OBLIGATIONS OF THE PRINCIPAL

G.R. No. 95641 September 22, 1994 SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants, vs.COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondentsappellees. On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA-20015, respondent insurance company unilaterally cancelled the same since company records revealed that petitioner-insured failed to pay his premiums. On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even proposed to extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the premiums were paid in full by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance company's branch manager. These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by petitioner-insured before Branch 40 RTC, Dagupan City against respondent insurance company. There are two issues for resolution in this case: (1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages? (2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an effort to rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom? From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, through the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal accident insurance policy covering the one-year period between noon of 1 November 28, 1984 and noon of November 28, 1985. Under the terms of the statement of account issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium 2 tax of P29.40. At the lower left-hand corner of the statement of account, the following is legibly printed: This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon payment of this account. If payment is made to our representative, demand for a Provisional Receipt and if our Official Receipts is (sic) not received by you within 7 days please notify us. If payment is made to our office, demand for an OFFICIAL RECEIPT.

On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 3 to petitioner-insured for the amount of P1,609.65 On the lower portion of the receipt the following is written in capital letters: Note: This collector's provisional receipt will be confirmed by our official receipt. If our 4 official receipt is not received by you within 7 days, please notify us. On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitioner-insured Endorsement No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective 5 as of inception dated." The same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium tax" to the account of the insured. Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance company, and demanded the issuance of an official receipt. Ang told petitionerinsured that the cancellation of the policy was a mistake but he would personally see to its rectification. However, petitioner-insured failed to receive any official receipt from Prudential. Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under the same terms and conditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the current commercial rate of increase on the 6 payment he had made under provisional receipt No. 9300 be returned within five days. Areola also warned that should his demands be unsatisfied, he would sue for damages. On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of P1,000.00 he had made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the back of the policy. Malapit warned Areola that should be fail 7 to pay the balance, the company's liability would cease to operate. In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its Assistant Vice-President Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the company was verifying whether the payment had in fact been issued therefor. Ampil emphasized that the official receipt should have been issued seven days from the issuance of the provisional receipt but because no official receipt had been issued in Areola's name, there was reason to believe that no payment had been made. Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover (sic) under the terms of the referenced policy until such time that this 8 matter is cleared." On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional receipt No. 9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil informed Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date when payment was received." Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the proposal by signing on the space provided 9 for in the letter. The letter was personally delivered by Carlito Ang to Areola on 10 August 13, 1985 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach of contract with damages before the lower court.

In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure of Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it argued that, by acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its omission by reinstating the cancelled policy prior to the filing of the complaint, respondent insurance company had complied with its obligation under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be held liable for damages arising from breach of contract, having demonstrated fully well its fulfillment of its obligation. The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance company to pay the former the following: a) P1,703.65 as actual damages; b) P200,000.00 as moral damages; and c) P50,000.00 as exemplary damages; 2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and 3. To pay the costs. In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling subject insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fact of full payment of premiums and other charges on the issued insurance policy. Cancellation from the date of the policy's inception, explained the lower court, meant that the protection sought by petitioner-insured from the risks insured against was never extended by respondent insurance company. Had the insured met an accident at the time, the insurance company would certainly have disclaimed any liability because technically, the petitioner could not have been considered insured. Consequently, the trial court held that there was breach of contract on the part of respondent insurance company, entitling petitioner-insured to an award of the damages prayed for. This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally cancelling subject insurance policy. After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that the latter had erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy. According to the Court of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather, the cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued to petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive of self-interest or ill-will; a furtive design of ulterior purpose, proof of which must be established convincingly. On the contrary, it further observed, the following acts indicate that respondent insurance company did not act precipitately or willfully to inflict a wrong on petitionerinsured: (a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the premium; (b) the letter of August 3, 1985 confirming that the premium had been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal to extend its effective period to December 17,

1985; and (d) respondent insurance company's apologies for the "inconvenience" caused upon petitioner-insured. The appellate court added that respondent insurance company even relieved Malapit, its Baguio City manager, of his job by forcing him to resign. Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition for review on certiorari anchored on these arguments: I Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible error in not holding Respondent Prudential liable for the cancellation of the insurance contract which was admittedly caused by the fraudulent acts and bad faith of its own officers. II Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling that the defenses of good faith and honest mistake can co-exist with the admitted fraudulent acts and evident bad faith. III Respondent Court of Appeals committed a reversible error in not finding that even without considering the fraudulent acts of its own officer in misappropriating the premium payment, the act itself in cancelling the insurance policy was done with bad faith and/or gross negligence and wanton attitude amounting to bad faith, because among others, it was Mr. Malapit the person who committed the fraud who sent and signed the notice of cancellation. IV Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision of the Supreme Court when it refused to award damages in favor of herein Petitioner-Appellants. It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch office in Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the insurance policy. Petitioner-insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his personal knowledge of petitionerinsured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial corporate being which can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore not separate and distinct from that of respondent-insurance company, contrary to the view held by the Court of Appeals. It must, therefore, bear the consequences of the erroneous cancellation of subject insurance policy caused by the non-remittance by its own employee of the premiums paid. Subsequent reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance company from liability, there being an obvious breach of

contract. After all, reasoned out petitioner-insured, damage had already been inflicted on him and no amount of rectification could remedy the same. Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by petitioner-insured was granted at an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of action on which to predicate his claim for damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights under the policy. Hence, whatever cause of action there might have been against it, no longer exists and the consequent award of damages ordered by the lower court in unsustainable. We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitioner-insured is beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts solely thru its employees. The latters' acts 11 are considered as its own for which it can be held to account. The facts are clear as to the relationship between private respondent insurance company and Malapit. As admitted by private 12 respondent insurance company in its answer, Malapit was the manager of its Baguio branch. It is beyond doubt that he represented its interest and acted in its behalf. His act of receiving the premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the acts of its agent. Article 1910 thus reads: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or tacitly. Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the anomalies that took place in its Baguio branch office, such as the non-accrual of said premiums to its account, does not free the same from its 13 obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals citing the ruling 14 in McIntosh v. Dakota Trust Co.: A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.

Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance policy can not obliterate the injury inflicted on petitioner-insured. Respondent company should be reminded that a contract of insurance creates reciprocal obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is both a debtor and a creditor of the other, such that the obligation of one is 15 dependent upon the obligation of the other. Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common cause: i.e., by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance company promised to extend protection to petitioner-insured against the risk insured for a consideration in the form of premiums to be paid by the latter. Under the 16 law governing reciprocal obligations, particularly the second paragraph of Article 1191, the injured party, petitioner-insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the obligors, such as respondent insurance company, fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance company's argument, namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts. The nature of damages to be awarded, however, would be in the form of nominal damages contrary to that granted by the court below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private respondent insurance company, within a reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of petitioner. Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy was cancelled. Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages whatsoever have been or 18 can be shown. WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No. 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on June 30, 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded therein, respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of complaint until final payment thereof. SO ORDERED.
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G.R. No. 94050 November 21, 1991 SYLVIA H. BEDIA and HONTIVEROS & ASSOCIATED INC., petitioners, vs. EMILY A. WHITE and HOLMAN T. WHITE, respondents. PRODUCERS PHILS. YIELDS,

name, nor were they authorized by the state fair director to recruit participants. She said she incurred losses as a result for which the defendants should be held solidarily liable. 2 In their joint answer, the defendants denied the plaintiff's allegation that they had deceived her and explained that no display space was registered in her name as she was only supposed to share the space leased by Hontiveros in its name. She was not allowed to display her goods in that space because she had not paid her balance of $1,750.00, in violation of their contract. Bedia also made the particular averment that she did not sign the Participation Contract on her own behalf but as an agent of Hontiveros and that she had later returned the advance payment of $500.00 to the plaintiff. The defendants filed their own counterclaim and complained of malice on the part of the plaintiffs. 3 In the course of the trial, the complaint against Hontiveros was dismissed on motion of the plaintiffs. 4

The basic issue before us is the capacity in which petitioner Sylvia H. Bedia entered into the subject contract with private respondent Emily A. White. Both the trial court and the respondent court held she was acting in her own personal behalf. She faults this finding as reversible error and insists that she was merely acting as an agent. The case arose when Bedia and White entered into a Participation Contract 1 reading in full as follows: THE STATE PARTICIPATION CONTRACT PARTICIPANT ENTERPRISES FAIR OF TEXAS '80

In his decision dated May 29, 1986, Judge Fermin Martin, Jr. found Bedia liable for fraud and awarded the plaintiffs actual and moral damages plus attorney's fees and the costs. The court said: In claiming to be a mere agent of Hontiveros & Associated Producers Phil. Yields, Inc., defendant Sylvia H. Bedia evidently attempted to escape liability for herself. Unfortunately for her, the "Participation Contract" is not actually in representation or in the name of said corporation. It is a covenant entered into by her in her personal capacity, for no one may contract in the name of another without being authorized by the latter, or unless she has by law a right to represent her. (Art. 1347, new Civil Code) Sustaining the trail court on this point, the respondent court 5 declared in its decision dated March 30, 1990: The evidence, on the whole, shows that she definitely acted on her own. She represented herself asauthorized by the State of Texas to solicit and assign booths at the Texas fair; she assured the appellee that she could give her booth. Under Article 1883 of the New Civil Code, if the agent acts in his own name, the principal has no right of action against the persons with whom the agent had contracted. We do not share these views. It is noteworthy that in her letter to the Minister of Trade dated December 23,1984, Emily White began: I am a local exporter who was recruited by Hontiveros & Associated Producers Phil. Yields, Inc. to participate in the State Fair of Dallas, Texas which was held last Oct. 3 to 19, 1980. Hontiveros & Associated charged me US$150.00 per square meter for display booth of said fair. I have paid an advance of US$500.00 as partial payment for the total space of 15 square meter of which is $2,250.00 (Two Thousand Two Hundred Fifty Dollars). 6 As the Participation Contract was signed by Bedia, the above statement was an acknowledgment by White that Bedia was only acting for Hontiveros when it recruited her as a participant in the Texas State Fair and charged her a partial payment of $500.00. This amount was to be fortified to Hontiveros in case of cancellation by her of the agreement. The fact that the contract was typewritten on the

