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G.R. No. L-17809           December 29, 1962

RESURRECCION DE LEON, ET AL., plaintiffs-appellees,
vs.
EMILIANA MOLO-PECKSON, ET AL., respondents-appellants.
Cornelio R. Magsarili for plaintiffs-appellees.

Sycip, Salazar, Luna and Associates for respondents-appellants.
BAUTISTA ANGELO, J.:

Resurreccion De Leon, et al. filed on November 13, 1958 before the Court of First Instance of Rizal a
complaint seeking to compel Emiliana Molo-Peckson, et al. to convey to the former ten parcel of land
located in Pasay City with an area of 1,749 sq. m. upon payment of P1.00 per parcel upon the plea that
said lots were willed or donated in 1948 to the latter by their foster parents Mariano Molo y Legaspi and
Juana Juan with the understanding that they should sell them to the plaintiffs under the terms above-
stated.

Defendants, in their answer, disclaimed any legal obligation on their part to sell the above properties to
the plaintiffs for the nominal consideration of P1.00 per lot alleging that if they executed the document
on which the complaint is predicated it was on the mistaken assumption that their foster parents had
requested them that they executed on August 9, 1956 a document revoking said donation which was
acknowledged before Notary Public Leoncio C. Jimenez.

No testimonial evidence was presented by either party. Instead, both agreed to submit the case upon
the presentation of their respective exhibits which were all admitted by the trial court.

After trial on the merits, the court a quo rendered on September 21, 1960 a decision wherein it held that,
under the facts established by the evidence, trust has been constituted by the late spouses Mariano
Molo and Juana Juan over the ten parcels of land in question in favor plaintiffs as beneficiaries and, as a
consequence concluded:

Considering all the foregoing, the Court orders:

1. The defendants, jointly and severally to free the said ten (10) parcels of land from the mortgage lien in
favor of the Rehabilitation Finance Corporation (now Development Bank of the Philippines) and Claro
Cortez, and thereafter to sign and execute in favor of the plaintiffs a deed of absolute sale of the said
properties for and in consideration of TEN (P10.00) PESOS already deposited in Court after all
conditions imposed in Exhibit A have been complied with;

2. That in the event the defendants shall refuse to execute and perform the above, they are ordered,
jointly and severally, to pay the plaintiffs the value of said ten (10) parcels of land in question, the amount
to be assessed by the City of Pasay City as the fair market value of the same, upon orders of the Court
to assess said value;

3. The defendants jointly and severally to pay the plaintiffs' Attorney's fees in the amount of P3,000.00,
as defendants acted in gross and evident bad faith in refusing to satisfy the plaintiffs' plainly valid, just
and demandable claim, under Article 2208 sub-paragraph 5 of the New Civil Code;

4. The defendants to render an accounting of the fruits of said ten (10) parcels of land from the time
plaintiffs demanded the conveyance of said parcels of land on August 11, 1956 as per Exhibits B and C,
in accordance with the provisions of Article 1164, New Civil Code which provides that the creditor has a
right to the fruit of the thing from the time the obligation to deliver it arises; and

5. The defendants to pay the costs.

Defendants took the present appeal.

On January 24, 1941, Mariano Molo y Legaspi died leaving a will wherein he bequeathed his entire
estate to his wife, Juana Juan. This will was probated in the Court of First Instance of Pasay City, Rizal,
which was affirmed by the Supreme Court on November 26, 1956 (G.R. No. L-8774). On May 11, 1948,
Juana Juan in turn executed a will naming therein many devisees and legatees, one of whom is
Guillermo San Rafael, mother of the plaintiffs and defendant Pilar Perez Nable. On June 7, 1948,
however, Juana Juan executed a donation inter vivos in favor of Emiliana Molo-Peckson and Pilar Perez
Nable of almost all of her entire property leaving only about P16,000.00 worth of property for the
devisees mentioned in the will. Among the properties conveyed to the donees are the ten parcels of land
subject of the present action. Juana Juan died on May 28, 1950.

On December 5, 1950, Emiliana Molo-Peckson and Pilar Perez Nable executed a document which they
called "MUTUAL AGREEMENT" the pertinent provisions of which are:

That the above named parties hereby mutually agree by these presents . . . that the following lots should
be sold at ONE (1) PESO each to the following persons and organization:

x x x           x x x          x x x

TO — JUSTA DE LEON and RESURRECCION DE LEON, several parcels of land located at Calle
Tolentino (South of Tenorio and Kapitan Magtibay), Pasay City, share and share alike or half and half of
TEN (10) LOTS described in:

Transfer Certificate of Title No. 28157 — and allocated as follows:

(a) To JUSTA DE LEON Five (5) Lots.

(b) To RESURRECCION DE LEON, the remaining Five (5) Lots.

That this agreement is made in conformity with the verbal wish of the late Don Mariano Molo y Legaspi
and the late Dona Juana Francisco Juan y Molo. These obligations were repeatedly told to Emiliana
Molo Peckson, before their death and that same should be fulfilled after their death.

On August 9, 1956, however, the same defendants, assisted by their husbands, executed another
document in which they revoked the so-called mutual agreement mentioned above, and another relating
to the same subject matter, stating therein that the parties, "after matured and thorough study, realized
that the above-mentioned public instruments . . . do not represent their true and correct interpretation of
the verbal wishes of the late spouses Don Mariano Molo y Legaspi and Dona Juana Francisco Juan y
Molo." But after the execution of this document, that is, on August 11, 1956, the beneficiary
Resurreccion de Leon and Justa de Leon, thru their counsel demanded the conveyance to them of the
ten parcels of land for the consideration of P1.00 per parcel as stated in the document of December 5,
1950. And having the defendants refused to do so, said beneficiaries consigned on July 8, 1957 the
amount of P10.00 as the consideration of the ten parcels of land.lawphil.net

In this appeal, appellants assign the following errors:

THE LOWER COURT ERRED IN HOLDING THAT THE SPOUSES, MARIANO MOLO AND JUANA JUAN,
CONSTITUTED A TRUST OVER THE PROPERTIES IN QUESTION PETITION WITH PLAINTIFFS-
APPELLEES AS BENEFICIARIES.

II

THE LOWER COURT ERRED IN APPLYING ARTICLE 1440, 1441, 1449, 1453 AND 1457 OF THE NEW
CIVIL CODE TO THE CASE AT BAR.

III

THE LOWER COURT ERRED IN HOLDING PLAINTIFFS-APPELLEES' EXHIBIT "A" TO BE A

DECLARATION AGAINST INTEREST AND AN ADMISSION BY DEFENDANTS-APPELLANTS.

IV

THE LOWER COURT ERRED IN HOLDING THAT DEFENDANTS-APPELLANTS HAD NO RIGHT TO

REVOKE EXHIBIT "A".

THE LOWER COURT ERRED, IN ORDERING APPELLANTS TO RENDER AN ACCOUNTING OF THE

FRUIT OF THE PROPERTIES IN QUESTION.

VI

THE LOWER COURT ERRED IN ORDERING APPELLANTS TO FREE THE PROPERTIES FROM THE
MORTGAGE LIENS IN FAVOR OF THE DEVELOPMENT BANK OF THE PHILIPPINES AND CLARO
CORTEZ.

VII

THE LOWER COURT ERRED IN AWARDING ATTORNEY'S FEES TO THE APPELLEES.

VIII

THE LOWER COURT ERRED IN NOT DISMISSING THE COMPLAINT.

There is no merit in the claim that the document executed on December 5, 1950 does not represent the
true and correct interpretation by appellants of the verbal wish of their foster parents relative to the
conveyance for a nominal consideration to appellees of the ten parcels of land in question considering
the circumstances obtaining in the present case. To begin with, this document was executed by
appellants on December 5, 1950, or about two years and six months from the time they acquired title to
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the lands by virtue of the donation inter vivos executed in their favor by their foster mother Juana Juan
and six months after the death of the donor. There is nobody who could cajole them to execute it, nor is
there any force that could corce them to make the declaration therein expressed, except the
constraining mandat of their conscience to comply with "the obligations repeatedly told to Emiliana Molo
Peckson," one of appellants, before their death, epitomized inthe "verbal wish of the late Don Mariano
Molo y Legaspi and the late Doña Juana Francisco Juan y Molo" to convey after their death said ten
parcelsof land at P1.00 a parcel to appellees. In fact, the acknowledgement appended to the document
they subscribed states that it was "their own free act andvoluntary deed."1awphi1.net

Indeed, it is to be supposed that appellants understood and comprehended the legal import of said
documents when they executed it more so when bothof them had studied in reputable centers of
learning, one being a pharmacist and the other a member of the bar. Moreover, they have more than
ample time — the six months intervening betwen the death of the donor and the execution of the
document — to ponder not only wish of their predecessors-in-interest but also on the propriety of
putting in writing the mandate they have received. It is, therefore, reasonable to presume that that
document represents the real wish of appellants' predecessors-in-interest and that the only thing to be
determinedis its real import and legal implications.

That the document represents a recognition of pre-existing trust or a declaration of an express trust
impressed on the ten parcels of land in question is evident. A declaration of trust has been defined as an
act by which a person acknowledges that the property, title to which he holds, is held by him for the use
of another (Griffith v. Maxfield, 51 S.W. 832, 66Ark. 513, 521). This is precisely the nature of the will of the
donor: to convey the titles of the lands to appellants with the duty to hold them intrust for the appellees.
Appellants oblingly complied with this duty byexecuting the document under consideration.

True it is that to establish a trust the proof must be clear, satisfactory and convincing. It cannot rest on
vague, uncertain evidence, or on a loose,equivocal or indefinite declaration (In re Tuttle's Estate, 200 A.
921, 132 Pa. Super 356); but here the document in question clearly and unequivocallydeclares the
existence of the trust even if the same was executed subsequent to the death of the trustor, Juana Juan,
for it has been held that the right creating or declaring a trust need not be contemporaneous or inter-
parties (Stephenson v. Stephenson, 171 S.W. 2d 265, 351 Mo. 8; In re Corbin's Trust Orhp., 57 York Leg.
Rec. 201). It was even held that an express trust maybe declared by a writing made after the legal estate
has been vested in the trustee (Kurtz v. Robinson, Tex. Civ. App. 256 S.W. 2d 1003). The contention,
therefore, of appellants that the will and the donation executed by their predecessors-in-interest were
absolute for it did not contain a hint that the lots in question will be held in trust by them does not merit
weight because the fact that an express trust was created by a deed which was absolute on its face may
be shown by a writing separate from the deed itself (Mugan v. Wheeler, 145 S.W. 462, 241 Mo. 376).

The fact that the beneficiaries were not notified of the existence of the trust or that the latter have not
been given an opportunity to accept it isof no importance, for it is not essential to the existence of a
valid trustand to the right of the beneficiaries to enforce the same that they had knowledge thereof the
time of its creation (Stoehr v. Miller, 296 F. 414).Neither is it necessary that the beneficiary should
consent to the creation of the trust (Wockwire-Spencer Steel Corporation v. United Spring Mfg. Co.,142
N.E. 758, 247 Mass. 565). In fact it has been held that in case of a voluntary trust the assent of the
beneficiary is not necessary to render itvalid because as a general rule acceptance by the beneficiary is
presumed (Article 1446, new Civil Code; Cristobal v. Gomez, 50 Phil. 810).

