of Balmacedas
money.

THE RTC DECISION

On September 22, 2000, the RTC issued a decision in favor of PCIB, with the following dispositive
portion:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and
against the defendants as follows:

1. Ordering defendant Antonio Balmaceda to pay the amount of P11,042,150.00 with interest
thereon at the legal rate from [the] date of his misappropriation of the said amount until full
restitution shall have been made[.]

2. Ordering defendant Rolando Ramos to pay the amount of P895,000.00 with interest at the
legal rate from the date of misappropriation of the said amount until full restitution shall have
been made[.]

3. Ordering the defendants to pay plaintiff moral damages in the sum of P500,000.00 and
attorneys fees in the amount of ten (10%) percent of the total misappropriated amounts
sought to be recovered.

4. Plus costs of suit.

SO ORDERED.4

From the evidence presented, the RTC found that Balmaceda, by taking undue advantage of his
position and authority as branch manager of the Sta. Cruz, Manila branch of PCIB, successfully
obtained and misappropriated the banks funds by falsifying several commercial documents. He
accomplished this by claiming that he had been instructed by one of the Banks corporate clients to
purchase Managers checks on its behalf, with the value of the checks to be debited from the clients
corporate bank account. First, he would instruct the Bank staff to prepare the application forms for
the purchase of Managers checks, payable to several persons. Then, he would forge the signature
of the clients authorized representative on these forms and sign the forms as PCIBs approving
officer. Finally, he would have an authorized officer of PCIB issue the Managers checks. Balmaceda
would subsequently ask his subordinates to release the Managers checks to him, claiming that the
client had requested that he deliver the checks. 5 After receiving the Managers checks, he encashed
them by forging the signatures of the payees on the checks.

In ruling that Ramos acted in collusion with Balmaceda, the RTC noted that although the Managers
checks payable to Ramos were crossed checks, Balmaceda was still able to encash the
checks.6 After Balmaceda encashed three of these Managers checks, he deposited most of the
money into Ramos account.7 The RTC concluded that from the P11,937,150.00 that Balmaceda
misappropriated from PCIB, P895,000.00 actually went to Ramos. Since the RTC disbelieved
Ramos allegation that the sum of money deposited into his Savings Account (PCIB, Pasig branch)
were proceeds from the sale of fighting cocks, it held Ramos liable to pay PCIB the amount
of P895,000.00.

THE COURT OF APPEALS DECISION

On appeal, the CA dismissed the complaint against Ramos, holding that no sufficient evidence
existed to prove that Ramos colluded with Balmaceda in the latters fraudulent manipulations. 8

According to the CA, the mere fact that Balmaceda made Ramos the payee in some of the
Managers checks does not suffice to prove that Ramos was complicit in Balmacedas fraudulent
scheme. It observed that other persons were also named as payees in the checks that Balmaceda
acquired and encashed, and PCIB only chose to go after Ramos. With PCIBs failure to prove
Ramos actual participation in Balmacedas fraud, no legal and factual basis exists to hold him liable.

The CA also found that PCIB acted illegally in freezing and debiting P251,910.96 from Ramos bank
account. The CA thus decreed:

WHEREFORE, the appeal is granted. The Decision of the trial court rendered on September 22,
2000[,] insofar as appellant Ramos is concerned, is SET ASIDE, and the complaint below against
him is DISMISSED.

Appellee is hereby ordered to release the amount of P251,910.96 to appellant Ramos plus interest
at [the] legal rate computed from September 30, 1993 until appellee shall have fully complied
therewith.

Appellee is likewise ordered to pay appellant Ramos the following:

a) P50,000.00 as moral damages

b) P50,000.00 as exemplary damages, and

c) P20,000.00 as attorneys fees.

No costs.

SO ORDERED.9
 THE PETITION

In the present petition, PCIB avers that:

THE APPELLATE COURT ERRED IN HOLDING THAT THERE IS NO EVIDENCE TO HOLD

THAT RESPONDENT RAMOS ACTED IN COMPLICITY WITH RESPONDENT
BALMACEDA

II

THE APPELLATE COURT ERRED IN ORDERING THE PETITIONER TO RELEASE THE

AMOUNT OF P251,910.96 TO RESPONDENT RAMOS AND TO PAY THE LATTER MORAL
AND EXEMPLARY DAMAGES AND ATTORNEYS FEES10

PCIB contends that the circumstantial evidence shows that Ramos had knowledge of, and acted in
complicity with Balmaceda in, the perpetuation of the fraud. Ramos explanation that he is a
businessman and that he received the Managers checks as payment for the fighting cocks he sold
to Balmaceda is unconvincing, given the large sum of money involved. While Ramos presented
evidence that he is a reputable businessman, this evidence does not explain why the Managers
checks were made payable to him in the first place.

PCIB maintains that it had the right to freeze and debit the amount of P251,910.96 from Ramos
bank account, even without his consent, since legal compensation had taken place between them by
operation of law. PCIB debited Ramos bank account, believing in good faith that Ramos was not
entitled to the proceeds of the Managers checks and was actually privy to the fraud perpetrated by
Balmaceda. PCIB cannot thus be held liable for moral and exemplary damages.

OUR RULING

We partly grant the petition.

At the outset, we observe that the petition raises mainly questions of fact whose resolution requires
the re-examination of the evidence on record. As a general rule, petitions for review on certiorari only
involve questions of law.11 By way of exception, however, we can delve into evidence and the factual
circumstance of the case when the findings of fact in the tribunals below (in this case between those
of the CA and of the RTC) are conflicting. When the exception applies, we are given latitude to
review the evidence on record to decide the case with finality.12

Ramos participation in Balmacedas scheme not proven

From the testimonial and documentary evidence presented, we find it beyond question that
Balmaceda, by taking advantage of his position as branch manager of PCIBs Sta. Cruz, Manila
branch, was able to apply for and obtain Managers checks drawn against the bank account of one
of PCIBs clients. The unsettled question is whether Ramos, who received a portion of the money
that Balmaceda took from PCIB, should also be held liable for the return of this money to the Bank.

PCIB insists that it presented sufficient evidence to establish that Ramos colluded with Balmaceda in
the scheme to fraudulently secure Managers checks and to misappropriate their proceeds. Since
Ramos defense anchored on mere denial of any participation in Balmacedas wrongdoing is an
intrinsically weak defense, it was error for the CA to exonerate Ramos from any liability.

In civil cases, the party carrying the burden of proof must establish his case by a preponderance of
evidence, or evidence which, to the court, is more worthy of belief than the evidence offered in
opposition.13 This Court, in Encinas v. National Bookstore, Inc.,14 defined "preponderance of
evidence" in the following manner:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either
side and is usually considered to be synonymous with the term "greater weight of the evidence" or
"greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last
analysis, means probability of the truth. It is evidence which is more convincing to the court as
worthy of belief than that which is offered in opposition thereto.

The party, whether the plaintiff or the defendant, who asserts the affirmative of an issue has the onus
to prove his assertion in order to obtain a favorable judgment, subject to the overriding rule that the
burden to prove his cause of action never leaves the plaintiff. For the defendant, an affirmative
defense is one that is not merely a denial of an essential ingredient in the plaintiff's cause of action,
but one which, if established, will constitute an "avoidance" of the claim. 15

Thus, PCIB, as plaintiff, had to prove, by preponderance of evidence, its positive assertion that
Ramos conspired with Balmaceda in perpetrating the latters scheme to defraud the Bank. In PCIBs
estimation, it successfully accomplished this through the submission of the following evidence:

[1] Exhibits "A," "D," "PPPP," "QQQQ," and "RRRR" and their submarkings, the application
forms for MCs, show that [these MCs were applied for in favor of Ramos;]

[2] Exhibits "K," "N," "SSSS," "TTTT," and "UUUU" and their submarkings prove that the MCs
were issued in favor of x x x Ramos[; and]

[3] [T]estimonies of the witness for [PCIB].16

We cannot accept these submitted pieces of evidence as sufficient to satisfy the burden of proof that
PCIB carries as plaintiff.

On its face, all that PCIBs evidence proves is that Balmaceda used Ramos name as a payee when
he filled up the application forms for the Managers checks. But, as the CA correctly observed, the
mere fact that Balmaceda made Ramos the payee on some of the Managers checks is not enough
basis to conclude that Ramos was complicit in Balmacedas fraud; a number of other people were
made payees on the other Managers checks yet PCIB never alleged them to be liable, nor did the
Bank adduce any other evidence pointing to Ramos participation that would justify his separate
treatment from the others. Also, while Ramos is Balmacedas brother-in-law, their relationship is not
sufficient, by itself, to render Ramos liable, absent concrete proof of his actual participation in the
fraudulent scheme.

Moreover, the evidence on record clearly shows that Balmaceda acted on his own when he applied
for the Managers checks against the bank account of one of PCIBs clients, as well as when he
encashed the fraudulently acquired Managers checks.

Mrs. Elizabeth Costes, the Area Manager of PCIB at the time of the relevant events, testified that
Balmaceda committed all the acts necessary to obtain the unauthorized Managers checks from
filling up the application form by forging the signature of the clients representative, to forging the
signatures of the payees in order to encash the checks. As Mrs. Costes stated in her testimony:

Q: I am going into [these] particular instances where you said that Mr. Balmaceda [has] been making
unauthorized withdrawals from particular account of a client or a client of yours at Sta. Cruz branch.
Would you tell us how he effected his unauthorized withdrawals?

A: He prevailed upon the domestic remittance clerk to prepare the application of a Managers check
which [has] been debited to a clients account. This particular Managers check will be payable to a
certain individual thru his account as the instruction of the client.

Q: What was your findings in so far as the particular alleged instruction of a client is concerned?

A: We found out that he forged the signature of the client.

Q: On that particular application?

A: Yes sir.

Q: Showing to you several applications for Managers Check previously attached as Annexes "A, B,
C, D and E["] of the complaint. Could you please tell us where is that particular alleged signature of a
client applying for the Managers check which you claimed to have been forged by Mr. Balmaceda?

A: Here sir.

xxxx

Q: After the accomplishment of this application form as you stated Mrs. witness, do you know what
happened to the application form?

A: Before that application form is processed it goes to several stages. Here for example this was
signed supposed to be by the client and his signature representing that, he certified the signature
based on their records to be authentic.

Q: When you said he to whom are you referring to?

A: Mr. Balmaceda. And at the same time he approved the transaction.

xxxx

Q: Do you know if the corresponding checks applied for in the application forms were issued?

A: Yes sir.

Q: Could you please show us where these checks are now, the one applied for in Exhibit "A" which
is in the amount of P150,000.00, where is the corresponding check?

A: Rolando Ramos dated December 26, 1991 and one of the signatories with higher authority, this is
Mr. Balmacedas signature.

Q: In other words he is likewise approving signatory to the Managers check?

A: Yes sir. This is an authority that the check [has] been encashed.

Q: In other words this check issued to Rolando Ramos dated December 26, 1991 is a cross check
but nonetheless he allowed to encash by granting it.

Could you please show us?

ATTY. PACES: Witness pointing to an initial of the defendant Antonio Balmaceda, the notation cross
check.

A: And this is his signature.

xxxx

Q: How about the check corresponding to Exhibit E-2 which is an application for P125,000.00 for a
certain Rolando Ramos. Do you have the check?

A: Yes sir.

ATTY. PACES: Witness producing a check dated December 19, 1991 the amount of P125,000.00
payable to certain Rolando Ramos.

Q: Can you tell us whether the same modus operandi was ad[o]pted by Mr. Balmaceda in so far as
he is concerned?

A: Yes sir he is also the right signer and he authorized the cancellation of the cross
check.17 (emphasis ours)

xxxx
Q: These particular checks [Mrs.] witness in your findings, do you know if Mr. Balmaceda [has] again
any participation in these checks?

A: He is also the right signer and approved officer and he was authorized to debit on file.

xxxx

Q: And do you know if these particular checks marked as Exhibit G-2 to triple FFF were
subsequently encashed?

A: Yes sir.

Q: Were you able to find out who encashed?

A: Mr. Balmaceda himself and besides he approved the encashment because of the signature that
he allowed the encashment of the check.

xxxx

Q: Do you know if this particular person having in fact withdraw of received the proceeds of [these]
particular checks, the payee?

A: No sir.

Q: It was all Mr. Balmaceda dealing with you?

A: Yes sir.

Q: In other words it would be possible that Mr. Balmaceda himself gotten the proceeds of the checks
by forging the payees signature?

A: Yes sir.18 (emphases ours)

Mrs. Nilda Laforteza, the Commercial Account Officer of PCIBs Sta. Cruz, Manila branch at the time
the events of this case occurred, confirmed Mrs. Costes testimony by stating that it was Balmaceda
who forged Ramos signature on the Managers checks where Ramos was the payee, so as to
encash the amounts indicated on the checks.19 Mrs. Laforteza also testified that Ramos never went
to the PCIB, Sta. Cruz, Manila branch to encash the checks since Balmaceda was the one who
deposited the checks into Ramos bank account. As revealed during Mrs. Lafortezas cross-
examination:

Q: Mrs. Laforteza, these checks that were applied for by Mr. Balmaceda, did you ever see my client
go to the bank to encash these checks?

A: No it is Balmaceda who is depositing in his behalf.

Q: Did my client ever call up the bank concerning this amount?

A: Yes he is not going to call PCIBank Sta. Cruz branch because his account is maintained at Pasig.

Q: So Mr. Balmaceda was the one who just remitted or transmitted the amount that you claimed
[was sent] to the account of my client?

A: Yes.20 (emphases ours)

Even Mrs. Rodelia Nario, presented by PCIB as its rebuttal witness to prove that Ramos encashed a
Managers check for P480,000.00, could only testify that the money was deposited into Ramos
PCIB bank account. She could not attest that Ramos himself presented the Managers check for
deposit in his bank account.21 These testimonies clearly dispute PCIBs theory that Ramos was
instrumental in the encashment of the Managers checks.

We also find no reason to doubt Ramos claim that Balmaceda deposited these large sums of money
into his bank account as payment for the fighting cocks that Balmaceda purchased from him. Ramos
presented two witnesses Vicente Cosculluela and Crispin Gadapan who testified that Ramos
previously engaged in the business of buying and selling fighting cocks, and that Balmaceda was
one of Ramos biggest clients.

Quoting from the RTC decision, PCIB stresses that Ramos own witness and business partner,
Cosculluela, testified that the biggest net profit he and Ramos earned from a single transaction with
Balmaceda amounted to no more than P100,000.00, for the sale of approximately 45 fighting
cocks.22 In PCIBs view, this testimony directly contradicts Ramos assertion that he received
approximately P400,000.00 from his biggest transaction with Balmaceda. To PCIB, the testimony
also renders questionable Ramos assertion that Balmaceda deposited large amounts of money into
his bank account as payment for the fighting cocks.

On this point, we find that PCIB misunderstood Cosculluelas testimony. A review of the testimony
shows that Cosculluela specifically referred to the net profit that they earned from the sale of the
fighting cocks;23 PCIB apparently did not take into account the capital, transportation and other
expenses that are components of these transactions. Obviously, in sales transactions, the buyer has
to pay not only for the value of the thing sold, but also for the shipping costs and other incidental
costs that accompany the acquisition of the thing sold. Thus, while the biggest net profit that Ramos
and Cosculluela earned in a single transaction amounted to no more than P100,000.00,24 the
inclusion of the actual acquisition costs of the fighting cocks, the transportation expenses (i.e.,
airplane tickets from Bacolod or Zamboanga to Manila) and other attendant expenses could account
for the P400,000.00 that Balmaceda deposited into Ramos bank account.

Given that PCIB failed to establish Ramos participation in Balmacedas scheme, it was not even
necessary for Ramos to provide an explanation for the money he received from Balmaceda. Even if
the evidence adduced by the plaintiff appears stronger than that presented by the defendant, a
judgment cannot be entered in the plaintiffs favor if his evidence still does not suffice to sustain his
cause of action;25 to reiterate, a preponderance of evidence as defined must be established to
achieve this result.
PCIB itself at fault as employer

In considering this case, one point that cannot be disregarded is the significant role that PCIB played
which contributed to the perpetration of the fraud. We cannot ignore that Balmaceda managed to
carry out his fraudulent scheme primarily because other PCIB employees failed to carry out their
assigned tasks flaws imputable to PCIB itself as the employer.

Ms. Analiza Vega, an accounting clerk, teller and domestic remittance clerk working at the PCIB,
Sta. Cruz, Manila branch at the time of the incident, testified that Balmaceda broke the Banks
protocol when he ordered the Banks employees to fill up the application forms for the Managers
checks, to be debited from the bank account of one of the banks clients, without providing the
necessary Authority to Debit from the client.26 PCIB also admitted that these Managers checks were
subsequently released to Balmaceda, and not to the clients representative, based solely on
Balmacedas word that the client had tasked him to deliver these checks. 27

Despite Balmacedas gross violations of bank procedures mainly in the processing of the
applications for Managers checks and in the releasing of the Managers checks Balmacedas co-
employees not only turned a blind eye to his actions, but actually complied with his instructions. In
this way, PCIBs own employees were unwitting accomplices in Balmacedas fraud.

Another telling indicator of PCIBs negligence is the fact that it allowed Balmaceda to encash the
Managers checks that were plainly crossed checks. A crossed check is one where two parallel lines
are drawn across its face or across its corner.28 Based on jurisprudence, the crossing of a check has
the following effects: (a) the check may not be encashed but only deposited in the bank; (b) the
check may be negotiated only once to the one who has an account with the bank; and (c) the act
of crossing the check serves as a warning to the holder that the check has been issued for a definite
purpose and he must inquire if he received the check pursuant to this purpose; otherwise, he is not a
holder in due course.29 In other words, the crossing of a check is a warning that the check should be
deposited only in the account of the payee. When a check is crossed, it is the duty of the collecting
bank to ascertain that the check is only deposited to the payees account. 30 In complete disregard of
this duty, PCIBs systems allowed Balmaceda to encash 26 Managers checks which were all
crossed checks, or checks payable to the "payees account only."

The General Banking Law of 200031 requires of banks the highest standards of integrity and
performance. The banking business is impressed with public interest. Of paramount importance is
the trust and confidence of the public in general in the banking industry. Consequently, the diligence
required of banks is more than that of a Roman pater familias or a good father of a family.32 The
highest degree of diligence is expected.33

While we appreciate that Balmaceda took advantage of his authority and position as the branch
manager to commit these acts, this circumstance cannot be used to excuse the manner the Bank
through its employees handled its clients bank accounts and thereby ignored established bank
procedures at the branch managers mere order. This lapse is made all the more glaring by
Balmacedas repetition of his modus operandi 33 more times in a period of over one year by the
Banks own estimation. With this kind of record, blame must be imputed on the Bank itself and its
systems, not solely on the weakness or lapses of individual employees.
Principle of unjust enrichment not applicable

PCIB maintains that even if Ramos did not collude with Balmaceda, it still has the right to recover the
amounts unjustly received by Ramos pursuant to the principle of unjust enrichment. This principle is
embodied in Article 22 of the Civil Code which provides:

Article 22. Every person who through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense of the latter without just or legal
ground, shall return the same to him.

To have a cause of action based on unjust enrichment, we explained in University of the Philippines
v. Philab Industries, Inc.34 that:

Unjust enrichment claims do not lie simply because one party benefits from the efforts or obligations
of others, but instead it must be shown that a party was unjustly enriched in the sense that the term
unjustly could mean illegally or unlawfully.

Moreover, to substantiate a claim for unjust enrichment, the claimant must unequivocally prove
that another party knowingly received something of value to which he was not entitled and
that the state of affairs are such that it would be unjust for the person to keep the benefit.
Unjust enrichment is a term used to depict result or effect of failure to make remuneration of or for
property or benefits received under circumstances that give rise to legal or equitable obligation to
account for them; to be entitled to remuneration, one must confer benefit by mistake, fraud, coercion,
or request. Unjust enrichment is not itself a theory of reconvey. Rather, it is a prerequisite for the
enforcement of the doctrine of restitution.35 (emphasis ours)

Ramos cannot be held liable to PCIB on account of unjust enrichment simply because he received
payments out of money secured by fraud from PCIB. To hold Ramos accountable, it is necessary to
prove that he received the money from Balmaceda, knowing that he (Ramos) was not entitled to it.
PCIB must also prove that Ramos, at the time that he received the money from Balmaceda, knew
that the money was acquired through fraud. Knowledge of the fraud is the link between Ramos and
PCIB that would obligate Ramos to return the money based on the principle of unjust enrichment.

However, as the evidence on record indicates, Ramos accepted the deposits that Balmaceda made
directly into his bank account, believing that these deposits were payments for the fighting cocks that
Balmaceda had purchased. Significantly, PCIB has not presented any evidence proving that Ramos
participated in, or that he even knew of, the fraudulent sources of Balmacedas funds.

PCIB illegally froze and debited Ramos assets

We also find that PCIB acted illegally in freezing and debiting Ramos bank account. In BPI Family
Bank v. Franco,36 we cautioned against the unilateral freezing of bank accounts by banks, noting
that:

More importantly, [BPI Family Bank] does not have a unilateral right to freeze the accounts of Franco
based on its mere suspicion that the funds therein were proceeds of the multi-million peso scam
Franco was allegedly involved in. To grant [BPI Family Bank], or any bank for that matter, the right to
take whatever action it pleases on deposits which it supposes are derived from shady transactions,
would open the floodgates of public distrust in the banking industry.37

We see no legal merit in PCIBs claim that legal compensation took place between it and Ramos,
thereby warranting the automatic deduction from Ramos bank account. For legal compensation to
take place, two persons, in their own right, must first be creditors and debtors of each other.38 While
PCIB, as the depositary bank, is Ramos debtor in the amount of his deposits, Ramos is not PCIBs
debtor under the evidence the PCIB adduced. PCIB thus had no basis, in fact or in law, to
automatically debit from Ramos bank account.

On the award of damages

Although PCIBs act of freezing and debiting Ramos account is unlawful, we cannot hold PCIB liable
for moral and exemplary damages. Since a contractual relationship existed between Ramos and
PCIB as the depositor and the depositary bank, respectively, the award of moral damages depends
on the applicability of Article 2220 of the Civil Code, which provides:

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court
should find that, under the circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in bad faith. [emphasis ours]

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or
some moral obliquity and conscious commission of a wrong; it partakes of the nature of fraud. 39

As the facts of this case bear out, PCIB did not act out of malice or bad faith when it froze Ramos
bank account and subsequently debited the amount of P251,910.96 therefrom. While PCIB may
have acted hastily and without regard to its primary duty to treat the accounts of its depositors with
meticulous care and utmost fidelity,40 we find that its actions were propelled more by the need to
protect itself, and not out of malevolence or ill will. One may err, but error alone is not a ground for
granting moral damages.41

We also disallow the award of exemplary damages. Article 2234 of the Civil Code requires a party to
first prove that he is entitled to moral, temperate or compensatory damages before he can be
awarded exemplary damages. Since no reason exists to award moral damages, so too can there be
1wphi1

no reason to award exemplary damages.

We deem it just and equitable, however, to uphold the award of attorneys fees in Ramos favor.
Taking into consideration the time and efforts involved that went into this case, we increase the
award of attorneys fees from P20,000.00 to P75,000.00.

WHEREFORE, the petition is PARTIALLY GRANTED. We AFFIRM the decision of the Court of
Appeals dated April 29, 2003 in CA-G.R. CV No. 69955 with the MODIFICATION that the award of
moral and exemplary damages in favor of Rolando N. Ramos is DELETED, while the award of
attorneys fees is INCREASED to P75,000.00. Costs against the Philippine Commercial International
Bank.
SO ORDERED.

5. G.R. No. 189647 February 6, 2012

NANCY T. LORZANO, Petitioner,

vs.
JUAN TABAYAG, JR., Respondent.

DECISION

REYES, J.:

Nature of the Petition

This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Nancy T.
Lorzano (petitioner) assailing the Court of Appeals (CA) Decision 1 dated March 18, 2009 and
Resolution2 dated September 16, 2009 in CA-G.R. CV No. 87762 entitled "Juan Tabayag, Jr. v.
Nancy T. Lorzano."

The Antecedent Facts

The instant case stemmed from an amended complaint3 for annulment of document and
reconveyance filed by Juan Tabayag, Jr. (respondent) against the petitioner, docketed as Civil Case
No. Ir-3286, with the Regional Trial Court (RTC) of Iriga City.

The petitioner and the respondent are two of the children of the late Juan Tabayag (Tabayag) who
died on June 2, 1992. Tabayag owned a parcel of land situated in Sto. Domingo, Iriga City (subject
property). Right after the burial of their father, the petitioner allegedly requested from her siblings that
she be allowed to take possession of and receive the income generated by the subject property until
after her eldest son could graduate from college. The petitioners siblings acceded to the said
request.

After the petitioners eldest son finished college, her siblings asked her to return to them the
possession of the subject property so that they could partition it among themselves. However, the
petitioner refused to relinquish her possession of the subject property claiming that she purchased
the subject property from their father as evidenced by a Deed of Absolute Sale of Real
Property4 executed by the latter on May 25, 1992.

The respondent claimed that their father did not execute the said deed of sale. He pointed out that
the signature of their father appearing in the said deed of sale was a forgery as the same is
markedly different from the real signature of Tabayag.

Further, the respondent asserted that the said deed of sale was acknowledged before a person who
was not a duly commissioned Notary Public. The deed of sale was acknowledged by the petitioner
before a certain Julian P. Cabaes (Cabaes) on May 25, 1992 at Iriga City. However, as per the
Certification5 issued by the Office of the Clerk of Court of the RTC on May 16, 2002, Cabaes has
never been commissioned as a Notary Public for and in the Province of Camarines Sur and in the
Cities of Iriga and Naga.