(COMPANY

NAME)

EMILY

WHITE

I/We, the abovementioned company hereby agrees to participate in the 1980 Dallas State Fair to be held in Dallas, Texas on October 3, to October 19,1980. I/We request for a 15 square meter booth space worth $2,250.00 U.S. Dollars. I/We further understand that this participation contract shall be deemed noncancellable after payment of the said down payment, and that any intention on our part to cancel the same shall render whatever amount we have paid forfeited in favor of HONTIVEROS & ASSOCIATED PRODUCERS PHILIPPINE YIELDS, INC. FOR THE ABOVE CONSIDERATION, I/We understand the HONTIVEROS & ASSOCIATED PRODUCERS PHIL. YIELDS, INC. shall: Reserve said booth for our exclusive perusal; We also understand that the above cost includes overall exterior booth decoration and materials but does not include interior designs which will be per our specifications and expenses. PARTICIPANT'S AUTHORIZED SIGNATURE: ACCEPTED BY: (SGD.) EMILY WHITE DATE: 8/13/80 DATE: Aug. 1, 1980 (SGD.) SYLVIA PARTICIPATION

H.

BEDIA

On August 10, 1986, White and her husband filed a complaint in the Regional Trial Court of Pasay City for damages against Bedia and Hontiveros & Associated Producers Phil. Yields, Inc. for damages caused by their fraudulent violation of their agreement. She averred that Bedia had approached her and persuaded her to participate in the State of Texas Fair, and that she made a down payment of $500.00 to Bedia on the agreed display space. In due time, she enplaned for Dallas with her merchandise but was dismayed to learn later that the defendants had not paid for or registered any display space in her

letterhead stationery of Hontiveros bolsters this conclusion in the absence of any showing that said stationery had been illegally used by Bedia. Significantly, Hontiveros itself has not repudiated Bedia's agency as it would have if she had really not signed in its name. In the answer it filed with Bedia, it did not deny the latter's allegation in Paragraph 4 thereof that she was only acting as its agent when she solicited White's participation. In fact, by filing the answer jointly with Bedia through their common counsel, Hontiveros affirmed this allegation. If the plaintiffs had any doubt about the capacity in which Bedia was acting, what they should have done was verify the matter with Hontiveros. They did not. Instead, they simply accepted Bedia's representation that she was an agent of Hontiveros and dealt with her as such. Under Article 1910 of the Civil Code, "the principal must comply with all the obligations which the agent may have contracted within the scope of his authority." Hence, the private respondents cannot now hold Bedia liable for the acts performed by her for, and imputable to, Hontiveros as her principal. The plaintiffs' position became all the more untenable when they moved on June 5, 1984, for the dismissal of the complaint against Hontiveros, 7 leaving Bedia as the sole defendant. Hontiveros had admitted as early as when it filed its answer that Bedia was acting as its agent. The effect of the motion was to leave the plaintiffs without a cause of action against Bedia for the obligation, if any, of Hontiveros. Our conclusion is that since it has not been found that Bedia was acting beyond the scope of her authority when she entered into the Participation Contract on behalf of Hontiveros, it is the latter that should be held answerable for any obligation arising from that agreement. By moving to dismiss the complaint against Hontiveros, the plaintiffs virtually disarmed themselves and forfeited whatever claims they might have proved against the latter under the contract signed for it by Bedia. It should be obvious that having waived these claims against the principal, they cannot now assert them against the agent. WHEREFORE, the appealed decision dated March 30, 1990, of the respondent court is REVERSED and a new judgment is rendered dismissing Civil Case No. 9246-P in the Regional Trial Court of Pasay City. SO ORDERED.

G.R. No. 108957 June 14, 1993 PRUDENTIAL BANK, petitioner, vs.THE COURT OF APPEALS, AURORA CRUZ, respondents. We deal here with another controversy involving the integrity of a bank. The complaint in this case arose when private respondent Aurora F. Cruz, * with her sister as co-depositor, invested P200,000.00 in Central Bank bills with the Prudential Bank at its branch in Quezon Avenue, Quezon City, on June 23, 1986. The placement was for 63 days at 13.75% annual interest. For this purpose, the amount of P196,122.88 was withdrawn from the depositors' Savings Account No. 2546 and applied to the investment. The difference of P3,877.07 represented the pre-paid interest. The transaction was evidenced by a Confirmation of Sale delivered to Cruz two days later, together 2 with a Debit Memo in the amount withdrawn and applied to the confirmed sale. These documents were issued by Susan Quimbo, the employee of the bank to whom Cruz was referred and who was 3 apparently in charge of such transactions. Upon maturity of the placement on August 25, 1986, Cruz returned to the bank to "roll-over" or renew 4 her investment. Quimbo, who again attended to her, prepared a Credit Memo crediting the amount of P200,000.00 in Cruz's savings account passbook. She also prepared a Debit Memo for the amount of 5 P196,122.88 to cover the re-investment of P200,000.00 minus the prepaid interest of P3,877.02. This time, Cruz was asked to sign a Withdrawal Slip for P196,122.98, representing the amount to be re-invested after deduction of the prepaid interest. Quimbo explained this was a new requirement of the 7 8 bank. Several days later, Cruz received another Confirmation of Sale and a copy of the Debit Memo. On October 27, 1986, Cruz returned to the bank and sought to withdraw her P200,000.00. After verification of her records, however, she was informed that the investment appeared to have been already withdrawn by her on August 25, 1986. There was no copy on file of the Confirmation of Sale and the Debit Memo allegedly issued to her by Quimbo. Quimbo herself was not available for questioning as she had not been reporting for the past week. Shocked by this information, Cruz became hysterical and burst into tears. The branch manager, Roman Santos, assured her that he would look 9 into the matter. Every day thereafter, Cruz went to the bank to inquire about her request to withdraw her investment. She received no definite answer, not even to the letter she wrote the bank which was received by 10 Santos himself. Finally, Cruz sent the bank a demand letter dated November 12, 1986 for the amount 11 of P200,000.00 plus interest. In a reply dated November 20, 1986, the bank's Vice President Lauro J. Jocson said that there appeared to be an anomaly 12 and requested Cruz to defer court action as they hoped to settle the matter amicably. Increasingly 13 worried, Cruz sent another letter reiterating her demand. This time the reply of the bank was unequivocal and negative. She was told that her request had to be denied because she had already 14 withdrawn the amount she was claiming. Cruz's reaction was to file a complaint for breach of contract against Prudential Bank in the Regional Trial Court of Quezon City. She demanded the return of her money with interest, plus damages and attorney's fees. In its answer, the bank denied liability, insisting that Cruz had withdrawn her investment.
6 1

The bank also instituted a third-party complaint against Quimbo, who did not file an answer and was 15 declared in default. The bank, however, did not present any evidence against her. After trial, Judge Rodolfo A. Ortiz rendered judgment in favor of the plaintiffs and disposed as follows: ACCORDINGLY, judgment is hereby rendered ordering the defendant/third-party plaintiff to pay to the plaintiffs the following amounts: 1. P200,000.00, plus interest thereon at the rate of 13.75% per annum from October 27, 1986, until fully paid; 2. P30,000.00, as moral damages; 3. P20,000.00, as exemplary damages; and 4. P25,000.00, as reasonable attorney's fees. The counterclaim and the third-party complaint of the defendant/third-party plaintiff are dismissed. With costs against the defendant/third-party plaintiff. The decision was affirmed in toto on appeal to the respondent court. The judgment of the Court of Appeals is now faulted in this petition, mainly on the ground that the bank should not have been found liable for a quasi-delict when it was sued for breach of contract. The petition shall fail. The petitioner is quibbling. It appears to be merely temporizing to delay enforcement of the liability clearly established against it. The basic issues are factual. The private respondent claims she has not yet collected her investment of P200,000.00 and has submitted in proof of their contention the Confirmation of Sale and the Debit Memo issued to her by Quimbo on the official forms of the bank. The petitioner denies her claim and points to the Withdrawal Slip, which it says Cruz has not denied having signed. It also contends that the Confirmation of Sale and the Debit Memo are fake and should not have been given credence by the lower courts. The findings of the trial court on these issues have been affirmed by the respondent court and we see no reason to disturb them. The petitioner has not shown that they have been reached arbitrarily or in disregard of the evidence of record. On the contrary, we find substantial basis for the conclusion that the private respondents signed the Withdrawal Slip only as part of the bank's new procedure of reinvestment. She did not actually receive the amount indicated therein, which she was made to understand was being re-invested in her name. The bank itself so assured her in the Confirmation of Sale and the Debit Memo later issued to her by Quimbo. Especially persuasive are the following observations of the trial court:
17 16