It is true, as appellants contend, that the alleged declaration of trust was revoked, and having been
revoked it cannot be accepted, but the attempted revocation did not have any legal effect. The rule is
that in the absence of any reservation of the power to revoke a voluntary trust is irrevocable without the
consent of the beneficiary (Allen v. Safe Deposit and Trust Co.of Baltimore, 7 A. 2d 180, 177 Md. 26). It
cannot be revoked by the creatoralone, nor by the trustee (Fricke v. Weber, C.C.A. Ohio, 145 F. 2d
737;Hughes v. C.I.R., C.C.A. 9, 104 F. 2d 144; Ewing v. Shannahan, 20 S.W. 1065,113 Mo. 188). Here,
there is no such reservation.

Appellants contend that the lower court erred in applying the provisions of the new Civil Code on trust.
This is correct. The express trust was constituted during the lifetime of the predecessor-in-interest of
appellants,that is, before the effectivity of the new Civil Code, although the instrumentrecognizing and
declaring such trust was executed on December 5, 1950, afterthe effectivity of said Code. The Civil
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Code of 1889 and previous laws andauthorities on the matter, therefore, should govern the herein trust
under the provisions of Article 2253 of the new Civil code.

But the Civil Code of 1889 contains no specific provisions on trust as doesthe new Civil Code. Neither
does the Code of Civil Procedure of 1901 for thesame merely provides for the proceeding to be followed
relative to trustsand trustees (Chapter XVIII). This silence, however, does not mean that thejuridical
institution of trust was then unknown in this jurisdiction, for theprinciples relied upon by the Supreme
Court before the effectivity of thenew Civil Code were those embodied in Anglo-American jurisprudence
as derivedfrom the Roman and Civil Law principles (Government v. Abadilla, 46 Phil. 42).And these are
the same principles on which we predicate our ruling heretoforestated and on which we now rely for the
validity of trust in question.

The trial court ordered appellants to render an accounting of the fruits of the properties in question even
if appellees did not expressly ask for it intheir prayer for relief. We, however, believe that this is covered
by the general prayer "for such other relief just and equitable under the premises."What is important is to
know from what what date the accounting should bemade. The trial court ordered that the accounting
be made from the time appellees demanded the conveyance of the ten parcels of land on August 11,
1956, in accordance with Article 1164 of the new Civil Code which provides that the creditor has a right
to the fruit of the thing from thetime the obligation to deliver it arises. But this cannot be done without
first submitting proof that the conditions stated in the mutual agreement hadbeen complied with. And
this only happened when the decision of the Supreme Court in G.R. No. L-8774 became final and
executory. The ruling of the trialcourt in this respect should therefore be modified in the sense that the
accounting should be made from the date of the finality of the said decision.

We find no error in the directive of the trial court that appellants shouldfree the lands in question from the
encumbrance that was created thereon by them in favor of the Development Bank of the Philippines and
one Claro cortez, for as trustees it is their duty to deliver the properties to the cestui que trust free from
all liens and encumbrances.

To recapitulate, we hold: (1) that the document executed on December 5, 1950 creates an express trust
in favor of appellees; (2) that appellants had no right to revoke it without the consent of the cestui que
trust; (3) that appellants must render an accounting of the fruits of the lands from the datethe judgement
rendered in G.R. No. L-8774 became final and executory; and (4)that appellants should free said lands
from all liens and encumbrances.

WHEREFORE, with the modification as above indicated with regard to accounting,we hereby affirm the
decision appealed from, without pronouncement as to costs.

Labrador, Reyes, J.B.L., Barrera, Paredes, Dizon, Regala and Makalintal, JJ., concur.

Padilla and Concepcion, JJ., took no part.

G.R. Nos. L-16185-86             May 31, 1962

TRUSTEESHIP OF THE MINORS BENIGNO, ANGELA and ANTONIO, all surnamed PEREZ Y
TUASON, 

PHILIPPINE NATIONAL BANK, Judicial Guardian, J. ANTONIO ARANETA, trustee-appellee,
vs.
ANTONIO M. PEREZ, judicial guardian-appellant.
Araneta and Araneta for trustee-appellee.

Alfonso Felix, Jr. for judicial guardian-appellant.
CONCEPCION, J.:

These are two (2) incidents of the trusteeship of the minors Benigno, Angela and Antonio, all surnamed
Perez Y Tuason. The issue in G.R. No. L-16185 is whether or not the trustee, J. Antonio Araneta —
hereinafter referred to as the appellee — may be allowed to pay a sum of money to the law firm, Araneta
& Araneta, of which he is a member, for services rendered to him, in his aforementioned capacity as such
trustee, in several judicial proceedings, whereas G.R. No. L-16186 concerns the question whether the
purchase of certain shares of stock nude by the appellee for the benefit of the trusteeship merits judicial
approval. Both questions were decided by the Court of First Instance of Rizal (Quezon City Branch) in
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the affirmative. Hence, this appeal by Antonio M. Perez — hereinafter referred to as the appellant — as
guardian of the person of said minors.

With respect to G.R. No. L-16185, it appears that the law firm Araneta & Araneta, through its assistant,
Atty. Francisco T. Papa, had rendered services, as counsel for the appellee, in connection with the
following:

1. The approval of his accounts for January to March, 1956, which were objected to by the appellant.
Said objection was, on October 19, 1956, overruled by the lower court, the action of which was affirmed
by this Court in G.R. No. L-11788, on May 16, 1958, on appeal taken by appellant.

2. The appellee's accounts for April to June, 1957; which were approved by the lower court on July 13,
1957, despite appellant's objection thereto. Although appellant appealed to the Supreme Court, he,
subsequently, withdrew the appeal.

3. In 1958, appellant instituted CA-G.R. No. 22810-R of the Court of Appeals for a writ of certiorari and
mandamus against the appellee and the lower court, the latter having sustained the action of the
appellee in withholding certain sums from the shares of the minors aforementioned in the net income of
the trust estate for July to September, 1957, in view of the appellant's refusal to reimburse to said estate
identical sums received in the form of allowances for the period from April to June, 1957, in excess of
the shares of said minors in the net income for that period. After appropriate proceedings, the Court of
Appeals rendered a decision on June 25, 1958, dismissing said petition.

The lower court authorized the payment of P5,500.00 for the services thus rendered by Araneta &
Araneta, which appellant assails upon the ground that, pursuant to Section 7 of Rule 86 of the Rules of
Court:

When the executor or administrator is an attorney he shall not charge against the estate any professional
fees for legal services rendered by him.

that the services above referred to inured to the benefit, not of the trust estate, but of the trustee; that
the amount of the award is excessive; and that the lower court should have required the introduction of
evidence on the extent of the services rendered by the aforementioned law firm before making said
award.

Appellant's pretense is untenable. Said Section 7 of Rule 86 refers only to "executors or administrators"
of the estate of deceased persons, and does not necessarily apply to trustees. It is true that some
functions of the former bear a close analogy with those of the latter. Moreover, a trustee, like, an
executor or administrator, holds an office of trust, particularly when, as in the case of appellee herein, the
trustee acts as such under judicial authority. Hence, generally, the policy set forth in said Section 7 of
Rule 86 — basically sound and wise as it is — should be applicable to trustees. The duties of executors
or administrators are, however, fixed and/or limited by law, whereas those of trustee of an express trust
— like that which we have under consideration — are, usually, governed by the intention of the trustor or
of the parties, if established by contract (Art. 1441, Civil Code of the Philippines). Besides, the duties of
trustees may cover a much wider range than those of executors or administrators of the estate of
deceased persons. Again the application of Section 7 of Rule 86 to all trusteeships without distinction
may dissuade deserving persons from accepting the position of trustee and consequently have a
deterrent effect upon the establishment of trusts, at a time when a sizeable part of the burden to
undertake important and even essential activities in advanced and/or developing communities or states,
particularly in the field of education, science and social welfare, is borne by foundations or other similar
organizations based upon the principles of trust. We believe it, therefore, to be the better policy to
acknowledge the authority of courts of justice to exercise a sound judgment in determining, in the light
of the peculiar circumstances obtaining in each case, whether or not a trustee shall be allowed to pay
attorney's fees and charge the same against the trust estate, independently of his compensation as a
trustee.

In the case at bar, considering that the appellee was merely defending himself in the proceedings that
required the services of counsel; that in each case the stand taken by the appellee was upheld by the
court; that the will creating the trust and designating the appellee as trustee explicitly grants him the
right to collect for his services such reasonable fees; that, in view of the nature of the relations between
the trustor and the trustee, on the one hand, and the trustor and appellant on the other, there can be little
doubt but that the trustor would have sanctioned the payment of the attorney's fees involved in this
incident; and that it may have been more costly for the trust estate to engage the services of a law firm
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other than that of Araneta & Araneta, we are not prepared to hold that the lower court has erred in
authorizing the payment of said attorney's fees by herein appellee.

For the rest, it is well settled that "a trustee may be indemnified out of the trust estate for his expenses in
rendering and proving his accounts and for costs and counsel fees" in connection therewith (54 Am. Jur.
415-416), apart from the fact that the nature of the professional services in question appeared in the
records before the lower court and that the amount of P5,500 fixed by the same as compensation for
such services is not excessive.

Referring now to G.R. No. L-16186, it appears that from July to September, 1958, the appellee had
bought for the trust estate, through a broker (Pedro Nolasco da Silva & Co.), a total of 118 common
shares of stock of the Philippine-American Drug Co. at P100 each, and that, upon submission of
appellee's accounts for said period, appellant objected to the items of expenses relative to the
acquisition of said common shares, upon the ground that the investment therein is "unwise in that (the
operation of) said company has not, to our knowledge, proved profitable and unlawful in that it is
actually an act of self-dealing between the trustee and the beneficiaries of the trust", because the former
(appellee) is, also, a stockholder of said company. After the introduction of the evidence of both parties,
the lower court overruled the objection and approved said accounts.

It is not disputed that appellee holds, in his individual capacity, 199 out of 30,000 common shares of
stock of the Philippine-American Drug Co., whereas his children own 270 out of 5,000 preferred shares
of stock of the same enterprise. As a consequence, the interest of appellees and his children in said
company is not such as to warrant the charge that the purchase of 118 common stocks for the trust
estate amounts to self-dealing by the appellee with himself. What is more, said purchase by the trustee
may be considered as an indication that he had displayed in the management of the trust estate the
same interest he had in the protection of his own property.

Upon the other hand, it has, also, been established that the book value of each of said 118 common
shares of stock, purchased by the trustee at P100 each, is P202.80; that in 1954 the Philippine-American
Drug Co. had paid a cash dividend of 6%, side from declaring a 33-1/3% stock dividend for its common
shares; and that 6-½ % and 4% cash dividends were paid in 1955 and 1957, respectively. Furthermore,
the statement of accounts of the company for the years 1954, 1955, 1956 and 1957, satisfied the lower
court that the enterprise "is financially stable and sound". Under the circumstances, we cannot say that
the investment in question is unwise.