The respondent alleged that the petitioner purposely forged the signature of Tabayag in the said
deed of sale to deprive him and their other siblings of their share in the subject property. He then
averred that the subject property was already covered by Original Certificate of Title (OCT) No.
17866 issued by the Register of Deeds of Iriga City on January 9, 2001 registered under the name of
the petitioner. OCT No. 1786 was issued pursuant to Free Patent No. 051716 which was procured
by the petitioner on June 24, 1996.

For her part, the petitioner maintained she is the owner of the subject parcel of land having
purchased the same from Tabayag as evidenced by the May 25, 1992 deed of sale. Further, the
petitioner asserted that the respondent failed to establish that the signature of Tabayag appearing on
the said deed of sale was a forgery considering that it was not submitted for examination by a
handwriting expert.

The RTC Decision

On April 28, 2006, the RTC rendered an Amended Decision7 the decretal portion of which reads:

WHEREFORE, Judgment is hereby rendered[:]

a. Declaring the supposed Deed of Sale null and void and of no legal effect;

b. Ordering the [petitioner] to reconvey to the heirs of the late Juan Tabayag, Sr. the land
subject matter of this case[;]

c. Declaring the property described in the complaint and in the spurious deed of sale to be
owned in common by the heirs of Juan Tabayag, Sr. as part of their inheritance from said
Juan Tabayag, Sr[.];

d. Ordering [petitioner] to pay plaintiff the sum of One Hundred Thousand Pesos
(P100,000.00)by way of moral damages;

e. Ordering defendant to pay plaintiff the attorneys fees in the sum of Fifteen Thousand
Pesos (P15,000.00), based on quantum meruit;

f. Dismissing the counterclaim for lack of merit[;]

g. Costs against the defendant.

SO ORDERED.8
The RTC opined that a cursory comparison between the signature of Tabayag appearing on the said
deed of sale and his signatures appearing on other documents would clearly yield a conclusion that
the former was indeed a forgery. Moreover, the RTC asserted that the nullity of the said May 25,
1992 deed of sale all the more becomes glaring considering that the same was purportedly
acknowledged before a person who is not a duly commissioned Notary Public.

The CA Decision

Thereafter, the petitioner appealed the decision with the CA. On March 18, 2009, the CA rendered
the assailed decision affirming in toto the RTC decision.9 The CA held that the testimony of a
handwriting expert in this case is not indispensable as the similarity and dissimilarity between the
questioned signature of Tabayag as compared to other signatures of the latter in other documents
could be determined by a visual comparison.

Further, the CA upheld the award of moral damages and attorneys fees in favor of the respondent
as the petitioners conduct caused "great concern and anxiety" to the respondent and that the latter
had to go to court and retain the services of counsel to pursue his rights and protect his interests.

Undaunted, the petitioner instituted the instant petition for review on certiorari before this Court
asserting the following: (1) the questioned signature of Tabayag in the May 25, 1992 deed of sale
could not be declared spurious unless first examined and declared to be so by a handwriting expert;
(2) considering that the subject property was registered under the petitioners name pursuant to a
free patent, reconveyance of the same in favor of the respondent is improper since only the
Government, through the Office of the Solicitor General (OSG), could assail her title thereto in an
action for reversion; and (3) the respondent is not entitled to an award for moral damages and
attorneys fees.

In his Comment,10 the respondent claimed that the issues raised in the instant petition are factual in
nature and, hence, could not be passed upon by this Court in a petition for review on certiorari under
Rule 45. Likewise, the respondent asserted that the petitioners free patent, having been issued on
the basis of a falsified document, does not create a right over the subject property in her favor.

Issues

In sum, the threshold issues for resolution are the following: (a) whether the lower courts erred in
declaring the May 25, 1992 deed of sale a nullity; (b) whether an action for reconveyance is proper
in the instant case; and (c) whether the respondent is entitled to an award of moral damages and
attorneys fees.

The Courts Ruling

First and Third Issues: Nullity of the Deed of Sale and Award of Moral Damages and Attorneys Fees

This Court shall jointly discuss the first and third issues as the resolution of the same are
interrelated.
Primarily, Section 1, Rule 45 of the Rules of Court categorically states that the petition filed shall
raise only questions of law, which must be distinctly set forth. 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. For a question to be one of law, the same
must not involve an examination of the probative value of the evidence presented by the litigants or
any of them. The resolution of the issue must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the evidence presented, the
question posed is one of fact.11

That the signature of Tabayag in the May 25, 1992 deed of sale was a forgery is a conclusion
derived by the RTC and the CA on a question of fact. The same is conclusive upon this Court as it
involves the truth or falsehood of an alleged fact, which is a matter not for this Court to
resolve.12 Where a petitioner casts doubt on the findings of the lower court as affirmed by the CA
regarding the existence of forgery is a question of fact.13

In any case, the CA aptly ruled that a handwriting expert is not indispensable to prove that the
signature of Tabayag in the questioned deed of sale was indeed a forgery. It is true that the opinion
of handwriting experts are not necessarily binding upon the court, the experts function being to
place before the court data upon which the court can form its own opinion. Handwriting experts are
usually helpful in the examination of forged documents because of the technical procedure involved
in analyzing them. But resort to these experts is not mandatory or indispensable to the examination
or the comparison of handwriting. A finding of forgery does not depend entirely on the testimonies of
handwriting experts, because the judge must conduct an independent examination of the questioned
signature in order to arrive at a reasonable conclusion as to its authenticity.14

For the same reason, we would ordinarily disregard the petitioners allegation as to the propriety of
the award of moral damages and attorneys fees in favor of the respondent as it is a question of fact.
Thus, questions on whether or not there was a preponderance of evidence to justify the award of
damages or whether or not there was a causal connection between the given set of facts and the
damage suffered by the private complainant or whether or not the act from which civil liability might
arise exists are questions of fact.15

Essentially, the petitioner is questioning the award of moral damages and attorneys fees in favor of
the respondent as the same is supposedly not fully supported by evidence. However, in the final
analysis, the question of whether the said award is fully supported by evidence is a factual question
as it would necessitate whether the evidence adduced in support of the same has any probative
value. For a question to be one of law, it must involve no examination of the probative value of the
evidence presented by the litigants or any of them. 16

Nevertheless, a review of the amount of moral damages actually awarded by the lower courts in
favor of the respondent is necessary.

Here, the lower courts ordered the petitioner to pay the respondent moral damages in the amount
of P100,000.00. We find the said amount to be excessive.
Moral damages are not intended to enrich the complainant at the expense of the defendant. Rather,
these are awarded only to enable the injured party to obtain "means, diversions or amusements" that
will serve to alleviate the moral suffering that resulted by reason of the defendants culpable action.
The purpose of such damages is essentially indemnity or reparation, not punishment or correction.
In other words, the award thereof is aimed at a restoration within the limits of the possible, of the
spiritual status quo ante; therefore, it must always reasonably approximate the extent of injury and
be proportional to the wrong committed.17

Accordingly, the amount of moral damages must be reduced to P30,000.00, an amount reasonably
commensurate to the injury sustained by the respondent.

Second Issue: Propriety of the Reconveyance of the Subject Property to the Heirs of the late Juan
Tabayag

The petitioner asserted that the CA erred in not finding that her ownership over the subject property
was by virtue of a free patent issued by the government and, thus, even assuming that the subject
deed of sale is invalid, her title and ownership of the subject property cannot be divested or much
less ordered reconveyed to the heirs of Tabayag.

Simply put, the petitioner points out that the subject property, being acquired by her through a grant
of free patent from the government, originally belonged to the public domain. As such, the lower
courts could not order the reconveyance of the subject property to the heirs of Tabayag as the latter
are not the original owners thereof. If at all, the subject property could only be ordered reverted to
the public domain.

An issue cannot be raised for the first time on appeal as it is already barred by estoppel.

This Court notes that the foregoing argument is being raised by the petitioner for the first time in the
instant petition. It is well-settled that no question will be entertained on appeal unless it has been
raised in the proceedings below. Points of law, theories, issues and arguments not brought to the
attention of the lower court, administrative agency or quasi-judicial body, need not be considered
by a reviewing court, as they cannot be raised for the first time at that late stage. Basic
considerations of fairness and due process impel this rule. Any issue raised for the first time on
appeal is barred by estoppel.18

Accordingly, the petitioners attack on the propriety of the action for reconveyance in this case ought
to be disregarded. However, in order to obviate any lingering doubt on the resolution of the issues
involved in the instant case, this Court would proceed to discuss the cogency of the petitioners
foregoing argument.

Title emanating from a free patent fraudulently secured does not become indefeasible.

The petitioner asserts that the amended complaint for annulment of document, reconveyance and
damages that was filed by the respondent with the RTC is a collateral attack on her title over the
subject property. She avers that, when the said amended compliant was filed, more than a year had
already lapsed since OCT No. 1786 over the subject property was issued under her name. Thus, the
petitioner maintains that her title over the subject property is already indefeasible and, hence, could
not be attacked collaterally.

We do not agree.

A Free Patent may be issued where the applicant is a natural-born citizen of the Philippines; is not
the owner of more than twelve (12) hectares of land; has continuously occupied and cultivated,
either by himself or through his predecessors-in-interest, a tract or tracts of agricultural public land
subject to disposition, for at least 30 years prior to the effectivity of Republic Act No. 6940; and has
paid the real taxes thereon while the same has not been occupied by any person. 19

Once a patent is registered and the corresponding certificate of title is issued, the land covered
thereby ceases to be part of public domain and becomes private property, and the Torrens Title
issued pursuant to the patent becomes indefeasible upon the expiration of one year from the date of
such issuance.20 However, a title emanating from a free patent which was secured through fraud
does not become indefeasible, precisely because the patent from whence the title sprung is itself
void and of no effect whatsoever.21

On this point, our ruling in Republic v. Heirs of Felipe Alejaga, Sr.22 is instructive:

True, once a patent is registered and the corresponding certificate of title [is] issued, the land
covered by them ceases to be part of the public domain and becomes private property. Further, the
Torrens Title issued pursuant to the patent becomes indefeasible a year after the issuance of the
latter. However, this indefeasibility of a title does not attach to titles secured by fraud and
misrepresentation. Well-settled is the doctrine that the registration of a patent under the Torrens
System does not by itself vest title; it merely confirms the registrants already existing one. Verily,
registration under the Torrens System is not a mode of acquiring ownership. 23 (citations omitted)

A fraudulently acquired free patent may only be assailed by the government in an action for
reversion.

Nonetheless, a free patent that was fraudulently acquired, and the certificate of title issued pursuant
to the same, may only be assailed by the government in an action for reversion pursuant to Section
101 of the Public Land Act.24 In Sherwill Development Corporation v. Sitio Sto. Nio Residents
Association, Inc.,25 this Court pointed out that:

It is also to the public interest that one who succeeds in fraudulently acquiring title to a public land
should not be allowed to benefit therefrom, and the State should, therefore, have an even existing
authority, thru its duly-authorized officers, to inquire into the circumstances surrounding the issuance
of any such title, to the end that the Republic, thru the Solicitor General or any other officer who may
be authorized by law, may file the corresponding action for the reversion of the land involved to the
public domain, subject thereafter to disposal to other qualified persons in accordance with law. In
other words, the indefeasibility of a title over land previously public is not a bar to an investigation by
the Director of Lands as to how such title has been acquired, if the purpose of such investigation is
to determine whether or not fraud had been committed in securing such title in order that the
appropriate action for reversion may be filed by the Government.26
In Kayaban, et al. v. Republic, et al.,27 this Court explained the reason for the rule that only the
government, through the OSG, upon the recommendation of the Director of Lands, may bring an
action assailing a certificate of title issued pursuant to a fraudulently acquired free patent:

Since it was the Director of Lands who processed and approved the applications of the appellants
and who ordered the issuance of the corresponding free patents in their favor in his capacity as
administrator of the disposable lands of the public domain, the action for annulment should have
been initiated by him, or at least with his prior authority and consent. 28

An action for reconveyance is proper in this case.

However, the foregoing rule is not without an exception. A recognized exception is that situation
where plaintiff-claimant seeks direct reconveyance from defendant public land unlawfully and in
breach of trust titled by him, on the principle of enforcement of a constructive trust. 29

A private individual may bring an action for reconveyance of a parcel of land even if the title thereof
was issued through a free patent since such action does not aim or purport to re-open the
registration proceeding and set aside the decree of registration, but only to show that the person
who secured the registration of the questioned property is not the real owner thereof. 30

In Roco, et al. v. Gimeda,31 we stated that if a patent had already been issued through fraud or
mistake and has been registered, the remedy of a party who has been injured by the fraudulent
registration is an action for reconveyance, thus:

It is to be noted that the petition does not seek for a reconsideration of the granting of the patent or
of the decree issued in the registration proceeding. The purpose is not to annul the title but to have it
conveyed to plaintiffs. Fraudulent statements were made in the application for the patent and no
notice thereof was given to plaintiffs, nor knowledge of the petition known to the actual possessors
and occupants of the property. The action is one based on fraud and under the law, it can be
instituted within four years from the discovery of the fraud. (Art. 1146, Civil Code, as based on
Section 3, paragraph 43 of Act No. 190.) It is to be noted that as the patent here has already been
issued, the land has the character of registered property in accordance with the provisions of Section
122 of Act No. 496, as amended by Act No. 2332, and the remedy of the party who has been injured
by the fraudulent registration is an action for reconveyance. (Director of Lands vs. Registered of
Deeds, 92 Phil., 826; 49 Off. Gaz. [3] 935; Section 55 of Act No. 496.)32

In the same vein, in Quiiano, et al. v. Court of Appeals, et al., 33 we stressed that:

The controlling legal norm was set forth in succinct language by Justice Tuason in a 1953 decision,
Director of Lands v. Register of Deeds of Rizal. Thus: "The sole remedy of the land owner whose
property has been wrongfully or erroneously registered in another's name is, after one year from the
date of the decree, not to set aside the decree, as was done in the instant case, 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." Such a doctrine goes back to the 1919 landmark decision of
Cabanos v. Register of Deeds of Laguna. If it were otherwise the institution of registration would, to
quote from Justice Torres, serve "as a protecting mantle to cover and shelter bad faith ...." In the
language of the then Justice, later Chief Justice, Bengzon: "A different view would encourage fraud
and permit one person unjustly to enrich himself at the expense of another." It would indeed be a
signal failing of any legal system if under the circumstances disclosed, the aggrieved party is
considered as having lost his right to a property to which he is entitled. It is one thing to protect an
innocent third party; it is entirely a different matter, and one devoid of justification, if [deceit] would be
rewarded by allowing the perpetrator to enjoy the fruits of his nefarious deed. As clearly revealed by
the undeviating line of decisions coming from this Court, such an undesirable eventuality is precisely
sought to be guarded against. So it has been before; so it should continue to be. 34 (citations omitted)

Here, the respondent, in filing the amended complaint for annulment of documents, reconveyance
and damages, was not seeking a reconsideration of the granting of the patent or the decree issued
in the registration proceedings. What the respondent sought was the reconveyance of the subject
property to the heirs of the late Tabayag on account of the fraud committed by the petitioner. Thus,
the lower courts did not err in upholding the respondents right to ask for the reconveyance of the
subject property. To hold otherwise would be to make the Torrens system a shield for the
commission of fraud.

That the subject property was not registered under the name of the heirs of Tabayag prior to the
issuance of OCT No. 1786 in the name of the petitioner would not effectively deny the remedy of
reconveyance to the former. An action for reconveyance is a legal and equitable remedy granted to
the rightful landowner, whose land was wrongfully or erroneously registered in the name of another,
to compel the registered owner to transfer or reconvey the land to him. 35

It cannot be gainsaid that the heirs of Tabayag, by themselves and through their predecessors-in-
interest, had already acquired a vested right over the subject property. An open, continuous, adverse
and public possession of a land of the public domain from time immemorial by a private individual
personally and through his predecessors confers an effective title on said possessors whereby the
land ceases to be public, to become private property, at least by presumption. 36 Hence, the right of
the heirs of Tabayag to ask for the reconveyance of the subject property is irrefutable. 1wphi1

At this juncture, we deem it necessary to reiterate our disquisition in Naval v. Court of

Appeals,37 thus:

The fact that petitioner was able to secure a title in her name did not operate to vest ownership upon
her of the subject land. Registration of a piece of land under the Torrens System does not create or
vest title, because it is not a mode of acquiring ownership. A certificate of title is merely an evidence
of ownership or title over the particular property described therein. It cannot be used to protect a
usurper from the true owner; nor can it be used as a shield for the commission of fraud; neither does
it permit one to enrich himself at the expense of others. Its issuance in favor of a particular person
does not foreclose the possibility that the real property may be co-owned with persons not named in
the certificate, or that it may be held in trust for another person by the registered owner.38 (citations
omitted)

WHEREFORE, in consideration of the foregoing disquisitions, the petition is DENIED. The Decision
dated March 18, 2009 and Resolution dated September 16, 2009 issued by the Court of Appeals in
CA-G.R. CV No. 87762 are hereby AFFIRMED with MODIFICATION. The petitioner is ordered to
pay the respondent moral damages in the amount of Thirty Thousand Pesos (P30,000.00).

SO ORDERED.

6. G.R. No. 175021 June 15, 2011

REPUBLIC OF THE PHILIPPINES, represented by the Chief of the Philippine National

Police, Petitioner,
vs.
THI THU THUY T. DE GUZMAN, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

This is a Petition for Review on Certiorari1 filed by Republic of the Philippines, as represented by the
Chief of the Philippine National Police (PNP), of the September 27, 2006 Decision 2 of the Court of
Appeals in CA-G.R. CV No. 80623, which affirmed with modification the September 8, 2003
Decision3 of the Regional Trial Court (RTC), Branch 222, of Quezon City in Civil Case No. Q99-
37717.

Respondent is the proprietress of Montaguz General Merchandise (MGM), 4 a contractor accredited

by the PNP for the supply of office and construction materials and equipment, and for the delivery of
various services such as printing and rental, repair of various equipment, and renovation of
buildings, facilities, vehicles, tires, and spare parts. 5

On December 8, 1995, the PNP Engineering Services (PNPES), released a Requisition and Issue
Voucher6 for the acquisition of various building materials amounting to Two Million Two Hundred
Eighty-Eight Thousand Five Hundred Sixty-Two Pesos and Sixty Centavos (P2,288,562.60) for the
construction of a four-storey condominium building with roof deck at Camp Crame, Quezon City.7

Respondent averred that on December 11, 1995, MGM and petitioner, represented by the PNP,
through its chief, executed a Contract of Agreement 8 (the Contract) wherein MGM, for the price
of P2,288,562.60, undertook to procure and deliver to the PNP the construction materials itemized in
the purchase order9 attached to the Contract. Respondent claimed that after the PNP Chief approved
the Contract and purchase order,10 MGM, on March 1, 1996, proceeded with the delivery of the
construction materials, as evidenced by Delivery Receipt Nos. 151-153, 11 Sales Invoice Nos. 038
and 041,12 and the "Report of Public Property Purchase"13 issued by the PNPs Receiving and
Accounting Officers to their Internal Auditor Chief. Respondent asseverated that following the PNPs
inspection of the delivered materials on March 4, 1996, 14 the PNP issued two Disbursement
Vouchers; one in the amount of P2,226,147.26 in favor of MGM,15 and the other, 16 in the amount
of P62,415.34, representing the three percent (3%) withholding tax, in favor of the Bureau of Internal
Revenue (BIR).17
On November 5, 1997, the respondent, through counsel, sent a letter dated October 20, 1997 18 to
the PNP, demanding the payment of P2,288,562.60 for the construction materials MGM procured for
the PNP under their December 1995 Contract.

On November 17, 1997, the PNP, through its Officer-in-Charge, replied19 to respondents counsel,
informing her of the payment made to MGM via Land Bank of the Philippines (LBP) Check No.
0000530631, 20 as evidenced by Receipt No. 001, 21 issued by the respondent to the PNP on April 23,
1996.22

On November 26, 1997, respondent, through counsel, responded by reiterating her demand 23 and
denying having ever received the LBP check, personally or through an authorized person. She also
claimed that Receipt No. 001, a copy of which was attached to the PNPs November 17, 1997 letter,
could not support the PNPs claim of payment as the aforesaid receipt belonged to Montaguz
Builders, her other company, which was also doing business with the PNP, and not to MGM, with
which the contract was made.

On May 5, 1999, respondent filed a Complaint for Sum of Money against the petitioner, represented
by the Chief of the PNP, before the RTC, Branch 222 of Quezon City.24 This was docketed as Civil
Case No. Q99-37717.

The petitioner filed a Motion to Dismiss25 on July 5, 1999, on the ground that the claim or demand set
forth in respondents complaint had already been paid or extinguished, 26 as evidenced by LBP Check
No. 0000530631 dated April 18, 1996, issued by the PNP to MGM, and Receipt No. 001, which the
respondent correspondingly issued to the PNP. The petitioner also argued that aside from the fact
that the respondent, in her October 20, 1997 letter, demanded the incorrect amount since it included
the withholding tax paid to the BIR, her delay in making such demand "[did] not speak well of the
worthiness of the cause she espouse[d]."27

Respondent opposed petitioners motion to dismiss in her July 12, 1999 Opposition 28and September
10, 1999 Supplemental Opposition to Motion to Dismiss. 29 Respondent posited that Receipt No. 001,
which the petitioner claimed was issued by MGM upon respondents receipt of the LBP check, was,
first, under the business name "Montaguz Builders," an entity separate from MGM. Next, petitioners
allegation that she received the LBP check on April 19, 1996 was belied by the fact that Receipt No.
001, which was supposedly issued for the check, was dated four days later, or April 23, 1996.
Moreover, respondent averred, the PNPs own Checking Account Section Logbook or the Warrant
Register, showed that it was one Edgardo Cruz (Cruz) who signed for the check due to
MGM, 30 contrary to her usual practice of personally receiving and signing for checks payable to her
companies.

After conducting hearings on the Motion to Dismiss, the RTC issued an Order 31 on May 4, 2001,
denying the petitioners motion for lack of merit. The petitioner thereafter filed its Answer,32 wherein it
restated the same allegations in its Motion to Dismiss.

Trial on the merits followed the pre-trial conference, which was terminated on June 25, 2002 when
the parties failed to arrive at an amicable settlement. 33
On September 3, 2002, shortly after respondent was sworn in as a witness, and after her counsel
formally offered her testimony in evidence, Atty. Norman Bueno, petitioners counsel at that time,
made the following stipulations in open court:

Atty. Bueno (To Court)

Your Honor, in order to expedite the trial, we will admit that this witness was contracted to deliver the
construction supplies or materials. We will admit that she complied, that she actually delivered the
materials. We will admit that Land Bank Corporation check was issued although we will not admit
that the check was not released to her, as [a] matter of fact, we have the copy of the check. We will
admit that Warrant Register indicated that the check was released although we will not admit that the
check was not received by the [respondent].

Court (To Atty. Albano)

So, the issues here are whether or not the [respondent] received the check for the payment of the
construction materials or supplies and who received the same. That is all.

Atty. Albano (To Court)

Yes, your Honor.

Court (To Atty. Albano)

I think we have an abbreviated testimony here. Proceed. 34 (Emphasis ours.)

The stipulations made by the petitioner through Atty. Bueno were in consonance with the admissions
it had previously made, also through Atty. Bueno, in its Answer,35 and pre-trial brief36:

Answer:

IX

It ADMITS the allegation in paragraph 9 of the Complaint that [respondent] delivered to the PNP
Engineering Service the construction materials. It also ADMITS the existence of Receipt Nos. 151,
152 and 153 alleged in the same paragraph, copies of which are attached to the Complaint as
Annexes "G," "G-1" and "G-2."37 (Emphasis ours.)

Pre-trial Brief:

III

ADMISSIONS

3.1. Facts and/or documents admitted

For brevity, [petitioner] admit[s] only the allegations in [respondents] Complaint and the annexes
thereto that were admitted in the Answer.38 (Emphases ours.)

With the issue then confined to whether respondent was paid or not, the RTC proceeded with the
trial.