What is more, it could not be that plaintiff Aurora F. Cruz withdrew only the amount of P196,122.98 from their savings account, if her only intention was to make such a withdrawal. For, if, indeed, it was the desire of the plaintiffs to withdraw their money from the defendant/third-party plaintiff, they could have withdrawn an amount in round figures. Certainly, it is unbelievable that their withdrawal was in the irregular amount of P196,122.98 if they really received it. On the contrary, this amount, which is the price of the Central Bank bills rolled over, indicates that, as claimed by plaintiff Aurora F. Cruz, she did not receive this money, but it was left by her with the defendant/thirdparty plaintiff in order to buy Central Bank bills placement for another sixty-three (63) days, for which she signed a withdrawal slip at the instance of third-party defendant Susan Quimbo who told her that it was a new bank requirement for the roll-over of a matured placement which she trustingly believed. Indeed, the bank has not explained the remarkable coincidence that the amount indicated in the withdrawal slip isexactly the same amount Cruz was re-investing after deducting therefrom the pre-paid interest. The bank has also not, succeeded in impugning the authenticity of the Confirmation of Sale and the Debit Memo which were made on its official, forms. These are admittedly not available to the general public or even its depositors and are handled only by its personnel. Even assuming that they were not signed by its authorized officials, as it claims, there was no obligation on the part of Cruz to verify their authority because she had the right to presume it. The documents had been issued in the office of the bank itself and by its own employees with whom she had previously dealt. Such dealings had not been questioned before, much leas invalidated. There was absolutely no reason why she should not have accepted their authority to act on behalf of their employer. It is also worthy of note and wonder that although the bank impleaded Quimbo in a third-party complaint, it did not pursue its suit even when she failed to answer and was declared in default. The bank did not introduce evidence against her although it could have done so under the rules. No less remarkably, it did not call on her to testify on its behalf, considering that under the circumstances claimed by it, she would have been the best witness to show that Cruz had actually withdrawn her P200,000.00 placement. Instead, the bank chose to rely on its other employees whose testimony was less direct and categorical than the testimony Quimbo could have given. We do not find that the Court of Appeals held the bank liable on a quasi-delict. The argument of the petitioner on this issue is pallid, to say the least, consisting as it does only of the observation that the article cited by the respondent court on the agent's liability falls under the heading in the Civil Code on quasi-delicts. On the other hand, the respondent court clearly declared that: The defendant/third-party plaintiff being liable for the return of the P200,000.00 placement of the plaintiffs, the extent of the liability of the defendant/third-party plaintiff for damages resultant thereof,which is contractual, is for all damages which may be reasonably attributed to the non-performance of the obligation, . . . xxx xxx xxx Because of the bad faith of the defendant/third-party plaintiff in its breach of its contract with the plaintiffs, the latter are, therefore, entitled to an award of moral damages . . . (Emphasis supplied)

There is no question that the petitioner was made liable for its failure or refusal to deliver to Cruz the amount she had deposited with it and which she had a right to withdraw upon its maturity. That investment was acknowledged by its own employees, who had the apparent authority to do so and so could legally bind it by its acts vis-a-visCruz. Whatever might have happened to the investment whether it was lost or stolen by whoever was not the concern of the depositor. It was the concern of the bank. As far as Cruz was concerned, she had the right to withdraw her P200,000.00 placement when it matured pursuant to the terms of her investment as acknowledged and reflected in the Confirmation of Sale. The failure of the bank to deliver the amount to her pursuant to the Confirmation of Sale constituted its breach of their contract, for which it should be held liable. The liability of the principal for the acts of the agent is not even debatable. Law and jurisprudence are clearly and absolutely against the petitioner. Such liability dates back to the Roman Law maxim, Qui per alium facit per seipsum facere videtur. "He who does a thing by an agent is considered as doing it himself." This rule is affirmed by the Civil Code thus: Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers. Conformably, we have declared in countless decisions that the principal is liable for obligations contracted by the agent. The agent's apparent representation yields to the principal's true representation and the contract is considered as entered into between 18 the principal and the third person. A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their representative capacity but not for acts outside the scope of their authority. (9 c.q.s. p. 417) A bank holding out its officers and agent as worthy of confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the bank therefrom (10 Am Jur 2d, p. 114). Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit (McIntosh v. Dakota Trust Co., 52 ND 752, 204 NW 818, 40 ALR 1021.) Application of these principles in especially necessary because banks have a fiduciary relationship with the public and their stability depends on the confidence of the people in their honesty and efficiency. Such faith will be eroded where banks do not exercise strict care in the selection and supervision of its employees, resulting in prejudice to their depositors.

It would appear from the facts established in the case before us that the petitioner was less than eager to present Quimbo at the trial or even to establish her liability although it made the initial effort which it did not pursue to hold her answerable in the third-party complaint. What ever happened to her does not appear in the record. Her absence from the proceedings feeds the suspicion of her possible misdeed, which the bank seems to have studiously ignored by its insistence that the missing money had been actually withdrawn by Cruz. By such insistence, the bank is absolving not only itself but also, in effect and by extension, the disappeared Quimbo who apparently has much to explain. We agree with the lower courts that the petitioner acted in bad faith in denying Cruz the obligation she was claiming against it. It was obvious that an irregularity had been committed by the bank's personnel, but instead of repairing the injury to Cruz by immediately restoring her money to her, it sought to gloss over the anomaly in its own operations. Cruz naturally suffered anxious moments and mental anguish over the loss of the investment. The amount of P200,000.00 is not small even by present standards. By unjustly withholding it from her on the unproved defense that she had already withdrawn it, the bank violated the trust she had reposed in it and thus subjected itself to further liability for moral and exemplary damages. If a person dealing with a bank does not read the fine print in the contract, it is because he trusts the bank and relies on its integrity. The ordinary customer applying for a loan or even making a deposit (and so himself extending the loan to the bank) does not bother with the red tape requirements and the finicky conditions in the documents he signs. His feeling is that he does not have to be wary of the bank because it will deal with him fairly and there is no reason to suspect its motives. This is an attitude the bank must justify. While this is not to say that bank regulations are meaningless or have no binding effect, they should, however, not be used for covering up the fault of bank employees when they blunder or, worse, intentionally cheat him. The misdeeds of such employees must be readily acknowledged and rectified without delay. The bank must always act in good faith. The ordinary customer does not feel the need for a lawyer by his side every time he deals with a bank because he is certain that it is not a predator or a potential adversary. The bank should show that there is really no reason for any apprehension because it truly deserves his faith in it. WHEREFORE, the petition is DENIED and the appealed decision is AFFIRMED, with costs against the petitioner. It is so ordered.

G.R. No. 115838

July 18, 2002

CONSTANTE AMOR DE CASTRO and CORAZON AMOR DE CASTRO, petitioners, vs.COURT OF APPEALS and FRANCISCO ARTIGO, respondents. Before us is a Petition for Review on Certiorari seeking to annul the Decision of the Court of 2 3 Appeals dated May 4, 1994 in CA-G.R. CV No. 37996, which affirmed in toto the decision of the Regional Trial Court of Quezon City, Branch 80, in Civil Case No. Q-89-2631. The trial court disposed as follows: "WHEREFORE, the Court finds defendants Constante and Corazon Amor de Castro jointly and solidarily liable to plaintiff the sum of: a) P303,606.24 representing unpaid commission; b) P25,000.00 for and by way of moral damages; c) P45,000.00 for and by way of attorney's fees; d) To pay the cost of this suit. Quezon City, Metro Manila, December 20, 1991." The Antecedent Facts On May 29, 1989, private respondent Francisco Artigo ("Artigo" for brevity) sued petitioners Constante A. De Castro ("Constante" for brevity) and Corazon A. De Castro ("Corazon" for brevity) to collect the 4 unpaid balance of his broker's commission from the De Castros. The Court of Appeals summarized the facts in this wise: "x x x. Appellants were co-owners of four (4) lots located at EDSA corner New York and Denver Streets in Cubao, Quezon City. In a letter dated January 24, 1984 (Exhibit "A-1, p. 144, 6 Records), appellee was authorized by appellants to act as real estate broker in the sale of these properties for the amount ofP23,000,000.00, five percent (5%) of which will be given to the agent as commission. It was appellee who first found Times Transit Corporation, represented by its president Mr. Rondaris, as prospective buyer which desired to buy two (2) lots only, specifically lots 14 and 15. Eventually, sometime in May of 1985, the sale of lots 14 and 15 was consummated. Appellee received from appellants P48,893.76 as commission. It was then that the rift between the contending parties soon emerged. Appellee apparently felt short changed because according to him, his total commission should be P352,500.00 which is five percent (5%) of the agreed price of P7,050,000.00 paid by Times Transit Corporation to appellants for the two (2) lots, and that it was he who introduced the buyer to appellants and unceasingly facilitated the negotiation which ultimately led to the consummation of the sale. Hence, he sued below to collect the balance of P303,606.24 after having received P48,893.76 in advance.1wphi1.nt
5 1