Appellant's allegation to the effect that shares of stock of the San Miguel Brewery pay higher returns,
even if true, does not establish his pretense. Whether an investment is good or not does not depend
upon the general, abstract possibility of better investments. Again, one factor that should be taken into
account is the degree of influence that the investor may have upon the management of the enterprise
concerned, which appellee admittedly has in the Philippine-American Drug Co., but which it is not
claimed he wields in the San Miguel Brewery Co.

WHEREFORE, the orders appealed from are hereby affirmed, with costs against the appellant. It is so
ordered.

Padilla, Reyes, J.B.L., Barrera, Paredes and Dizon, JJ., concur.


Bengzon, C.J., is on leave.

Bautista Angelo, J., concurs in the result.

G.R. No. L-43082             June 18, 1937

PABLO LORENZO, as trustee of the estate of Thomas Hanley, deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.

Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
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On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as trustee of the estate of Thomas
Hanley, deceased, brought this action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal Revenue, for the refund of the amount of
P2,052.74, paid by the plaintiff as inheritance tax on the estate of the deceased, and for the collection of
interst thereon at the rate of 6 per cent per annum, computed from September 15, 1932, the date when
the aforesaid tax was [paid under protest. The defendant set up a counterclaim for P1,191.27 alleged to
be interest due on the tax in question and which was not included in the original assessment. From the
decision of the Court of First Instance of Zamboanga dismissing both the plaintiff's complaint and the
defendant's counterclaim, both parties appealed to this court.

It appears that on May 27, 1922, one Thomas Hanley died in Zamboanga, Zamboanga, leaving a will
(Exhibit 5) and considerable amount of real and personal properties. On june 14, 1922, proceedings for
the probate of his will and the settlement and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said will provides, among other things, as
follows:

4. I direct that any money left by me be given to my nephew Matthew Hanley.

5. I direct that all real estate owned by me at the time of my death be not sold or otherwise disposed of
for a period of ten (10) years after my death, and that the same be handled and managed by the
executors, and proceeds thereof to be given to my nephew, Matthew Hanley, at Castlemore,
Ballaghaderine, County of Rosecommon, Ireland, and that he be directed that the same be used only for
the education of my brother's children and their descendants.

6. I direct that ten (10) years after my death my property be given to the above mentioned Matthew
Hanley to be disposed of in the way he thinks most advantageous.

x x x           x x x           x x x

8. I state at this time I have one brother living, named Malachi Hanley, and that my nephew, Matthew
Hanley, is a son of my said brother, Malachi Hanley.

The Court of First Instance of Zamboanga considered it proper for the best interests of ther estate to
appoint a trustee to administer the real properties which, under the will, were to pass to Matthew Hanley
ten years after the two executors named in the will, was, on March 8, 1924, appointed trustee. Moore
took his oath of office and gave bond on March 10, 1924. He acted as trustee until February 29, 1932,
when he resigned and the plaintiff herein was appointed in his stead.

During the incumbency of the plaintiff as trustee, the defendant Collector of Internal Revenue, alleging
that the estate left by the deceased at the time of his death consisted of realty valued at P27,920 and
personalty valued at P1,465, and allowing a deduction of P480.81, assessed against the estate an
inheritance tax in the amount of P1,434.24 which, together with the penalties for deliquency in payment
consisting of a 1 per cent monthly interest from July 1, 1931 to the date of payment and a surcharge of
25 per cent on the tax, amounted to P2,052.74. On March 15, 1932, the defendant filed a motion in the
testamentary proceedings pending before the Court of First Instance of Zamboanga (Special
proceedings No. 302) praying that the trustee, plaintiff herein, be ordered to pay to the Government the
said sum of P2,052.74. The motion was granted. On September 15, 1932, the plaintiff paid said amount
under protest, notifying the defendant at the same time that unless the amount was promptly refunded
suit would be brought for its recovery. The defendant overruled the plaintiff's protest and refused to
refund the said amount hausted, plaintiff went to court with the result herein above indicated.

In his appeal, plaintiff contends that the lower court erred:

I. In holding that the real property of Thomas Hanley, deceased, passed to his instituted heir, Matthew
Hanley, from the moment of the death of the former, and that from the time, the latter became the owner
thereof.

II. In holding, in effect, that there was deliquency in the payment of inheritance tax due on the estate of
said deceased.

III. In holding that the inheritance tax in question be based upon the value of the estate upon the death
of the testator, and not, as it should have been held, upon the value thereof at the expiration of the
period of ten years after which, according to the testator's will, the property could be and was to be
delivered to the instituted heir.

IV. In not allowing as lawful deductions, in the determination of the net amount of the estate subject to
said tax, the amounts allowed by the court as compensation to the "trustees" and paid to them from the
decedent's estate.

V. In not rendering judgment in favor of the plaintiff and in denying his motion for new trial.

The defendant-appellant contradicts the theories of the plaintiff and assigns the following error besides:

The lower court erred in not ordering the plaintiff to pay to the defendant the sum of P1,191.27,
representing part of the interest at the rate of 1 per cent per month from April 10, 1924, to June 30, 1931,
which the plaintiff had failed to pay on the inheritance tax assessed by the defendant against the estate
of Thomas Hanley.

The following are the principal questions to be decided by this court in this appeal: (a) When does the
inheritance tax accrue and when must it be satisfied? (b) Should the inheritance tax be computed on the
basis of the value of the estate at the time of the testator's death, or on its value ten years later? (c) In
determining the net value of the estate subject to tax, is it proper to deduct the compensation due to
trustees? (d) What law governs the case at bar? Should the provisions of Act No. 3606 favorable to the
tax-payer be given retroactive effect? (e) Has there been deliquency in the payment of the inheritance
tax? If so, should the additional interest claimed by the defendant in his appeal be paid by the estate?
Other points of incidental importance, raised by the parties in their briefs, will be touched upon in the
course of this opinion.

(a) The accrual of the inheritance tax is distinct from the obligation to pay the same. Section 1536 as
amended, of the Administrative Code, imposes the tax upon "every transmission by virtue of inheritance,
devise, bequest, gift mortis causa, or advance in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of property of a decedent, made effective by
his death. (61 C. J., p. 1592.) It is in reality an excise or privilege tax imposed on the right to succeed to,
receive, or take property by or under a will or the intestacy law, or deed, grant, or gift to become
operative at or after death. Acording to article 657 of the Civil Code, "the rights to the succession of a
person are transmitted from the moment of his death." "In other words", said Arellano, C. J., ". . . the
heirs succeed immediately to all of the property of the deceased ancestor. The property belongs to the
heirs at the moment of the death of the ancestor as completely as if the ancestor had executed and
delivered to them a deed for the same before his death." (Bondad vs. Bondad, 34 Phil., 232. See also,
Mijares vs. Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13; Lubrico vs. Arbado, 12 Phil.,
391; Innocencio vs. Gat-Pandan, 14 Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras
Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434; Bowa vs. Briones, 38 Phil., 27; Osario vs.
Osario & Yuchausti Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs. Court of First
Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of Baun, 53 Phil., 654.) Plaintiff, however, asserts that
while article 657 of the Civil Code is applicable to testate as well as intestate succession, it operates only
in so far as forced heirs are concerned. But the language of article 657 of the Civil Code is broad and
makes no distinction between different classes of heirs. That article does not speak of forced heirs; it
does not even use the word "heir". It speaks of the rights of succession and the transmission thereof
from the moment of death. The provision of section 625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary condition to effect transmission of property does not
affect the general rule laid down in article 657 of the Civil Code. The authentication of a will implies its
due execution but once probated and allowed the transmission is effective as of the death of the testator
in accordance with article 657 of the Civil Code. Whatever may be the time when actual transmission of
the inheritance takes place, succession takes place in any event at the moment of the decedent's death.
The time when the heirs legally succeed to the inheritance may differ from the time when the heirs
actually receive such inheritance. "Poco importa", says Manresa commenting on article 657 of the Civil
Code, "que desde el falleimiento del causante, hasta que el heredero o legatario entre en posesion de los
bienes de la herencia o del legado, transcurra mucho o poco tiempo, pues la adquisicion ha de
retrotraerse al momento de la muerte, y asi lo ordena el articulo 989, que debe considerarse como
complemento del presente." (5 Manresa, 305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley
having died on May 27, 1922, the inheritance tax accrued as of the date.

From the fact, however, that Thomas Hanley died on May 27, 1922, it does not follow that the obligation
to pay the tax arose as of the date. The time for the payment on inheritance tax is clearly fixed by section
9

1544 of the Revised Administrative Code as amended by Act No. 3031, in relation to section 1543 of the
same Code. The two sections follow:

SEC. 1543. Exemption of certain acquisitions and transmissions. — The following shall not be taxed:

(a) The merger of the usufruct in the owner of the naked title.

(b) The transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the
trustees.

(c) The transmission from the first heir, legatee, or donee in favor of another beneficiary, in accordance
with the desire of the predecessor.

In the last two cases, if the scale of taxation appropriate to the new beneficiary is greater than that paid
by the first, the former must pay the difference.

SEC. 1544. When tax to be paid. — The tax fixed in this article shall be paid:

(a) In the second and third cases of the next preceding section, before entrance into possession of the
property.

(b) In other cases, within the six months subsequent to the death of the predecessor; but if judicial
testamentary or intestate proceedings shall be instituted prior to the expiration of said period, the
payment shall be made by the executor or administrator before delivering to each beneficiary his share.

If the tax is not paid within the time hereinbefore prescribed, interest at the rate of twelve per centum per
annum shall be added as part of the tax; and to the tax and interest due and unpaid within ten days after
the date of notice and demand thereof by the collector, there shall be further added a surcharge of
twenty-five per centum.

A certified of all letters testamentary or of admisitration shall be furnished the Collector of Internal
Revenue by the Clerk of Court within thirty days after their issuance.

It should be observed in passing that the word "trustee", appearing in subsection (b) of section 1543,
should read "fideicommissary" or "cestui que trust". There was an obvious mistake in translation from
the Spanish to the English version.

The instant case does fall under subsection (a), but under subsection (b), of section 1544 above-quoted,
as there is here no fiduciary heirs, first heirs, legatee or donee. Under the subsection, the tax should
have been paid before the delivery of the properties in question to P. J. M. Moore as trustee on March
10, 1924.

(b) The plaintiff contends that the estate of Thomas Hanley, in so far as the real properties are
concerned, did not and could not legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27, 1922 and, that the inheritance tax
should be based on the value of the estate in 1932, or ten years after the testator's death. The plaintiff
introduced evidence tending to show that in 1932 the real properties in question had a reasonable value
of only P5,787. This amount added to the value of the personal property left by the deceased, which the
plaintiff admits is P1,465, would generate an inheritance tax which, excluding deductions, interest and
surcharge, would amount only to about P169.52.