Respondent, in her testimony, narrated that on April 18, 1996, she went to the PNP Finance Center
to claim a check due to one of her companies, Montaguz Builders. As the PNP required the issuance
of an official receipt upon claiming its checks, respondent, in preparation for the PNP check she
expected, already signed Montaguz Builders Official Receipt No. 001, albeit the details were still
blank. However, upon arriving at the PNP Finance Center, respondent was told that the check was
still with the LBP, which could not yet release it. Respondent then left for the Engineering Services
Office to see Captain Rama, along with Receipt No. 001, which she had not yet
issued.39 Respondent claimed that after some time, she left her belongings, including her receipt
booklet, at a bench in Captain Ramas office when she went around the Engineering Office to talk to
some other people.40 She reasoned that since she was already familiar and comfortable with the
people in the PNPES Office, she felt no need to ask anyone to look after her belongings, as it was
her "normal practice"41 to leave her belongings in one of the offices there. The next day, respondent
alleged that when she returned for the check due to Montaguz Builders that she was not able to
claim the day before, she discovered for the first time that Receipt No. 001, which was meant for that
check, was missing. Since she would not be able to claim her check without issuing a receipt, she
just informed the releaser of the missing receipt and issued Receipt No. 002 in its place. 42 After a few
months, respondent inquired with the PNP Finance Center about the payment due to MGM under
the Contract of December 1995 and was surprised to find out that the check payable to MGM had
already been released. Upon making some inquiries, respondent learned that the check, payable to
MGM, in the amount of P2,226,147.26, was received by Cruz, who signed the PNPs Warrant
Register. Respondent admitted to knowing Cruz, as he was connected with Highland Enterprises, a
fellow PNP-accredited contractor. However, she denied ever having authorized Cruz or Highland
Enterprises to receive or claim any of the checks due to MGM or Montaguz Builders. 43 When asked
why she had not filed a case against Cruz or Herminio Reyes, the owner of Highland Enterprises,
considering the admitted fact that Cruz claimed the check due to her, respondent declared that there
was no reason for her to confront them as it was the PNPs fault that the check was released to the
wrong person. Thus, it was the PNPs problem to find out where the money had gone, while her
course of action was to go after the PNP, as the party involved in the Contract. 44

On April 29, 2003, petitioner presented Ms. Jesusa Magtira, who was then the "check releaser" 45 of
the PNP, to prove that the respondent received the LBP check due to MGM, and that respondent
herself gave the check to Cruz.46 Ms. Magtira testified that on April 23, 1996, she released the LBP
check payable to the order of MGM, in the amount of P2,226,147.26, to the respondent herein,
whom she identified in open court. She claimed that when she released the check to respondent,
she also handed her a voucher, and a logbook also known as the Warrant Register, for
signing.47 When asked why Cruz was allowed to sign for the check, Ms. Magtira explained that this
was allowed since the respondent already gave her the official receipt for the check, and it was
respondent herself who gave the logbook to Cruz for signing. 48
The petitioner next presented Edgardo Cruz for the purpose of proving that the payment respondent
was claiming rightfully belonged to Highland Enterprises. Cruz testified that Highland Enterprises
had been an accredited contractor of the PNP since 1975. In 1995, Cruz claimed that the PNPES
was tasked to construct "by administration" a condominium building. This meant that the PNPES had
to do all the work, from the canvassing of the materials to the construction of the building. The
PNPES allegedly lacked the funds to do this and so asked for Highland Enterprisess help. 49 In a
meeting with its accredited contractors, the PNPES asked if the other contractors would agree to the
use of their business name50 for a two percent (2%) commission of the purchase order price to avoid
the impression that Highland Enterprises was monopolizing the supply of labor and materials to the
PNP.51 Cruz alleged that on April 23, 1996, he and the respondent went to the PNP Finance Center
to claim the LBP check due to MGM. Cruz said that the respondent handed him the already signed
Receipt No. 001, which he filled up. He claimed that the respondent knew that the LBP check was
really meant for Highland Enterprises as she had already been paid her 2% commission for the use
of her business name in the concerned transaction.52

On September 8, 2003, the RTC rendered its Decision, the dispositive of which reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondent] and

against [petitioner] ordering the latter to pay [respondent] the following sums:

(1) P2,226,147.26 representing the principal sum plus interest at 14% per annum from April
18, 1996 until the same shall have been fully paid;

(2) 20% of the sum to be collected as attorneys fees; and,

(3) Costs of suit.53

The RTC declared that while Cruzs testimony seemed to offer a plausible explanation on how and
why the LBP check ended up with him, the petitioner, already admitted in its Answer, and Pre-trial
Brief, that MGM, did in fact deliver the construction materials worth P2,288,562.60 to the PNP. The
RTC also pointed out the fact that the petitioner made the same admissions in open court to
expedite the trial, leaving only one issue to be resolved: whether the respondent had been paid or
not. Since this was the only issue, the RTC said that it had no choice but to go back to the
documents and the "documentary evidence clearly indicates that the check subject of this case was
never received by [respondent]."54 In addition, the PNPs own Warrant Register showed that it was
Edgardo Cruz who received the LBP check, and Receipt No. 001 submitted by the petitioner to
support its claim was not issued by MGM, but by Montaguz Builders, a different entity. Finally, the
RTC held that Cruzs testimony, which appeared to be an afterthought to cover up the PNPs
blunder, were irreconcilable with the petitioners earlier declarations and admissions, hence, not
credit-worthy.

The petitioner appealed this decision to the Court of Appeals, which affirmed with modification the
RTCs ruling on September 27, 2006:

WHEREFORE, the decision appealed from is AFFIRMED with the MODIFICATION that the 14%
interest per annum imposed on the principal amount is ordered reduced to 12%, computed from
November 16, 1997 until fully paid. The order for the payment of attorneys fees and costs of the suit
is DELETED.55

The Court of Appeals, in deciding against the petitioner, held that the petitioners admissions and
declarations, made in various stages of the proceedings are express admissions, which cannot be
overcome by allegations of respondents implied admissions. Moreover, petitioner cannot controvert
its own admissions and it is estopped from denying that it had a contract with MGM, which MGM
duly complied with. The Court of Appeals agreed with the RTC that the real issue for determination
was whether the petitioner was able to discharge its contractual obligation with the respondent. The
Court of Appeals held that while the PNPs own Warrant Register disclosed that the payment due to
MGM was received by Cruz, on behalf of Highland Enterprises, the PNPs contract was clearly with
MGM, and not with Highland Enterprises. Thus, in order to extinguish its obligation, the petitioner
should have directed its payment to MGM unless MGM authorized a third person to accept payment
on its behalf.

The petitioner is now before this Court, praying for the reversal of the lower courts decisions on the
ground that "the Court of Appeals committed a serious error in law by affirming the decision of the
trial court."56

THE COURTS RULING:

This case stemmed from a contract executed between the respondent and the petitioner. While the
petitioner, in proclaiming that the respondents claim had already been extinguished, initially insisted
on having fulfilled its contractual obligation, it now contends that the contract it executed with the
respondent is actually a fictitious contract to conceal the fact that only one contractor will be
supplying all the materials and labor for the PNP condominium project.

Both the RTC and the Court of Appeals upheld the validity of the contract between the petitioner and
the respondent on the strength of the documentary evidence presented and offered in Court and on
petitioners own stipulations and admissions during various stages of the proceedings.

It is worthy to note that while this petition was filed under Rule 45 of the Rules of Court, the
assertions and arguments advanced herein are those that will necessarily require this Court to re-
evaluate the evidence on record.

It is a well-settled rule that in a petition for review under Rule 45, only questions of law may be raised
by the parties and passed upon by this Court.57

This Court has, on many occasions, distinguished between a question of law and a question of fact.
We held that when there is doubt as to what the law is on a certain state of facts, then it is a question
of law; but when the doubt arises as to the truth or falsity of the alleged facts, then it is a question of
fact.58 "Simply put, when there is no dispute as to fact, the question of whether or not the conclusion
drawn therefrom is correct, is a question of law."59 To elucidate further, this Court, in Hko Ah Pao v.
Ting60 said:
One test to determine if there exists a question of fact or law in a given case is whether the Court
can resolve the issue that was raised without having to review or evaluate the evidence, in which
case, it is a question of law; otherwise, it will be a question of fact. Thus, the petition must not involve
the calibration of the probative value of the evidence presented. In addition, the facts of the case
must be undisputed, and the only issue that should be left for the Court to decide is whether or not
the conclusion drawn by the CA from a certain set of facts was appropriate. 61 (Emphases ours.)

In this case, the circumstances surrounding the controversial LBP check are central to the issue
before us, the resolution of which, will require a perusal of the entire records of the case including
the transcribed testimonies of the witnesses. Since this is an appeal via certiorari, questions of fact
are not reviewable. As a rule, the findings of fact of the Court of Appeals are final and
conclusive62 and this Court will only review them under the following recognized exceptions: (1) when
the inference made is manifestly mistaken, absurd or impossible; (2) when there is a grave abuse of
discretion; (3) when the finding is grounded entirely on speculations, surmises or conjectures; (4)
when the judgment of the Court of Appeals is based on misapprehension of facts; (5) when the
findings of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the
issues of the case and the same is contrary to the admissions of both appellant and appellee; (7)
when the findings of the Court of Appeals are contrary to those of the trial court; (8) when the
findings of fact are conclusions without citation of specific evidence on which they are based; (9)
when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties
and which, if properly considered, would justify a different conclusion; and (10) when the findings of
fact of the Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.63

Although petitioners sole ground to support this petition was stated in such a manner as to impress
upon this Court that the Court of Appeals committed an error in law, what the petitioner actually
wants us to do is to review and re-examine the factual findings of both the RTC and the Court of
Appeals.

Since the petitioner has not shown this Court that this case falls under any of the enumerated
exceptions to the rule, we are constrained to uphold the facts as established by both the RTC and
the Court of Appeals, and, consequently, the conclusions reached in the appealed decision.

Nonetheless, even if we were to exercise utmost liberality and veer away from the rule, the records
will show that the petitioner had failed to establish its case by a preponderance of
evidence.64 Section 1, Rule 133 of the Revised Rules of Court provides the guidelines in determining
preponderance of evidence:

SECTION 1. Preponderance of evidence, how determined. In civil cases, the party having the
burden of proof must establish his case by a preponderance of evidence. In determining where the
preponderance or superior weight of evidence on the issues involved lies, the court may consider all
the facts and circumstances of the case, the witnesses manner of testifying, their intelligence, their
means and opportunity of knowing the facts to which they are testifying, the nature of the facts to
which they testify, the probability or improbability of their testimony, their interest or want of interest,
and also their personal credibility so far as the same may legitimately appear upon the trial. The
court may also consider the number of witnesses, though the preponderance is not necessarily with
the greater number.

Expounding on the concept of preponderance of evidence, this Court in Encinas v. National

Bookstore, Inc.,65held:

"Preponderance of evidence" is the weight, credit, and value of the aggregate evidence on either
side and is usually considered to be synonymous with the term "greater weight of the evidence" or
"greater weight of the credible evidence." Preponderance of evidence is a phrase which, in the last
analysis, means probability of the truth. It is evidence which is more convincing to the court as
worthy of belief than that which is offered in opposition thereto. 66

The petitioner avers that the Court of Appeals should not have relied "heavily, if not solely" 67 on the
admissions made by petitioners former counsel, thereby losing sight of the "secret agreement"
between the respondent and Highland Enterprises, which explains why all the documentary
evidence were in respondents name.68

The petitioner relies mainly on Cruzs testimony to support its allegations. Not only did it not present
any other witness to corroborate Cruz, but it also failed to present any documentation to confirm its
story. It is doubtful that the petitioner or the contractors would enter into any "secret agreement"
involving millions of pesos based purely on verbal affirmations. Meanwhile, the respondent not only
presented all the documentary evidence to prove her claims, even the petitioner repeatedly admitted
that respondent had fully complied with her contractual obligations.

The petitioner argued that the Court of Appeals should have appreciated the clear and adequate
testimony of Cruz, and should have given it utmost weight and credit especially since his testimony
was a "judicial admission against interest a primary evidence which should have been accorded
full evidentiary value."69

The trial courts appreciation of the witnesses testimonies is entitled to the highest respect since it
was in a better position to assess their credibility.70 The RTC held Cruzs testimony to be "not credit
worthy"71 for being irreconcilable with petitioners earlier admissions. Contrary to petitioners
contentions, Cruzs testimony cannot be considered as a judicial admission against his interest as he
is neither a party to the case nor was his admission against his own interest, but actually against
either the petitioners or the respondents interest. Petitioners statements on the other hand, were
deliberate, clear, and unequivocal and were made in the course of judicial proceedings; thus, they
qualify as judicial admissions.72 In Alfelor v. Halasan,73 this Court held that:

A party who judicially admits a fact cannot later challenge that fact as judicial admissions are a
waiver of proof; production of evidence is dispensed with. A judicial admission also removes an
admitted fact from the field of controversy. Consequently, an admission made in the pleadings
cannot be controverted by the party making such admission and are conclusive as to such party, and
all proofs to the contrary or inconsistent therewith should be ignored, whether objection is interposed
by the party or not. The allegations, statements or admissions contained in a pleading are conclusive
as against the pleader. A party cannot subsequently take a position contrary of or inconsistent with
what was pleaded.74
The petitioner admitted to the existence and validity of the Contract of Agreement executed between
the PNP and MGM, as represented by the respondent, on December 11, 1995. It likewise admitted
that respondent delivered the construction materials subject of the Contract, not once, but several
times during the course of the proceedings. The only matter petitioner assailed was respondents
allegation that she had not yet been paid. If Cruzs testimony were true, the petitioner should have
put respondent in her place the moment she sent a letter to the PNP, demanding payment for the
construction materials she had allegedly delivered. Instead, the petitioner replied that it had already
paid respondent as evidenced by the LBP check and the receipt she supposedly issued. This line of
defense continued on, with the petitioner assailing only the respondents claim of nonpayment, and
not the rest of respondents claims, in its motion to dismiss, its answer, its pre-trial brief, and even in
open court during the respondents testimony. Section 4, Rule 129 of the Rules of Court states:

SECTION 4. Judicial Admissions.An admission, verbal or written, made by a party in the course of
the proceedings in the same case, does not require proof. The admission may be contradicted only
by showing that it was made through palpable mistake or that no such admission was made.

Petitioners admissions were proven to have been made in various stages of the proceedings, and
since the petitioner has not shown us that they were made through palpable mistake, they are
conclusive as to the petitioner. Hence, the only question to be resolved is whether the respondent
was paid under the December 1995 Contract of Agreement.

The RTC and the Court of Appeals correctly ruled that the petitioners obligation has not been
extinguished. The petitioners obligation consists of payment of a sum of money. In order for
petitioners payment to be effective in extinguishing its obligation, it must be made to the proper
person. Article 1240 of the Civil Code states:

Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted,
or his successor in interest, or any person authorized to receive it.

In Cembrano v. City of Butuan,75 this Court elucidated on how payment will effectively extinguish an
obligation, to wit:

Payment made by the debtor to the person of the creditor or to one authorized by him or by the law
to receive it extinguishes the obligation. When payment is made to the wrong party, however, the
obligation is not extinguished as to the creditor who is without fault or negligence even if the debtor
acted in utmost good faith and by mistake as to the person of the creditor or through error induced
by fraud of a third person.

In general, a payment in order to be effective to discharge an obligation, must be made to the proper
person. Thus, payment must be made to the obligee himself or to an agent having authority, express
or implied, to receive the particular payment. Payment made to one having apparent authority to
receive the money will, as a rule, be treated as though actual authority had been given for its receipt.
Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a
discharge. The receipt of money due on a judgment by an officer authorized by law to accept it will,
therefore, satisfy the debt.76
The respondent was able to establish that the LBP check was not received by her or by her
authorized personnel. The PNPs own records show that it was claimed and signed for by Cruz, who
is openly known as being connected to Highland Enterprises, another contractor. Hence, absent any
showing that the respondent agreed to the payment of the contract price to another person, or that
she authorized Cruz to claim the check on her behalf, the payment, to be effective must be made to
her.77

The petitioner also challenged the RTCs findings, on the ground that it "overlooked material fact and
circumstance of significant weight and substance."78 Invoking the doctrine of adoptive admission, the
petitioner pointed out that the respondents inaction towards Cruz, whom she has known to have
claimed her check as early as 1996, should be taken against her. Finally, the petitioner contends that
Cruzs testimony should be taken against respondent as well, under Rule 130, Sec. 32 of the
Revised Rules on Evidence, since she has not presented any "controverting evidence x x x
notwithstanding that she personally heard it."79

The respondent has explained her inaction towards Cruz and Highland Enterprises. Both the RTC
and the Court of Appeals have found her explanation sufficient and this Court finds no cogent reason
to overturn the assessment by the trial court and the Court of Appeals of the respondents testimony.
It may be recalled that the respondent argued that since it was the PNP who owed her money, her
actions should be directed towards the PNP and not Cruz or Highland Enterprises, against whom
she has no adequate proof.80 Respondent has also adequately explained her delay in filing an action
against the petitioner, particularly that she did not want to prejudice her other pending transactions
with the PNP.81

The petitioner claims that the RTC "overlooked material fact and circumstance of significant weight
and substance,"82 but it ignores all the documentary evidence, and even its own admissions, which
are evidence of the greater weight and substance, that support the conclusions reached by both the
RTC and the Court of Appeals.

We agree with the Court of Appeals that the RTC erred in the interest rate and other monetary sums
awarded to respondent as baseless. However, we must further modify the interest rate imposed by
the Court of Appeals pursuant to the rule laid down in Eastern Shipping Lines, Inc. v. Court of
Appeals83:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-
delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII
on "Damages" of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a
loan or forbearance of money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time
it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per
 annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court at
the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or
damages except when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so reasonably established at the time the demand is
made, the interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on
the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit. 84

Since the obligation herein is for the payment of a sum of money, the legal interest rate to be
imposed, under Article 2209 of the Civil Code is six percent (6%) per annum:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay,
the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum.

Following the guidelines above, the legal interest of 6% per annum is to be imposed from November
16, 1997, the date of the last demand, and 12% in lieu of 6% from the date this decision becomes
final until fully paid.
lawphi1

Petitioners allegations of sham dealings involving our own government agencies are potentially
disturbing and alarming. If Cruzs testimony were true, this should be a lesson to the PNP not to
dabble in spurious transactions. Obviously, if it can afford to give a 2% commission to other
contractors for the mere use of their business names, then the petitioner is disbursing more money
than it normally would in a legitimate transaction. It is recommended that the proper agency
investigate this matter and hold the involved personnel accountable to avoid any similar occurrence
in the future.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in C.A. G.R.
CV No. 80623 dated September 27, 2006 is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) per annum on the amount of P2,226,147.26, computed
from the date of the last demand or on November 16, 1997. A TWELVE PERCENT (12%) per annum
interest in lieu of SIX PERCENT (6%) shall be imposed on such amount upon finality of this decision
until the payment thereof.
SO ORDERED.

7. G.R. No. 198402 June 13, 2012

HEIRS OF PACENCIA RACAZA, namely, VIRGINIA RACAZA COSCOS, ANGELES RACAZA

MIEL, RODRIGO RACAZA, QUIRINO RACAZA, ROGELIO RACAZA, ERNESTA RACAZA and
ROLAND RACAZA, Petitioners,
vs.
SPOUSES FLORENCIO ABAY-ABAY, and ELEUTERIA ABAY-ABAY,1 Respondents.

RESOLUTION

REYES, J.:

This resolves the Petition for Review on Certiorari with Prayer to Admit Newly Discovered Evidence,
filed by the Heirs of Pacencia Racaza,2 herein petitioners under Rule 45 of the Rules of Court to
assail the Decision3 dated September 8, 2010 and Resolution4 dated August 8, 2011 of the Court of
Appeals (CA) in CA-G.R. CEB-CV No. 01095.

The Facts

As a background, herein respondents Spouses Florencio and Eleuteria Abay-abay 5 filed in July 1985
with the Regional Trial Court (RTC) of Tagbilaran City, Bohol a complaint for quieting of title, recovery
of possession and damages against several defendants that included Alexander Miel (Alexander),
the husband of herein petitioner Angeles Racaza Miel (collectively, the Miels). Subject of the
complaint, which was docketed as Civil Case No. 3920, was the property covered by Tax Declaration
No. 4501-663 and situated in Poblacion Ubay, Bohol, more particularly described as follows:

"A residential lot bounded on the North by Emelia Garces (part); East by Emelia Garces; South by
Rosario Garces, Esperanza Rosello, Matea de Japson; West by Toribio Reyes St., with an area of
600 square meters, more or less."6

Spouses Abay-abay alleged that they acquired the property from the estate of one Emilia Garces by
virtue of a Deed of Absolute Sale dated August 12, 1979, which was registered with the Register of
Deeds on October 10, 1984. In mid-1984, however, therein defendants began erecting residential
houses on the subject property without the knowledge and consent of Spouses Abay-abay. The
refusal of defendants therein to vacate the subject land despite herein respondents demand
prompted the latter to file the complaint with the RTC. Alexander failed to file his answer to the
complaint, and was then declared in default by the trial court.

On May 30, 1988, the RTC rendered its judgment in favor of Spouses Abay-abay, and then ordered
the defendants therein to vacate the disputed property. A writ of execution was later issued by the
trial court to effect the removal of the structures, including the house of the Miels, built on the
property. When the Miels failed to vacate the property despite their repeated promise to do so not
later than January 11, 1991, the RTC issued on January 14, 1991 an Order directing the sheriff to
immediately destroy and demolish the house of the Miels.
On January 23, 1991, the petitioners then filed before the RTC their own complaint, docketed as
Civil Case No. 4856, for quieting of title, recovery of possession and damages against Spouses
Abay-abay. As the surviving heirs of Pacencia Racaza (Pacencia), petitioners claimed to be the co-
owners of the property covered by Tax Declaration No. 45C1-313 under the name of Pacencia and
more particularly described as:

"A parcel of land... bounded [on] the North by Seashore and Josefina Ruiz; on the South by Burgos
St. and M. Garces; on the East by Public Land and on the West by Marciano Garces now Public
Market... containing an area of ONE HUNDRED FIFTY square meters..." 7

Petitioners claimed to have had actual, peaceful, continuous and public possession of the land,
disturbed only in 1985 when Spouses Abay-abay instituted Civil Case No. 3920. They also
questioned the unjustified demolition of their ancestral house, arguing that only Alexander, who had
no interest in the property, was impleaded in the case.

In their answer to the complaint, Spouses Abay-abay invoked the valid judgment and writ of
execution already issued in Civil Case No. 3920. They also raised the issues of estoppel and laches
in view of the petitioners failure to intervene in Civil Case No. 3920.

The Ruling of the RTC

After due proceedings, the RTC rendered its Decision8 dated April 4, 2005, which dismissed the
complaint for lack of preponderance of evidence, and affirmed Spouses Abay-abay's ownership and
possession over the subject property. The rulings of the trial court were based on the following
findings:

1 Defendants [herein respondents] evidence to the effect that defendants and [their]
predecessors-in-interest have been in possession and ownership of the land under litigation
since 1917 until the present has more evidentiary weight than that of plaintiffs [herein
petitioners] whose tax declaration over a portion of the land claimed by defendants was
issued in 1949;

2 The following undisputed facts negate plaintiffs claim over a portion of the land claimed
by defendants as follows:

a) Plaintiff Angeles Racaza Miel, who received the complaint and summons in Civil
Case No. 3920 involving the land in question before RTC, Branch 2, never informed
her husband Alexander Miel, who was one of the defendants in that case, about such
summons and complaint.

It is quite intriguing that, if indeed plaintiff Angeles Racaza Miel is one of the heirs of
Paciencia Racaza[,] the alleged owner of a portion of the land in question, why did she not
inform her co-heirs and intervene in that Civil Case No. 3920 when it was heard before RTC,
Br. 2?
 Such inaction of Angeles Racaza Miel infers the inanity of plaintiffs claim over a portion of
the land in question.

xxx

c) Angeles or her husband[,] Alexander Miel never appealed the decision rendered by RTC,
Branch 2 awarding the land under litigation in favor of defendant-spouses Florencio and
Eleuteria Abay-abay.

3 Another undisputed fact that would reveal that in connection with the decision rendered
by RTC, Branch 2 in favor of defendant[s]-spouses Florencio and Eleuteria, plaintiff Angeles
Racaza Miel and her original counsel in this case, Atty. Roberto Cajes promised before the
said Court to vacate the subject land. Such act of plaintiff Angeles Racaza Miel is indicative
of her agreement to the decision rendered by RTC, Branch 2 awarding the subject land to
Florencio Abay-abay, Sr. and, thus, demolishes whatever claim she and her co-plaintiffs in
the case at bench may have over the land in question, which is the subject matter of the
above-entitled case.

Simply stated, the evidence as a whole adduced by the defendants is superior to that of the
plaintiffs[].9

The Ruling of the CA

On appeal, the CA affirmed the rulings of the RTC via the assailed Decision10 dated September 8,
2010 and Resolution11 dated August 8, 2011. Hence, this petition for review on certiorari.

The Present Petition

To support their petition, the petitioners argue that: (1) the disputed property is a foreshore land and
thus, owned by the State; (2) the respondents were buyers in bad faith when they purchased the
unregistered land; and (3) the order to demolish their property was inhuman and thus,
unconstitutional.

As part of their petition, the petitioners also ask this Court to admit as "newly discovered evidence" a
Certification of the Community Environment and Natural Resources Office (CENRO) of Bohol, and a
cadastral map of Poblacion, Ubay, Bohol, purportedly to support their claim that the subject property
is a foreshore land which cannot be owned by herein respondents.

This Court's Ruling

We deny the petition.

First, the petition raises questions of fact which are beyond the coverage of a petition for review
on certiorari. The settled rule is that only questions of law may be raised in a petition under Rule 45
of the Rules of Court. It is not this Courts function to analyze or weigh all over again evidence
already considered in the proceedings below, our jurisdiction being limited to reviewing only errors of
law that may have been committed by the lower court. The resolution of factual issues is the function
of the lower courts, whose findings on these matters are received with respect. A question of law
which we may pass upon must not involve an examination of the probative value of the evidence
presented by the litigants.12 This is in accordance with Section 1, Rule 45 of the Rules of Court, as
amended, which reads:

Section 1. Filing of petition with Supreme Court. A party desiring to appeal by certiorari from a
judgment, final order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax
Appeals, the Regional Trial Court or other courts, whenever authorized by law, may file with the
Supreme Court a verified petition for review on certiorari. The petition may include an application for
a writ of preliminary injunction or other provisional remedies and shall raise only questions of law,
which must be distinctly set forth. The petitioner may seek the same provisional remedies by verified
motion filed in the same action or proceeding at any time during its pendency. (Emphasis supplied)

Significantly, Section 5, Rule 45 provides that the failure of the petitioner to comply with the
requirements on the contents of the petition shall be sufficient ground for the dismissal thereof. While
jurisprudence provides settled exceptions to these rules, the instant petition does not fall under any
of these exceptions.