On the other hand, appellants completely traverse appellee's claims and essentially argue that appellee is selfishly asking for more than what he truly deserved as commission to the prejudice of other agents who were more instrumental in the consummation of the sale. Although appellants readily concede that it was appellee who first introduced Times Transit Corp. to them, appellee was not designated by them as their exclusive real estate agent but that in fact there were more or less eighteen (18) others whose collective efforts in the long run dwarfed those of appellee's, considering that the first negotiation for the sale where appellee took active participation failed and it was these other agents who successfully brokered in the second negotiation. But despite this and out of appellants' "pure liberality, beneficence and magnanimity", appellee nevertheless was given the largest cut in the commission (P48,893.76), although on the principle of quantum meruit he would have certainly been entitled to less. So appellee should not have been heard to complain of getting only a pittance when he actually got the lion's share of the commission and worse, he should not have been allowed to get the entire commission. Furthermore, the purchase price for the two lots was only P3.6 million as appearing in the deed of sale and not P7.05 million as alleged by appellee. Thus, even assuming that appellee is entitled to the entire commission, he would only be getting 5% of the P3.6 million, or P180,000.00." Ruling of the Court of Appeals The Court of Appeals affirmed in toto the decision of the trial court. First. The Court of Appeals found that Constante authorized Artigo to act as agent in the sale of two lots in Cubao, Quezon City. The handwritten authorization letter signed by Constante clearly established a contract of agency between Constante and Artigo. Thus, Artigo sought prospective buyers and found Times Transit Corporation ("Times Transit" for brevity). Artigo facilitated the negotiations which eventually led to the sale of the two lots. Therefore, the Court of Appeals decided that Artigo is entitled to the 5% commission on the purchase price as provided in the contract of agency. Second. The Court of Appeals ruled that Artigo's complaint is not dismissible for failure to implead as indispensable parties the other co-owners of the two lots. The Court of Appeals explained that it is not necessary to implead the other co-owners since the action is exclusively based on a contract of agency between Artigo and Constante. Third. The Court of Appeals likewise declared that the trial court did not err in admitting parol evidence to prove the true amount paid by Times Transit to the De Castros for the two lots. The Court of Appeals ruled that evidencealiunde could be presented to prove that the actual purchase price was P7.05 million and not P3.6 million as appearing in the deed of sale. Evidence aliunde is admissible considering that Artigo is not a party, but a mere witness in the deed of sale between the De Castros and Times Transit. The Court of Appeals explained that, "the rule that oral evidence is inadmissible to vary the terms of written instruments is generally applied only in suits between parties to the instrument and strangers to the contract are not bound by it." Besides, Artigo was not suing under the deed of sale, but solely under the contract of agency. Thus, the Court of Appeals upheld the trial court's finding that the purchase price was P7.05 million and not P3.6 million. Hence, the instant petition. The Issues

According to petitioners, the Court of Appeals erred in I. NOT ORDERING THE DISMISSAL OF THE COMPLAINT FOR FAILURE TO IMPLEAD INDISPENSABLE PARTIES-IN-INTEREST; II. NOT ORDERING THE DISMISSAL OF THE COMPLAINT ON THE GROUND THAT ARTIGO'S CLAIM HAS BEEN EXTINGUISHED BY FULL PAYMENT, WAIVER, OR ABANDONMENT; III. CONSIDERING INCOMPETENT EVIDENCE; IV. GIVING CREDENCE TO PATENTLY PERJURED TESTIMONY; V. SANCTIONING AN AWARD OF MORAL DAMAGES AND ATTORNEY'S FEES; VI. NOT AWARDING THE DE CASTRO'S MORAL AND EXEMPLARY DAMAGES, AND ATTORNEY'S FEES. The Court's Ruling The petition is bereft of merit. First Issue: whether the complaint merits dismissal for failure to implead other co-owners as indispensable parties The De Castros argue that Artigo's complaint should have been dismissed for failure to implead all the co-owners of the two lots. The De Castros claim that Artigo always knew that the two lots were coowned by Constante and Corazon with their other siblings Jose and Carmela whom Constante merely represented. The De Castros contend that failure to implead such indispensable parties is fatal to the complaint since Artigo, as agent of all the four co-owners, would be paid with funds co-owned by the four co-owners. The De Castros' contentions are devoid of legal basis. An indispensable party is one whose interest will be affected by the court's action in the litigation, and 7 without whom no final determination of the case can be had. The joinder of indispensable parties is 8 mandatory and courts cannot proceed without their presence. Whenever it appears to the court in the course of a proceeding that an indispensable party has not been joined, it is the duty of the court to stop 9 the trial and order the inclusion of such party. However, the rule on mandatory joinder of indispensable parties is not applicable to the instant case. There is no dispute that Constante appointed Artigo in a handwritten note dated January 24, 1984 to sell the properties of the De Castros for P23 million at a 5 percent commission. The authority was on a first come, first serve basis. The authority reads in full: This authority is on a first-come First serve basis CAC"

"24 Jan. 84

To Whom It May Concern: This is to state that Mr. Francisco Artigo is authorized as our real estate broker in connection with the sale of our property located at Edsa Corner New York & Denver, Cubao, Quezon City. Asking price P 23,000,000.00 with 5% commission as agent's fee. C.C. owner co-owners de & Castro representing

Constante signed the note as owner and as representative of the other co-owners. Under this note, a contract of agency was clearly constituted between Constante and Artigo. Whether Constante appointed Artigo as agent, in Constante's individual or representative capacity, or both, the De Castros cannot seek the dismissal of the case for failure to implead the other co-owners as indispensable parties. The De Castros admit that the other co-owners are solidarily liable under the contract of 10 agency, citing Article 1915 of the Civil Code, which reads: Art. 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily liable to the agent for all the consequences of the agency. The solidary liability of the four co-owners, however, militates against the De Castros' theory that the other co-owners should be impleaded as indispensable parties. A noted commentator explained Article 1915 thus "The rule in this article applies even when the appointments were made by the principals in separate acts, provided that they are for the same transaction. The solidarity arises from the common interest of the principals, and not from the act of constituting the agency. By virtue of this solidarity, the agent can recover from any principal the whole compensation and indemnity owing to him by the others. The parties, however, may, by express agreement, negate this solidary responsibility. The solidarity does not disappear by the mere partition effected by the principals after the accomplishment of the agency. If the undertaking is one in which several are interested, but only some create the agency, only the latter are solidarily liable, without prejudice to the effects of negotiorum gestio with respect to the others. And if the power granted includes various transactions some of which are 11 common and others are not, only those interested in each transaction shall be liable for it."

10

When the law expressly provides for solidarity of the obligation, as in the liability of co-principals in a 12 contract of agency, each obligor may be compelled to pay the entire obligation. The agent may recover the whole compensation from any one of the co-principals, as in this case. Indeed, Article 1216 of the Civil Code provides that a creditor may sue any of the solidary debtors. This article reads: Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. 13 Thus, the Court has ruled in Operators Incorporated vs. American Biscuit Co., Inc. that "x x x solidarity does not make a solidary obligor an indispensable party in a suit filed by the creditor. Article 1216 of the Civil Code says that the creditor `may proceed against anyone of the solidary debtors or some or all of them simultaneously'." (Emphasis supplied) Second Issue: whether Artigo's claim has been extinguished by full payment, waiver or abandonment The De Castros claim that Artigo was fully paid on June 14, 1985, that is, Artigo was given "his proportionate share and no longer entitled to any balance." According to them, Artigo was just one of the agents involved in the sale and entitled to a "proportionate share" in the commission. They assert that Artigo did absolutely nothing during the second negotiation but to sign as a witness in the deed of sale. He did not even prepare the documents for the transaction as an active real estate broker usually does. The De Castros' arguments are flimsy. A contract of agency which is not contrary to law, public order, public policy, morals or good custom is a 14 valid contract, and constitutes the law between the parties. The contract of agency entered into by Constante with Artigo is the law between them and both are bound to comply with its terms and conditions in good faith. The mere fact that "other agents" intervened in the consummation of the sale and were paid their respective commissions cannot vary the terms of the contract of agency granting Artigo a 5 percent commission based on the selling price. These "other agents" turned out to be employees of Times Transit, the buyer Artigo introduced to the De Castros. This prompted the trial court to observe: "The alleged `second group' of agents came into the picture only during the so-called `second negotiation' and it is amusing to note that these (sic) second group, prominent among whom are Atty. Del Castillo and Ms. Prudencio, happened to be employees of Times Transit, the buyer of the properties. And their efforts were limited to convincing Constante to 'part away' with the properties because the redemption period of the foreclosed properties is around the corner, so to speak. (tsn. June 6, 1991). xxx To accept Constante's version of the story is to open the floodgates of fraud and deceit. A seller could always pretend rejection of the offer and wait for sometime for others to renew it who are much willing to accept a commission far less than the original broker. The immorality

in the instant case easily presents itself if one has to consider that the alleged `second group' are the employees of the buyer, Times Transit and they have not bettered the offer secured by Mr. Artigo for P7 million. It is to be noted also that while Constante was too particular about the unrenewed real estate broker's license of Mr. Artigo, he did not bother at all to inquire as to the licenses of Prudencio 15 and Castillo. (tsn, April 11, 1991, pp. 39-40)." (Emphasis supplied) In any event, we find that the 5 percent real estate broker's commission is reasonable and within the standard practice in the real estate industry for transactions of this nature. The De Castros also contend that Artigo's inaction as well as failure to protest estops him from recovering more than what was actually paid him. The De Castros cite Article 1235 of the Civil Code which reads: Art. 1235. When the obligee accepts the performance, knowing its incompleteness and irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. The De Castros' reliance on Article 1235 of the Civil Code is misplaced. Artigo's acceptance of partial payment of his commission neither amounts to a waiver of the balance nor puts him in estoppel. This is the import of Article 1235 which was explained in this wise: "The word accept, as used in Article 1235 of the Civil Code, means to take as satisfactory or sufficient, or agree to an incomplete or irregular performance. Hence, the mere receipt of a partial payment is not equivalent to the required acceptance of performance as would 16 extinguish the whole obligation." (Emphasis supplied) There is thus a clear distinction between acceptance and mere receipt. In this case, it is evident that Artigo merely received the partial payment without waiving the balance. Thus, there is no estoppel to speak of. The De Castros further argue that laches should apply because Artigo did not file his complaint in court until May 29, 1989, or almost four years later. Hence, Artigo's claim for the balance of his commission is 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 17 either has abandoned it or declined to assert it. Artigo disputes the claim that he neglected to assert his rights. He was appointed as agent on January 24, 1984. The two lots were finally sold in June 1985. As found by the trial court, Artigo demanded in April and July of 1985 the payment of his commission by Constante on the basis of the selling price 18 of P7.05 million but there was no response from Constante. After it became clear that his demands for payment have fallen on deaf ears, Artigo decided to sue on May 29, 1989.