If death is the generating source from which the power of the estate to impose inheritance taxes takes
its being and if, upon the death of the decedent, succession takes place and the right of the estate to tax
vests instantly, the tax should be measured by the vlaue of the estate as it stood at the time of the
decedent's death, regardless of any subsequent contingency value of any subsequent increase or
decrease in value. (61 C. J., pp. 1692, 1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance
Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup. Ct. Rep., 747; 44 Law. ed., 969.) "The
right of the state to an inheritance tax accrues at the moment of death, and hence is ordinarily measured
as to any beneficiary by the value at that time of such property as passes to him. Subsequent
appreciation or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)

Our attention is directed to the statement of the rule in Cyclopedia of Law of and Procedure (vol. 37, pp.
1574, 1575) that, in the case of contingent remainders, taxation is postponed until the estate vests in
possession or the contingency is settled. This rule was formerly followed in New York and has been
adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania and Wisconsin. This rule, horever, is
by no means entirely satisfactory either to the estate or to those interested in the property (26 R. C. L., p.
231.). Realizing, perhaps, the defects of its anterior system, we find upon examination of cases and
authorities that New York has varied and now requires the immediate appraisal of the postponed estate
at its clear market value and the payment forthwith of the tax on its out of the corpus of the estate
10

transferred. (In re Vanderbilt, 172 N. Y., 69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y.
Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of Brez, 172 N. Y., 609; 64 N. E., 958;
Estate of Post, 85 App. Div., 611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1 Peter.
Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.) California adheres to this new rule (Stats.
1905, sec. 5, p. 343).

But whatever may be the rule in other jurisdictions, we hold that a transmission by inheritance is taxable
at the time of the predecessor's death, notwithstanding the postponement of the actual possession or
enjoyment of the estate by the beneficiary, and the tax measured by the value of the property
transmitted at that time regardless of its appreciation or depreciation.

(c) Certain items are required by law to be deducted from the appraised gross in arriving at the net value
of the estate on which the inheritance tax is to be computed (sec. 1539, Revised Administrative Code).
In the case at bar, the defendant and the trial court allowed a deduction of only P480.81. This sum
represents the expenses and disbursements of the executors until March 10, 1924, among which were
their fees and the proven debts of the deceased. The plaintiff contends that the compensation and fees
of the trustees, which aggregate P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also be
deducted under section 1539 of the Revised Administrative Code which provides, in part, as follows: "In
order to determine the net sum which must bear the tax, when an inheritance is concerned, there shall
be deducted, in case of a resident, . . . the judicial expenses of the testamentary or intestate
proceedings, . . . ."

A trustee, no doubt, is entitled to receive a fair compensation for his services (Barney vs. Saunders, 16
How., 535; 14 Law. ed., 1047). But from this it does not follow that the compensation due him may
lawfully be deducted in arriving at the net value of the estate subject to tax. There is no statute in the
Philippines which requires trustees' commissions to be deducted in determining the net value of the
estate subject to inheritance tax (61 C. J., p. 1705). Furthermore, though a testamentary trust has been
created, it does not appear that the testator intended that the duties of his executors and trustees
should be separated. (Ibid.; In re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In re
Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in paragraph 5 of his will, the testator expressed
the desire that his real estate be handled and managed by his executors until the expiration of the period
of ten years therein provided. Judicial expenses are expenses of administration (61 C. J., p. 1705) but, in
State vs. Hennepin County Probate Court (112 N. W., 878; 101 Minn., 485), it was said: ". . . The
compensation of a trustee, earned, not in the administration of the estate, but in the management
thereof for the benefit of the legatees or devises, does not come properly within the class or reason for
exempting administration expenses. . . . Service rendered in that behalf have no reference to closing the
estate for the purpose of a distribution thereof to those entitled to it, and are not required or essential to
the perfection of the rights of the heirs or legatees. . . . Trusts . . . of the character of that here before the
court, are created for the the benefit of those to whom the property ultimately passes, are of voluntary
creation, and intended for the preservation of the estate. No sound reason is given to support the
contention that such expenses should be taken into consideration in fixing the value of the estate for the
purpose of this tax."

(d) The defendant levied and assessed the inheritance tax due from the estate of Thomas Hanley under
the provisions of section 1544 of the Revised Administrative Code, as amended by section 3 of Act No.
3606. But Act No. 3606 went into effect on January 1, 1930. It, therefore, was not the law in force when
the testator died on May 27, 1922. The law at the time was section 1544 above-mentioned, as amended
by Act No. 3031, which took effect on March 9, 1922.

It is well-settled that inheritance taxation is governed by the statute in force at the time of the death of
the decedent (26 R. C. L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer can not foresee
and ought not to be required to guess the outcome of pending measures. Of course, a tax statute may
be made retroactive in its operation. Liability for taxes under retroactive legislation has been "one of the
incidents of social life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct. Rep., 44.) But
legislative intent that a tax statute should operate retroactively should be perfectly clear. (Scwab vs.
Doyle, 42 Sup. Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S., 602; Stockdale vs.
Insurance Co., 20 Wall., 323; Lunch vs. Turrish, 247 U. S., 221.) "A statute should be considered as
prospective in its operation, whether it enacts, amends, or repeals an inheritance tax, unless the
language of the statute clearly demands or expresses that it shall have a retroactive effect, . . . ." (61 C.
11

J., P. 1602.) Though the last paragraph of section 5 of Regulations No. 65 of the Department of Finance
makes section 3 of Act No. 3606, amending section 1544 of the Revised Administrative Code, applicable
to all estates the inheritance taxes due from which have not been paid, Act No. 3606 itself contains no
provisions indicating legislative intent to give it retroactive effect. No such effect can begiven the statute
by this court.

The defendant Collector of Internal Revenue maintains, however, that certain provisions of Act No. 3606
are more favorable to the taxpayer than those of Act No. 3031, that said provisions are penal in nature
and, therefore, should operate retroactively in conformity with the provisions of article 22 of the Revised
Penal Code. This is the reason why he applied Act No. 3606 instead of Act No. 3031. Indeed, under Act
No. 3606, (1) the surcharge of 25 per cent is based on the tax only, instead of on both the tax and the
interest, as provided for in Act No. 3031, and (2) the taxpayer is allowed twenty days from notice and
demand by rthe Collector of Internal Revenue within which to pay the tax, instead of ten days only as
required by the old law.

Properly speaking, a statute is penal when it imposes punishment for an offense committed against the
state which, under the Constitution, the Executive has the power to pardon. In common use, however,
this sense has been enlarged to include within the term "penal statutes" all status which command or
prohibit certain acts, and establish penalties for their violation, and even those which, without expressly
prohibiting certain acts, impose a penalty upon their commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the means ordinarily resorted to for the collection of taxes are
not classed as penal laws, although there are authorities to the contrary. (See Sutherland, Statutory
Construction, 361; Twine Co. vs. Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C. A.,
104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150; State vs. Wheeler, 44 P., 430; 25 Nev.
143.) Article 22 of the Revised Penal Code is not applicable to the case at bar, and in the absence of
clear legislative intent, we cannot give Act No. 3606 a retroactive effect.

(e) The plaintiff correctly states that the liability to pay a tax may arise at a certain time and the tax may
be paid within another given time. As stated by this court, "the mere failure to pay one's tax does not
render one delinqent until and unless the entire period has eplased within which the taxpayer is
authorized by law to make such payment without being subjected to the payment of penalties for fasilure
to pay his taxes within the prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)

The defendant maintains that it was the duty of the executor to pay the inheritance tax before the
delivery of the decedent's property to the trustee. Stated otherwise, the defendant contends that
delivery to the trustee was delivery to the cestui que trust, the beneficiery in this case, within the
meaning of the first paragraph of subsection (b) of section 1544 of the Revised Administrative Code. This
contention is well taken and is sustained. The appointment of P. J. M. Moore as trustee was made by the
trial court in conformity with the wishes of the testator as expressed in his will. It is true that the word
"trust" is not mentioned or used in the will but the intention to create one is clear. No particular or
technical words are required to create a testamentary trust (69 C. J., p. 711). The words "trust" and
"trustee", though apt for the purpose, are not necessary. In fact, the use of these two words is not
conclusive on the question that a trust is created (69 C. J., p. 714). "To create a trust by will the testator
must indicate in the will his intention so to do by using language sufficient to separate the legal from the
equitable estate, and with sufficient certainty designate the beneficiaries, their interest in the ttrust, the
purpose or object of the trust, and the property or subject matter thereof. Stated otherwise, to constitute
a valid testamentary trust there must be a concurrence of three circumstances: (1) Sufficient words to
raise a trust; (2) a definite subject; (3) a certain or ascertain object; statutes in some jurisdictions
expressly or in effect so providing." (69 C. J., pp. 705,706.) There is no doubt that the testator intended
to create a trust. He ordered in his will that certain of his properties be kept together undisposed during
a fixed period, for a stated purpose. The probate court certainly exercised sound judgment in
appointment a trustee to carry into effect the provisions of the will (see sec. 582, Code of Civil
Procedure).

P. J. M. Moore became trustee on March 10, 1924. On that date trust estate vested in him (sec. 582 in
relation to sec. 590, Code of Civil Procedure). The mere fact that the estate of the deceased was placed
in trust did not remove it from the operation of our inheritance tax laws or exempt it from the payment of
the inheritance tax. The corresponding inheritance tax should have been paid on or before March 10,
1924, to escape the penalties of the laws. This is so for the reason already stated that the delivery of the
12

estate to the trustee was in esse delivery of the same estate to the cestui que trust, the beneficiary in this
case. A trustee is but an instrument or agent for the cestui que trust (Shelton vs. King, 299 U. S., 90; 33
Sup. Ct. Rep., 689; 57 Law. ed., 1086). When Moore accepted the trust and took possesson of the trust
estate he thereby admitted that the estate belonged not to him but to his cestui que trust (Tolentino vs.
Vitug, 39 Phil.,126, cited in 65 C. J., p. 692, n. 63). He did not acquire any beneficial interest in the
estate. He took such legal estate only as the proper execution of the trust required (65 C. J., p. 528) and,
his estate ceased upon the fulfillment of the testator's wishes. The estate then vested absolutely in the
beneficiary (65 C. J., p. 542).