On the same ground that petitions under Rule 45 must not involve questions of fact, the petitioners
prayer for this Court to admit what they claimed to be newly discovered evidence is hereby denied.
The Supreme Court is not a trier of facts, and is not the proper forum for the ventilation and
substantiation of factual issues.13 While the Rules of Court allows the introduction by parties of
newly-discovered evidence, as in motions for new trial under Rule 37, these are not to be presented
for the first time during an appeal. In addition, the term "newly-discovered evidence" has a specific
definition under the law. Under the Rules of Court, the requisites for newly discovered evidence are:
(a) the evidence was discovered after trial; (b) such evidence could not have been discovered and
produced at the trial with reasonable diligence; and (c) it is material, not merely cumulative,
corroborative or impeaching, and is of such weight that, if admitted, will probably change the
judgment.14

The two documents which the petitioners seek to now present are not of this nature. Undeniably, the
CENRO Certification and cadastral map annexed to the petition could have been produced and
presented by the petitioners during the proceedings before the court a quo. Further to this, the
petitioners purpose for submitting the said documents is only to prove that the disputed property is a
foreshore land that should have been declared owned by the State. Thus, even granting that the
documents may be admitted at this stage, the certification and cadastral map fail to support the
petitioners claim of ownership over the disputed property. On the contrary, these documents only
negate their claim of ownership and better right to possess the land because foreshore land is not
subject to private ownership, but is part of the public domain. In Republic of the Philippines v.
CA,15 we thus held:

When the sea moved towards the estate and tide invaded it, the invaded property became foreshore
land and passed to the realm of the public domain. In fact, the Court in Government vs.
Cabangis annulled the registration of land subject of cadastral proceedings when the parcel
subsequently became foreshore land. In another case, the Court voided the registration decree of a
trial court and held that said court had no jurisdiction to award foreshore land to any private person
or entity. The subject land in this case, being foreshore land, should therefore be returned to the
public domain.16 (Citations omitted)

We note that not even herein petitioners, but the Republic of the Philippines, is the real party in
interest that is allowed to pursue such claims against lands of the public domain. 17

All told, this Court finds no justification to depart from the factual findings of the trial and appellate
courts. The petitioners failed to present any cogent reason that would warrant a reversal of the
1wphi1

decision and resolution assailed in this petition.

WHEREFORE, premises considered, the instant petition is hereby DENIED. The Decision dated
September 8, 2010 and Resolution dated August 8, 2011 of the Court of Appeals in CA-G.R. CEB-
CV No. 01095 are hereby AFFIRMED.

SO ORDERED.

8. G.R. No. 171146 December 7, 2011

RODOLFO MORLA, Petitioner,

vs.
CORAZON NISPEROS BELMONTE, ABRAHAM U. NISPEROS, PERLITA NISPEROS OCAMPO,
ARMANDO U. NISPEROS, ALBERTO U. NISPEROS, HILARIO U. NISPEROS, ARCHIMEDES U.
NISPEROS, BUENAFE NISPEROS PEREZ, ARTHUR U. NISPEROS, AND ESPERANZA
URBANO NISPEROS, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to annul and set aside the March 9, 2005 Decision 2 and
December 29, 2005 Resolution3 of the Court of Appeals in CA-G.R. CV No. 53527, which affirmed
with modification the February 19, 1996 Judgment 4 of the Regional Trial Court (RTC) of Ilagan,
Isabela, Branch 17 in Civil Case No. 810.

Spouses Alfredo Nisperos and Esperanza Urbano (the Nisperos spouses) were the original
homesteaders of an 80,873-square meter tract of public land known and identified as Lot No. 4353
of Pls. 62, situated in Caliguian, Burgos, Isabela,5 by virtue of Original Certificate of Title (OCT) No.
P-1542, issued on May 4, 1951.6

On June 8, 1988, the Nisperos spouses executed a Partial Deed of Absolute Sale, 7 wherein they
sold a portion of Lot No. 4353 with an area of 50,000 square meters (subject land) to the brothers
Ramon and Rodolfo Morla (the Morla brothers) for the sum of Two Hundred Fifty Thousand Pesos
(P 250,000.00).
On August 2, 1988, the Morla brothers acknowledged and confirmed in writing (the "1988 contract")
that they had bought from the Nisperos spouses the subject land, and that they had agreed to give
the Nisperos spouses a period of ten (10) years within which to repurchase the subject land for the
price of Two Hundred Seventy-Five Thousand Pesos (P 275,000.00). The 1988 contract was written
in Ilocano and executed at the Office of the Barangay Captain in the Municipality of Burgos, Province
of Isabela.8

On June 27, 1994, the Nisperos spouses filed a Complaint9 for Repurchase and/or Recovery of
Ownership Plus Damages against the Morla brothers. They alleged that the deed of sale was
registered by the Morla brothers only when they had signified their intention to repurchase their
property.10 Thus, Transfer Certificate of Title (TCT) No. 225544 for the subject land was issued in
favor of the Morla brothers, and TCT No. 225545,11 for the remaining 30,870 square meters of Lot
No. 4353, to the Nisperos spouses.

In response,12 the Morla brothers claimed that the Nisperos spouses had no cause of action, as the
repurchase of the subject land was improper for being outside the five-year period provided under
Section 119 of Commonwealth Act No. 141.13

At the pre-trial conference held on June 19, 1995, the parties settled that the only issue to be
resolved by the RTC was whether the 1988 contract executed by the parties, wherein it was
stipulated that the Nisperos spouses may repurchase the land sold to the Morla brothers within a
period of ten (10) years, was valid or not.14

On July 28, 1995, the RTC issued an Order15 requiring the parties to submit their position papers or
memoranda in light of their agreement to submit the case for Summary Judgment on the issue of the
validity of the 1988 contract.

The Nisperos spouses then filed a Motion for Summary Judgment 16 on the ground that there was no
genuine issue of material facts in the case except for damages and attorneys fees, which may be
heard separately and independently.

On September 15, 1995, the Nisperos spouses deposited the amount of P 275,000.00, with the clerk
of court of the RTC for the repurchase of the subject land. 17

The RTC rendered its Judgment dated February 19, 1996, the dispositive portion of which reads:

WHEREFORE, for and in consideration of the foregoing, judgment is hereby rendered in favor of the
plaintiffs and against the defendants ordering the defendants to reconvey the portion of five (5)
hectares of plaintiffs land covered by their original title, Original Certificate of Title No. P-1542 unto
the plaintiffs and to receive and accept the P 275,000.00 from the plaintiffs as repurchase; to pay
attorneys fees in the amount of P 5,000.00 and to pay the costs of this suit.18

The RTC said that the only issue to be resolved was the validity of the 1988 contract, which the
Morla brothers neither attacked nor denied. The RTC held that it was clear from the 1988 contract,
which the Morla brothers executed, that they had bound themselves to its terms and conditions. The
RTC further proclaimed that what was prohibited was the shortening of the five-year redemption
period under Section 119 of Commonwealth Act No. 141, and not its prolongation. 19

On March 14, 1996, the Morla brothers moved for the reconsideration 20 of the RTCs judgment on the
ground that it could not affect them since they were no longer the real parties-in-interest as they had
already sold the subject land to Rosie Ocampo, married to Delfin Gragasin, and Hilario Bernardino,
married to Manolita Morla, on May 2, 1994.21

The Nisperos spouses, in their Opposition to the Motion for Reconsideration, 22 attacked the validity
of the purported sale and alleged that such sale in favor of the Morla brothers close relatives was a
last ditch attempt to win the case. The Nisperos spouses pointed out that the Morla brothers never
mentioned such sale considering that it supposedly happened in May 1994, before the case was
instituted in June 1994.23

The RTC denied the Morla brothers motion for reconsideration in an Order 24 dated July 19, 1996.
The RTC noted how such purported sale was not mentioned by the Morla brothers in their
confrontations with the Nisperos spouses prior to the filing of the case, or in any of their pleadings
filed before the RTC. The RTC agreed with the Nisperos spouses contention that if the sale really
did happen, then the Morla brothers should have brought it up at the earliest opportune time. Finally,
the RTC said that the belated issue would not in any way affect the standing of the parties.

The Morla brothers timely25 appealed this decision to the Court of Appeals and assigned the
following errors in support thereof:

The TRIAL COURT GRAVELY ERRED IN HOLDING THAT APPELLANTS AUGUST 2, 1988
private writing, Exh. "A" WAS AN AGREEMENT BY PARTIES FOR APPELLEES TO
REPURCHASE WITHIN TEN (10) YEARS THEREFROM THE FIVE (5) HECTARES
PORTION OF THEIR HOMESTEAD THEY SOLD TO THE FORMER AS PER JUNE 28,
1988 PARTIAL DEED OF ABSOLUTE SALE, EXH. "1" NOTWITHSTANDING THE
MANDATORY FIVE (5) YEARS REPURCHASE PERIOD FROM THE DATE OF SALE
PROVIDED BY SECTION 119 OF THE PUBLIC LAND LAW (COMMONWEALTH ACT NO.
141).

II

THE TRIAL COURT GRAVELY ERRED IN RELYING ON THE PRECEDENT LAID IN THE
CASES OF MENJE, ET AL., VS. ANGELES, 101 PHIL. 563 AND MANUEL VS. PHILIPPINE
NATIONAL BANK, 101 PHIL. 568, WHICH TREAT OF REDEMPTION OF FORECLOSED
HOMESTEAD AFTER FORECLOSURE SALES NOTWITHSTANDING THE CLEAR ISSUE
IN THE CASE AT BAR WHICH IS FOR REPURCHASE OF A PORTION OF A
HOMESTEAD. 26

On March 9, 2005, the Court of Appeals affirmed the RTCs decision, with the deletion of the award
of attorneys fees for lack of basis in the decision, as the only modification. While the Court of
Appeals agreed with the Morla brothers assertion that the cases cited by the RTC were not
applicable to their case, it declared that the RTC did not err in allowing the Nisperos spouses to
repurchase the subject land. The Court of Appeals immediately noted that there clearly was no
genuine issue as to any material fact, except for the claim of attorneys fees. It upheld the validity of
the 1988 contract and concurred with the RTCs rationale that the arrangement to prolong the period
for redemption of the subject land was not prohibited by law as it was in line with the intent of
Section 119 "to give the homesteader or patentee every chance to preserve for himself and his
family the land that the State had gratuitously given to him as a reward for his labor in cleaning and
cultivating it." The Court of Appeals further held that the 1988 contract, contrary to the Morla
brothers contention, was not unenforceable as the necessity to embody certain contracts in a public
instrument was only for convenience and not for its validity or enforceability.27

The Morla brothers sought to have this decision reconsidered on the strength of a "newly
discovered" Contract of Sale of farm land dated June 28, 1978 (1978 contract). The Morla brothers
alleged that this contract, which covered the subject land, was found only upon the prodding of their
new lawyer; thus, even the ten-year period to repurchase the subject land under Article 1606 of the
Civil Code had already expired.28

The Court of Appeals issued a Resolution29 on December 29, 2005, denying the Morla brothers
motion for reconsideration in this wise:

[The Morla brothers] assert a new theory on the basis of a handwritten "contract" dated June 28,
1978 a private document allegedly executed by [the Nisperos spouses]. Said document is being
introduced for the first time on appeal. And it is settled that issues not raised in the court a quo
cannot be raised for the first time on appeal in the case at bench, in a motion for reconsideration
for being offensive to the basic rules of fair play, justice and due process x x x. 30

As Ramon Morla died on March 5, 2001, single and without any descendants or ascendants,
Rodolfo Morla (petitioner), by himself, elevated the instant case before this Court with the Nisperos
spouses as respondents. Alfredo Nisperos, however, also died on September 19,
2010.31 Consequently, Alfredo Nisperos legal heirs filed a motion32 to be substituted as respondents,
in lieu of their deceased father. This motion was granted on October 3, 201133 thus, Corazon
Nisperos Belmonte, Abraham U. Nisperos, Perlita Nisperos Ocampo, Armando U. Nisperos, Alberto
U. Nisperos, Hilario U. Nisperos, Archimedes U. Nisperos, Buenafe Nisperos Perez, and Arthur U.
Nisperos, now join their mother Esperanza Urbano Nisperos as respondents in this case.

Issue

Petitioner, claiming that his petition is of transcendental importance as it poses a novel question of
law, is asking us to resolve the following question:

[M]ay parties to a deed of sale of a land covered by a homestead patent extend or prolong the 5-
year period of repurchase under Section 119 of Act 141, under a private writing subsequently
executed by them?34

The Courts Ruling

This Court would like to address the admissibility of the 1978 contract at the outset as petitioner
posits that by virtue of this contract, the respondents claim had already prescribed, even if the
redemption period under Section 119 of Commonwealth Act No. 141 were extended to ten years.
Petitioner claims that the June 8, 1988 Partial Deed of Sale was actually the formal culmination of an
earlier transaction between the Morla brothers and the Nisperos spouses, as shown by the 1978
contract. Hence, more than ten years have already lapsed from the time such contract was executed
to the time the right to repurchase was sought to be exercised. 35

Contrary to petitioners allegation in its Motion for Reconsideration before the Court of Appeals, the
1978 contract did not surface only after the appeal; it was actually attached to the Morla brothers
Answer36 filed with the RTC on July 12, 1994. Referencing this 1978 contract, the Morla brothers
stated the following in their Answer:

8. Since June 28, 1978 and continuously up to the present, the defendants are in the open,
continuous, exclusive, and notorious actual physical possession, occupation, and cultivation of the
(50,000 SQUARE METERS) portion of Lot No. 4353, Pls-62, as evidenced by a private document, a
xerox copy of which document is hereto attached as Annex "2" to this answer.37

During the pre-trial, the Morla brothers and the Nisperos spouses also agreed on only the following
stipulation of facts, as stated in the RTCs June 19, 1995 Order:

1. That the land is a Homestead originally applied for by the plaintiffs and a Homestead
Patent and Original Certificate of Title were issued to the plaintiffs;

2. That on August 2, 1988, at Caliguian, Burgos, Isabela, in the presence of the Barangay
Captain, an Ilocano writing or contract was acknowledged and confirmed by the defendants
and the defendants admitted as to its authenticity;

3. That the Transfer Certificate of Title No. T-225545 is the remaining portion of Three (3)
hectares or 30, 873 square meters, which was only issued by the Register of Deeds of
Isabela on March 11, 1994, and this remaining portion was derived from the Original
Certificate of Title of Alfredo Nisperos, which is OCT No. P-1542 issued in 1951;

4. That on June 8, 1988, a Partial Deed of Absolute Sale was prepared, as per Doc. No. 419;
Page 84; Book 17; Series of 1988, entered into the Notarial Book of Notary Public Severo
Ladera;

5. That Transfer Certificate of Title No. T-225544 was registered in the name of the
defendants, Rodolfo Morla and Ramon Morla at the Office of the Registry of Deeds of
Isabela on March 11, 1994. 38

The Morla brothers Position Paper/Memorandum39 likewise reiterated that the sale of the subject
land happened on June 8, 1988, and referred to the 1978 contract only to prove their long
possession of the subject land, just as they did in their Answer.
If it were true that the subject lands ownership was ceded to the Morla brothers as early as 1978,
then it is inconceivable that they would forget to bring up this important fact and use it as their key
defense when they filed their Answer to the Complaint on July 12, 1994. Even then, the Morla
brothers had every opportunity to correct this lapse as they had always been aware and in
possession of the 1978 contract. They could have stipulated it during the pre-trial conference, or at
least stated it in their Position Paper. The theory advanced by the Morla brothers from the very
beginning is that they are entitled to the possession of the subject land as the owner thereof
because the property was sold to them by virtue of the Partial Deed of Sale executed on June 8,
1988. They presented the 1978 contract only to prove that they had been in continuous and open
possession since 1978. The first time the Morla brothers claimed ownership, and not mere
possession, of the subject land by virtue of the 1978 contract, was in their motion for
reconsideration, after they had lost their appeal before the Court of Appeals. The Court of Appeals
was correct in not considering this argument for not having been raised at the earliest opportunity. It
is a well-settled rule that "a party who deliberately adopts a certain theory upon which the case was
decided by the lower court will not be permitted to change [it] on appeal." 40 "Petitioner is bound by
the statements and stipulations he made while the case was being heard in the lower courts." 41 In
Manila Electric Company v. Benamira,42 we said:

[I]t is a fundamental rule of procedure that higher courts are precluded from entertaining matters
neither alleged in the pleadings nor raised during the proceedings below, but ventilated for the first
time only in a motion for reconsideration or on appeal. The individual respondents are bound by their
submissions that AFSISI is their employer and they should not be permitted to change their theory.
Such a change of theory cannot be tolerated on appeal, not due to the strict application of
procedural rules but as a matter of fairness. A change of theory on appeal is objectionable because it
is contrary to the rules of fair play, justice and due process.43

Having settled the inadmissibility of the 1978 contract, we now go to the legality of the 1988 contract.

Since the subject land was acquired by the Nisperos spouses pursuant to a homestead
patent, the applicable law is Commonwealth Act No. 141, or the Public Land Act.44 Section 119
thereof specifically speaks about repurchases of a homestead or free patent land:

Sec. 119. Every conveyance of land acquired under the free patent or homestead provisions, when
proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of
five years from the date of the conveyance.

The petitioner does not dispute the existence or validity of the 1988 contract. He simply argues that
the 10-year repurchase period he and his brother Ramon Morla had agreed to grant the Nisperos
spouses, as evidenced by the 1988 contract, was contrary to law and jurisprudence, viz:

In no uncertain terms can the statutory period of five (5) years, which is fixed and non-extendible, be
prolonged or extended by agreement of the parties since it runs athwart with the express limitation of
the right to repurchase provided for in Section 119, Act 141. Spouses Nisperos cannot, therefore,
use the August 2, 1988 private writing to extend the already expired period granted under the law. To
do so is to violate the law. The law must control over the revised intention of the parties. 45 (Emphasis
supplied.)
Elucidating on the purpose of the homestead laws, this Court held in Republic of the Philippines v.
Court of Appeals46 :

It is well-known that the homestead laws were designed to distribute disposable agricultural lots of
the State to land-destitute citizens for their home and cultivation. Pursuant to such benevolent
intention the State prohibits the sale or encumbrance of the homestead (Section 116) within five
years after the grant of the patent. After that five-year period the law impliedly permits alienation of
the homestead; but in line with the primordial purpose to favor the homesteader and his family the
statute provides that such alienation or conveyance (Section 117) shall be subject to the right of
repurchase by the homesteader, his widow or heirs within five years. This section 117 is undoubtedly
a complement of section 116. It aims to preserve and keep in the family of the homesteader that
portion of public land which the State had gratuitously given to him. It would, therefore, be in keeping
with this fundamental idea to hold, as we hold, that the right to repurchase exists not only when the
original homesteader makes the conveyance, but also when it is made by his widow or heirs. This
construction is clearly deducible from the terms of the statute. 47

In Fontanilla, Sr. v. Court of Appeals,48 we said:

The applicant for a homestead is to be given all the inducement that the law offers and is entitled to
its full protection. Its blessings, however, do not stop with him. This is particularly so in this case as
the appellee is the son of the deceased. There is no question then as to his status of being a legal
heir. The policy of the law is not difficult to understand. The incentive for a pioneer to venture into
developing virgin land becomes more attractive if he is assured that his effort will not go for naught
should perchance his life be cut short. This is merely a recognition of how closely bound parents and
children are in Filipino family. Logic, the sense of fitness and of right, as well as pragmatic
considerations thus call for continued adherence to the policy that not the individual applicant alone
but those so closely related to him as are entitled to legal succession may take full advantage of the
benefits the law confers.49

We are in full accord with the clear findings and apt ruling of the lower courts. Nowhere in
Commonwealth Act No. 141 does it say that the right to repurchase under Section 119 thereof could
not be extended by mutual agreement of the parties involved. Neither would extending the period in
Section 119 be against public policy as "the evident purpose of the Public Land Act, especially the
provisions thereof in relation to homesteads, is to conserve ownership of lands acquired as
homesteads in the homesteader or his heirs."50 "What cannot be bartered away is the homesteaders
right to repurchase the homestead within five years from its conveyance, as this is what public policy
by law seeks to preserve."51 "This, in our opinion, is the only logical meaning to be given to the law,
which must be liberally construed in order to carry out its purpose." 52

Petitioner does not dispute that the 1988 contract was executed freely and willingly between him and
his late brother, and the Nisperos spouses. "The freedom of contract is both a constitutional and
statutory right,"53 and "the contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to law, morals, good
customs, public order, or public policy."54 The 1988 contract neither shortens the period provided
under Section 119 nor does away with it. Instead, it gives the Nisperos spouses more time to
reacquire the land that the State gratuitously gave them. The 1988 contract therefore is not contrary
to law; instead it is merely in keeping with the purpose of the homestead law. Since the 1988
contract is valid, it should be given full force and effect. In Roxas v. De Zuzuarregui, Jr., 55 we held:

It is basic that a contract is the law between the parties. Obligations arising from contracts have the
force of law between the contracting parties and should be complied with in good faith. Unless the
stipulations in a contract are contrary to law, morals, good customs, public order or public policy, the
same are binding as between the parties.56

Petitioner, who freely signed the 1988 contract, cannot now be allowed to renege on his obligation
under it, simply because he changed his mind. Article 1308 of the Civil Code provides:

The contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them. 1avvphi1

Petitioner is thus bound by the terms of the 1988 Contract, and must comply with it in good faith.
Since the right to repurchase was exercised by the Nisperos spouses before the expiration of the
time given to them by the Morla brothers, the lower courts correctly ruled in their favor.

WHEREFORE, the Petition is hereby DENIED and the March 9, 2005 Decision and December 29,
2005 Resolution of the Court of Appeals in CA-G.R. CV No. 53527, are AFFIRMED.

SO ORDERED.

9. G.R. No. 155227-28 February 9, 2011

EMILIANA G. PEA, AMELIA C. MAR, and CARMEN REYES, Petitioners,

vs.
SPOUSES ARMANDO TOLENTINO AND LETICIA TOLENTINO, Respondents.

DECISION

BERSAMIN, J.:

By petition for review on certiorari, the petitioners appeal the adverse decision promulgated by the
Court of Appeals (CA) on March 31, 2000, 1 and the resolution issued on August 28, 2002 (denying
their motion for reconsideration).2

Antecedents

The petitioners are lessees of three distinct and separate parcels of land owned by the respondents,
located in the following addresses, to wit: Carmen Reyes, 1460 Velasquez, Tondo, Manila; for Amelia
Mar, 479 Perla, Tondo, Manila; and for Emiliana Pea, 1461 Sta. Maria, Tondo, Manila.

Based on the parties oral lease agreements, the petitioners agreed to pay monthly rents, pegged as
of October 9, 1995 at the following rates, namely: for Carmen Reyes, P570.00; for Amelia
Mar, P840.00; and for Emiliana Pea, P480.00.
On August 15, 1995, the respondents wrote a demand letter to each of the petitioners, informing that
they were terminating the respective month-to-month lease contracts effective September 15, 1995;
and demanding that the petitioners vacate and remove their houses from their respective premises,
with warning that should they not heed the demand, the respondents would charge
them P3,000.00/month each as reasonable compensation for the use and occupancy of the
premises from October 1, 1995 until they would actually vacate.

After the petitioners refused to vacate within the period allowed, the respondents filed on October 9,
1995 three distinct complaints for ejectment against the petitioners in the Metropolitan Trial Court
(MeTC) of Manila. The three cases were consolidated upon the respondents motion.

In their respective answers, the petitioners uniformly contended that the respondents could not
summarily eject them from their leased premises without circumventing Presidential Decree (P.D.)
No. 20 and related laws.

During the preliminary conference, the parties agreed on the following issues: 3

1. Whether or not each of the petitioners could be ejected on the ground that the verbal
contract of lease had expired; and

2. Whether or not the reasonable compensation demanded by the respondents was

exorbitant or unconscionable.

Ruling of the MeTC

On May 17, 1996, the MeTC ruled in favor of the respondents,4 viz:

WHEREFORE, judgment is rendered in favor of the plaintiff spouses:

1. Ordering defendant Emiliana Pea in Civil Case No. 149598-CV to immediately vacate the
lot located at 1461 Sta. Maria, Tondo, Manila, and surrender the possession thereof to the
plaintiff spouses; to pay the latter the amount of P2,000.00 a month as reasonable
compensation for the use and occupancy of the premises from 1 October 1995 until the
same is finally vacated; to pay the plaintiff spouses the amount of P5,000.00 as attorneys
fees; and to pay the costs of suit;

2. Ordering the defendant Amelia Mar in Civil Case No. 149599-CV to immediately vacate
the lot situated at 479 Perla St., Tondo, Manila, and surrender possession thereof to the
plaintiff spouses; to pay the latter the amount of P2,500.00 per month as reasonable
compensation for the use and occupancy of the premises from 1 October 1995 until the
same is finally vacated; to pay the plaintiff spouses the amount of P5,000.00 as attorneys
fees; and to pay the costs of suit; and

3. Ordering the defendant Carmen Reyes in Civil Case No. 149601-CV to immediately
vacate the lot with address at 1460 Velasquez Street, Tondo, Manila, and surrender
possession thereof to the plaintiff spouses; to pay the latter the amount of P2,0500.00 a
 month as reasonable compensation for the use and occupancy of the leased premises from
1 October 1995 until the same is finally vacated; to pay the plaintiff-spouses the amount
of P5,000.00 as attorneys fees; and to pay the costs of suit; and

SO ORDERED.

The MeTC explained in its decision:

Defendants themselves categorically state that the rentals on the respective lots leased to them
were paid every month. xxx Pertinent to the cases, thus, is the Supreme Court ruling in the case of
Acab, et. al. vs Court of Appeals (G.R. No. 112285, 21 February 1995) that lease agreements with
no specified period, but in which rentals are paid monthly, are considered to be on a month-to-month
basis. They are for a definite period and expire after the last day of any given thirty day period of
lease, upon proper demand and notice of lessor to vacate, and in which case, there is sufficient
cause for ejectment under Sec. 5(f) of Batas Pambansa 877, that is, the expiration of the period of
the lease contract.

Ruling of the RTC

On appeal, the Regional Trial Court (RTC) modified the MeTCs decision,5 viz:

WHEREFORE, premises considered, judgment is hereby rendered modifying the decision appealed
from as follows:

a. Defendants having stayed in the leased premises for not less than thirty (30) years,
instead of being on a month-to-month basis, the lease is fixed for a term of two (2) years
reckoned from the date of this decision.

b. Upon expiration of the term of the lease, defendants shall demolish their respective
houses at their own expense and vacate the leased premises;

c. The lease being covered by the Rent Control Law, defendants shall continue to pay the old
monthly rental to be gradually increased in accordance with said law;

d. Both parties shall pay their respective counsels the required attorney's fees; and

e. To pay the costs of the suit.