11

Actions upon a written contract, such as a contract of agency, must be brought within ten years from the 19 time the right of action accrues. The right of action accrues from the moment the breach of right or duty occurs. From this moment, the creditor can institute the action even as the ten-year prescriptive 20 period begins to run. The De Castros admit that Artigo's claim was filed within the ten-year prescriptive period. The De Castros, however, still maintain that Artigo's cause of action is barred by laches. Laches does not apply because only four years had lapsed from the time of the sale in June 1985. Artigo made a demand in July 1985 and filed the action in court on May 29, 1989, well within the ten-year prescriptive period. This does not constitute an unreasonable delay in asserting one's right. The Court has ruled, "a delay within the prescriptive period is sanctioned by law and is not considered to be a delay that 21 would bar relief." In explaining that laches applies only in the absence of a statutory prescriptive period, the Court has stated "Laches is recourse in equity. Equity, however, is applied only in the absence, never in contravention, of statutory law. Thus, laches, cannot, as a rule, be used to abate a 22 collection suit filed within the prescriptive period mandated by the Civil Code." Clearly, the De Castros' defense of laches finds no support in law, equity or jurisprudence. Third issue: whether the determination of the purchase price was made in violation of the Rules on Evidence The De Castros want the Court to re-examine the probative value of the evidence adduced in the trial court to determine whether the actual selling price of the two lots was P7.05 million and not P3.6 million. The De Castros contend that it is erroneous to base the 5 percent commission on a purchase price of P7.05 million as ordered by the trial court and the appellate court. The De Castros insist that the purchase price is P3.6 million as expressly stated in the deed of sale, the due execution and authenticity of which was admitted during the trial. The De Castros believe that the trial and appellate courts committed a mistake in considering incompetent evidence and disregarding the best evidence and parole evidence rules. They claim that the Court of Appeals erroneously affirmed sub silentio the trial court's reliance on the various correspondences between Constante and Times Transit which were mere photocopies that do not satisfy the best evidence rule. Further, these letters covered only the first negotiations between Constante and Times Transit which failed; hence, these are immaterial in determining the final purchase price. The De Castros further argue that if there was an undervaluation, Artigo who signed as witness benefited therefrom, and being equally guilty, should be left where he presently stands. They likewise claim that the Court of Appeals erred in relying on evidence which were not offered for the purpose considered by the trial court. Specifically, Exhibits "B", "C", "D" and "E" were not offered to prove that the purchase price was P7.05 Million. Finally, they argue that the courts a quo erred in giving credence to the perjured testimony of Artigo. They want the entire testimony of Artigo rejected as a falsehood because he was lying when he claimed at the outset that he was a licensed real estate broker when he was not.

Whether the actual purchase price was P7.05 Million as found by the trial court and affirmed by the Court of Appeals, or P3.6 Million as claimed by the De Castros, is a question of fact and not of law. Inevitably, this calls for an inquiry into the facts and evidence on record. This we can not do. It is not the function of this Court to re-examine the evidence submitted by the parties, or analyze or 23 weigh the evidence again. This Court is not the proper venue to consider a factual issue as it is not a trier of facts. In petitions for review on certiorari as a mode of appeal under Rule 45, a petitioner can 24 only raise questions of law. Our pronouncement in the case of Cormero vs. Court of Appeals bears reiteration: "At the outset, it is evident from the errors assigned that the petition is anchored on a plea to review the factual conclusion reached by the respondent court. Such task however is foreclosed by the rule that in petitions for certiorari as a mode of appeal, like this one, only questions of law distinctly set forth may be raised. These questions have been defined as those that do not call for any examination of the probative value of the evidence presented by the parties. (Uniland Resources vs. Development Bank of the Philippines, 200 SCRA 751 [1991] citing Goduco vs. Court of appeals, et al., 119 Phil. 531; Hernandez vs. Court of Appeals, 149 SCRA 67). And when this court is asked to go over the proof presented by the parties, and analyze, assess and weigh them to ascertain if the trial court and the appellate court were correct in according superior credit to this or that piece of evidence and eventually, to the totality of the evidence of one party or the other, the court cannot and will not do the same. (Elayda vs. Court of Appeals, 199 SCRA 349 [1991]). Thus, in the absence of any showing that the findings complained of are totally devoid of support in the record, or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this court is not expected or required to examine or contrast the oral and documentary evidence submitted by the parties. (Morales vs. Court of Appeals, 197 SCRA 391 [1991] citing Santa Ana vs. Hernandez, 18 SCRA 973 [1966])." We find no reason to depart from this principle. The trial and appellate courts are in a much better position to evaluate properly the evidence. Hence, we find no other recourse but to affirm their finding on the actual purchase price.1wphi1.nt Fourth Issue: whether award of moral damages and attorney's fees is proper The De Castros claim that Artigo failed to prove that he is entitled to moral damages and attorney's fees. The De Castros, however, cite no concrete reason except to say that they are the ones entitled to damages since the case was filed to harass and extort money from them. Law and jurisprudence support the award of moral damages and attorney's fees in favor of Artigo. The award of damages and attorney's fees is left to the sound discretion of the court, and if such discretion 25 is well exercised, as in this case, it will not be disturbed on appeal. Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or in wanton disregard of his contractual 26 obligation. On the other hand, attorney's fees are awarded in instances where "the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable 27 claim." There is no reason to disturb the trial court's finding that "the defendants' lack of good faith and unkind treatment of the plaintiff in refusing to give his due commission deserve censure." This warrants the award of P25,000.00 in moral damages and P 45,000.00 in attorney's fees. The amounts are, in our view, fair and reasonable. Having found a buyer for the two lots, Artigo had already performed his part of the bargain under the contract of agency. The De Castros should have exercised fairness and good

12

judgment in dealing with Artigo by fulfilling their own part of the bargain - paying Artigo his 5 percent broker's commission based on the actual purchase price of the two lots. WHEREFORE, the petition is denied for lack of merit. The Decision of the Court of Appeals dated May 4, 1994 in CA-G.R. CV No. 37996 is AFFIRMED in toto. [G. R. No. 129919. February 6, 2002] DOMINION INSURANCE CORPORATION, petitioner, vs. COURT OF APPEALS, RODOLFO S. GUEVARRA, and FERNANDO AUSTRIA, respondents. This is an appeal via certiorari from the decision of the Court of Appeals affirming the [3] decision of the Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the total amount advanced by Guevarra in the payment of the claims of Dominions clients.
[1] [2]

When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was requested to ask for postponement, Atty. Maglalang vigorously objected to any postponement on the ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared as in default for its failure to appear in court despite due notice. Finding the verbal motion of plaintiffs counsel to be meritorious and considering that the pre -trial conference has been repeatedly postponed on motion of the defendant Corporation, the defendant Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his evidence on June 16, 1992 at 9:00 oclock in the morning. The plaintiff and his counsel are notified of this order in open court. SO ORDERED. Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were admitted in evidence in an order dated July 17, 1992. On August 7, 1992 defendant corporation filed a MOTION TO LIFT ORDER OF DEFAULT. It alleged therein that the failure of counsel to attend the pre-trial conference was due to an unavoidable circumstance and that counsel had sent his representative on that date t o inform the trial court of his inability to appear. The Motion was vehemently opposed by plaintiff. On August 25, 1992 the trial court denied defendants motion for reasons, among others, that it was neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts constituting his meritorious defense. On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13, 1992, the trial court denied said Motion. On November 18, 1992, the court a quo rendered judgment as follows: WHEREFORE, premises considered, judgment is hereby rendered ordering: 1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing the total amount advanced by plaintiff in the payment of the claims of defendants clients; 2. The defendant to pay plaintiff P10,000.00 as and by way of attorneys fees; 3. The dismissal of the counter-claim of the defendant and the third-party complaint; 4. The defendant to pay the costs of suit.
[4]

The FactsThe facts, as found by the Court of Appeals, are as follows: On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy certain claims filed by defendants clients. In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim f or P249,672.53, representing premiums that plaintiff allegedly failed to remit. On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time relevant to the case, was its Regional Manager for Central Luzon area. In due time, third-party defendant Austria filed his answer. Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12, 1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992, March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which were cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were postponed upon joint request of the parties. On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were present. Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa, submitted to the trial court a handwritten note sent to him by defendants counsel which instructed him to request for postponement. Plaintiffs counsel objected to the desired postponement and moved to have defendant declared as in default. This was granted by the trial court in the following order: ORDER

13

On December 14, 1992, Dominion appealed the decision to the Court of Appeals.