The highest considerations of public policy also justify the conclusion we have reached. Were we to hold
that the payment of the tax could be postponed or delayed by the creation of a trust of the type at hand,
the result would be plainly disastrous. Testators may provide, as Thomas Hanley has provided, that their
estates be not delivered to their beneficiaries until after the lapse of a certain period of time. In the case
at bar, the period is ten years. In other cases, the trust may last for fifty years, or for a longer period
which does not offend the rule against petuities. The collection of the tax would then be left to the will of
a private individual. The mere suggestion of this result is a sufficient warning against the accpetance of
the essential to the very exeistence of government. (Dobbins vs. Erie Country, 16 Pet., 435; 10 Law. ed.,
1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25 Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19
Law. ed., 101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194; 26 Sup. Ct. Rep., 36; 50 Law.
ed., 150; Charles River Bridge vs. Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to pay
taxes rests not upon the privileges enjoyed by, or the protection afforded to, a citizen by the government
but upon the necessity of money for the support of the state (Dobbins vs. Erie Country, supra). For this
reason, no one is allowed to object to or resist the payment of taxes solely because no personal benefit
to him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup. Ct. Rep., 340; 43 Law. ed., 740.)
While courts will not enlarge, by construction, the government's power of taxation (Bromley vs.
McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46) they also will not place upon tax laws
so loose a construction as to permit evasions on merely fanciful and insubstantial distictions. (U. S. vs.
Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U. S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690,
followed in Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481; Castle Bros., Wolf & Sons vs.
McCoy, 21 Phil., 300; Muñoz & Co. vs. Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation
vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43 Phil., 803.) When proper, a tax statute
should be construed to avoid the possibilities of tax evasion. Construed this way, the statute, without
resulting in injustice to the taxpayer, becomes fair to the government.

That taxes must be collected promptly is a policy deeply intrenched in our tax system. Thus, no court is
allowed to grant injunction to restrain the collection of any internal revenue tax ( sec. 1578, Revised
Administrative Code; Sarasola vs. Trinidad, 40 Phil., 252). In the case of Lim Co Chui vs. Posadas (47
Phil., 461), this court had occassion to demonstrate trenchment adherence to this policy of the law. It
held that "the fact that on account of riots directed against the Chinese on October 18, 19, and 20, 1924,
they were prevented from praying their internal revenue taxes on time and by mutual agreement closed
their homes and stores and remained therein, does not authorize the Collector of Internal Revenue to
extend the time prescribed for the payment of the taxes or to accept them without the additional penalty
of twenty five per cent." (Syllabus, No. 3.)

". . . It is of the utmost importance," said the Supreme Court of the United States, ". . . that the modes
adopted to enforce the taxes levied should be interfered with as little as possible. Any delay in the
proceedings of the officers, upon whom the duty is developed of collecting the taxes, may derange the
operations of government, and thereby, cause serious detriment to the public." (Dows vs. Chicago, 11
Wall., 108; 20 Law. ed., 65, 66; Churchill and Tait vs. Rafferty, 32 Phil., 580.)

It results that the estate which plaintiff represents has been delinquent in the payment of inheritance tax
and, therefore, liable for the payment of interest and surcharge provided by law in such cases.

The delinquency in payment occurred on March 10, 1924, the date when Moore became trustee. The
interest due should be computed from that date and it is error on the part of the defendant to compute it
one month later. The provisions cases is mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and
neither the Collector of Internal Revenuen or this court may remit or decrease such interest, no matter
how heavily it may burden the taxpayer.

13

To the tax and interest due and unpaid within ten days after the date of notice and demand thereof by
the Collector of Internal Revenue, a surcharge of twenty-five per centum should be added (sec. 1544,
subsec. (b), par. 2, Revised Administrative Code). Demand was made by the Deputy Collector of Internal
Revenue upon Moore in a communiction dated October 16, 1931 (Exhibit 29). The date fixed for the
payment of the tax and interest was November 30, 1931. November 30 being an official holiday, the
tenth day fell on December 1, 1931. As the tax and interest due were not paid on that date, the estate
became liable for the payment of the surcharge.

In view of the foregoing, it becomes unnecessary for us to discuss the fifth error assigned by the plaintiff
in his brief.

We shall now compute the tax, together with the interest and surcharge due from the estate of Thomas
Hanley inaccordance with the conclusions we have reached.

At the time of his death, the deceased left real properties valued at P27,920 and personal properties
worth P1,465, or a total of P29,385. Deducting from this amount the sum of P480.81, representing
allowable deductions under secftion 1539 of the Revised Administrative Code, we have P28,904.19 as
the net value of the estate subject to inheritance tax.

The primary tax, according to section 1536, subsection (c), of the Revised Administrative Code, should
be imposed at the rate of one per centum upon the first ten thousand pesos and two per centum upon
the amount by which the share exceed thirty thousand pesos, plus an additional two hundred per
centum. One per centum of ten thousand pesos is P100. Two per centum of P18,904.19 is P378.08.
Adding to these two sums an additional two hundred per centum, or P965.16, we have as primary tax,
correctly computed by the defendant, the sum of P1,434.24.

To the primary tax thus computed should be added the sums collectible under section 1544 of the
Revised Administrative Code. First should be added P1,465.31 which stands for interest at the rate of
twelve per centum per annum from March 10, 1924, the date of delinquency, to September 15, 1932, the
date of payment under protest, a period covering 8 years, 6 months and 5 days. To the tax and interest
thus computed should be added the sum of P724.88, representing a surhcarge of 25 per cent on both
the tax and interest, and also P10, the compromise sum fixed by the defendant (Exh. 29), giving a grand
total of P3,634.43.

As the plaintiff has already paid the sum of P2,052.74, only the sums of P1,581.69 is legally due from the
estate. This last sum is P390.42 more than the amount demanded by the defendant in his counterclaim.
But, as we cannot give the defendant more than what he claims, we must hold that the plaintiff is liable
only in the sum of P1,191.27 the amount stated in the counterclaim.

The judgment of the lower court is accordingly modified, with costs against the plaintiff in both
instances. So ordered.

Avanceña, C.J., Abad Santos, Imperial, Diaz and Concepcion, JJ., concur.

Villa-Real, J., concurs.

G.R. No. 58010. March 31, 1993.

EMILIA O'LACO and HUCO LUNA, petitioners, vs. VALENTIN CO CHO CHIT, O LAY KIA and
COURT OF APPEALS, respondents.
Sergio L. Guadiz for petitioners.
Norberto J . Quisumbing & Associates for private respondents.
SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CONDITION PRECEDENT TO FILING OF SUIT

BETWEEN MEMBERS OF THE SAME FAMILY; EFFECT OF FAILURE TO COMPLY WITH CONDITION. —
Admittedly, the present action is between members of the same family since petitioner Emilia O'Laco
and respondent O Lay Kia are half-sisters. Consequently, there should be an averment in the compliant
that earnest efforts toward a compromise have been made, pursuant to Art. 222 of the New Civil Code,
14

or a motion to dismiss could have been filed under Sec. 1, par. (j), Rule 16 of the Rules of Court. For, it is
well-settled that the attempt to compromise as well as the inability to succeed is a condition precedent
to the filing of a suit between members of the same family. Hence, the defect in the complaint is
assailable at any stage of the proceedings, even on appeal, for lack of cause of action.

2. ID.; ID.; AMENDMENT TO COMPLAINT; WHEN PROPER; AMENDMENT TO CONFORM TO

EVIDENCE. — Plaintiff may be allowed to amend his complaint to correct the defect if the amendment
does not actually confer jurisdiction on the court in which the action is filed, i.e., if the cause of action
was originally within that court's jurisdiction. In such case, the amendment is only to cure the perceived
defect in the complaint, thus may be allowed. In the case before Us, while respondent-spouses did not
formally amend their complaint, they were nonetheless allowed to introduce evidence purporting to
show that earnest efforts toward a compromise had been made, that is, respondent O Lay Kia
importuned Emilia O'Laco and pressed her for the transfer of the title of the Oroquieta property in the
name of spouses O Lay Kia and Valentin Co Cho Chit, just before Emilia's marriage to Hugo Luna. But,
instead of transferring the title as requested, Emilia sold the property to the Roman Catholic Archbishop
of Manila. This testimony was not objected to by petitioner-spouses. Hence, the complaint was deemed
accordingly amended to conform to the evidence, pursuant to Sec. 5, Rule 10 of the Rules of Court
which reads — "Sec. 5. Amendment to conform to or authorize presentation of evidence. — When
issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be
treated in all respects, as if they had been raised in the pleadings . . ." Indeed, if the defendant permits
evidence to be introduced without objection and which supplies the necessary allegations of a defective
complaint, then the evidence is deemed to have the effect of curing the defects of the complaint. The
insufficiency of the allegations in the complaint is deemed ipso facto rectified.

3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUSTS; EXPRESS TRUST; DEFINED; IMPLIED
TRUST; DEFINED. — By definition, trust relations between parties may either be express or implied.
Express trusts are those which are created by the direct and positive acts of the parties, by some writing
or deed, or will, or by words evincing an intention to create a trust. Implied trusts are those which,
without being express, are deducible from the nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters of equity, independently of the particular
intention of the parties.

4. ID.; ID.; ID.; IMPLIED TRUSTS; RESULTING TRUST; BASIS THEREOF; CONSTRUCTIVE TRUST;
BASIS THEREOF. — Implied trust may either be resulting or constructive trusts, both coming into being
by operation of law. Resulting trusts are 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, 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.

5. ID.; ID.; ID.; EXPRESS TRUSTS CONCERNING IMMOVABLES NOT PROVED BY PAROL EVIDENCE;
IMPLIED TRUST IN REAL PROPERTY ESTABLISHED BY PAROL EVIDENCE; PROOF REQUIRED; CASE
AT BAR. — Unlike express trusts concerning immovables or any interest therein which cannot be proved
by parol evidence, implied trusts may be established by oral evidence. However, in order to establish an
implied trust in real property by parol evidence, the proof should be as fully convincing as if the acts
giving rise to the trust obligation were proven by an authentic document. It cannot be established upon
vague and inconclusive proof. After a thorough review of the evidence on record, We hold that a
resulting trust was indeed intended by the parties under Art. 1448 of the New Civil Code which states —
"Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party
but the price is paid by another for the purpose of having the beneficial interest of the property. The
former is the trustee, while the latter is the beneficiary . . ." As stipulated by the parties, the document of
sale, the owner's duplicate copy of the certificate of title, insurance policies, receipt of initial premium of
15

insurance coverage and real estate tax receipts were all in the possession of respondent-spouses which
they offered in evidence. As emphatically asserted by respondent O Lay Kia, the reason why these
documents of ownership remained with her is that the land in question belonged to her. Indeed, there
can be no persuasive rationalization for the possession of these documents of ownership by
respondent-spouses for seventeen (17) years after the Oroquieta property was purchased in 1943 than
that of precluding its possible sale, alienation or conveyance by Emilia O'Laco, absent any machination
or fraud. This continued possession of the documents, together with other corroborating evidence
spread on record, strongly suggests that Emilia O'Laco merely held the Oroquieta property in trust for
respondent-spouses.