SO ORDERED.

The RTC affirmed the MeTCs holding that the leases expired at the end of every month, upon
demand to vacate by the respondents; but decreed based on the authority of the court under Article
1687 of the Civil Code to fix a longer term that the leases were for two years reckoned from the date
of its decision, unless extended by the parties pursuant to the law and in keeping with equity and
justice, considering that the respondents had allowed the petitioners to construct their own houses of
good materials on the premises, and that the petitioners had been occupants for over 30 years.
 Ruling of the CA

Both parties appealed by petition for review.6

The petitioners petition for review was docketed as C.A.-G.R. SP NO. 44172; that of the
respondents was docketed as C.A.-G.R. SP No. 44192. Nonetheless, the separate appeals were
consolidated on November 20, 1997.7

On March 31, 2000, the CA promulgated its decision,8 thus:

WHEREFORE, judgment is rendered SETTING ASIDE the decision of the RTC, Branch 26, Manila
and REINSTATING the decision of the MTC, Branch 3, Manila with the
modification that the defendants shall pay theirrespective agreed rentals which may be gradually incr
eased in accordance with the Rent Control Law for the useand occupancy of the premises from 1
October 1995 until the same is finally vacated.

SO ORDERED.

The petitioners sought reconsideration, but the CA denied their motion for reconsideration on August
28, 2002, and granted the respondents motion for execution pending appeal and ordered the MeTC
to issue a writ of execution to enforce the judgment pending appeal.

Issues

Hence, this appeal to the Court, whereby the petitioners urge the following grounds, 9 to wit:

I. THE EJECTMENT OF HEREIN PETITIONERS FROM THE SAID LEASED PREMISES IS

VIOLATIVE OF P.D. NO. 20

II. HEREIN PETITIONER CANNOT BE EJECTED FROM THE SUBJECT LEASED

PROPERTY WITHOUT CLEARLY VIOLATING THE URBAN LAND REFORM CODE (P.D.
1517) AND R.A. 3516.

Ruling of the Court

The petition lacks merit.

1.

Were the contracts of lease

for an indefinite period?

The petitioners contend that their lease contracts were covered by P.D. No. 20, 10 which suspended
paragraph 1 of Article 1673,11 Civil Code; that as a result, the expiration of the period of their leases
was no longer a valid ground to eject them; and that their leases should be deemed to be for an
indefinite period.
In refutation, the respondents argue that P.D. 20 suspended only Article 1673, not Article 1687, 12 Civil
Code; that under Article 1687, a lease on a month-to-month basis was a lease with a definite period;
and that the petitioners could be ejected from the leased premises upon the expiration of the definite
period, particularly as a demand to that effect was made.

The petitioners contention is erroneous.

First of all, the petitioners reliance on P.D. 20 is futile and misplaced because that law had no
application to their cause. They ignored that Batas Pambansa Blg. 25,13 approved on April 10, 1979
and effective immediately, had expressly repealed P.D. 20 pursuant to its Section 10. 14

For the enlightenment of the petitioners in order to dispel their confusion, the following brief review of
the rental laws that came after P.D. 20 and B.P. Blg. 25 is helpful.

B.P. Blg. 25 remained in force for five years, after which P.D. 191215 and B.P. Blg. 867 were enacted
to extend the effectivity of B.P. Blg. 25 for eight months and six months, respectively. When the
extension of B.P. Blg. 25 ended on June 30, 1985, a new rental law, B.P. Blg. 877, 16 was enacted on
July 1, 1985. B.P. Blg. 877, although initially effective only until December 31, 1987, came to be
extended up to December 31, 1989 by Republic Act No. 6643.17 Subsequently, Congress passed
R.A. No. 764418 to further extend the effectivity of B.P. Blg. 877 by three years. Finally, R.A. No.
843719 extended the rent control period provided in B.P. Blg. 877 from January 1, 1998 up to
December 31, 2001.

It is clear, therefore, that B.P. Blg. 877 was the controlling rental law when the complaints against the
petitioners were filed on October 9, 1995.

We note that on January 1, 2002, R.A. No. 916120 took effect. Its Section 7(e) provided that the
expiration of the period of the lease contract was still one of the grounds for judicial ejectment. Also,
its Section 10 provided for the suspension of paragraph 1 of Article 1673 of the Civil Code, which
was similar to Section 6 of B.P. Blg. 877, quoted hereunder:

Sec. 6 Application of the Civil Code and Rules of Court of the Philippines Except when the lease is
for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil Code of the
Philippines, insofar as they refer to residential units covered by this Act shall be suspended during
the effectivity of this Act, but other provisions of the Civil Code and the Rules of Court on lease
contracts, insofar as they are not in conflict with the provisions of the Act shall apply.

In several rulings,21 the Court held that Section 6 of B.P. Blg. 877 did not suspend the effects of
Article 1687 of the Civil Code; and that the only effect of the suspension of paragraph 1, Article 1673
of the Civil Code was that, independently of the grounds for ejectment enumerated in B.P. Blg. 877,
the owner/lessor could not eject the tenant by reason of the expiration of the period of lease as fixed
or determined under Article 1687 of the Civil Code. Consequently, the determination of the period of
the lease could still be made in accordance with Article 1687.

Under Section 5 (f) of B.P. Blg. 877,22 the expiration of the period of the lease is among the grounds
for judicial ejectment of a lessee. In this case, because no definite period was agreed upon by the
parties, their contracts of lease being oral, the leases were deemed to be for a definite period,
considering that the rents agreed upon were being paid monthly, and terminated at the end of every
month, pursuant to Article 1687.23 In addition, the fact that the petitioners were notified of the
expiration of the leases effective September 15, 1995 brought their right to stay in their premises to a
definite end as of that date.24

May petitioners validly raise their

alleged rights under P.D. 1517, R.A. 3516
and P.D. 2016 for the first time on appeal?

The petitioners contend that the decisions of the MeTC, RTC, and CA were contrary to law; that they
held the right of first refusal to purchase their leased premises pursuant to Sections 6 of P.D.
1517,25 because they had resided on the leased lots for almost 40 years, even before the
respondents purchased the properties from the former owners, and because they had erected their
own apartments on the leased lots; that under Section 5 of R.A. No. 3516, 26 a lessor was prohibited
from selling the leased premises to any person other than his lessee, without securing the latters
written renunciation of his right of first refusal to purchase the leased property; and that Section 2 of
P.D. 201627 likewise protected them.

The respondents counter that the petitioners could not validly raise the applicability of the cited laws
for the first time in this Court, without violating their right to due process.

In reply, the petitioners posit that the provisions of P.D. 1517 and R.A. No. 3516, although cited for
the first time only on appeal, were always presumed to be part of their affirmative or special
defenses; that the lower courts were bound to take judicial notice of and should render decisions
consistent with said provisions of law; that the Court was also clothed with ample authority to review
matters even if not assigned as errors on appeal if it found that their consideration was necessary to
arrive at a just determination of a case; and that Section 8 of Rule 51 of the Rules of Court
authorizes the Court to consider and resolve a plain error, although not specifically assigned, for,
otherwise, substance may be sacrificed for technicalities.

We cannot side with the petitioners.

Firstly, the petitioners appear to have known of their supposed right of first refusal even before the
respondents came to acquire the leased premises by purchase. They implied so in their petition for
review filed on May 30, 1997 in the CA:28

xxx It must also be borne in mind herein that the said petitioners had started occupying the said
property even before the same was purchased by the herein private respondents. In fact, the said
sale should even be considered as illegal if not null and void from the very beginning because the
herein petitioners were not even properly informed of the said sale considering that under the Urban
Land Reform Code they even have the right of first refusal over the said property. The public
respondent should also consider the said fact in resolving to give a longer period of lease to the
herein petitioners and certainly not for two (2) years only. Of course it would be a different matter if
the public respondent himself (RTC) had at least convinced if not goaded the herein private
respondents to compensate the petitioners for the value of the improvements introduced on the said
leased premises in the interest of equity, fairness and justice. We submit to this Honorable Court that
the herein petitioners should be allowed to enjoy their said improvements for a period of at least five
(5) years before they can be ejected from the said leased premises.

Yet, the petitioners did not invoke their supposed right of first refusal from the time when the
respondents filed their complaints for ejectment against them on October 9, 1995 until they brought
the present recourse to this Court. Neither did they offer any explanation for their failure to do so. It is
notable that the only defense they raised is that their eviction from the premises on the sole ground
of expiration of the lease contract violated R.A. No. 9161.

Moreover, the petitioners did not also assert their supposed right of first refusal despite the
respondents informing them (through their position paper filed in the MeTC on March 21, 1996) 29 that
they had terminated the petitioners leases because they were intending to sell the premises to a
third person. In fact, as the records bear out, the only reliefs the petitioners prayed for in the MTC,
RTC, and CA were the extension of their leases, and the reimbursement by the respondents of the
values of their improvements.30 It is inferable from the petitioners silence, therefore, that they had
neither the interest nor the enthusiasm to assert the right of first refusal.

Secondly, the petitioners are precluded from invoking their supposed right of first refusal at this very
late stage after failing to assert it within a reasonable time from the respondents purchase of the
respective properties where their premises were respectively located. The presumption that they had
either abandoned or declined to assert their rights becomes fully warranted. 31

Thirdly, it is clear that the petitioners are changing their theory of the case on appeal. That change is
impermissible on grounds of its elemental unfairness to the adverse parties, who would now be
forced to adapt to the change and to incur additional expense in doing so. Besides, such a change
would effectively deprive the lower courts of the opportunity to decide the merits of the case fairly. It
is certainly a basic rule in appellate procedure that the trial court should be allowed the meaningful
opportunity not only to consider and pass upon all the issues but also to avoid or correct any alleged
errors before those issues or errors become the basis for an appeal. 32 In that regard, the Court has
observed in Carantes v. Court of Appeals:33 1avvphil

The settled rule is that defenses not pleaded in the answer may not be raised for the first time on
appeal. A party cannot, on appeal, change fundamentally the nature of the issue in the case. When a
party deliberately adopts a certain theory and the case is decided upon that theory in the court
below, he will not be permitted to change the same on appeal, because to permit him to do so would
be unfair to the adverse party.

Indeed, the settled rule in this jurisdiction, according to Mon v. Court of Appeals,34 is that a party
cannot change his theory of the case or his cause of action on appeal. This rule affirms that "courts
of justice have no jurisdiction or power to decide a question not in issue." Thus, a judgment that goes
beyond the issues and purports to adjudicate something on which the court did not hear the parties
is not only irregular but also extrajudicial and invalid. 35 The legal theory under which the controversy
was heard and decided in the trial court should be the same theory under which the review on
appeal is conducted. Otherwise, prejudice will result to the adverse party. We stress that points of
law, theories, issues, and arguments not adequately brought to the attention of the lower court will
not be ordinarily considered by a reviewing court, inasmuch as they cannot be raised for the first
time on appeal.36 This would be offensive to the basic rules of fair play, justice, and due process. 37

Lastly, the issue of whether the leased premises were covered by P. D. 1517 or not is truly a factual
question that is properly determined by the trial court, not by this Court due to its not being a trier of
facts.

CAs reinstatement of MeTCs decision

on the ejectment of petitioners is sustained,
subject to modification on rentals

Although the CA correctly reinstated the MeTCs decision as far as it ordered the petitioners
ejectment from the leased premises, we cannot uphold its modification by requiring the petitioners
instead to pay their "respective agreed rentals which shall be gradually increased in accordance with
the Rent Control Law for the use and occupancy of the premises from 1 October 1995 until the same
is finally vacated" without any elucidation of the reasons for ordering the payment of agreed rentals
for the use and occupancy of the premises in lieu of the MeTCs requiring the petitioners to pay
reasonable compensation.

It is true that the MeTC had not also given any justification for fixing reasonable compensation in the
respective amounts found in the dispositive portion of its decision, instead of rentals. However, we
discern that the MeTC had taken off from the demand letters of the respondents to each of the
petitioners, which included the warning to them that should they refuse to vacate as demanded they
would each be charged P3,000.00/month as reasonable compensation for the use and occupancy of
the premises from October 1, 1995 until they would actually vacate. We opt not to disturb the
MeTCs holding on reasonable compensation, in lieu of agreed rentals, considering that the
petitioners did not raise any issue against it, and considering further that the CA did not find any
error committed by the MeTC as to that. At any rate, it is worthy to note that the award of reasonable
compensation, not rentals, is more consistent with the conclusion of the MeTC that the leases of the
petitioners had expired. Indeed, to peg the respondents monetary recovery to the unadjusted
rentals, instead of reasonable compensation, is not fair.

Accordingly, we modify the CAs decision by reinstating the MeTCs decision without qualification.

WHEREFORE, we modify the decision promulgated on March 31, 2000 by the Court of Appeals by
reinstating the decision dated May 17, 1996 by the Metropolitan Trial Court in Manila without
qualification.

Costs of suit to be paid by the petitioners.

SO ORDERED.
10. G.R. No. 175073 August 15, 2011

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

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

CARPIO,* J.,

BRION,**

SERENO,***JJ.

DECISION

PERALTA, J.:

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

The facts follow.

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

In July 1990, Roberto sold the 4,512 sq m property in Baccuit to the spouses Mario and Julia
Campos for P23,000.00.9 Then in August 1992, he sold the 1,986 sq m and 3,454 sq m lots in
Paringao, respectively, to Marilou for P100,000.00 and to Pedro for P40,000.00.10 Allegedly, these
sales were not known to Margarita and her other children. 11

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

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

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

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

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

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

The trial court ruled that the 1968 Affidavit of Transfer operated as a simple transfer of the subject
properties from Margarita to Roberto. It found no express trust created between Roberto and
Margarita by virtue merely of the said document as there was no evidence of another document
showing Robertos undertaking to return the subject properties. Interestingly, it concluded that,
instead, an "implied or constructive trust" was created between the parties, as if affirming that there
was indeed an agreement albeit unwritten to have the properties returned to Margarita in due
time. 22
Moreover, the trial court surmised how Margarita could have failed to recover the subject properties
from Roberto at any time between 1968, following the execution of the Affidavit of Transfer, and
Robertos return from the United States shortly thereafter. Finding Margarita guilty of laches by such
inaction, the trial court barred recovery from respondents who were found to have acquired the
properties supposedly in good faith and for value.23 It also pointed out that recovery could no longer
be pursued in this case because Margarita had likewise exhausted the ten-year prescriptive period
for reconveyance based on an implied trust which had commenced to run in 1968 upon the
execution of the Affidavit of Transfer.24 Finally, it emphasized that mere inadequacy of the price as
alleged would not be a sufficient ground to annul the sales in favor of Pedro and Marilou absent any
defect in consent.25

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

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

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

SO ORDERED.28

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

Petitioner posits that the Court of Appeals should not have haphazardly applied the doctrine of
laches and failed to see that the parties in this case are bound by familial ties. They assert that
laches must not be applied when an injustice would result from it. Petitioner believes that the
existence of such confidential relationship precludes a finding of unreasonable delay on Margaritas
part in enforcing her claim, especially in the face of Luzs testimony that she and Margarita had
placed trust and confidence in Roberto. Petitioner also refutes the Court of Appeals finding that
there was a donation of the properties to Roberto when the truth is that the subject properties were
all that Margarita possessed and that she could not have failed to provide for her other children nor
for means by which to support herself. It reiterates that the transfer to Roberto was only an
accommodation so that he could submit proof to support his U.S. visa application.
On the issue of prescription, petitioner advances that it runs from the time Roberto, as trustee, has
repudiated the trust by selling the properties to respondents in August 15, 1992; that hence, the filing
of the instant complaint in 1996 was well within the prescriptive period. Finally, petitioner states that
whether a buyer is in good or bad faith is a matter that attains relevance in sales of registered land,
as corollary to the rule that a purchaser of unregistered land uninformed of the sellers defective title
acquires no better right than such seller.

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

There is merit in the petition.

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

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

Implied trusts are further classified into constructive trusts and resulting trusts. Constructive trusts,
on the one hand, come about in the main by operation of law and not by agreement or intention.
They arise not by any word or phrase, either expressly or impliedly, evincing a direct intention to
create a trust, but one which arises in order to satisfy the demands of justice. 35 Also known as trusts
ex maleficio, trusts ex delicto and trusts de son tort, they are construed against one who by actual or
constructive fraud, duress, abuse of confidence, commission of a wrong or any form of
unconscionable conduct, artifice, concealment of questionable means, or who in any way against
equity and good conscience has obtained or holds the legal right to property which he ought not, in
equity and good conscience, hold and enjoy.36 They are aptly characterized as "fraud-rectifying
trust,"37 imposed by equity to satisfy the demands of justice38 and to defeat or prevent the wrongful
act of one of the parties.39Constructive trusts are illustrated in Articles 1450, 1454, 1455 and 1456. 40

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

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

While resulting trusts generally arise on failure of an express trust or of the purpose thereof, or on a
conveyance to one person upon a consideration from another (sometimes referred to as a
"purchase-money resulting trust"), they may also be imposed in other circumstances such that the
court, shaping judgment in its most efficient form and preventing a failure of justice, must decree the
existence of such a trust.47 A resulting trust, for instance, arises where, there being no fraud or
violation of the trust, the circumstances indicate intent of the parties that legal title in one be held for
the benefit of another.48 It also arises in some instances where the underlying transaction is without
consideration, such as that contemplated in Article 144949 of the Civil Code. Where property, for
example, is gratuitously conveyed for a particular purpose and that purpose is either fulfilled or
frustrated, the court may affirm the resulting trust in favor of the grantor or transferor,50 where the
beneficial interest in property was not intended to vest in the grantee. 51

Intention although only presumed, implied or supposed by law from the nature of the transaction or
from the facts and circumstances accompanying the transaction, particularly the source of the
consideration is always an element of a resulting trust52 and may be inferred from the acts or
conduct of the parties rather than from direct expression of conduct. 53 Certainly, intent as an
indispensable element, is a matter that necessarily lies in the evidence, that is, by evidence, even
circumstantial, of statements made by the parties at or before the time title passes. 54 Because an
implied trust is neither dependent upon an express agreement nor required to be evidenced by
writing,55 Article 145756 of our Civil Code authorizes the admission of parole evidence to prove their
existence. Parole evidence that is required to establish the existence of an implied trust necessarily
has to be trustworthy and it cannot rest on loose, equivocal or indefinite declarations. 57
Thus, contrary to the Court of Appeals finding that there was no evidence on record showing that an
implied trust relation arose between Margarita and Roberto, we find that petitioner before the trial
court, had actually adduced evidence to prove the intention of Margarita to transfer to Roberto only
the legal title to the properties in question, with attendant expectation that Roberto would return the
same to her on accomplishment of that specific purpose for which the transaction was entered into.
The evidence of course is not documentary, but rather testimonial.

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

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

While indeed at one point at the stand both of Luzs and Hilarias presence at the execution of the
affidavit had been put to test in subtle interjections by respondents counsel to the effect that their
names and signatures did not appear in the Affidavit of Transfer as witnesses, this, to our mind, is of
no moment inasmuch as they had not been called to testify on the fact of, or on the contents of, the
Affidavit of Transfer or its due execution. Rather, their testimony was offered to prove the
circumstances surrounding its execution the circumstances from which could be derived the
unwritten understanding between Roberto and Margarita that by their act, no absolute transfer of
ownership would be effected. Besides, it would be highly unlikely for Margarita to institute the instant
complaint if it were indeed her intention to vest in Roberto, by virtue of the Affidavit of Transfer,
absolute ownership over the covered properties.
It is deducible from the foregoing that the inscription of Robertos name in the Affidavit of Transfer as
Margaritas transferee is not for the purpose of transferring ownership to him but only to enable him
to hold the property in trust for Margarita. Indeed, in the face of the credible and straightforward
testimony of the two witnesses, Luz and Hilaria, the probative value of the ownership record forms in
the names of respondents, together with the testimony of their witness from the municipal assessors
office who authenticated said forms, are utterly minimal to show Robertos ownership. It suffices to
say that respondents did not bother to offer evidence that would directly refute the statements made
by Luz and Hilaria in open court on the circumstances underlying the 1968 Affidavit of Transfer.

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

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

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

Second, the invocation of the rules on limitation of actions relative to a resulting trust is not on point
because the resulting trust relation between Margarita and Roberto had been extinguished by the
latters death. A trust, it is said, terminates upon the death of the trustee, particularly where the trust
is personal to him.65 Besides, prescription and laches, in respect of this resulting trust relation, hardly
can impair petitioners cause of action. On the one hand, in accordance with Article 1144 66 of the Civil
Code, an action for reconveyance to enforce an implied trust in ones favor prescribes in ten (10)
years from the time the right of action accrues, as it is based upon an obligation created by law.67 It
sets in from the time the trustee performs unequivocal acts of repudiation amounting to an ouster of
the cestui que trust which are made known to the latter.68 In this case, it was the 1992 sale of the
properties to respondents that comprised the act of repudiation which, however, was made known to
Margarita only in 1995 but nevertheless impelled her to institute the action in 1996 still well within
the prescriptive period. Hardly can be considered as act of repudiation Robertos open court
declaration which he made in the 1979 adoption proceedings involving respondents to the effect that
he owned the subject properties,69 nor even the fact that he in 1977 had entered into a lease contract
on one of the disputed properties which contract had been subject of a 1996 decision of the Court of
Appeals.70 These do not suffice to constitute unequivocal acts in repudiation of the trust.

On the other hand, laches, being rooted in equity, is not always to be applied strictly in a way that
would obliterate an otherwise valid claim especially between blood relatives. The existence of a
confidential relationship based upon consanguinity is an important circumstance for consideration;
hence, the doctrine is not to be applied mechanically as between near relatives. 71 Adaza v. Court of
Appeals72 held that the relationship between the parties therein, who were siblings, was sufficient to
explain and excuse what would otherwise have been a long delay in enforcing the claim and the
delay in such situation should not be as strictly construed as where the parties are complete
strangers vis-a-vis each other; thus, reliance by one party upon his blood relationship with the other
and the trust and confidence normally connoted in our culture by that relationship should not be
taken against him. Too, Sotto v. Teves73 ruled that the doctrine of laches is not strictly applied
between near relatives, and the fact that the parties are connected by ties of blood or marriage tends
to excuse an otherwise unreasonable delay.

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

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

This scenario is characteristic of a constructive trust imposed by Article 145677 of the Civil Code,
which impresses upon a person obtaining property through mistake or fraud the status of an implied
trustee for the benefit of the person from whom the property comes. Petitioner, in laying claim
against respondents who are concededly transferees who professed having validly derived their
ownership from Roberto, is in effect enforcing against respondents a constructive trust relation that
arose by virtue of the wrongful and fraudulent transfer to them of the subject properties by Roberto.
Aznar Brother Realty Co. v. Aying,78 citing Buan Vda. de Esconde v. Court of Appeals,79 explained
this form of implied trust as follows:

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

xxxx

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

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

As to when the prescriptive period commences to run, Crisostomo v. Garcia 82 elucidated as follows:

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

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

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

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

SO ORDERED.

11.

PHILIPPINE NATIONAL BANK, G.R. No. 171805

Petitioner,

- versus -

MERELO B. AZNAR; MATIAS B.

AZNAR III; JOSE L. AZNAR
(deceased), represented by his heirs;
RAMON A. BARCENILLA;
ROSARIO T. BARCENILLA; JOSE
B. ENAD (deceased), represented by
his heirs; and RICARDO GABUYA
(deceased), represented by his heirs,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - x
MERELO B. AZNAR and MATIAS G.R. No. 172021
B. AZNAR III,
Petitioners, Present:

CORONA, C.J.,
Chairperson,
VELASCO, JR.,
- versus - LEONARDO-DE CASTRO,
PERALTA,* and
 PEREZ, JJ.

Promulgated:
PHILIPPINE NATIONAL BANK,
Respondent. May 30, 2011
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court are two petitions for review on certiorari under Rule 45 of
the Rules of Court both seeking to annul and set aside the Decision [1] dated
September 29, 2005 as well as the Resolution [2] dated March 6, 2006 of the Court
of Appeals in CA-G.R. CV No. 75744, entitled Merelo B. Aznar, Matias B. Aznar
III, Jose L. Aznar (deceased) represented by his heirs, Ramon A. Barcenilla
(deceased) represented by his heirs, Rosario T. Barcenilla, Jose B. Enad
(deceased) represented by his heirs, and Ricardo Gabuya (deceased) represented
by his heirs v. Philippine National Bank, Jose Garrido and Register of Deeds of
Cebu City. The September 29, 2005 Decision of the Court of Appeals set aside the
Decision[3] dated November 18, 1998 of the Regional Trial Court (RTC) of Cebu
City, Branch 17, in Civil Case No. CEB-21511. Furthermore, it ordered the
Philippine National Bank (PNB) to pay Merelo B. Aznar; Matias B. Aznar III; Jose
L. Aznar (deceased), represented by his heirs; Ramon A. Barcenilla (deceased),
represented by his heirs; Rosario T. Barcenilla; Jose B. Enad (deceased),
represented by his heirs; and Ricardo Gabuya (deceased), represented by his
heirs (Aznar, et al.), the amount of their lien based on the Minutes of the Special
Meeting of the Board of Directors[4] (Minutes) of the defunct Rural Insurance and
Surety Company, Inc. (RISCO) duly annotated on the titles of three parcels of land,
plus legal interests from the time of PNBs acquisition of the subject properties until
the finality of the judgment but dismissing all other claims of Aznar, et al. On the
other hand, the March 6, 2006 Resolution of the Court of Appeals denied the
Motion for Reconsideration subsequently filed by each party.
 The facts of this case, as stated in the Decision dated September 29, 2005 of
the Court of Appeals, are as follows:

In 1958, RISCO ceased operation due to business reverses. In

plaintiffs desire to rehabilitate RISCO, they contributed a total amount
of P212,720.00 which was used in the purchase of the three (3) parcels
of land described as follows:

A parcel of land (Lot No. 3597 of the Talisay-

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

A parcel of land (Lot 7380 of the Talisay Minglanilla

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

A parcel of land (Lot 1323 of the subdivision plan

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

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

3. The President then explained that in a special

meeting of the stockholders previously called for the
purpose of putting up certain amount of P212,720.00 for
the rehabilitation of the Company, the following
stockholders contributed the amounts indicated opposite
their names:

CONTRIBUTED SURPLUS

MERELO B. AZNAR P50,000.00

MATIAS B. AZNAR 50,000.00
JOSE L. AZNAR 27,720.00
RAMON A. BARCENILLA 25,000.00
ROSARIO T. BARCENILLA 25,000.00
JOSE B. ENAD 17,500.00
RICARDO GABUYA 17,500.00
212,720.00

xxxx

And that the respective contributions above-

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

xxxx

Thereafter, various subsequent annotations were made on the

same titles, including the Notice of Attachment and Writ of Execution
both dated August 3, 1962 in favor of herein defendant PNB, to wit:

On TCT No. 8921 for Lot 3597:

Entry No. 7416-V-4-D.B. Notice of Attachment By the

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

Date of Instrument August 3, 1962.