[5]

On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial [6] court. On September 3, 1996, Dominion filed with the Court of Appeals a motion for [7] [8] reconsideration. On July 16, 1997, the Court of Appeals denied the motion. Hence, this appeal.
[9]

payable or transferable to said Corporation by reason of or in connection with the abovementioned appointment. 4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL ASSURANCE COMPANY, INC., in connection with actions and all legal [19] proceedings against the said Corporation. [Emphasis supplied] The agency comprises all the business of the principal, [21] limited only to acts of administration.
[20]

but, couched in general terms, it is

The Issues

A general power permits the agent to do all acts for which the law does not require a special [22] power. Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do not require a special power of attorney. Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The pertinent portion that applies to this case provides that: Article 1878. Special powers of attorney are necessary in the following cases:

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner, and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal money in settling the claims of several insured.

The Court's Ruling

(1) To make such payments as are not usually considered as acts of administration; xxx xxx xxx

The petition is without merit. By the contract of agency, a person binds himself to render some service or to do something in [10] representation or on behalf of another, with the consent or authority of the latter. The basis for [11] agency is representation. On the part of the principal, there must be an actual intention to [12] [13] appoint or an intention naturally inferrable from his words or actions; and on the part of the agent, [14] there must be an intention to accept the appointment and act on it, and in the absence of such intent, [15] there is generally no agency. A perusal of the Special Power of Attorney would show that petitioner (represented by thirdparty defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite the word special in the title of the document, the contents reveal that what was constituted was actually a general agency. The terms of the agreement read: That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., a corporation duly organized and existing under and by virtue of the laws of the Republic of the Philippines, xxx represented by the undersigned as Regional Manager, xxx do hereby appoint RSGGuevarra Insurance Services represented by Mr. Rodolfo Guevarra xxx to be our Agency Manager in San Fdo., for our place and stead, to do and perform the following acts and things: 1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING with the right, upon our prior written consent, to appoint agents and sub-agents. 2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on our behalf. 3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and give effectual receipts and discharge for all money to which the FIRST [18] CONTINENTAL ASSURANCE COMPANY, INC., may hereafter become due, owing
[17] [16]

(15) Any other act of strict dominion. The payment of claims is not an act of administration. The settlement of claims is not included among the acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts enumerated therein. A special power of attorney is required before respondent Guevarra could settle the insurance claims of the insured. Respondent Guevarras authority to settle claims is embodied in the Memorandum of [23] Management Agreement datedFebruary 18, 1987 which enumerates the scope of respondent Guevarras duties and responsibilities as agency manager forSan Fernando, Pampanga, as follows: xxx xxx xxx 1. You are hereby given authority to settle and dispose of all motor car claims in the amount of P5,000.00 with prior approval of the Regional Office. 2. Full authority is given you on TPPI claims settlement. xxx xxx xxx
[24]

In settling the claims mentioned above, respondent Guevarras authority is further limited by the [25] written standard authority to pay, which states that the payment shall come from respondent Guevarras revolving fund or collection. The authority to pay is worded as follows: This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS __________________ (P ) representing the payment on the _________________ claim of assured _______________ under Policy No. ______ in that accident of ___________ at ____________.

14

It is further expected, release papers will be signed and authorized by the concerned and attache d to the corresponding claim folder after effecting payment of the claim. (sgd.) FERNANDO C. AUSTRIA Regional Manager
[26]

The outstanding balance and the production/remittance for the period corresponding to the claims was P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be reimbursed to respondent Guevarra.

The Fallo

[Emphasis supplied] The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was authorized to pay the claim of the insured, but the payment shall come from the revolving fund or collection in his possession. Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This conclusion is in accord with Article 1918, Civil Code, which states that: The principal is not liable for the expenses incurred by the agent in the following cases: (1) If the agent acted in contravention of the principals instructions, unless the latter should wish to avail himself of the benefits derived from the contract; xxx xxx xxx However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right to recover may still be justified under the general law on obligations and contracts. Article 1236, second paragraph, Civil Code, provides: Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor. In this case, when the risk insured against occurred, petitioners liability as insurer arose. This obligation was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and Subrogation Receipts from the insured who were paid. Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of petitioner. The extent to which petitioner was benefited by the settlement of the insurance claims could best [27] be proven by the Release of Claim Loss and Subrogation Receipts which were attached to the original complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-l, in the total amount of P116,276.95. However, the amount of the revolving fund/collection that was then in the possession of respondent Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above amount.

IN VIEW WHEREOF, we DENY the Petition. However, we MODIFY the decision of the Court of [28] [29] Appeals and that of the Regional Trial Court, Branch 44, San Fernando, Pampanga, in that petitioner is ordered to pay respondent Guevarrathe amount of P112,672.11 representing the total amount advanced by the latter in the payment of the claims of petitioners clients. No costs in this instance. SO ORDERED.

15

MODES OF EXTINGUISHMENT OF AGENCY

G.R. No. 155541 January 27, 2004

ESTATE OF THE LATE JULIANA DIEZ VDA. DE GABRIEL, petitioner, vs.COMMISSIONER OF INTERNAL REVENUE, respondent. This petition for review on certiorari assails the decision of the Court of Appeals in CA-G.R. CV No. 1 09107, dated September 30, 2002, which reversed the November 19, 1995 Order of Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, entitled "Testate Estate of Juliana Diez Vda. De Gabriel". The petition was filed by the Estate of the Late Juliana Diez Vda. De Gabriel, represented by Prudential Bank as its duly appointed and qualified Administrator. As correctly summarized by the Court of Appeals, the relevant facts are as follows: During the lifetime of the decedent, Juliana Vda. De Gabriel, her business affairs were managed by the Philippine Trust Company (Philtrust). The decedent died on April 3, 1979. Two days after her death, Philtrust, through its Trust Officer, Atty. Antonio M. Nuyles, filed her Income Tax Return for 1978. The return did not indicate that the decedent had died. On May 22, 1979, Philtrust also filed a verified petition for appointment as Special Administrator with the Regional Trial Court of Manila, Branch XXXVIII, docketed as Sp. Proc. No. R-82-6994. The court a quo appointed one of the heirs as Special Administrator. Philtrusts motion for reconsideration was denied by the probate court. On January 26, 1981, the court a quo issued an Order relieving Mr. Diez of his appointment, and appointed Antonio Lantin to take over as Special Administrator. Subsequently, on July 30, 1981, Mr. Lantin was also relieved of his appointment, and Atty. Vicente Onosa was appointed in his stead. In the meantime, the Bureau of Internal Revenue conducted an administrative investigation on the decedents tax liability and found a deficiency income tax for the year 1977 in the amount of P318,233.93. Thus, on November 18, 1982, the BIR sent by registered mail a demand letter and Assessment Notice No. NARD-78-82-00501 addressed to the decedent "c/o Philippine Trust Company, Sta. Cruz, Manila" which was the address stated in her 1978 Income Tax Return. No response was made by Philtrust. The BIR was not informed that the decedent had actually passed away. In an Order dated September 5, 1983, the court a quo appointed Antonio Ambrosio as the Commissioner and Auditor Tax Consultant of the Estate of the decedent. On June 18, 1984, respondent Commissioner of Internal Revenue issued warrants of distraint and levy to enforce collection of the decedents deficiency income tax liability, which were served upon her heir, Francisco Gabriel. On November 22, 1984, respondent filed a "Motion for Allowance of Claim and for an Order of Payment of Taxes" with the court a quo. On January 7, 1985, Mr. Ambrosio filed a letter of protest with the Litigation Division of the BIR, which was not acted upon because the assessment notice had allegedly become final, executory and incontestable.

On May 16, 1985, petitioner, the Estate of the decedent, through Mr. Ambrosio, filed a formal opposition to the BIRs Motion for Allowance of Claim based on the ground that there was no proper service of the assessment and that the filing of the aforesaid claim had already prescribed. The BIR filed its Reply, contending that service to Philippine Trust Company was sufficient service, and that the filing of the claim against the Estate on November 22, 1984 was within the five-year prescriptive period for assessment and collection of taxes under Section 318 of the 1977 National Internal Revenue Code (NIRC). On November 19, 1985, the court a quo issued an Order denying respondents claim aga inst the 2 3 Estate, after finding that there was no notice of its tax assessment on the proper party. On July 2, 1986, respondent filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 4 09107, assailing the Order of the probate court dated November 19, 1985. It was claimed that Philtrust, in filing the decedents 1978 income tax return on April 5, 1979, two days after the taxpayers death, had "constituted itself as the administrator of the estate of the deceased at least insofar as said return is 5 6 concerned." Citing Basilan Estate Inc. v. Commissioner of Internal Revenue, respondent argued that 7 the legal requirement of notice with respect to tax assessments requires merely that the Commissioner of Internal Revenue release, mail and send the notice of the assessment to the taxpayer at the address stated in the return filed, but not that the taxpayer actually receive said assessment within the five-year 8 prescriptive period. Claiming that Philtrust had been remiss in not notifying respondent of the decedents death, respondent therefore argued that the deficiency tax assessment had already become final, executory and incontestable, and that petitioner Estate was liable therefor. On September 30, 2002, the Court of Appeals rendered a decision in favor of the respondent. Although acknowledging that the bond of agency between Philtrust and the decedent was severed upon the latters death, it was ruled that the administrator of the Estate had failed in its lega l duty to inform respondent of the decedents death, pursuant to Section 104 of the National Internal Revenue Code of 1977. Consequently, the BIRs service to Philtrust of the demand letter and Notice of Assessment was binding upon the Estate, and, upon the lapse of the statutory thirty-day period to question this claim, the assessment became final, executory and incontestable. The dispositive portion of said decision reads: WHEREFORE, finding merit in the appeal, the appealed decision is REVERSED AND SET ASIDE. Another one is entered ordering the Administrator of the Estate to pay the Commissioner of Internal Revenue the following: a. The amount of P318,223.93, representing the deficiency income tax liability for the year 1978, plus 20% interest per annum from November 2, 1982 up to November 2, 1985 and in addition thereto 10% surcharge on the basic tax of P169,155.34 pursuant to Section 51(e)(2) and (3) of the Tax Code as amended by PD 69 and 1705; and b. The costs of the suit. SO ORDERED.
9