6. ID.; ID.; ID.; CONSTRUCTIVE TRUST SUBJECT TO PRESCRIPTION; RESULTING TRUST

IMPRESCRIPTIBLE; RESULTING TRUST CONVERTED TO CONSTRUCTIVE TRUST BY REPUDIATION;
REQUISITES; PRESCRIPTIVE PERIOD FOR ACTION FOR RECONVEYANCE BASED ON
CONSTRUCTIVE TRUST. — As differentiated from constructive trusts, where the settled rule is that
prescription may supervene, in resulting trust, the rule of imprescriptibility may apply for as long as the
trustee has not repudiated the trust. Once the resulting trust is repudiated, however, it is converted into a
constructive trust and is subject to prescription. A resulting trust is repudiated if the following requisites
concur: (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the
cestui qui trust; (b) such positive acts of repudiation have been made known to the cestui qui trust; and,
(c) the evidence thereon is clear and convincing. In Tale v. Court of Appeals the Court categorically ruled
that an action for reconveyance based on an implied or constructive trust must perforce prescribe in ten
(10) years, and not otherwise, thereby modifying previous decisions holding that the prescriptive period
was four (4) years. So long as the trustee recognizes the trust, the beneficiary may rely upon the
recognition, and ordinarily will not be in fault for omitting to bring an action to enforce his rights. There is
no running of the prescriptive period if the trustee expressly recognizes the resulting trust. Since the
complaint for breach of trust was filed by respondent-spouses two (2) months after acquiring knowledge
of the sale, the action therefore has not yet prescribed.

D E C I S I O N

BELLOSILLO, J p:

History is replete with cases of erstwhile close family relations put asunder by property disputes. This is
one of them. It involves half-sisters each claiming ownership over a parcel of land. While petitioner Emilia
O'Laco asserts that she merely left the certificate of title covering the property with private respondent O
Lay Kia for safekeeping, the latter who is the former's older sister insists that the title was in her
possession because she and her husband bought the property from their conjugal funds. To be resolved
therefore is the issue of whether a resulting trust was intended by them in the acquisition of the property.
The trial court declared that there was no trust relation of any sort between the sisters. 1 The Court of
Appeals ruled otherwise. 2 Hence, the instant petition for review on certiorari of the decision of the
appellate court together with its resolution denying reconsideration. 3

It appears that on 31 May 1943, the Philippine Sugar Estate Development Company, Ltd., sold a parcel
of land, Lot No. 5, Block No. 10, Plan Psu-10038, situated at Oroquieta St., Sta. Cruz, Manila, with the
Deed of Absolute Sale naming Emilia O'Laco as vendee; thereafter, Transfer Certificate of Title No. 66456
was issued in her name.

On 17 May 1960, private respondent-spouses Valentin Co Cho Chit and O Lay Wa learned from the
newspapers that Emilia O'Laco sold the same property to the Roman Catholic Archbishop of Manila for
P230,000.00, with assumption of the real estate mortgage constituted thereon.

On 22 June 1960, respondent-spouses Valentin Co Cho Chit and O Lay Kia sued petitioner-spouses
Emilia O'Laco and Hugo Luna to recover the purchase price of the land before the then Court of First
Instance of Rizal, respondent-spouses asserting that petitioner Emilia O'Laco knew that they were the
real vendees of the Oroquieta property sold in 1943 by Philippine Sugar Estate Development Company,
Ltd., and that the legal title thereto was merely placed in her name. They contend that Emilia O'Laco
breached the trust when she sold the land to the Roman Catholic Archbishop of Manila. Meanwhile, they
16

asked the trial court to garnish all the amounts still due and payable to petitioner-spouses arising from
the sale, which was granted on 30 June 1960.

Petitioner-spouses deny the existence of any form of trust relation. They aver that Emilia O'Laco actually
bought the property with her own money; that she left the Deed of Absolute Sale and the corresponding
title with respondent-spouses merely for safekeeping; that when she asked for the return of the
documents evidencing her ownership, respondent-spouses told her that these were misplaced or lost;
and, that in view of the loss, she filed a petition for issuance of a new title, and on 18 August 1944 the
then Court of First Instance of Manila granted her petition.

On 20 September 1976, finding no trust relation between the parties, the trial court dismissed the
complaint together with the counterclaim. Petitioners and respondents appealed.

On 9 April 1981, the Court of Appeals set aside the decision of the trial court thus —

". . . We set aside the decision of the lower court dated September 20, 1976 and the order of January 5,
1977 and another one is hereby entered ordering the defendants-appellees to pay plaintiffs-appellants
jointly and severally the sum of P230,000.00 representing the value of the property subject of the sale
with assumption of mortgage to the Roman Catholic Archbishop of Manila with legal interest from the
filing of the complaint until fully paid, the sum of P10,000.00 as attorney's fees, plus costs."

On 7 August 1981, the Court of Appeals denied reconsideration of its decision, prompting petitioners to
come to this Court for relief.

Petitioners contend that the present action should have been dismissed. They argue that the complaint
fails to allege that earnest efforts toward a compromise were exerted considering that the suit is
between members of the same family, and no trust relation exists between them. Even assuming ex
argumenti that there is such a relation, petitioners further argue, respondents are already barred by
laches.

We are not persuaded. Admittedly, the present action is between members of the same family since
petitioner Emilia O'Laco and respondent O Lay Kia are half-sisters. Consequently, there should be an
averment in the complaint that earnest efforts toward a compromise have been made, pursuant to Art.
222 of the New Civil Code, 6 or a motion to dismiss could have been filed under Sec. 1, par. (j), Rule 16,
of the Rules of Court. 7 For, it is well-settled that the attempt to compromise as well as the inability to
succeed is a condition precedent to the filing of a suit between members of the same family. 8 Hence,
the defect in the complaint is assailable at any stage of the proceedings, even on appeal, for lack of
cause of action.

But, plaintiff may be allowed to amend his complaint to correct the defect if the amendment does not
actually confer jurisdiction on the court in which the action is filed, i.e., if the cause of action was
originally within that court's jurisdiction. 10 In such case, the amendment is only to cure the perceived
defect in the complaint, thus may be allowed.

In the case before Us, while respondent-spouses did not formally amend their complaint, they were
nonetheless allowed to introduce evidence purporting to show that earnest efforts toward a compromise
had been made, that is, respondent O Lay Kia importuned Emilia O'Laco and pressed her for the transfer
of the title of the Oroquieta property in the name of spouses O Lay Kia and Valentin Co Cho Chit, just
before Emilia's marriage to Hugo Luna. 11 But, instead of transferring the title as requested, Emilia sold
the property to the Roman Catholic Archbishop of Manila. This testimony was not objected to by
petitioner-spouses. Hence, the complaint was deemed accordingly amended to conform to the
evidence, 12 pursuant to Sec. 5, Rule 10 of the Rules of Court which reads —

"SECTION 5. Amendment to conform to or authorize presentation of evidence. — When issues not

raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all
respects, as, if they had been raised in the pleadings . . ." (emphasis supplied).

Indeed, if the defendant permits evidence to be introduced without objection and which supplies the
necessary allegations of a defective complaint, then the evidence is deemed to have the effect of curing
17

the defects of the complaint. 13 The insufficiency of the allegations in the complaint is deemed ipso
facto rectified.

But the more crucial issue before Us is whether there is a trust relation between the parties in
contemplation of law.

We find that there is. By definition, trust relations between parties may either be express or implied. 15
Express trusts are those which are created by the direct and positive acts of the parties, by some writing
or deed, or will, or by words evincing an intention to create a trust. 16 Implied trusts are those which,
without being express, are deducible from the nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters of equity, independently of the particular
intention of the parties.17 Implied trusts may either be resulting or constructive trusts, both coming into
being by operation of law.

Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title
determines the equitable title or interest 19 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. 20 On the other hand, constructive trusts are created by the construction
of equity in order to satisfy the demands of justice 21 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.

Specific examples of resulting trusts may be found in the Civil Code, particularly Arts. 1448, 1449,
1451,1452 and 1453, 23 while constructive trusts are illustrated in Arts. 1450, 1454, 1455 and 1456. 24

Unlike express trusts concerning immovables or any interest therein which cannot be proved by parol
evidence, 25 implied trusts may be established by oral evidence. 26 However, in order to establish an
implied trust in real property by parol evidence, the proof should be as fully convincing as if the acts
giving rise to the trust obligation were proven by an authentic document. 27 It cannot be established
upon vague and inconclusive proof.

After a thorough review of the evidence on record, We hold that a resulting trust was indeed intended by
the parties under Art. 1448 of the New Civil Code which states —

"ARTICLE 1448. There is an implied trust when property is sold, and the legal estate is granted to one
party but the price is paid by another for the purpose of having the beneficial interest of the property.
The former is the trustee, while the latter is the beneficiary . . ." (emphasis supplied).

First. As stipulated by the parties, the document of sale, the owner's duplicate copy of the certificate of
title, insurance policies, receipt of initial premium of insurance coverage and real estate tax receipts ware
all in the possession of respondent spouses which they offered in evidence. As emphatically asserted by
respondent O Lay Kia, the reason why these documents of ownership remained with her is that the land
in question belonged to her.

Indeed, there can be no persuasive rationalization for the possession of these documents of ownership
by respondent-spouses for seventeen (17) years after the Oroquieta property was purchased in 1943
than that of precluding its possible sale, alienation or conveyance by Emilia O'Laco, absent any
machination or fraud. This continued possession of the documents, together with other corroborating
evidence spread on record, strongly suggests that Emilia O'Laco merely held the Oroquieta property in
trust for respondent-spouses.

Second. It may be worth to mention that before buying the Oroquieta property, respondent-spouses
purchased another property situated in Kusang-Loob, Sta. Cruz, Manila, where the certificate of title was
placed in the name of Ambrosio O'Laco, older brother of Emilia, under similar or identical circumstances.
The testimony of former counsel for respondent-spouses, then Associate Justice Antonio G. Lucero of
the Court of Appeals, is enlightening —

18

"Q In the same conversation he told you how he would buy the property (referring to the Oroquieta
property), he and his wife?

"A Yes, Sir, he did.

"Q What did he say?

xxx xxx xxx

"A He said he and his wife has (sic) already acquired by purchase a certain property located at Kusang-
Loob, Sta. Cruz, Manila. He told me he would like to place the Oroquieta Maternity Hospital in case the
negotiation materialize(s) in the name of a sister of his wife (O'Laco)" (emphasis supplied). 30

On the part of respondent-spouses, they explained that the reason why they did not place these
Oroquieta and Kusang-Loob properties in their name was that being Chinese nationals at the time of the
purchase they did not want to execute the required affidavit to the effect that they were allies of the
Japanese. 31 Since O Lay Kia took care of Emilia who was still young when her mother died, 32
respondent-spouses did not hesitate to place the title of the Oroquieta property in Emilia's name.

Quite significantly, respondent-spouses also instituted an action for reconveyance against Ambrosio
O'Laco when the latter claimed the Kusang-Loob property as his own. A similar stipulation of facts was
likewise entered, i.e., respondent-spouses had in their possession documents showing ownership of the
Kusang-Loob property which they offered in evidence. In that case, the decision of the trial court, now
final and executory, declared respondent-spouses as owners of the Kusang-Loob property and ordered
Ambrosio O'Laco to reconvey it to them.

Incidentally, Ambrosio O'Laco thus charged respondent spouses Valentin Co Cho Cit and O Lay Kia
before the Anti-Dummy Board, docketed as Case No. 2424, for their acquisition of the Kusang-Loob and
Oroquieta properties. 34 He claimed that respondent-spouses utilized his name in buying the Kusang-
Loob property while that of petitioner O'Laco was used in the purchase of the Oroquieta property. In
effect, there was an implied admission by Ambrosio that his sister Emilia, like him, was merely used as a
dummy. However, the Anti-Dummy Board exonerated respondent-spouses since the purchases were
made in 1943, or during World War II, when the Anti-Dummy Law was not enforceable.