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

Entry No. 7417-V-4-D.B. Writ of Execution By the Court

of First Instance of Manila, commanding the Provincial
Sheriff of Cebu, of the lands and buildings of the
defendants, to make the sum of Seventy[-]One Thousand
Three Hundred Pesos (P71,300.00) plus interest etc., in
connection with Civil Case No. 47725, File No. T-8021.

Date of Instrument July 21, 1962.

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

Entry No. 7512-V-4-D.B. Notice of Attachment By the

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

Date of the Instrument August 16, 1962.

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

Entry No. 7513-V-4-D.B. Writ of Execution By the

Municipal Court of the City of Manila, commanding the
Provincial Sheriff of Cebu, of the lands and buildings of the
defendants, to make the sum of Three Thousand Pesos
(P3,000.00), with interest at 12% per annum from July 20,
1959, in connection with Civil Case Nos. IV-74065, 73929,
74613 annotated above.

File No. T-8921

Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962, 2:50 P.M.

On TCT No. 8922 for Lot 7380:

(Same as the annotations on TCT 8921)

On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c

per court order):

Entry No. 1660-V-7-D.B. Notice of Attachment by the

Provincial Sheriff of Cebu, Civil Case No. 47725, Court of
First Instance of Manila, entitled Philippine National Bank,
Plaintiff, versus, Iluminada Gonzales, et al., Defendants,
attaching all rights, interest, and participation of the
defendants Iluminada Gonzales and Rural Insurance &
Surety Co., Inc. of the parcel of land herein described.
Attachment No. 330 & 185.

Date of Instrument August 3, 1962.

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

Entry No. 1661-V-7-D.B. Writ of Execution by the Court of

First Instance of Manila commanding the Provincial Sheriff
of Cebu, of the lands and buildings of the defendants to
make the sum of Seventy[-]One Thousand Three Hundred
Pesos (P71,300.00), plus interest, etc., in connection with
Civil Case No. 47725.
File No. T-8921.
Date of the Instrument July 21, 1962.
Date of the Inscription August 3, 1962 3:00 P.M.

Entry No. 1861-V-7-D.B. - Notice of Attachment By the

Provincial Sheriff of Cebu, Civil Case Nos. IV-74065,
73929, 74129, 72613 & 72871, in the Municipal Court of
the City of Manila, entitled Jose Garrido, Plaintiff, versus
Rural Insurance & Surety Co., Inc., et als., Defendants,
attaching all rights, interest and participation of the
defendants, to the parcel of land herein described.
Attachment No. 186.
File No. T-8921.
Date of the Instrument August 16, 1962.
 Date of the Instription August 16, 1962 2:50 P.M.

Entry No. 1862-V-7-D.B. Writ of Execution by the

Municipal Court of Manila, commanding the Provincial
Sheriff of Cebu, of the lands and buildings of the
Defendants, to make the sum of Three Thousand Pesos
(P3,000.00), with interest at 12% per annum from July 20,
1959, in connection with Civil Case Nos. IV-74065, 73929,
74129, 72613 & 72871 annotated above.
File No. T-8921.
Date of the Instrument August 11, 1962.
Date of the Inscription August 16, 1962 at 2:50 P.M.

As a result, a Certificate of Sale was issued in favor of Philippine

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

This prompted plaintiffs-appellees to file the instant complaint

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

Defendant PNB on the other hand countered that plaintiffs have

no right of action for quieting of title since the order of the court
directing the issuance of titles to PNB had already become final and
executory and their validity cannot be attacked except in a direct
 proceeding for their annulment. Defendant further asserted that
plaintiffs, as mere stockholders of RISCO do not have any legal or
equitable right over the properties of the corporation. PNB posited that
even if plaintiffs monetary lien had not expired, their only recourse was
to require the reimbursement or refund of their contribution. [5]

Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings[6] on
October 5, 1998. Thus, the trial court rendered the November 18, 1998 Decision,
which ruled against PNB on the basis that there was an express trust created over
the subject properties whereby RISCO was the trustee and the stockholders,
Aznar, et al., were the beneficiaries or the cestui que trust. The dispositive portion
of the said ruling reads:

WHEREFORE, judgment is hereby rendered as follows:

a) Declaring the Minutes of the Special Meeting of the Board of Directors

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

b) Declaring all the subsequent annotations of court writs and processes, to

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

c) Directing the Register of Deeds of the Province of Cebu and/or the

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

d) Directing the Register of Deeds of the Province of Cebu to cancel and/or

annul TCTs Nos. 8921 and 8922 in the name of RISCO, and to issue
another titles in the names of the plaintiffs; and
 e) Directing Philippine National Bank to reconvey TCT No. 119848 in
favor of the plaintiffs.[7]

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

WHEREFORE, premises considered, the assailed Judgment is

hereby SET ASIDE.

A new judgment is rendered ordering Philippine National Bank to

pay plaintiffs-appellees the amount of their lien based on the Minutes of
the Special Meeting of the Board of Directors duly annotated on the
titles, plus legal interests from the time of appellants acquisition of the
subject properties until the finality of this judgment.

All other claims of the plaintiffs-appellees are hereby

DISMISSED.[8]

Both parties moved for reconsideration but these were denied by the Court
of Appeals. Hence, each party filed with this Court their respective petitions for
review on certiorari under Rule 45 of the Rules of Court, which were consolidated
in a Resolution[9] dated October 2, 2006.

In PNBs petition, docketed as G.R. No. 171805, the following assignment of

errors were raised:

I
 THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS
OF THE TRIAL COURT THAT A JUDGMENT ON THE PLEADINGS
WAS WARRANTED DESPITE THE EXISTENCE OF GENUINE
ISSUES OF FACTS ALLEGED IN PETITIONER PNBS ANSWER.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING

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

III

THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE

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

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

THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE

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

Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment
on the pleadings was not proper because its Answer,[12] which it filed during the
trial court proceedings of this case, tendered genuine issues of fact since it did not
only deny material allegations in Aznar, et al.s Complaint[13] but also set up special
and affirmative defenses. Furthermore, PNB maintains that, by virtue of the trial
courts judgment on the pleadings, it was denied its right to present evidence and,
therefore, it was denied due process.

The contention is meritorious.

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

Judgment on the pleadings is, therefore, based exclusively upon the

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

In the case at bar, the Court of Appeals justified the trial courts resort to a
judgment on the pleadings in the following manner:
Perusal of the complaint, particularly, Paragraph 7 thereof reveals:
7. That in their desire to rehabilitate RISCO, the
above-named stockholders contributed a total amount of
PhP212,720.00 which was used in the purchase of the
above-described parcels of land, which amount constituted
liens and encumbrances on subject properties in favor of
the above-named stockholders as annotated in the titles
adverted to above, pursuant to the Minutes of the Special
Meeting of the Board of Directors of RISCO approved on
March 14, 1961, a copy of which is hereto attached as
Annex E.

On the other hand, defendant in its Answer, admitted the aforequoted

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

However, a careful reading of Aznar, et al.s Complaint and of PNBs Answer

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

Furthermore, apart from refuting the aforecited material allegations made by

Aznar, et al., PNB also indicated in its Answer the special and affirmative defenses
of (a) prescription; (b) res judicata; (c) Aznar, et al., having no right of action for
quieting of title; (d) Aznar, et al.s lien being ineffective and not binding to PNB;
and (e) Aznar, et al.s having no personality to file the suit.[19]

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

A thorough and comprehensive scrutiny of the records would reveal that this
case should be dismissed because Aznar, et al., have no title to quiet over the
subject properties and their true cause of action is already barred by prescription.
 At the outset, the Court agrees with the Court of Appeals that the agreement
contained in the Minutes of the Special Meeting of the RISCO Board of Directors
held on March 14, 1961 was a loan by the therein named stockholders to
RISCO. We quote with approval the following discussion from the Court of
Appeals Decision dated September 29, 2005:

Careful perusal of the Minutes relied upon by plaintiffs-appellees

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

It is a cardinal rule in the interpretation of contracts that if the

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

The term lien as used in the Minutes is defined as a discharge on

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

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

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

Express trusts, sometimes referred to as direct trusts, are intentionally

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

In other words, the creation of an express trust must be manifested with

reasonable certainty and cannot be inferred from loose and vague declarations or
from ambiguous circumstances susceptible of other interpretations.[23]
No such reasonable certitude in the creation of an express trust obtains in the
case at bar. In fact, a careful scrutiny of the plain and ordinary meaning of the
terms used in the Minutes does not offer any indication that the parties thereto
intended that Aznar, et al., become beneficiaries under an express trust and that
RISCO serve as trustor.

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

As a consequence thereof, a corporation has a personality separate and

distinct from those of its stockholders and other corporations to which it may be
connected.[24]Thus, we had previously ruled in Magsaysay-Labrador v. Court of
Appeals[25] that the interest of the stockholders over the properties of the
corporation is merely inchoate and therefore does not entitle them to intervene in
litigation involving corporate property, to wit:
 Here, the interest, if it exists at all, of petitioners-movants is
indirect, contingent, remote, conjectural, consequential and collateral. At
the very least, their interest is purely inchoate, or in sheer expectancy of
a right in the management of the corporation and to share in the profits
thereof and in the properties and assets thereof on dissolution, after
payment of the corporate debts and obligations.

While a share of stock represents a proportionate or aliquot

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

In the case at bar, there is no allegation, much less any proof, that the
corporate existence of RISCO has ceased and the corporate property has been
liquidated and distributed to the stockholders. The records only indicate that, as per
Securities and Exchange Commission (SEC) Certification[27] dated June 18, 1997,
the SEC merely suspended RISCOs Certificate of Registration beginning on
September 5, 1988 due to its non-submission of SEC required reports and its
failure to operate for a continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim
ownership over the properties at issue in this case on the strength of the Minutes
which, at most, is merely evidence of a loan agreement between them and the
company. There is no indication or even a suggestion that the ownership of said
properties were transferred to them which would require no less that the said
properties be registered under their names. For this reason, the complaint should be
dismissed since Aznar, et al., have no cause to seek a quieting of title over the
subject properties.

At most, what Aznar, et al., had was merely a right to be repaid the amount
loaned to RISCO. Unfortunately, the right to seek repayment or reimbursement of
their contributions used to purchase the subject properties is already barred by
prescription.
 Section 1, Rule 9 of the Rules of Court provides that when it appears from
the pleadings or the evidence on record that the action is already barred by the
statute of limitations, the court shall dismiss the claim, to wit:

Defenses and objections not pleaded either in a motion to dismiss

or in the answer are deemed waived. However, when it appears from the
pleadings or the evidence on record that the court has no jurisdiction
over the subject matter, that there is another action pending between the
same parties for the same cause, or that the action is barred by a prior
judgment or by statute of limitations, the court shall dismiss the claim.
(Emphasis supplied.)

In Feliciano v. Canoza,[28] we held:

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

The pertinent Civil Code provision on prescription which is applicable to the

issue at hand is Article 1144(1), to wit:

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

1. Upon a written contract;

2. Upon an obligation created by law;
3. Upon a judgment. (Emphasis supplied.)
Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,[30] we held
that the term written contract includes the minutes of the meeting of the board of
directors of a corporation, which minutes were adopted by the parties although not
signed by them, to wit:

Coming now to the question of prescription raised by defendant Lepanto,

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

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

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

WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021

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

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

12. G.R. No. 140528 December 7, 2011

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

x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 140553

LENA DUQUE-ROSARIO, Petitioner,

vs.
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

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

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

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

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

On December 12, 1964, the Torbela siblings executed a Deed of Absolute Quitclaim 10 over Lot No.
356-A in favor of Dr. Rosario. According to the said Deed, the Torbela siblings "for and in
consideration of the sum of NINE PESOS (P9.00) x x x transfer[red] and convey[ed] x x x unto the
said Andres T. Rosario, that undivided portion of THREE HUNDRED SEVENTY-FOUR square
meters of that parcel of land embraced in Original Certificate of Title No. 16676 of the land records of
Pangasinan x x x."11 Four days later, on December 16, 1964, OCT No. 16676 in Valerianos name
was partially cancelled as to Lot No. 356-A and TCT No. 52751 12 was issued in Dr. Rosarios name
covering the said property.

Another Deed of Absolute Quitclaim13 was subsequently executed on December 28, 1964, this time
by Dr. Rosario, acknowledging that he only borrowed Lot No. 356-A from the Torbela siblings and
was already returning the same to the latter for P1.00. The Deed stated:

That for and in consideration of the sum of one peso (P1.00), Philippine Currency and the fact that I
only borrowed the above described parcel of land from MARIA TORBELA, married to Eulogio Tosino,
EUFROSINA TORBELA, married to Pedro Rosario, PEDRO TORBELA, married to Petra Pagador,
LEONILA TORBELA, married to Fortunato Tamen, FERNANDO TORBELA, married to Victoriana
Tablada, DOLORES TORBELA, widow, LEONORA TORBELA, married to Matias Agustin and
SEVERINA TORBELA, married to Jorge Ildefonso, x x x by these presents do hereby cede, transfer
and convey by way of this ABSOLUTE QUITCLAIM unto the said Maria, Eufrosina, Pedro, Leonila,
Fernando, Dolores, Leonora and Severina, all surnamed Torbela the parcel of land described
above.14 (Emphasis ours.)

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

Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development Bank
of the Philippines (DBP) on February 21, 1965 in the sum of P70,200.00, secured by a mortgage
constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751 on September 21,
1965 as Entry No. 243537.15 Dr. Rosario used the proceeds of the loan for the construction of
improvements on Lot No. 356-A.

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

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

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

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

The very next day, on May 17, 1967, the Torbela siblings had Cornelios Affidavit of Adverse Claim
dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim dated December 28, 1964
annotated on TCT No. 52751 as Entry Nos. 27447118 and 274472,19 respectively.

The construction of a four-storey building on Lot No. 356-A was eventually completed. The building
was initially used as a hospital, but was later converted to a commercial building. Part of the building
was leased to PT&T; and the rest to Mrs. Andrea Rosario-Haduca, Dr. Rosarios sister, who operated
the Rose Inn Hotel and Restaurant.

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

In the meantime, Dr. Rosario acquired another loan from the Philippine National Bank (PNB)
sometime in 1979-1981. Records do not reveal though the original amount of the loan from PNB, but
the loan agreement was amended on March 5, 1981 and the loan amount was increased
to P450,000.00. The loan was secured by mortgages constituted on the following properties: (1) Lot
No. 356-A, covered by TCT No. 52751 in Dr. Rosarios name; (2) Lot No. 4489, with an area of 1,862
square meters, located in Dagupan City, Pangasinan, covered by TCT No. 24832; and (3) Lot No. 5-
F-8-C-2-B-2-A, with an area of 1,001 square meters, located in Nancayasan, Urdaneta, Pangasinan,
covered by TCT No. 104189.21 The amended loan agreement and mortgage on Lot No. 356-A was
annotated on TCT No. 52751 on March 6, 1981 as Entry No. 520099.22

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

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

Lingayen, Pangasinan, 3-11, 19981

[Signed: Pedro dela Cruz]

Register of Deeds 24

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario), acquired a third
loan in the amount of P1,200,000.00 from Banco Filipino Savings and Mortgage Bank (Banco
Filipino). To secure said loan, the spouses Rosario again constituted mortgages on Lot No. 356-A,
Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. The mortgage on Lot No. 356-A was annotated on TCT
No. 52751 as Entry No. 53328325 on December 18, 1981. Since the construction of a two-storey
commercial building on Lot No. 5-F-8-C-2-B-2-A was still incomplete, the loan value thereof as
collateral was deducted from the approved loan amount. Thus, the spouses Rosario could only avail
of the maximum loan amount of P830,064.00 from Banco Filipino.

Because Banco Filipino paid the balance of Dr. Rosarios loan from PNB, the mortgage on Lot No.
356-A in favor of PNB was cancelled per Entry No. 533478 26 on TCT No. 52751 dated December 23,
1981.

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

Entry No. 593494 Complaint Civil Case No. U-4359 (For: Recovery of Ownership and
Possession and Damages. (Sup. Paper).

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

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

(SGD.) PACIFICO M. BRAGANZA
Register of Deeds27

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

Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489, and Lot No.
5-F-8-C-2-B-2-A. During the public auction on April 2, 1987, Banco Filipino was the lone bidder for
the three foreclosed properties for the price of P1,372,387.04. The Certificate of Sale29 dated April 2,
1987, in favor of Banco Filipino, was annotated on TCT No. 52751 on April 14, 1987 as Entry No.
610623.30

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

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

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

(SGD.) RUFINO M. MORENO, SR.

Register of Deeds32

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

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

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

The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint 37 for annulment
of the Certificate of Final Sale dated May 24, 1988, judicial cancelation of TCT No. 165813, and
damages, against Banco Filipino, the Ex Officio Provincial Sheriff, and the Register of Deeds of
Pangasinan, which was docketed as Civil Case No. U-4733.

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

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

WHEREFORE, judgment is rendered:

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

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

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

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

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

6. [The Torbela siblings] are hereby ordered to pay Banco Filipino the sum of P20,000.00 as
attorneys fees;

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

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

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

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

Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-C-2-[B]-2-A of the subdivision plan
(LRC) Psd-122471, covered by Transfer Certificate of Title 104189 of the Registry of Deeds of
Pangasinan[.]41

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

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification.
Items No. 6 and 7 of the appealed decision are DELETED. Item No. 8 is modified requiring [Dr.
Rosario] to pay [the Torbela siblings] actual damages, in the amount of P1,200,000.00 with 6% per
annum interest from finality of this decision until fully paid. [Dr. Rosario] is further ORDERED to pay
[the Torbela siblings] the amount of P300,000.00 as moral damages; P200,000.00 as exemplary
damages and P100,000.00 as attorneys fees.

Costs against [Dr. Rosario].43

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

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

First Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE
REGISTRATION OF THE DEED OF ABSOLUTE QUITCLAIM EXECUTED BY [DR.
ANDRES T. ROSARIO] IN FAVOR OF THE [TORBELA SIBLINGS] DATED DECEMBER 28,
1964 AND THE REGISTRATION OF THE NOTICE OF ADVERSE CLAIM EXECUTED BY
THE [TORBELA SIBLINGS], SERVE AS THE OPERATIVE ACT TO CONVEY OR AFFECT
THE LAND AND IMPROVEMENTS THEREOF IN SO FAR AS THIRD PERSONS ARE
CONCERNED.

Second Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

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

Third Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

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

Fourth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT

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

Fifth Issue and Assignment of Error:

 THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE
FILING OF A CIVIL CASE NO. U-4359 ON DECEMBER 9, 1987, IMPLEADING
RESPONDENT BANCO FILIPINO AS ADDITIONAL PARTY DEFENDANT, TOLL OR
SUSPEND THE RUNNING OF THE ONE YEAR PERIOD OF REDEMPTION.

Sixth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE
OWNERSHIP OVER THE SUBJECT PROPERTY WAS PREMATURELY CONSOLIDATED
IN FAVOR OF RESPONDENT BANCO FILIPINO SAVINGS AND MORTGAGE BANK.

Seventh Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE

SUBJECT PROPERTY IS AT LEAST WORTH P1,200,000.00.45

The Torbela siblings ask of this Court:

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

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

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

THE HON. COURT OF APPEALS PATENTLY ERRED IN NOT FINDING THAT THE
PERIOD TO REDEEM THE PROPERTY HAS NOT COMMENCED, HENCE, THE
CERTIFICATE OF SALE, THE CONSOLIDATION OF OWNERSHIP BY [BANCO FILIPINO],
ARE NULL AND VOID.

THE COURT OF APPEALS PATENTLY ERRED IN REFUSING TO RULE THAT THE FILING
OF THE COMPLAINT BEFORE THE COURT A QUO BY THE [TORBELA SIBLINGS] HAD
ALREADY BEEN PRESCRIBED.47

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

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

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

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

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

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

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

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

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

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

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

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

3. Offenses punishable by imprisonment exceeding 30 days, or a fine exceeding P200.00;

4. Offenses where there is no private offended party;

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

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

The Lupon shall have no authority over disputes:

1. involving parties who actually reside in barangays of different cities or municipalities,

except where such barangays adjoin each other; and

2. involving real property located in different municipalities.

xxxx

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

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

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

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

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

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

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

Actually, however, this added sentence is just an ordinary proviso and should operate as such.
The operation of a proviso, as a rule, should be limited to its normal function, which is to restrict or
vary the operation of the principal clause, rather than expand its scope, in the absence of a clear
indication to the contrary.

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

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

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

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

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

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

Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12, 1964 in which
they transferred and conveyed Lot No. 356-A to Dr. Rosario for the consideration of P9.00. However,
the Torbela siblings explained that they only executed the Deed as an accommodation so that Dr.
Rosario could have Lot No. 356-A registered in his name and use said property to secure a loan
from DBP, the proceeds of which would be used for building a hospital on Lot No. 356-A a claim
supported by testimonial and documentary evidence, and borne out by the sequence of events
immediately following the execution by the Torbela siblings of said Deed. On December 16, 1964,
TCT No. 52751, covering Lot No. 356-A, was already issued in Dr. Rosarios name. On December
28, 1964, Dr. Rosario executed his own Deed of Absolute Quitclaim, in which he expressly
acknowledged that he "only borrowed" Lot No. 356-A and was transferring and conveying the same
back to the Torbela siblings for the consideration of P1.00. On February 21, 1965, Dr. Rosarios loan
in the amount of P70,200.00, secured by a mortgage on Lot No. 356-A, was approved by DBP. Soon
thereafter, construction of a hospital building started on Lot No. 356-A.

Among the notable evidence presented by the Torbela siblings is the testimony of Atty. Lorenza
Alcantara (Atty. Alcantara), who had no apparent personal interest in the present case. Atty.
Alcantara, when she was still a boarder at the house of Eufrosina Torbela Rosario (Dr. Rosarios
mother), was consulted by the Torbela siblings as regards the extrajudicial partition of Lot No. 356-A.
She also witnessed the execution of the two Deeds of Absolute Quitclaim by the Torbela siblings and
Dr. Rosario.
In contrast, Dr. Rosario presented TCT No. 52751, issued in his name, to prove his purported title to
Lot No. 356-A. In Lee Tek Sheng v. Court of Appeals,53 the Court made a clear distinction between
title and the certificate of title:

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

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

Dr. Rosario testified that he obtained Lot No. 356-A after paying the Torbela siblings P25,000.00,
pursuant to a verbal agreement with the latter. The Court though observes that Dr. Rosarios
testimony on the execution and existence of the verbal agreement with the Torbela siblings lacks
significant details (such as the names of the parties present, dates, places, etc.) and is not
corroborated by independent evidence.

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

Even if the Court considers Dr. Rosarios testimony on his alleged verbal agreement with the Torbela
siblings, the Court finds the same unsatisfactory. Dr. Rosario averred that the two Deeds were
executed only because he was "planning to secure loan from the Development Bank of the
Philippines and Philippine National Bank and the bank needed absolute quitclaim[.]" 58 While Dr.
Rosarios explanation makes sense for the first Deed of Absolute Quitclaim dated December 12,
1964 executed by the Torbela siblings (which transferred Lot No. 356-A to Dr. Rosario for P9.00.00),
the same could not be said for the second Deed of Absolute Quitclaim dated December 28, 1964
executed by Dr. Rosario. In fact, Dr. Rosarios Deed of Absolute Quitclaim (in which he admitted that
he only borrowed Lot No. 356-A and was transferring the same to the Torbela siblings for P1.00.00)
would actually work against the approval of Dr. Rosarios loan by the banks. Since Dr. Rosarios
Deed of Absolute Quitclaim dated December 28, 1964 is a declaration against his self-interest, it
must be taken as favoring the truthfulness of the contents of said Deed. 59
It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over Lot No.
356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr. Rosario's admission
in the said Deed that he merely borrowed Lot No. 356-A is deemed conclusive upon him. Under
Article 1431 of the Civil Code, "[t]hrough estoppel an admission or representation is rendered
conclusive upon the person making it, and cannot be denied or disproved as against the person
relying thereon."60 That admission cannot now be denied by Dr. Rosario as against the Torbela
siblings, the latter having relied upon his representation.