Hence, the instant petition, raising the following issues: 1. Whether or not the Court of Appeals erred in holding that the service of deficiency tax assessment against Juliana Diez Vda. de Gabriel through the Philippine Trust Company was a valid service in order to bind the Estate;

16

2. Whether or not the Court of Appeals erred in holding that the deficiency tax assessment and final demand was already final, executory and incontestable. Petitioner Estate denies that Philtrust had any legal personality to represent the decedent after her death. As such, petitioner argues that there was no proper notice of the assessment which, 10 therefore, never became final, executory and incontestable. Petitioner further contends that respondents failure to file its claim against the Estate within the proper period prescribed by the Rules 11 of Court is a fatal error, which forever bars its claim against the Estate. Respondent, on the other hand, claims that because Philtrust filed the decedents income tax return 12 subsequent to her death, Philtrust was the de facto administrator of her Estate. Consequently, when the Assessment Notice and demand letter dated November 18, 1982 were sent to Philtrust, there was 13 proper service on the Estate. Respondent further asserts that Philtrust had the legal obligation to inform petitioner of the decedents death, which requirement is found in Section 104 of the NIRC of 14 1977. Since Philtrust did not, respondent contends that petitioner Estate should not be allowed to 15 profit from this omission. Respondent further argues that Philtrusts failure to protest the aforementioned assessment within the 30-day period provided in Section 319-A of the NIRC of 1977 16 meant that the assessment had already become final, executory and incontestable. The resolution of this case hinges on the legal relationship between Philtrust and the decedent, and, by extension, between Philtrust and petitioner Estate. Subsumed under this primary issue is the sub-issue of whether or not service on Philtrust of the demand letter and Assessment Notice No. NARD-78-8200501 was valid service on petitioner, and the issue of whether Philtrusts inaction thereon could bind petitioner. If both sub-issues are answered in the affirmative, respondents contention as to the finality of Assessment Notice No. NARD-78-82-00501 must be answered in the affirmative. This is because Section 319-A of the NIRC of 1977 provides a clear 30-day period within which to protest an assessment. Failure to file such a protest within said period means that the assessment ipso jure becomes final and unappealable, as a consequence of which legal proceedings may then be initiated for collection thereof. We find in favor of the petitioner. The first point to be considered is that the relationship between the decedent and Philtrust was one of agency, which is a personal relationship between agent and principal. Under Article 1919 (3) of the Civil Code, death of the agent or principal automatically terminates the agency. In this instance, the death of the decedent on April 3, 1979 automatically severed the legal relationship between her and Philtrust, and such could not be revived by the mere fact that Philtrust continued to act as her agent when, on April 5, 1979, it filed her Income Tax Return for the year 1978. Since the relationship between Philtrust and the decedent was automatically severed at the moment of the Taxpayers death, none of Philtrusts acts or omissions could bind the estate of the Taxpayer. Service on Philtrust of the demand letter and Assessment Notice No. NARD-78-82-00501 was improperly done. It must be noted that Philtrust was never appointed as the administrator of the Estate of the decedent, and, indeed, that the court a quo twice rejected Philtrusts motion to be thus appointed. As of November 18, 1982, the date of the demand letter and Assessment Notice, the legal relationship between the decedent and Philtrust had already been non-existent for three years.

Respondent claims that Section 104 of the National Internal Revenue Code of 1977 imposed the legal obligation on Philtrust to inform respondent of the decedents death. The said Section reads: SEC. 104. Notice of death to be filed. In all cases of transfers subject to tax or where, though exempt from tax, the gross value of the estate exceeds three thousand pesos, the executor, administrator, or any of the legal heirs, as the case may be, within two months after the decedents death, or within a like period after qualifying as such executor or administrator, shall give written notice thereof to the Commissioner of Internal Revenue. The foregoing provision falls in Title III, Chapter I of the National Internal Revenue Code of 1977, or the chapter on Estate Tax, and pertains to "all cases of transfers subject to tax" or where the "gross value of the estate exceeds three thousand pesos". It has absolutely no applicability to a case for deficiency income tax, such as the case at bar. It further lacks applicability since Philtrust was never the executor, administrator of the decedents estate, and, as such, never had the legal obligation, based on the above provision, to inform respondent of her death. Although the administrator of the estate may have been remiss in his legal obligation to inform respondent of the decedents death, the consequences thereof, as provided in Section 119 of the National Internal Revenue Code of 1977, merely refer to the imposition of certain penal sanctions on the administrator. These do not include the indefinite tolling of the prescriptive period for making deficiency tax assessments, or the waiver of the notice requirement for such assessments. Thus, as of November 18, 1982, the date of the demand letter and Assessment Notice No. NARD-78-82-00501, there was absolutely no legal obligation on the part of Philtrust to either (1) respond to the demand letter and assessment notice, (2) inform respondent of the decedents death, or (3) inform petitioner that it had received said demand letter and assessment notice. This lack of legal obligation was implicitly recognized by the Court of 17 Appeals, which, in fact, rendered its assailed decision on grounds of "equity". Since there was never any valid notice of this assessment, it could not have become final, executory and incontestable, and, for failure to make the assessment within the five-year period provided in Section 318 of the National Internal Revenue Code of 1977, respondents claim against the petitioner Estate is barred. Said Section 18 reads: SEC. 318. Period of limitation upon assessment and collection. Except as provided in the succeeding section, internal revenue taxes shall be assessed within five years after the return was filed, and no proceeding in court without assessment for the collection of such taxes shall be begun after the expiration of such period. For the purpose of this section, a return filed before the last day prescribed by law for the filing thereof shall be considered as filed on such last day: Provided, That this limitation shall not apply to cases already investigated prior to the approval of this Code. Respondent argues that an assessment is deemed made for the purpose of giving effect to such assessment when the notice is released, mailed or sent to the taxpayer to effectuate the assessment, and there is no legal requirement that the taxpayer actually receive said notice within the five-year 18 period. It must be noted, however, that the foregoing rule requires that the notice be sent to the taxpayer, and not merely to a disinterested party. Although there is no specific requirement that the

17

taxpayer should receive the notice within the said period, due process requires at the very least that such notice actually be received. In Commissioner of Internal Revenue v. Pascor Realty and 19 Development Corporation, we had occasion to say: An assessment contains not only a computation of tax liabilities, but also a demand for payment within a prescribed period. It also signals the time when penalties and interests begin to accrue against the taxpayer. To enable the taxpayer to determine his remedies thereon, due process requires that it must be served on and received by the taxpayer. In Republic v. De le Rama, we clarified that, when an estate is under administration, notice must be sent to the administrator of the estate, since it is the said administrator, as representative of the estate, who has the legal obligation to pay and discharge all debts of the estate and to perform all orders of the court. In that case, legal notice of the assessment was sent to two heirs, neither one of whom had any authority to represent the estate. We said: The notice was not sent to the taxpayer for the purpose of giving effect to the assessment, and said notice could not produce any effect. In the case of Bautista and Corrales Tan v. Collector of Internal Revenue this Court had occasion to state that "the assessment is deemed made when the notice to this effect is released, mailed or sent to the taxpayer for the purpose of giving effect to said assessment." It appearing that the person liable for the payment of the tax did not receive the assessment, the assessment could not become final and executory. (Citations omitted, emphasis supplied.) In this case, the assessment was served not even on an heir of the Estate, but on a completely disinterested third party. This improper service was clearly not binding on the petitioner. By arguing that (1) the demand letter and assessment notice were served on Philtrust, (2) Philtrust was remiss in its obligation to respond to the demand letter and assessment notice, (3) Philtrust was remiss in its obligation to inform respondent of the decedents death, and (4) the assessment notice is therefore binding on the Estate, respondent is arguing in circles. The most crucial point to be remembered is that Philtrust had absolutely no legal relationship to the deceased, or to her Estate. There was therefore no assessment served on the Estate as to the alleged underpayment of tax. Absent this assessment, no 21 proceedings could be initiated in court for the collection of said tax, and respondents claim for collection, filed with the probate court only on November 22, 1984, was barred for having been made beyond the five-year prescriptive period set by law. WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. CV No. 09107, dated September 30, 2002, is REVERSED and SET ASIDE. The Order of the Regional Trial Court of Manila, Branch XXXVIII, in Sp. Proc. No. R-82-6994, dated November 19, 1985, which denied the claim of the Bureau of Internal Revenue against the Estate of Juliana Diez Vda. De Gabriel for the deficiency income tax of the decedent for the year 1977 in the amount of P318,223.93, is AFFIRMED. No pronouncement as to costs. SO ORDERED.
20