Third. The circumstances by which Emilia O'Laco obtained a new title by reason of the alleged loss of
the old title then in the possession of respondent-spouses cast serious doubt on the veracity of her
ownership. The petitions respectively filed by Emilia O'Laco and Ambrosio O'Laco for the Oroquieta and
the Kusang-Loob properties were both granted on the same day, 18 August 1944, by the then Court of
First Instance of Manila. These orders were recorded in the Primary Entry Book of the Register of Deeds
of Manila at the same time, 2:35 o'clock in the afternoon of 1 September 1944, in consecutive entries,
Entries Nos. 246117-18. 35 This coincidence lends credence to the position of respondent-spouses that
there was in fact a conspiracy between the siblings Ambrosio and Emilia to defraud and deprive
respondents of their title to the Oroquieta and Kusang-Loob properties.

Fourth. Until the sale of the Oroquieta property to the Roman Catholic Archbishop of Manila, petitioner
Emilia O'Laco actually recognized the trust. Specifically, when respondent spouses learned that Emilia
was getting married to Hugo, O Lay Kia asked her to have the title to the property already transferred to
her and her husband Valentin, and Emilia assured her that "would be arranged (maaayos na)" after her
wedding. 36 Her answer was an express recognition of the trust, otherwise, she would have refused the
request outright. Petitioners never objected to this evidence; nor did they attempt to controvert it.

Fifth. The trial court itself determined that "Valentin Co Cho Chit and O Lay Kia had some money with
which they could buy the property." 37 In fact, Valentin was the Chief Mechanic of the Paniqui Sugar
Mills, was engaged in the buy and sell business, operated a gasoline station, and owned an auto supply
store as well as a ten-door apartment in Caloocan City. 38 In contrast, Emilia O'Laco failed to convince
the Court that she was financially capable of purchasing the Oroquieta property. In fact, she opened a
bank account only in 1946 and likewise began filing income tax returns that same year, 39 while the
property in question was bought in 1943. Respondent-spouses even helped Emilia and her brothers in
their expenses and livelihood. Emilia could only give a vague account on how she raised the money for
the purchase of the property. Her narration of the transaction of sale abounds with "I don't know" and "I
don't remember."

19

Having established a resulting trust between the parties, the next question is whether prescription has
set in.

As differentiated from constructive trusts, where the settled rule is that prescription may supervene, in
resulting trust, the rule of imprescriptibility may apply for as long as the trustee has not repudiated the
trust. 41 Once the resulting trust is repudiated, however, it is converted into a constructive trust and is
subject to prescription.

A resulting trust is repudiated if the following requisites concur: (a) the trustee has performed
unequivocal acts of repudiation amounting to an ouster of the cestui qui trust; (b) such positive acts of
repudiation have been made known to the cestui qui trust; and, (c) the evidence thereon is clear and
convincing.

In Tale v. Court of Appeals 43 the Court categorically ruled that an action for reconveyance based on an
implied or constructive trust must perforce prescribe in ten (10) years, and not otherwise, thereby
modifying previous decisions holding that the prescriptive period was four (4) years.

Neither the registration of the Oroquieta property in the name of petitioner Emilia O'Laco nor the
issuance of a new Torrens title in 1944 in her name in lieu of the alleged loss of the original may be made
the basis for the commencement of the prescriptive period. For, the issuance of the Torrens title in the
name of Emilia O'Laco could not be considered adverse, much less fraudulent. Precisely, although the
property was bought by respondent-spouses, the legal title was placed in the name of Emilia O'Laco.
The transfer of the Torrens title in her name was only in consonance with the deed of sale in her favor.
Consequently, there was no cause for any alarm on the part of respondent-spouses. As late as 1959, or
just before she got married, Emilia continued to recognize the ownership of respondent-spouses over
the Oroquieta property. Thus, until that point, respondent-spouses were not aware of any act of Emilia
which would convey to them the idea that she was repudiating the resulting trust. The second requisite
is therefore absent. Hence, prescription did not begin to run until the sale of the Oroquieta property,
which was clearly an act of repudiation.

But immediately after Emilia sold the Oroquieta property which is obviously a disavowal of the resulting
trust, respondent-spouses instituted the present suit for breach of trust. Correspondingly, laches cannot
lie against them.

After all, so long as the trustee recognizes the trust, the beneficiary may rely upon the recognition, and
ordinarily will not be in fault for omitting to bring an action to enforce his rights. 44 There is no running of
the prescriptive period if the trustee expressly recognizes the resulting trust. 45 Since the complaint for
breach of trust was filed by respondent-spouses two (2) months after acquiring knowledge of the sale,
the action therefore has not yet prescribed.

WHEREFORE, the Petition for Review on Certiorari is DENIED. The Decision of the Court of Appeals of 9
April 1981, which reversed the trial court, is AFFIRMED. Costs against petitioners.

SO ORDERED.

G.R. No. 140528

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,
20

 
- versus -
 
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,
- versus -
 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 Decision[1] dated June 29, 1999 and Resolution[2] dated October 22,
1999 of the Court of Appeals in CA-G.R. CV No. 39770.
 
The petitioners in G.R. No. 140528 are siblings Maria Torbela,[3] Pedro Torbela,[4] Eufrosina Torbela
Rosario,[5] Leonila Torbela Tamin, Fernando Torbela,[6] Dolores Torbela Tablada, Leonora Torbela Agustin,
[7] and Severina Torbela Ildefonso (Torbela siblings).

 
The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario), who was married to, but now
legally separated from, Dr. Andres T. Rosario (Dr. Rosario). Dr. Rosario is the son of Eufrosina Torbela
Rosario and the nephew of the other Torbela siblings.
 
The controversy began with a parcel of land, with an area of 374 square meters, located in Urdaneta
City, Pangasinan (Lot No. 356-A). It was originally part of a larger parcel of land, known as Lot No. 356 of
the Cadastral Survey of Urdaneta, measuring 749 square meters, and covered by Original Certificate of
Title (OCT) No. 16676,[8] in the name of Valeriano Semilla (Valeriano), married to Potenciana Acosta.
Under unexplained circumstances, Valeriano gave Lot No. 356-A to his sister Marta Semilla, married to
Eugenio Torbela (spouses Torbela). Upon the deaths of the spouses Torbela, Lot No. 356-A was
adjudicated in equal shares among their children, the Torbela siblings, by virtue of a Deed of Extrajudicial
Partition[9] 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 Quitclaim[13] was subsequently executed on December 28, 1964, this time by
Dr. Rosario, acknowledging that he only borrowed Lot No. 356-A from the Torbela siblings and was
already returning the same to the latter for P1.00. The Deed stated:
 
That for and in consideration of the sum of one peso (P1.00), Philippine Currency and the fact that I
only borrowed the above described parcel of land from MARIA TORBELA, married to Eulogio Tosino,
EUFROSINA TORBELA, married to Pedro Rosario, PEDRO TORBELA, married to Petra Pagador,
LEONILA TORBELA, married to Fortunato Tamen, FERNANDO TORBELA, married to Victoriana Tablada,
DOLORES TORBELA, widow, LEONORA TORBELA, married to Matias Agustin and SEVERINA
TORBELA, married to Jorge Ildefonso, x x x by these presents do hereby cede, transfer and convey by
21

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. 274471[18] 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. 52751[20] dated
March 6, 1981, the mortgage appearing under Entry No. 243537 was cancelled per the Cancellation and
Discharge of Mortgage executed by DBP in favor of Dr. Rosario and ratified before a notary public on
July 11, 1980.
 
In the meantime, Dr. Rosario acquired another loan from the Philippine National Bank (PNB) sometime in
1979-1981. Records do not reveal though the original amount of the loan from PNB, but the loan
agreement was amended on March 5, 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
22

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. 533283[25] on December 18, 1981. Since the construction of a two-storey commercial building on
Lot No. 5-F-8-C-2-B-2-A was still incomplete, the loan value thereof as collateral was deducted from the
approved loan amount. Thus, the spouses Rosario could only avail of the maximum loan amount of
P830,064.00 from Banco Filipino.
 
Because Banco Filipino paid the balance of Dr. Rosarios loan from PNB, the mortgage on Lot No. 356-A
in favor of PNB was cancelled per Entry No. 533478[26] on TCT No. 52751 dated December 23, 1981.
 
On February 13, 1986, the Torbela siblings filed before the Regional Trial Court (RTC) of Urdaneta,
Pangasinan, a Complaint for recovery of ownership and possession of Lot No. 356-A, plus damages,
against the spouses Rosario, which was docketed as Civil Case No. U-4359. On the same day, Entry
Nos. 593493 and 593494 were made on TCT No. 52751 that read as follows:
 
Entry No. 593494 Complaint Civil Case No. U-4359 (For: Recovery of Ownership and Possession and
Damages. (Sup. Paper).
Entry No. 593493 Notice of Lis Pendens The parcel of land described in this title is subject to Lis
Pendens executed by Liliosa B. Rosario, CLAO, Trial Attorney dated February 13, 1986. Filed to TCT No.
52751
February 13, 1986-1986 February 13 3:30 p.m.
 

(SGD.) PACIFICO M. BRAGANZA

Register of Deeds[27]
 
 
23

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 Sale[29] 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 Deeds[32]
 
 
The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990, the RTC
issued an Order[33] dismissing without prejudice Civil Case No. U-4667 due to the 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 Sale[34] and Affidavit of Consolidation[35] 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.
 
24

The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822. The Decision[38] on
these three cases was promulgated on January 15, 1992, the dispositive portion of which reads:
 
WHEREFORE, judgment is rendered:
 
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 Decision[40] 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 Decision[42] dated June 29, 1999, the Court of Appeals decreed:
 
WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification.
Items No. 6 and 7 of the appealed decision are DELETED. Item No. 8 is modified requiring [Dr. Rosario]
to pay [the Torbela siblings] actual damages, in the amount of P1,200,000.00 with 6% per annum
interest from finality of this decision until fully paid. [Dr. Rosario] is further ORDERED to pay [the Torbela
25

siblings] the amount of P300,000.00 as moral damages; P200,000.00 as exemplary damages and
P100,000.00 as attorneys fees.
 
Costs against [Dr. Rosario].[43]
 
 
The Court of Appeals, in a Resolution[44] dated October 22, 1999, denied the separate Motions for
Reconsideration of the Torbela siblings and Dr. Rosario.
 
The Torbela siblings come before this Court via the Petition for Review in G.R. No. 140528, with the
following assignment of errors:
 
First Issue and Assignment of Error:
 
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE REGISTRATION
OF THE DEED OF ABSOLUTE QUITCLAIM EXECUTED BY [DR. ANDRES T. ROSARIO] IN FAVOR OF
THE [TORBELA SIBLINGS] DATED DECEMBER 28, 1964 AND THE REGISTRATION OF THE NOTICE OF
ADVERSE CLAIM EXECUTED BY THE [TORBELA SIBLINGS], SERVE AS THE OPERATIVE ACT TO
CONVEY OR AFFECT THE LAND AND IMPROVEMENTS THEREOF IN SO FAR AS THIRD PERSONS
ARE CONCERNED.
 