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

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

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

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

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

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

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

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

On the issue of prescription, we had the opportunity to rule in Bueno v. Reyes that unrepudiated
written express trusts are imprescriptible:
"While there are some decisions which hold that an action upon a trust is imprescriptible, without
distinguishing between express and implied trusts, the better rule, as laid down by this Court in other
decisions, is that prescription does supervene where the trust is merely an implied one. The reason
has been expressed by Justice J.B.L. Reyes in J.M. Tuason and Co., Inc. vs. Magdangal, 4 SCRA
84, 88, as follows:

Under Section 40 of the old Code of Civil Procedure, all actions for recovery of real property
prescribed in 10 years, excepting only actions based on continuing or subsisting trusts that were
considered by section 38 as imprescriptible. As held in the case of Diaz v. Gorricho, L-11229, March
29, 1958, however, the continuing or subsisting trusts contemplated in section 38 of the Code of Civil
Procedure referred only to express unrepudiated trusts, and did not include constructive trusts (that
are imposed by law) where no fiduciary relation exists and the trustee does not recognize the trust at
all."

This principle was amplified in Escay v. Court of Appeals this way: "Express trusts prescribe 10
years from the repudiation of the trust (Manuel Diaz, et al. vs. Carmen Gorricho et al., 54 O.G. p.
8429, Sec. 40, Code of Civil Procedure)."

In the more recent case of Secuya v. De Selma, we again ruled that the prescriptive period for the
enforcement of an express trust of ten (10) years starts upon the repudiation of the trust by the
trustee.66

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

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

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

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

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

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

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

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

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

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

Entry No. 520099

Amendment of the mortgage in favor of PNB inscribed under Entry No. 490658 in the sense that the
consideration thereof has been increased to PHILIPPINE PESOS Four Hundred Fifty Thousand
Pesos only (P450,000.00) and to secure any and all negotiations with PNB, whether contracted
before, during or after the date of this instrument, acknowledged before Notary Public of Pangasinan
Alejo M. Dato as Doc. No. 198, Page No. 41, Book No. 11, Series of 1985.

Date of Instrument March 5, 1981

Date of Inscription March 6, 198173

Although according to Entry No. 520099, the original loan and mortgage agreement of Lot No. 356-A
between Dr. Rosario and PNB was previously inscribed as Entry No. 490658, Entry No. 490658
does not actually appear on TCT No. 52751 and, thus, it cannot be used as the reckoning date for
the start of the prescriptive period.
The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-A to PNB
on March 6, 1981 when the amended loan and mortgage agreement was registered on TCT No.
52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole world 74 that Lot No.
356-A was mortgaged by Dr. Rosario to PNB as security for a loan, the amount of which was
increased to P450,000.00. Hence, Dr. Rosario is deemed to have effectively repudiated the express
trust between him and the Torbela siblings on March 6, 1981, on which day, the prescriptive period
for the enforcement of the express trust by the Torbela siblings began to run.

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

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

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

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

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

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

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because per
Section 70 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree,
the notice of adverse claim, registered on May 17, 1967 by the Torbela siblings under Entry Nos.
274471-274472 on TCT No. 52751, already lapsed after 30 days or on June 16, 1967. Additionally,
there was an express cancellation of Entry Nos. 274471-274472 by Entry No. 520469 dated March
11, 1981. So when Banco Filipino approved Dr. Rosarios loan for P1,200,000.00 and constituted a
mortgage on Lot No. 356-A (together with two other properties) on December 8, 1981, the only other
encumbrance on TCT No. 52751 was Entry No. 520099 dated March 6, 1981, i.e., the amended loan
and mortgage agreement between Dr. Rosario and PNB (which was eventually cancelled after it was
paid off with part of the proceeds from Dr. Rosarios loan from Banco Filipino). Hence, Banco Filipino
was not aware that the Torbela siblings adverse claim on Lot No. 356-A still subsisted.

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

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

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

ADVERSE CLAIM

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

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

Construing the aforequoted provision, the Court stressed in Ty Sin Tei v. Lee Dy Piao 78 that "[t]he
validity or efficaciousness of the [adverse] claim x x x may only be determined by the Court upon
petition by an interested party, in which event, the Court shall order the immediate hearing thereof
and make the proper adjudication as justice and equity may warrant. And it is ONLY when such
claim is found unmeritorious that the registration thereof may be cancelled." The Court likewise
pointed out in the same case that while a notice of lis pendens may be cancelled in a number of
ways, "the same is not true in a registered adverse claim, for it may be cancelled only in one
instance, i.e., after the claim is adjudged invalid or unmeritorious by the Court x x x;" and "if any of
the registrations should be considered unnecessary or superfluous, it would be the notice of lis
pendens and not the annotation of the adverse claim which is more permanent and cannot be
cancelled without adequate hearing and proper disposition of the claim."

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

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

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

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

In Sajonas v. Court of Appeals,79 the Court squarely interpreted Section 70 of the Property
Registration Decree, particularly, the new 30-day period not previously found in Section 110 of the
Land Registration Act, thus:

In construing the law aforesaid, care should be taken that every part thereof be given effect and a
construction that could render a provision inoperative should be avoided, and inconsistent provisions
should be reconciled whenever possible as parts of a harmonious whole. For taken in solitude, a
word or phrase might easily convey a meaning quite different from the one actually intended and
evident when a word or phrase is considered with those with which it is associated. In ascertaining
the period of effectivity of an inscription of adverse claim, we must read the law in its entirety.
Sentence three, paragraph two of Section 70 of P.D. 1529 provides:

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

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

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

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

xxxx

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

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

To interpret the effectivity period of the adverse claim as absolute and without qualification limited to
thirty days defeats the very purpose for which the statute provides for the remedy of an inscription of
adverse claim, as the annotation of an adverse claim is a measure designed to protect the interest of
a person over a piece of real property where the registration of such interest or right is not otherwise
provided for by the Land Registration Act or Act 496 (now P.D. 1529 or the Property Registration
Decree), and serves as a warning to third parties dealing with said property that someone is claiming
an interest or the same or a better right than the registered owner thereof.

The reason why the law provides for a hearing where the validity of the adverse claim is to be
threshed out is to afford the adverse claimant an opportunity to be heard, providing a venue where
the propriety of his claimed interest can be established or revoked, all for the purpose of determining
at last the existence of any encumbrance on the title arising from such adverse claim. This is in line
with the provision immediately following:

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

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

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

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

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

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

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

Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser in good faith at
the foreclosure sale of Lot No. 356-A. Hence, the right of the Torbela siblings over Lot No. 356-A is
superior over that of Banco Filipino; and as the true owners of Lot No. 356-A, the Torbela siblings
are entitled to a reconveyance of said property even from Banco Filipino.
Nonetheless, the failure of Banco Filipino to comply with the due diligence requirement was not the
result of a dishonest purpose, some moral obliquity, or breach of a known duty for some interest or ill
will that partakes of fraud that would justify damages.84

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

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

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

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

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

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

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

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

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

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

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

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

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

This case then must be remanded to the RTC for the determination of matters necessary for the
proper application of Article 448, in relation to Article 546, of the Civil Code. Such matters include the
option that the Torbela siblings will choose; the amount of indemnity that they will pay if they decide
to appropriate the improvements on Lot No. 356-A; the value of Lot No. 356-A if they prefer to sell it
to Dr. Rosario; or the reasonable rent if they opt to sell Lot No. 356-A to Dr. Rosario but the value of
the land is considerably more than the improvements. The determination made by the Court of
Appeals in its Decision dated June 29, 1999 that the current value of Lot No. 356-A is P1,200,000.00
is not supported by any evidence on record.

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

Article 546 does not specifically state how the value of the useful improvements should be
determined. The respondent court and the private respondents espouse the belief that the cost of
construction of the apartment building in 1965, and not its current market value, is sufficient
reimbursement for necessary and useful improvements made by the petitioner. This position is,
however, not in consonance with previous rulings of this Court in similar cases. In Javier vs.
Concepcion, Jr., this Court pegged the value of the useful improvements consisting of various fruits,
bamboos, a house and camarin made of strong material based on the market value of the said
improvements. In Sarmiento vs. Agana, despite the finding that the useful improvement, a residential
house, was built in 1967 at a cost of between eight thousand pesos (P8,000.00) to ten thousand
pesos (P10,000.00), the landowner was ordered to reimburse the builder in the amount of forty
thousand pesos (P40,000.00), the value of the house at the time of the trial. In the same way, the
landowner was required to pay the "present value" of the house, a useful improvement, in the case
of De Guzman vs. De la Fuente, cited by the petitioner.

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

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

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

The Court of Appeals ordered Dr. Rosario to pay the Torbela siblings P300,000.00 as moral
damages; P200,000.00 as exemplary damages; and P100,000.00 as attorneys fees.

Indeed, Dr. Rosarios deceit and bad faith is evident when, being fully aware that he only held Lot
No. 356-A in trust for the Torbela siblings, he mortgaged said property to PNB and Banco Filipino
absent the consent of the Torbela siblings, and caused the irregular cancellation of the Torbela
siblings adverse claim on TCT No. 52751. Irrefragably, Dr. Rosarios betrayal had caused the
Torbela siblings (which included Dr. Rosarios own mother, Eufrosina Torbela Rosario) mental
anguish, serious anxiety, and wounded feelings. Resultantly, the award of moral damages is justified,
but the amount thereof is reduced to P200,000.00.

In addition to the moral damages, exemplary damages may also be imposed given that Dr. Rosarios
wrongful acts were accompanied by bad faith. However, judicial discretion granted to the courts in
the assessment of damages must always be exercised with balanced restraint and measured
objectivity. The circumstances of the case call for a reduction of the award of exemplary damages
to P100,000.00.

As regards attorney's fees, they may be awarded when the defendant's act or omission has
compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest.
Because of Dr. Rosarios acts, the Torbela siblings were constrained to institute several cases
against Dr. Rosario and his spouse, Duque-Rosario, as well as Banco Filipino, which had lasted for
more than 25 years. Consequently, the Torbela siblings are entitled to an award of attorney's fees
and the amount of P100,000.00 may be considered rational, fair, and reasonable.

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

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

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

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

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

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

It is true that the rule on redemption is liberally construed in favor of the original owner of the
property. The policy of the law is to aid rather than to defeat him in the exercise of his right of
redemption.93 However, the liberal interpretation of the rule on redemption is inapplicable herein as
neither Duque-Rosario nor Dr. Rosario had made any attempt to redeem Lot No. 5-F-8-C-2-B-2-A.
Duque-Rosario could only rely on the efforts of the Torbela siblings at redemption, which were
unsuccessful. While the Torbela siblings made several offers to redeem Lot No. 356-A, as well as the
two other properties mortgaged by Dr. Rosario, they did not make any valid tender of the redemption
price to effect a valid redemption. The general rule in redemption is that it is not sufficient that a
person offering to redeem manifests his desire to do so. The statement of intention must be
accompanied by an actual and simultaneous tender of payment. The redemption price should either
be fully offered in legal tender or else validly consigned in court. Only by such means can the auction
winner be assured that the offer to redeem is being made in good faith.94 In case of disagreement
over the redemption price, the redemptioner may preserve his right of redemption through judicial
action, which in every case, must be filed within the one-year period of redemption. The filing of the
court action to enforce redemption, being equivalent to a formal offer to redeem, would have the
effect of preserving his redemptive rights and "freezing" the expiration of the one-year period. 95 But
no such action was instituted by the Torbela siblings or either of the spouses Rosario.

Duque-Rosario also cannot bar the issuance of the writ of possession over Lot No. 5-F-8-C-2-B-2-A
in favor of Banco Filipino by invoking the pendency of Civil Case No. U-4359, the Torbela siblings
action for recovery of ownership and possession and damages, which supposedly tolled the period
for redemption of the foreclosed properties. Without belaboring the issue of Civil Case No. U-4359
suspending the redemption period, the Court simply points out to Duque-Rosario that Civil Case No.
U-4359 involved Lot No. 356-A only, and the legal consequences of the institution, pendency, and
resolution of Civil Case No. U-4359 apply to Lot No. 356-A alone.

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

The right of the purchaser to the possession of the foreclosed property becomes absolute upon the
expiration of the redemption period. The basis of this right to possession is the purchaser's
ownership of the property. After the consolidation of title in the buyer's name for failure of the
mortgagor to redeem, the writ of possession becomes a matter of right and its issuance to a
purchaser in an extrajudicial foreclosure is merely a ministerial function. 96
1avvphi1

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

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

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

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

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

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

(5) Dr. Rosario is ORDERED to pay the Torbela siblings P200,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees; and

(6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A, covered by

TCT No. 165812. The RTC Branch Clerk of Court is ORDERED to issue a writ of possession
for the said property in favor of Banco Filipino.

SO ORDERED.

TERESITA J. LEONARDO-DE CASTRO

Associate Justice

WE CONCUR:

RENATO C. CORONA
Chief Justice
Chairperson

LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

Associate Justice Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

C E R TI F I C ATI O N

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

RENATO C. CORONA
Chief Justice

13. G.R. No. 176959 September 8, 2010

METROPOLITAN BANK & TRUST COMPANY, INC. (as successor-in-interest of the banking
operations of Global Business Bank, Inc. formerly known as PHILIPPINE BANKING
CORPORATION), Petitioner,
vs.
THE BOARD OF TRUSTEES OF RIVERSIDE MILLS CORPORATION PROVIDENT AND
RETIREMENT FUND, represented by ERNESTO TANCHI, JR., CESAR SALIGUMBA, AMELITA
SIMON, EVELINA OCAMPO and CARLITOS Y. LIM, RMC UNPAID EMPLOYEES ASSOCIATION,
INC., and THE INDIVIDUAL BENEFICIARIES OF THE PROVIDENT AND RETIREMENT FUND OF
RMC, Respondents.

DECISION

VILLARAMA, JR., J.:

This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as
amended, prays for the reversal of the Decision1 dated November 7, 2006 and Resolution2 dated
March 5, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 76642. The CA had affirmed the
Decision3 dated June 27, 2002 of the Regional Trial Court (RTC), Branch 137, Makati City in Civil
Case No. 97-997 which declared invalid the reversion or application of the Riverside Mills
Corporation Provident and Retirement Fund (RMCPRF) to the outstanding obligation of Riverside
Mills Corporation (RMC) with Philippine Banking Corporation (Philbank).

The facts are as follows:

On November 1, 1973, RMC established a Provident and Retirement Plan 4 (Plan) for its regular
employees. Under the Plan, RMC and its employees shall each contribute 2% of the employees
current basic monthly salary, with RMCs contribution to increase by 1% every five (5) years up to a
maximum of 5%. The contributions shall form part of the provident fund (the Fund) which shall be
held, invested and distributed by the Commercial Bank and Trust Company. Paragraph 13 of the
Plan likewise provided that the Plan "may be amended or terminated by the Company at any time on
account of business conditions, but no such action shall operate to permit any part of the assets of
the Fund to be used for, or diverted to purposes other than for the exclusive benefit of the members
of the Plan and their beneficiaries. In no event shall any part of the assets of the Fund revert to
[RMC] before all liabilities of the Plan have been satisfied." 5

On October 15, 1979, the Board of Trustees of RMCPRF (the Board) entered into an Investment
Management Agreement6 (Agreement) with Philbank (now, petitioner Metropolitan Bank and Trust
Company). Pursuant to the Agreement, petitioner shall act as an agent of the Board and shall hold,
manage, invest and reinvest the Fund in Trust Account No. 1797 in its behalf. The Agreement shall
be in force for one (1) year and shall be deemed automatically renewed unless sooner terminated
either by petitioner bank or by the Board.

In 1984, RMC ceased business operations. Nonetheless, petitioner continued to render investment
services to respondent Board. In a letter7 dated September 27, 1995, petitioner informed respondent
Board that Philbanks Board of Directors had decided to apply the remaining trust assets held by it in
the name of RMCPRF against part of the outstanding obligations of RMC.

Subsequently, respondent RMC Unpaid Employees Association, Inc. (Association), representing the
terminated employees of RMC, learned of Trust Account No. 1797. Through counsel, they
demanded payment of their share in a letter8 dated February 4, 1997. When such demand went
unheeded, the Association, along with the individual members of RMCPRF, filed a complaint for
accounting against the Board and its officers, namely, Ernesto Tanchi, Jr., Carlitos Y. Lim, Amelita G.
Simon, Evelina S. Ocampo and Cesar Saligumba, as well as petitioner bank. The case was
docketed as Civil Case No. 97-997 in the RTC of Makati City, Branch 137.
On June 2, 1998, during the trial, the Board passed a Resolution9 in court declaring that the Fund
belongs exclusively to the employees of RMC. It authorized petitioner to release the proceeds of
Trust Account No. 1797 through the Board, as the court may direct. Consequently, plaintiffs
amended their complaint to include the Board as co-plaintiffs.

On June 27, 2002, the RTC rendered a decision in favor of respondents. The trial court declared
invalid the reversion and application of the proceeds of the Fund to the outstanding obligation of
RMC to petitioner bank. The fallo of the decision reads:

WHEREFORE, judgment is hereby rendered:

1. Declaring INVALID the reversion or application of the Riverside Mills Corporation

Provident and Retirement Fund as payment for the outstanding obligation of Riverside Mills
Corporation with defendant Philippine Banking Corporation.

2. Defendant Philippine Banking Corporation (now [Global Bank]) is hereby ordered to:

a. Reverse the application of the Riverside Mills Corporation Provident and

Retirement Fund as payment for the outstanding obligation of Riverside Mills
Corporation with defendant Philippine Banking Corporation;

b. Render a complete accounting of the Riverside Mills Corporation Provident and

Retirement Fund; the Fund will then be subject to disposition by plaintiff Board of
Trustees in accordance with law and the Provident Retirement Plan;

c. Pay attorneys fees equivalent to 10% of the total amounts due to plaintiffs
Riverside Mills Unpaid Employees Association and the individual beneficiaries of the
Riverside Mills Corporation Provident and Retirement Fund; and costs of suit.

3. The Riverside Mills Corporation Provident and Retirement Fund is ordered to determine
the beneficiaries of the FUND entitled to benefits, the amount of benefits per beneficiary, and
pay such benefits to the individual beneficiaries.

SO ORDERED.10

On appeal, the CA affirmed the trial court. It held that the Fund is distinct from RMCs account in
petitioner bank and may not be used except for the benefit of the members of RMCPRF. Citing
Paragraph 13 of the Plan, the appellate court stressed that the assets of the Fund shall not revert to
the Company until after the liabilities of the Plan had been satisfied. Further, the Agreement was
specific that upon the termination of the Agreement, petitioner shall deliver the Fund to the Board or
its successor, and not to RMC as trustor. The CA likewise sustained the award of attorneys fees to
respondents.11

Hence, this petition.

Before us, petitioner makes the following assignment of errors:

I.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE REVERSION AND
APPLICATION BY PHILBANK OF THE FUND IN PAYMENT OF THE LOAN OBLIGATIONS OF
RIVERSIDE MILLS CORPORATION WERE INVALID.12

II.

THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN DECLARING

THAT "BY HAVING ENTERED INTO AN AGREEMENT WITH THE BOARD, (PHILBANK) IS NOW
ESTOPPED TO QUESTION THE LATTERS AUTHORITY AS WELL AS THE TERMS AND
CONDITIONS THEREOF."13

III.

THE HONORABLE COURT COMMITTED REVERSIBLE ERROR IN AWARDING ATTORNEYS

FEES TO PLAINTIFFS-APPELLEES ON THE BASIS THAT "[PHILBANK] WAS REMISS IN ITS
DUTY TO TREAT RMCPRFS ACCOUNT WITH THE HIGHEST DEGREE OF CARE
CONSIDERING THE FIDUCIARY NATURE OF THEIR RELATIONSHIP, PERFORCE, THE
PLAINTIFFS-APPELLEES WERE COMPELLED TO LITIGATE TO PROTECT THEIR RIGHT." 14

The fundamental issue for our determination is whether the proceeds of the RMCPRF may be
applied to satisfy RMCs debt to Philbank.

Petitioner contends that RMCs closure in 1984 rendered the RMCPRF Board of Trustees functus
officio and devoid of authority to act on behalf of RMCPRF. It thus belittles the RMCPRF Board
Resolution dated June 2, 1998, authorizing the release of the Fund to several of its supposed
beneficiaries. Without known claimants of the Fund for eleven (11) years since RMC closed shop, it
was justifiable for petitioner to consider the Fund to have "technically reverted" to, and formed part of
RMCs assets. Hence, it could be applied to satisfy RMCs debts to Philbank. Petitioner also disputes
the award of attorneys fees in light of the efforts taken by Philbank to ascertain claims before
effecting the reversion.

Respondents for their part, belie the claim that petitioner exerted earnest efforts to ascertain claims.
Respondents cite petitioners omission to publish a notice in newspapers of general circulation to
locate claims against the Fund. To them, petitioners act of addressing the letter dated September
27, 1995 to the Board is a recognition of its authority to act for the beneficiaries. For these reasons,
respondents believe that the reversion of the Fund to RMC is not only unwarranted but
unconscionable. For being compelled to litigate to protect their rights, respondents also defend the
award of attorneys fees to be proper.

The petition has no merit.

A trust is a "fiduciary relationship with respect to property which involves the existence of equitable
duties imposed upon the holder of the title to the property to deal with it for the benefit of another." A
trust is either express or implied. Express trusts are those which the direct and positive acts of the
parties create, by some writing or deed, or will, or by words evincing an intention to create a trust. 15

Here, the RMC Provident and Retirement Plan created an express trust to provide retirement
benefits to the regular employees of RMC. RMC retained legal title to the Fund but held the same in
trust for the employees-beneficiaries. Thus, the allocation under the Plan is directly credited to each
members account:
6. Allocation:

a. Monthly Contributions:

1. Employee to be credited to his account.

2. Employer to be credited to the respective members account as stated under the

contribution provision.

b. Investment Earnings semestral valuation of the fund shall be made and any earnings or
losses shall be credited or debited, as the case may be, to each members account in
proportion to his account balances based on the last proceeding (sic) [preceding] accounting
period.

c. Forfeitures shall be retained in the fund.16 (Emphasis supplied.)

The trust was likewise a revocable trust as RMC reserved the power to terminate the Plan after all
the liabilities of the Fund to the employees under the trust had been paid. Paragraph 13 of the Plan
provided that "[i]n no event shall any part of the assets of the Fund revert to the Company before all
liabilities of the Plan have been satisfied."

Relying on this clause, petitioner, as the Fund trustee, considered the Fund to have "technically
reverted" to RMC, allegedly after no further claims were made thereon since November 1984.
Thereafter, it applied the proceeds of the Fund to RMCs debt with the bank pursuant to Paragraph 9
of Promissory Note No. 1618-8017 which RMC executed on May 12, 1981. The pertinent provision of
the promissory note reads:

IN THE EVENT THAT THIS NOTE IS NOT PAID AT MATURITY OR WHEN THE SAME BECOMES
DUE UNDER ANY OF THE PROVISIONS HEREOF, I/WE HEREBY AUTHORIZE THE BANK AT ITS
OPTION AND WITHOUT NOTICE, TO APPLY TO THE PAYMENT OF THIS NOTE, ANY AND ALL
MONEYS, SECURITIES AND THINGS OF VALUE WHICH MAY BE IN ITS HAND OR ON DEPOSIT
OR OTHERWISE BELONGING TO ME/US AND, FOR THIS PURPOSE, I/WE HEREBY, JOINTLY
AND SEVERALLY, IRREVOCABLY CONSTITUTE AND APPOINT THE SAID BANK TO BE
MY/OUR TRUE ATTORNEY-IN-FACT WITH FULL POWER AND AUTHORITY FOR ME/US AND IN
MY/OUR NAME AND BEHALF, AND WITHOUT PRIOR NOTICE, TO NEGOTIATE, SELL AND
TRANSFER ANY MONEYS, SECURITIES AND THINGS OF VALUE WHICH IT MAY HOLD, BY
PUBLIC OR PRIVATE SALE, AND APPLY THE PROCEEDS THEREOF TO THE PAYMENT OF
THIS NOTE. (Emphasis supplied.)

Petitioner contends that it was justified in supposing that reversion had occurred because its efforts
to locate claims against the Fund from the National Labor Relations Commission (NLRC), the lower
courts, the CA and the Supreme Court proved futile.

We are not convinced.

Employees trusts or benefit plans are intended to provide economic assistance to employees upon
the occurrence of certain contingencies, particularly, old age retirement, death, sickness, or disability.
They give security against certain hazards to which members of the Plan may be exposed. They are
independent and additional sources of protection for the working group and established for their
exclusive benefit and for no other purpose.18 Here, while the Plan provides for a reversion of the
Fund to RMC, this cannot be done until all the liabilities of the Plan have been paid. And when RMC
ceased operations in 1984, the Fund became liable for the payment not only of the benefits of
qualified retirees at the time of RMCs closure but also of those who were separated from work as a
consequence of the closure. Paragraph 7 of the Retirement Plan states:

Separation from Service:

A member who is separated from the service of the Company before satisfying the conditions for
retirement due to resignation or any reason other than dismissal for cause shall be paid the balance
of his account as of the last day of the month prior to separation. The amount representing the
Companys contribution and income thereon standing to the credit of the separating member shall be
paid to him as follows:

Completed Years % of Companys Contribution and Earnings Thereon Payable

of Membership
05 NIL
6 10 20%
11 15 40%
16 20 60%
21 25 80%
25 over 100%

A member who is separated for cause shall not be entitled to withdraw the total amount representing
his contribution and that of the Company including the earned interest thereon, and the employers
contribution shall be retained in the fund.19 (Emphasis supplied.)

The provision makes reference to a member-employee who is dismissed for cause. Under the Labor
Code, as amended, an employee may be dismissed for just or authorized causes. A dismissal for
just cause under Article 28220 of the Labor Code, as amended, implies that the employee is guilty of
some misfeasance towards his employer, i.e. the employee has committed serious misconduct in
relation to his work, is guilty of fraud, has perpetrated an offense against the employer or any
immediate member of his family, or has grossly and habitually neglected his duties. Essentially, it is
an act of the employee that sets off the dismissal process in motion.