Second Issue and Assignment of Error:
 
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE SUBJECT
PROPERTY COVERED BY T.C.T. NO. 52751 IS CLEAN AND FREE, DESPITE OF THE ANNOTATION OF
ENCUMBRANCES OF THE NOTICE OF ADVERSE CLAIM AND THE DEED OF ABSOLUTE QUITCLAIM
APPEARING AT THE BACK THEREOF AS ENTRY NOS. 274471 AND 274472, RESPECTIVELY.
 
Third Issue and Assignment of Error:
 
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT THE NOTICE OF
ADVERSE CLAIM OF THE [TORBELA SIBLINGS] UNDER ENTRY NO. 274471 WAS VALIDLY
CANCELLED BY THE REGISTER OF DEEDS, IN THE ABSENCE OF A PETITION DULY FILED IN COURT
FOR ITS CANCELLATION.
 
Fourth Issue and Assignment of Error:
 
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RESPONDENT BANCO
FILIPINO SAVINGS AND MORTGAGE BANK IS A MORTGAGEE IN GOOD FAITH.
 
Fifth Issue and Assignment of Error:
 
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE FILING OF A
CIVIL CASE NO. U-4359 ON DECEMBER 9, 1987, IMPLEADING RESPONDENT BANCO FILIPINO AS
ADDITIONAL PARTY DEFENDANT, TOLL OR SUSPEND THE RUNNING OF THE ONE YEAR PERIOD OF
REDEMPTION.
 
Sixth Issue and Assignment of Error:
 
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT FINDING THAT THE OWNERSHIP
OVER THE SUBJECT PROPERTY WAS PREMATURELY CONSOLIDATED IN FAVOR OF RESPONDENT
BANCO FILIPINO SAVINGS AND MORTGAGE BANK.
 
Seventh Issue and Assignment of Error:
26

 
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:
 
 
A
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.
 
B
 
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.  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.
 
27

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
28

of the parties before the Lupon Chairman or the Pangkat and no conciliation or settlement has been
reached as certified by the Lupon Secretary or the Pangkat Secretary, attested by the Lupon or Pangkat
Chairman, or unless the settlement has been repudiated. x x x. (Emphases supplied.)
 
 
The Court gave the following elucidation on the jurisdiction of the Lupong Tagapayapa in Tavora v. Hon.
Veloso[51]:
 
The foregoing provisions are quite clear. Section 2 specifies the conditions under which the Lupon of a
barangay shall have authority to bring together the disputants for amicable settlement of their dispute:
The parties must be actually residing in the same city or municipality. At the same time, Section 3 while
reiterating that the disputants must be actually residing in the same barangay or in different barangays
within the same city or municipality unequivocably declares that the Lupon shall have no authority over
disputes involving parties who actually reside in barangays of different cities or municipalities, except
where such barangays adjoin each other.
 
Thus, by express statutory inclusion and exclusion, the Lupon shall have no jurisdiction over disputes
where the parties are not actual residents of the same city or municipality, except where the barangays
in which they actually reside adjoin each other.

It is true that immediately after specifying the barangay whose Lupon shall take cognizance of a given
dispute, Sec. 3 of PD 1508 adds:
 
"However, all disputes which involve real property or any interest therein shall be brought in the barangay
where the real property or any part thereof is situated."
 
Actually, however, this added sentence is just an ordinary proviso and should operate as such.
 
The operation of a proviso, as a rule, should be limited to its normal function, which is to restrict or vary
the operation of the principal clause, rather than expand its scope, in the absence of a clear indication to
the contrary.
 
The natural and appropriate office of a proviso is . . . to except something from the enacting clause; to
limit, restrict, or qualify the statute in whole or in part; or to exclude from the scope of the statute that
which otherwise would be within its terms. (73 Am Jur 2d 467.)
 
Therefore, the quoted proviso should simply be deemed to restrict or vary the rule on venue prescribed
in the principal clauses of the first paragraph of Section 3, thus: Although venue is generally determined
by the residence of the parties, disputes involving real property shall be brought in the barangay where
the real property or any part thereof is situated, notwithstanding that the parties reside elsewhere within
the same city/municipality.[52] (Emphases supplied.)
 
 
The original parties in Civil Case No. U-4359 (the Torbela siblings and the spouses Rosario) do not reside
in the same barangay, or in different barangays within the same city or municipality, or in different
barangays of different cities or municipalities but are adjoining each other. Some of them reside outside
Pangasinan and even outside of the country altogether. The Torbela siblings reside separately in
Barangay Macalong, Urdaneta, Pangasinan; Barangay Consolacion, Urdaneta, Pangasinan; Pangil,
Laguna; Chicago, United States of America; and Canada. The spouses Rosario are residents of Calle
Garcia, Poblacion, Urdaneta, Pangasinan. Resultantly, the Lupon had no jurisdiction over the dispute
and barangay conciliation was not a pre-condition for the filing of Civil Case No. U-4359.
 
The Court now looks into the merits of Civil Case No. U-4359.
 
29

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
30

(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]
 
31

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.[67] The express trust disables the trustee from acquiring for his own benefit the property
committed to his management or custody, at least while he does not openly repudiate the trust, and
32

makes such repudiation known to the beneficiary or cestui que trust. For this reason, the old Code of
Civil Procedure (Act 190) declared that the rules on adverse possession do not apply to continuing and
subsisting (i.e., unrepudiated) trusts. In an express trust, the delay of the beneficiary is directly
attributable to the trustee who undertakes to hold the property for the former, or who is linked to the
beneficiary by confidential or fiduciary relations. The trustee's possession is, therefore, not adverse to
the beneficiary, until and unless the latter is made aware that the trust has been repudiated.[68]
 
Dr. Rosario argues that he is deemed to have repudiated the trust on December 16, 1964, when he
registered Lot No. 356-A in his name under TCT No. 52751, so when on February 13, 1986, the Torbela
siblings instituted before the RTC Civil Case No. U-4359, for the recovery of ownership and possession
of Lot No. 356-A from the spouses Rosario, over 21 years had passed. Civil Case No. U-4359 was
already barred by prescription, as well as laches.
 
The Court already rejected a similar argument in Ringor v. Ringor[69] for the following reasons:
 
A trustee who obtains a Torrens title over a property held in trust for him by another cannot
repudiate the trust by relying on the registration. A Torrens Certificate of Title in Joses name did not
vest ownership of the land upon him. The Torrens system does not create or vest title. It only confirms
and records title already existing and vested. It does not protect a usurper from the true owner. The
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.
33

 
For repudiation of an express trust to be effective, the unequivocal act of repudiation had to be made
known to the Torbela siblings as the cestuis que trust and must be proven by clear and conclusive
evidence. A scrutiny of TCT No. 52751 reveals the following inscription:
 
Entry No. 520099
 
Amendment of the mortgage in favor of PNB inscribed under Entry No. 490658 in the sense that the
consideration thereof has been increased to PHILIPPINE PESOS Four Hundred Fifty Thousand Pesos
only (P450,000.00) and to secure any and all negotiations with PNB, whether contracted before, during
or after the date of this instrument, acknowledged before Notary Public of Pangasinan Alejo M. Dato as
Doc. No. 198, Page No. 41, Book No. 11, Series of 1985.
 
Date of Instrument March 5, 1981
Date of Inscription March 6, 1981[73]
 
 
Although according to Entry No. 520099, the original loan and mortgage agreement of Lot No. 356-A
between Dr. Rosario and PNB was previously inscribed as Entry No. 490658, Entry 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.
34

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.
 
35

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:
 
36

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.
 
37

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
38

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
39

provided for in articles 546 and 548, or to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case, he shall pay
reasonable rent, if the owner of the land does not choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease and in case of disagreement, the court
shall fix the terms thereof.
 
ART. 546. Necessary expenses shall be refunded to every possessor; but only the possessor in good
faith may retain the thing until he has been reimbursed therefor.
 
Useful expenses shall be refunded only to the possessor in good faith with the same right of retention,
the person who has defeated him in the possession having the option of refunding the amount of the
expenses or of paying the increase in value which the thing may have acquired by reason thereof.
 
ART. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the possessor in good
faith; but he may remove the ornaments with which he has embellished the principal thing if it suffers no
injury thereby, and if his successor in the possession does not prefer to refund the amount expended.
 
 
Whatever is built, planted, or sown on the land of another, and the improvements or repairs made
thereon, belong to the owner of the land. Where, however, the planter, builder, or sower has acted in
good faith, a conflict of rights arises between the owners and it becomes necessary to protect the owner
of the improvements without causing injustice to the owner of the land. In view of the impracticability of
creating what Manresa calls a state of "forced co-ownership," the law has provided a just and equitable
solution by giving the owner of the land the option to acquire the improvements after payment of the
proper indemnity or to oblige the builder or planter to pay for the land and the sower to pay the proper
rent. It is the owner of the land who is allowed to exercise the option because his right is older and
because, by the principle of accession, he is entitled to the ownership of the accessory thing.[85]
 
The landowner has to make a choice between appropriating the building by paying the proper indemnity
or obliging the builder to pay the price of the land. But even as the option lies with the landowner, the
grant to him, nevertheless, is preclusive. He must choose one. He cannot, for instance, compel the
owner of the building to remove the building from the land without first exercising either option. It is only
if the owner chooses to sell his land, and the builder or planter fails to purchase it where its value is not
more than the value of the improvements, that the owner may remove the improvements from the land.
The owner is entitled to such remotion only when, after having chosen to sell his land, the other party
fails to pay for the same.[86]
 
This case then must be remanded to the RTC for the determination of matters necessary for the proper
application of Article 448, in relation to Article 546, of the Civil Code. Such matters include the option
that the Torbela siblings will choose; the amount of indemnity that they will pay if they decide to
appropriate the improvements on Lot No. 356-A; the value of Lot No. 356-A if they prefer to sell it to Dr.
Rosario; or the reasonable rent if they opt to sell Lot No. 356-A to Dr. Rosario but the value of the land is
considerably more than the improvements. The determination made by the Court of Appeals in its
Decision dated June 29, 1999 that the current value of Lot No. 356-A is P1,200,000.00 is not supported
by any evidence on record.
 
Should the Torbela siblings choose to appropriate the improvements on Lot No. 356-A, the following
ruling of the Court in Pecson v. Court of Appeals[87] is relevant in the determination of the amount of
indemnity under Article 546 of the Civil Code:
 
Article 546 does not specifically state how the value of the useful improvements should be determined.
The respondent court and the private respondents espouse the belief that the cost of construction of the
apartment building in 1965, and not its current market value, is sufficient reimbursement for necessary
40

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
41

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
42

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]
 
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;
43

 
(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.