On the other hand, a dismissal for an authorized cause under Article 283 21 and 28422 of the Labor
Code, as amended, does not entail any wrongdoing on the part of the employee. Rather, the
termination of employment is occasioned by the employers exercise of management prerogative or
by the illness of the employee matters beyond the workers control.

The distinction between just and authorized causes for dismissal lies in the fact that payment of
separation pay is required in dismissals for an authorized cause but not so in dismissals for just
cause. The rationale behind this rule was explained in the case of Phil. Long Distance Telephone Co.
v. NLRC23 and reiterated in San Miguel Corporation v. Lao,24 thus:

We hold that henceforth separation pay shall be allowed as a measure of social justice only in those
instances where the employee is validly dismissed for causes other than serious misconduct or
those reflecting on his moral character. Where the reason for the valid dismissal is, for example,
habitual intoxication or an offense involving moral turpitude, like theft or illicit sexual relations with a
fellow worker, the employer may not be required to give the dismissed employee separation pay, or
financial assistance, or whatever other name it is called, on the ground of social justice.

xxx xxx xxx

The policy of social justice is not intended to countenance wrongdoing simply because it is
committed by the underprivileged. At best[,] it may mitigate the penalty but it certainly will not
condone the offense.

In San Miguel Corporation v. Lao, we reversed the CA ruling which granted retirement benefits to an
employee who was found by the Labor Arbiter and the NLRC to have been properly dismissed for
willful breach of trust and confidence.

Applied to this case, the penal nature of the provision in Paragraph 7 of the Plan, whereby a member
separated for cause shall not be entitled to withdraw the contributions made by him and his
employer, indicates that the "separation for cause" being referred to therein is any of the just causes
under Article 282 of the Labor Code, as amended.

To be sure, the cessation of business by RMC is an authorized cause for the termination of its
employees. Hence, not only those qualified for retirement should receive their total benefits under
the Fund, but those laid off should also be entitled to collect the balance of their account as of the
last day of the month prior to RMCs closure. In addition, the Plan provides that the separating
member shall be paid a maximum of 40% of the amount representing the Companys contribution
and its income standing to his credit. Until these liabilities shall have been settled, there can be no
reversion of the Fund to RMC.

Under Paragraph 625 of the Agreement, petitioners function shall be limited to the liquidation and
return of the Fund to the Board upon the termination of the Agreement. Paragraph 14 of said
Agreement further states that "it shall be the duty of the Investment Manager to assign, transfer, and
pay over to its successor or successors all cash, securities, and other properties held by it
constituting the fund less any amounts constituting the charges and expenses which are authorized
[under the Agreement] to be payable from the Fund."26 Clearly, petitioner had no power to effect
reversion of the Fund to RMC.

The reversion petitioner effected also could hardly be said to have been done in good faith and with
due regard to the rights of the employee-beneficiaries. The restriction imposed under Paragraph 13
of the Plan stating that "in no event shall any part of the assets of the Fund revert to the Company
before all liabilities of the Plan have been satisfied," demands more than a passive stance as that
adopted by petitioner in locating claims against the Fund. Besides, the beneficiaries of the Fund are
readily identifiable the regular or permanent employees of RMC who were qualified retirees and
those who were terminated as a result of its closure. Petitioner needed only to secure a list of the
employees concerned from the Board of Trustees which was its principal under the Agreement and
the trustee of the Plan or from RMC which was the trustor of the Fund under the Retirement Plan.
Yet, petitioner notified respondent Board of Trustees only after Philbanks Board of Directors had
decided to apply the remaining trust assets of RMCPRF to the liabilities of the company.

Petitioner nonetheless assails the authority of the Board of Trustees to issue the Resolution of June
2, 1998 recognizing the exclusive ownership of the Fund by the employees of RMC and authorizing
its release to the beneficiaries as may be ordered by the trial court. Petitioner contends that the
cessation of RMCs operations ended not only the Board members employment in RMC, but also
their tenure as members of the RMCPRF Board of Trustees.
Again, we are not convinced. Paragraph 13 of the Plan states that "[a]lthough it is expected that the
Plan will continue indefinitely, it may be amended or terminated by the Company at any time on
account of business conditions." There is no dispute as to the management prerogative on this
matter, considering that the Fund consists primarily of contributions from the salaries of members-
employees and the Company. However, it must be stressed that the RMC Provident and Retirement
Plan was primarily established for the benefit of regular and permanent employees of RMC. As such,
the Board may not unilaterally terminate the Plan without due regard to any accrued benefits and
rightful claims of members-employees. Besides, the Board is bound by Paragraph 13 prohibiting the
reversion of the Fund to RMC before all the liabilities of the Plan have been satisfied.

As to the contention that the functions of the Board of Trustees ceased upon with RMCs closure, the
same is likewise untenable.

Under Section 12227 of the Corporation Code, a dissolved corporation shall nevertheless continue as
a body corporate for three (3) years for the purpose of prosecuting and defending suits by or against
it and enabling it to settle and close its affairs, to dispose and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it was established. Within those
three (3) years, the corporation may appoint a trustee or receiver who shall carry out the said
purposes beyond the three (3)-year winding-up period. Thus, a trustee of a dissolved corporation
may commence a suit which can proceed to final judgment even beyond the three (3)-year period of
liquidation.28

In the same manner, during and beyond the three (3)-year winding-up period of RMC, the Board of
Trustees of RMCPRF may do no more than settle and close the affairs of the Fund. The Board
retains its authority to act on behalf of its members, albeit, in a limited capacity. It may commence
suits on behalf of its members but not continue managing the Fund for purposes of maximizing
profits. Here, the Boards act of issuing the Resolution authorizing petitioner to release the Fund to
its beneficiaries is still part of the liquidation process, that is, satisfaction of the liabilities of the Plan,
and does not amount to doing business. Hence, it was properly within the Boards power to
promulgate.

Anent the award of attorneys fees to respondents, we find the same to be in order. Article 2208(2) of
the Civil Code allows the award of attorneys fees in cases where the defendants act or omission
has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest.
Attorneys fees may be awarded by a court to one (1) who was compelled to litigate with third
persons or to incur expenses to protect his or her interest by reason of an unjustified act or omission
of the party from whom it is sought.29

Here, petitioner applied the Fund in satisfaction of the obligation of RMC without authority and
without bothering to inquire regarding unpaid claims from the Board of Trustees of RMCPRF. It wrote
the members of the Board only after it had decided to revert the Fund to RMC. Upon being met with
objections, petitioner insisted on the reversion of the Fund to RMC, despite the clause in the Plan
that prohibits such reversion before all liabilities shall have been satisfied, thereby leaving
respondents with no choice but to seek judicial relief.

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

With costs against the petitioner.

SO ORDERED.
MARTIN S. VILLARAMA, JR.
Associate Justice

WE CONCUR:

14. G.R. No. 196023 April 21, 2014

JOSE JUAN TONG, ET AL., Petitioners,

vs.
GO TIAT KUN, ET AL., Respondents.

DECISION

REYES, J.:

This appeal by petition for review seeks to annul and set aside the Decision dated October 28, 2010
1

and the Resolution dated March 3, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 03078,
2

which reversed the Decision dated May 21, 2009 of the Regional Trial Court of Iloilo City, Branch 37,
3

in Civil Case No. 05-28626.

The Facts

The instant petition stemmed from an action for Nullification of Titles and Deeds of Extra-Judicial
Settlement and Sale and Damages instituted by the petitioners against the respondents over a
parcel of land known as Lot 998-A of the Cadastral Survey of Iloilo, having an area of 2,525 square
meters and now covered by Transfer Certificate of Title (TCT) No. 134082.

The petitioners are nine of the ten children of Spouses Juan Tong (Juan Tong) and Sy Un (Spouses
Juan Tong), namely: Jose Juan Tong, Lucio Juan Tong, Simeon Juan Tong, Felisa Juan Tong Cheng,
Luisa Juan Tong Tan, Julia Juan Tong Dihiansan, Ana Juan Tong Dy, Elena Juan Tong Yng Choan,
and Vicente Juan Tong, who being already deceased, is survived by his widow, Rosita So and their
children, Chanto Juan Tong and Alfonso So-Chanto Juan Tong.

Completing the ten children of Spouses Juan Tong is the deceased Luis Juan Tong, Sr. (Luis, Sr.)
whose surviving heirs are: his spouse Go Tiat Kun, and their children, Leon, Mary, Lilia, Tomas, Luis,
Jr., and Jaime, who being already dead, is survived by his wife, Roma Cokee Juan Tong
(respondents).

Sometime in 1957, Juan Tong had a meeting with all his children to inform them of his intention to
purchase Lot 998 to be used for the familys lumber business called "Juan Tong Lumber". However,
since he was a Chinese citizen and was disqualified from acquiring the said lot, the title to the
property will be registered in the name of his eldest son, Luis, Sr., who at that time was already of
age and was the only Filipino citizen among his children. On May 11, 1957, Juan Tong bought Lot
998 from the heirs of Jose Ascencio. Accordingly, on May 16, 1957, TCT No. 10346 was issued by
the Register of Deeds in the name of Luis, Sr.
On December 8, 1978, the single proprietorship of Juan Tong Lumber was incorporated into a
corporation known as the Juan Tong Lumber, Inc. However, Sy Un and Juan Tong both died
4

intestate on October 31, 1984, and November 13, 1990, respectively.

Meanwhile, on May 30, 1981, Luis, Sr. died and the respondents, being his surviving heirs, claimed
ownership over Lot 998 by succession, alleging that no trust agreement exists and it was Luis, Sr.
who bought Lot 998. On July 2, 1982, the respondents executed a Deed of Extra-Judicial Settlement
of Estate of Luis, Sr., adjudicating unto themselves Lot 998 and claiming that the said lot is the
conjugal property of Luis, Sr., and his wife, which the Juvenile and Domestic Relations Court of Iloilo
City approved on June 28, 1982. On July 19, 1982, the said deed was registered causing the
cancellation of TCT No. 10346 and the issuance of TCT No. T-60231 in the name of the
respondents.

Subsequently, the respondents agreed to subdivide Lot 998, thus, on October 12, 1992, two new
titles were issued: (1) TCT No. 97068 over Lot 998-A in the name of Go Tiat Kun and her children;
and (2) TCT No. T-96216 over Lot 998-B in the name of Luis, Jr.

After Lot 998 was subdivided, Luis, Jr. sold Lot 998-B to Fine Rock Development Corporation
(FRDC), which in turn sold the same to Visayas Goodwill Credit Corporation (VGCC). It was only
after the petitioners received a letter from VGCC, on August 31, 1995, that they discovered about the
breach of the trust agreement committed by the respondents.

To protect their rights, the petitioners filed an action for Annulment of Sales, Titles, Reconveyance
and Damages of Lot 998-B docketed as Civil Case No. 22730 against Luis, Jr., FRDC and VGCC.
On March 6, 1997, the trial court ruled in favor of the petitioners which were later affirmed by the
5

CA and this Court on appeal. Consequently, Lot 998-B was reconveyed to the petitioners and TCT
6 7

No. T-14839 was issued under their names including the late Luis, Sr.

Then, on February 24, 2001, Go Tiat Kun executed a Deed of Sale of Undivided Interest over Lot
998-A in favor of her children, Leon, Mary, Lilia, Tomas, and the late Jaime, resulting in the issuance
of TCT No. T-134082 over Lot 998-A.

Hence, on August 2, 2005, the petitioners filed the instant case for Nullification of Titles, and Deeds
of Extra-judicial Settlement and Sale and Damages claiming as owners of Lot 998-A. 8

After trial, the court a quo rendered its judgment in favor of the petitioners, ruling that there was an
implied resulting trust between Juan Tong, Luis, Sr., the petitioners and the respondents, over Lot
998. The trial court found that Luis Sr. was a mere trustee, and not the owner of Lot 998, and the
beneficial interest over said property remained in Juan Tong and subsequently in the Juan Tong
Lumber, Inc. The trust is further established by the fact that Luis Sr., during his lifetime: (1) did not
build a house or any structure thereon or make use of the property in any manner; (2) resided with
his family together with his parents, brothers and sisters in Juan Tong building in front of the said lot;
(3) have acquired a residential property at Ledesco Village, La Paz, Iloilo City and other places,
where his heirs now reside; and (4) did not exercised any other act of ownership over the said lot.
The trial court further claimed that any right that the respondents may have over Lot 998-A would
have been merely derived from that of their predecessor-in-interest, Luis Sr. Since the respondents
were not the owners of Lot 998-A, they could not appropriate the property unto themselves, much
less convey the same unto third persons. Thus, any document executed by them adjudicating unto
themselves or conveying in favor of each other Lot 998-A, as well as the titles issued in their favor as
a consequence of those documents, are invalid. Since the petitioners were deprived of Lot 998-A
through the surreptitious and fraudulent acts of the respondents, the petitioners are entitled to the
reconveyance of the properties, and the validity of TCT No. T-134082 which covers Lot 998-A as well
as the previous titles and documents of conveyance covering the said lot were null and void. Thus:

WHEREFORE, in view of the foregoing considerations, judgment is hereby rendered in favor of the
plaintiffs and against the defendants:

1. Declaring null and void the following:

a. Deed of Extrajudicial Settlement of Estate of Deceased Person executed by the

Defendants on July 2, 1982 executed by defendants Go Tiat Kun, Leon Juan Tong,
Mary Juan Tong, Lilia Juan Tong, and Tomas Juan Tong, and the late Jaime Juan
Tong;

b. Transfer Certificate of Title No. T-60231 in the name of defendants Go Tiat Kun,
Leon Juan Tong, Mary Juan Tong, Lilia Juan Tong, and Tomas Juan Tong and the
late Jaime Juan Tong;

c. Transfer Certificate of Title No. T-97068 in the name of defendants Go Tiat Kun,
Leon Juan Tong, Mary Juan Tong, Lilia Juan Tong, and Tomas Juan Tong and the
late Jaime Juan Tong;

d. Deed of Sale of Undivided Interest over Real Property executed by defendant Go

Tiat Kun on February 24, 2001 in favor of defendants Leon Juan Tong, Mary Juan
Tong, Lilia Juan Tong, and Tomas Juan Tong and the late Jaime Juan Tong; [and]

e. Transfer Certificate of Title No. T-134082, and all titles issued subsequent thereto,
covering Lot 998-A, in the names of defendants Leon Juan Tong, Mary Juan Tong,
Lilia Juan Tong, and Tomas Juan Tong and the late Jaime Juan Tong[.]

2. Ordering defendants to jointly and severally pay Jose Juan Tong Moral Damages of
Php200,000.00, and the plaintiffs Litigation Expenses of Php100,000.00 and Attorneys Fees
of Php200,000.00.

3. Ordering the Register of Deeds of the City of Iloilo to issue a new transfer certificate of title
covering Lot 998-A in the name of the plaintiffs and Luis Juan Tong, in equal shares.

4. The Counterclaim is hereby ordered dismissed for lack of merit.

SO ORDERED. 9
On appeal, the CA rendered the herein assailed decision, which reversed and set aside the trial
courts decision, and dismissed the complaint for lack of merit.

The appellate court, more particularly ruled that an express trust was created because there was a
direct and positive act from Juan Tong to create a trust. And when an express trust concerns an
immovable property or any interest therein, it may not be proved by parol or oral evidence, but must
be proven by some writing or deed. The CA also ruled that even granting that an implied resulting
10

trust was created; the petitioners are still barred by prescription because the said resulting trust was
terminated upon the death of Luis, Sr. and was then converted into a constructive trust. Since in an
11

action for reconveyance based on a constructive trust prescribes in ten years from the issuance of
the Torrens title over the property, counting from the death of Luis, Sr. in 1981, the action has already
prescribed.

The CA went on to rule that there is a presumption of donation in this case pursuant to Article 1448
of the Civil Code that if the person to whom the title is conveyed is a child, legitimate or illegitimate,
of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that
there is a gift in favor of the child. Thus, even though the respondents did not present evidence to
prove a donation, the petitioners likewise did not also try to dispute it. The CA also held that the
petitioners were already barred by estoppel and laches.

Aggrieved by the foregoing disquisition, the petitioners moved for reconsideration but it was denied
by the appellate court, hence, they filed this petition for review.
12

The Issue

Briefly stated, the issues to be resolved in this petition are: (1) Was there an implied resulting trust
constituted over Lot 998 when Juan Tong purchased the property and registered it in the name of
Luis, Sr.? (2) May parol evidence be used as proof of the establishment of the trust? (3) Were the
petitioners action barred by prescription, estoppel and laches?

The Courts Ruling

The petition is impressed with merit.

As a general rule, in petitions for review under Rule 45 of the Rules of Court, the jurisdiction of this
Court in cases brought before it from the CA is limited to the review and revision of errors of law
allegedly committed by the appellate court. The question of the existence of an implied trust is
factual, hence, ordinarily outside the purview of Rule 45. Nevertheless, the Courts review is justified
by the need to make a definitive finding on this factual issue in light of the conflicting rulings
rendered by the courts below. 13

At the outset, it is worthy to note that the issues posited in this case are not novel because in Civil
Case No. 22730 involving Lot 998-B which forms part of Lot 998, the trial court already found that
said lot was held in trust by Luis Sr. in favor of his siblings by virtue of an implied resulting trust. The
trial courts decision was then affirmed by the CA in CA-G.R. CV No. 56602, and this Court in G.R.
No. 156068. Thus, Lot 998-A, the subject of this instant case, and Lot 998-B, are similarly situated
as they comprise the subdivided Lot 998, the property which in its entirety was held in trust by Luis
Sr. in favor of his siblings.

A review of the records shows an intention to create a trust between the parties. Although Lot 998
was titled in the name of Luis, Sr., the circumstances surrounding the acquisition of the subject
property eloquently speak of the intent that the equitable or beneficial ownership of the property
should belong to the Juan Tong family.

First, Juan Tong had the financial means to purchase the property for P55,000.00. On the other
hand, respondents failed to present a single witness to corroborate their claim that Luis, Sr. bought
the property with his own money since at that time, Luis Sr., was merely working for his father where
he received a monthly salary of P200.00 with free board and lodging.

Second, the possession of Lot 998 had always been with the petitioners. The property was
physically possessed by Juan Tong and was used as stockyard for their lumber business before it
was acquired, and even after it was acquired. In fact, the lot remains to be the stockyard of the
family lumber business until this very day.

Third, from the time it was registered in the name of Luis, Sr. in 1957, Lot 998 remained undivided
and untouched by the respondents. It was only after the death of Luis, Sr. that the respondents
claimed ownership over Lot 998 and subdivided it into two lots, Lot 998-A and Lot 998-B.

Fourth, respondent Leon admitted that up to the time of his fathers death, (1) Lot 998 is in the
possession of the petitioners, (2) they resided in the tenement in the front part of Juan Tongs
compound, (3) Luis Sr. never sent any letter or communication to the petitioners claiming ownership
of Lot 998, and (4) he and his mother have a residence at Ledesco Village, La Paz, Iloilo City while
his brother and sisters also have their own residences.

Fifth, the real property taxes on Lot 998 were paid not by Luis Sr. but by his father Juan Tong and
the Juan Tong Lumber, Inc., from 1966 up to early 2008 as evidenced by the following: a) the letter
of assessment sent by the City Treasurer of Iloilo, naming Juan Tong as the owner of Lot 998; and b)
the receipts of real property taxes paid by Juan Tong Lumber, and later by Juan Tong Lumber, Inc.,
from 1997 to 2008. While some of the tax receipts were in the name of Luis Sr., the fact that the
petitioners were in possession of the originals thereof established that the petitioners, the Juan Tong
Lumber, Inc., or the late Juan Tong paid for the taxes. The respondents did not try to explain the
petitioners possession of the realty property tax receipts in the name of Luis Sr.

The appellate courts conclusion that an express trust was created because there was a direct and
positive act by Juan Tong to create a trust must inevitably yield to the clear and positive evidence on
record which showed that what was truly created was an implied resulting trust. As what has been
fully established, in view of the mutual trust and confidence existing between said parties who are
family members, the only reason why Lot 998 was registered in the name of Luis, Sr. was to facilitate
the purchase of the said property to be used in the familys lumber business since Luis, Sr. is the
only Filipino Citizen in the Juan Tong family at that time. As the registered owner of Lot 998, it is only
natural that tax declarations and the corresponding tax payment receipts be in the name of Luis, Sr.
so as to effect payment thereof.
The principle of a resulting trust is based on the equitable doctrine that valuable consideration and
not legal title determines the equitable title or interest and are presumed always to have been
contemplated by the parties. They arise from the nature or circumstances of the consideration
involved in a transaction whereby one person thereby becomes invested with legal title but is
obligated in equity to hold his legal title for the benefit of another. On the other hand, a constructive
trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. Constructive
trusts are created by the construction of equity in order to satisfy the demands of justice and prevent
unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of
confidence, obtains or holds the legal right to property which he ought not, in equity and good
conscience, to hold. 14

Guided by the foregoing definitions, the Court is in conformity with the finding of the trial court that an
implied resulting trust was created as provided under the first sentence of Article 1448 which is
15

sometimes referred to as a purchase money resulting trust, the elements of which are: (a) an actual
payment of money, property or services, or an equivalent, constituting valuable consideration; and
(b) such consideration must be furnished by the alleged beneficiary of a resulting trust. Here, the
16

petitioners have shown that the two elements are present in the instant case. Luis, Sr. was merely a
trustee of Juan Tong and the petitioners in relation to the subject property, and it was Juan Tong who
provided the money for the purchase of Lot 998 but the corresponding transfer certificate of title was
placed in the name of Luis, Sr.

The principle that a trustee who puts a certificate of registration in his name cannot repudiate the
trust by relying on the registration is one of the well-known limitations upon a title. A trust, which
derives its strength from the confidence one reposes on another especially between families, does
not lose that character simply because of what appears in a legal document. 17

Contrary to the claim of the respondents, it is not error for the trial court to rely on parol evidence,
i.e., the oral testimonies of witnesses Simeon Juan Tong and Jose Juan Tong, to arrive at the
conclusion that an implied resulting trust exists. What is crucial is the intention to create a trust.

"Intentionalthough only presumed, implied or supposed by law from the nature of the transaction
or from the facts and circumstances accompanying the transaction, particularly the source of the
considerationis always an element of a resulting trust and may be inferred from the acts or
conduct of the parties rather than from direct expression of conduct. Certainly, intent as an
indispensable element is a matter that necessarily lies in the evidence, that is, by evidence, even
circumstantial, of statements made by the parties at or before the time title passes. Because an
implied trust is neither dependent upon an express agreement nor required to be evidenced by
writing, Article 1457 of our Civil Code authorizes the admission of parol evidence to prove their
existence. Parol evidence that is required to establish the existence of an implied trust necessarily
has to be trustworthy and it cannot rest on loose, equivocal or indefinite declarations." 18

Lastly, the respondents assertion that the petitioners action is barred by prescription, laches and
estoppel is erroneous.

As a rule, implied resulting trusts do not prescribe except when the trustee repudiates the
trust. Further, the action to reconvey does not prescribe so long as the property stands in the name
1wphi1
of the trustee. To allow prescription would be tantamount to allowing a trustee to acquire title
19

against his principal and true owner. It should be noted that the title of Lot 998 was still registered in
the name of Luis Sr. even when he predeceased Juan Tong. Considering that the implied trust has
been repudiated through such death, Lot 998 cannot be included in his estate except only insofar as
his undivided share thereof is concerned. It is well-settled that title to property does not vest
ownership but it is a mere proof that such property has been registered. And, the fact that the
petitioners are in possession of all the tax receipts and tax declarations of Lot 998 all the more
amplify their claim of ownership over Lot 998-A. Although these tax declarations or realty tax
payments of property are not conclusive evidence of ownership, nevertheless, they are good indicia
of possession in the concept of owner, for no one in his right mind would be paying taxes for a
property that is not in his actual or at least constructive possession. Such realty tax payments
constitute proof that the holder has a claim of title over the property. Therefore, the action for
20

reconveyance of Lot 998-A, which forms part of Lot 998, is imprescriptible and the petitioners are not
estopped from claiming ownership thereof.

Moreso, when the petitioners received a letter from VGCC, and discovered about the breach of the
trust agreement committed by the heirs of Luis, Sr., they immediately instituted an action to protect
their rights, as well as upon learning that respondent Go Tiat Kun executed a Deed of Sale of
Undivided Interest over Lot 998-A in favor of her children. Clearly, no delay may be attributed to
them. The doctrine of laches is not strictly applied between near relatives, and the fact that the
parties are connected by ties of blood or marriage tends to excuse an otherwise unreasonable delay.

On the question of whether or not Juan Tong intended a donation to Luis, Sr., this is merely a
disputable presumption which in this case was clearly disputed by the petitioners and supported by
the pieces of evidence on record.

Thus, contrary to the CA' s finding that there was no evidence on record showing that an implied
resulting trust relation arose between Juan Tong and Luis, Sr., the Court finds that the petitioners
before the trial court, had actually adduced sufficient evidence to prove the intention of Juan Tong to
transfer to Luis, Sr. only the legal title of Lot 998, with attendant expectation that Luis, Sr. would hold
the property in trust for the family. The evidence of course is not documentary, but rather testimonial.
Furthermore, the respondents never proffered any proof that could tend to establish that they were
the ones who have been paying taxes from the time of its purchase up to the present, that they have
been in possession of the subject property or that they had it surveyed and subdivided openly with
notice to all concerned.

WHEREFORE, in consideration of the foregoing premises, the instant petition is hereby GRANTED.
The Decision dated October 28, 2010 and Resolution dated March 3, 2011 of the Court of Appeals in
CA-G.R. CV No. 03078 are REVERSED and SET ASIDE. The Decision dated May 21, 2009 of the
Regional Trial Court of Iloilo City, Branch 37 in Civil Case No. 05-28626 is REINSTATED.

SO ORDERED.

BIENVENIDO L. REYES
Associate Justice