18

G.R. No. L-14248

April 28, 1960

NEW MANILA LUMBER COMPANY, INC., plaintiff-appellant, vs.REPUBLIC OF THE PHILIPPINES, defendant-appellee. Appeal from an order of dismissal of the Court of First Instance of Manila. On May 8, 1958, the plaintiff lumber company filed in the court below a complaint against the defendant Republic of the Philippines for the recovery of a sum of money. The complaint alleges, among other things, that defendant, thru the Director of Schools, entered into a contract with one Alfonso Mendoza to build two school houses; that plaintiff furnished the lumber materials in the construction of the said buildings; that prior to the payment by defendant of any amount due the contractor, the latter executed powers of attorney in favor of the plaintiff "constituting it as his sole, true and lawful attorney-in-fact with specific and exclusive authority to collect and receive from the defendant any and all amounts due or may be due to said contractor from the defendant in connection with the construction of the aforesaid school buildings, as may be necessary to pay materials supplied by the plaintiff"; and that originals of the powers of attorney were received by defendant (thru the Director of Public Schools) who promised to pay plaintiff, but that it, nevertheless, paid the contractor several amounts on different occasions without first making payment to plaintiff. The complaint, therefore, prays that defendant be ordered to pay plaintiff the sum of P18,327.15, the unpaid balance of the cost of lumber supplied and used in the construction of the school buildings, with interest at the legal rate from the date same was due, plus attorney's fees and costs. Served with a copy of the complaint, the defendant Republic of the Philippines, through the Solicitor General, moved to dismiss the same on the grounds (1) that it does not allege a sufficient cause of action, (2) that plaintiff has no right to institute the action under Act No. 3688, and (3) that the court is without jurisdiction to entertain the same against the defendant. The motion was opposed by plaintiff, but after hearing, the court below holding that "there is no juridical tie between plaintiff-supplier and defendant-owner sustained the motion to dismiss on the first ground, and on June 23, 1958 issued an order dismissing plaintiff's complaint. Its motion for reconsideration having been denied, plaintiff took the present appeal. The appeal is without merit. Briefly stated, plaintiff's complaint seeks to enforce against the Republic of the Philippines a money claim for the payment of materials it furnished for the construction of two public school buildings undertaken by contractor Alfonso Mendoza, on the basis of powers of attorney executed by the latter authorizing said plaintiff to collect and receive from defendant Republic any amount due or may be due to said contractor as contract price for the payment of the materials so supplied. Section one of Public Act No. 3688, entitled "An Act for the protection of persons furnishing material and labor for the construction of public works", reads in part as follows: SECTION 1. Any person, partnership or corporation entering into a formal contract with the Government of the Philippine Islands for the construction of any public building, or the prosecution and completion of any public work, or for repairs upon any public building or public work, shall be required, before commencing such work, to execute the usual penal bond, with good and sufficient sureties, with the additional obligation that such contractor or his or its sub-

contractors shall promptly make payments to all persons supplying him or them with labor and materials in the prosecution of the work provided for in such contract; and any person, company or corporation who has furnished labor or materials in the construction or repair of any public building or public work, and payment for which has not been made, shall have the right to intervene and be made a party to any action instituted by the Government of the Philippine Islands on the bond of the contractor, and to have their rights and claims adjudicated in such action and judgment rendered thereon, subject, however, to the priority of the claim and judgment of the Government of the Philippine Islands. If the full amount of the liability of the surety on said bond is insufficient to pay the full amount of said claims and demands, then, after paying the full amount due the Government, the remainder shall be distributed pro rata among said intervenors. If no suit should be brought by the Government of the Philippine Islands within six months from the completion and final settlement of said contract, or if the Government expressly waives its right to institute action on the penal bond, then the person or persons supplying the contractor with labor and materials shall, upon application therefor, and furnishing affidavit to the department under the direction of which said work has been prosecuted, that labor or materials for the prosecution of such work have been supplied by him or them, and payment for which has not been made, be furnished with a certified copy of said contract and bond, upon which he or they shall have a right of action, and shall be, and are hereby, authorized to bring suit in the name of the Government of the Philippine Islands in the Court of First Instance in the district in which said contract was to be performed and executed, and not elsewhere, for his or their use and benefit, against said contractor and his sureties, and to prosecute the same to final judgment and execution, . . . . In the case at bar, it is not disputed that defendant Republic has already instituted a suit against the contractor for the forfeiture of the latter's bond posted to secure the faithful performance of stipulations in the construction contract with regards to one of the two school buildings (Civil Case No. 26815, Court of First Instance of Manila). The contractor has a similar bond with respect to the other school building. Pursuant to Act 3688, plaintiff's legal remedy is, not to bring suit against the Government, there being no privity of contract between them, but to intervene in the civil case above-mentioned as an unpaid supplier of materials to the contractor, or file an action in the name of the Republic against said contractor on the latter's other bond. Plaintiff argues that an implied contract between it and the defendant Republic arose, when the latter, thru the Director of Public Schools, on being furnished copies of the powers of attorney executed by the contractor, promised to make payment to plaintiff for the materials supplied for the construction of the school buildings. It will be observed, however, that defendant was not a party to the execution of the powers of attorney. Besides, the Director of Public Schools had no authority to bind defendant on the payment. While he was the official who entered into contract with the contractor for the construction of the school buildings, payment of the contract price was not within his exclusive control but subject to approval under existing laws not only by the Department Head (Sec. 568, Rev. Adm, Code), but also by the Auditor General. At any rate, under the facts alleged in the complaint, the powers of attorney in question made plaintiff the contractor's agent in the collection of whatever amounts may be due the contractor from the defendant. And since it is also alleged that, after the execution of the powers of attorney, the contractor (principal) demanded and collected from defendant the money the collection of which he entrusted to plaintiff, the agency apparently has already been revoked. (Articles 1920 and 1924, new Civil Code.) The point is made by plaintiff that the powers of attorney executed by the contractor in its favor are irrevocable and are coupled with interest. But even supposing that they are, still their alleged

19

irrevocability cannot affect defendant who is not a party thereto. They are obligatory only on the principal who executed the agency. Plaintiff also cites Article 1729 of the new Civil Code, which provides that Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. . . . This article, however, as expressly provided in its last paragraph, "is subject to the provisions of special law." The special law governing in the present case, as already seen, is Act No. 3688. There is another reason for upholding the order of dismissal complained of. Plaintiff's action being a claim for sum of money arising from an alleged implied contract between it and the Republic of the Philippines, the same should have been lodged with the Auditor General. The state cannot be sued without its consent. In view of the foregoing, the order of dismissal appealed from is affirmed, with costs against plaintiffappellant.

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G.R. No. 77279 April 15, 1988 MANUELA S. CATAN/M.S. CATAN PLACEMENT AGENCY, petitioners, vs.THE NATIONAL LABOR RELATIONS COMMISSION, PHILIPPINE OVERSEAS EMPLOYMENT ADMINISTRATION and FRANCISCO D. REYES, respondents. Petitioner, in this special civil action for certiorari, alleges grave abuse of discretion on the part of the National Labor Relations Commission in an effort to nullify the latters resolution and thus free petitioner from liability for the disability suffered by a Filipino worker it recruited to work in Saudi Arabia. This Court, however, is not persuaded that such an abuse of discretion was committed. This petition must fail. The facts of the case are quite simple. Petitioner, a duly licensed recruitment agency, as agent of Ali and Fahd Shabokshi Group, a Saudi Arabian firm, recruited private respondent to work in Saudi Arabia as a steelman. The term of the contract was for one year, from May 15,1981 to May 14, 1982. However, the contract provided for its automatic renewal: FIFTH: The validity of this Contract is for ONE YEAR commencing from the date the SECOND PARTY assumes hill port. This Contract is renewable automatically if neither of the PARTIES notifies the other PARTY of his wishes to terminate the Contract by at least ONE MONTH prior to the expiration of the contractual period. [Petition, pp. 6-7; Rollo, pp. 7-8]. The contract was automatically renewed when private respondent was not repatriated by his Saudi employer but instead was assigned to work as a crusher plant operator. On March 30, 1983, while he was working as a crusher plant operator, private respondent's right ankle was crushed under the machine he was operating. On May 15, 1983, after the expiration of the renewed term, private respondent returned to the Philippines. His ankle was operated on at the Sta. Mesa Heights Medical Center for which he incurred expenses. On September 9, 1983, he returned to Saudi Arabia to resume his work. On May 15,1984, he was repatriated. Upon his return, he had his ankle treated for which he incurred further expenses. On the basis of the provision in the employment contract that the employer shall compensate the employee if he is injured or permanently disabled in the course of employment, private respondent filed a claim, docketed as POEA Case No. 84-09847, against petitioner with respondent Philippine Overseas Employment Administration. On April 10, 1986, the POEA rendered judgment in favor of private respondent, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the complainant and against the respondent, ordering the latter to pay to the complainant: 1. SEVEN THOUSAND NINE HUNDRED EIGHTY-FIVE PESOS and 60/100 (P7,985.60), Philippine currency, representing disability benefits; 2. TWENTY-FIVE THOUSAND NINETY-SIX Philippine pesos and 20/100 (29,096.20) representing reimbursement for medical expenses; 3. Ten percent (10%) of the abovementioned amounts as and for attorney's fees. [NLRC Resolution, p. 1; Rollo, p. 16]. On appeal, respondent NLRC affirmed the decision of the POEA in a resolution dated December 12, 1986. Not satisfied with the resolution of the POEA, petitioner instituted the instant special civil action for certiorari, alleging grave abuse of discretion on the part of the NLRC. 1. Petitioner claims that the NLRC gravely abused its discretion when it ruled that petitioner was liable to private respondent for disability benefits since at the time he was injured his original employment contract, which petitioner facilitated, had already expired. Further, petitioner disclaims liability on the ground that its agency agreement with the Saudi principal had already expired when the injury was sustained. There is no merit in petitioner's contention. Private respondents contract of employment can not be said to have expired on May 14, 1982 as it was automatically renewed since no notice of its termination was given by either or both of the parties at least a month before its expiration, as so provided in the contract itself. Therefore, private respondent's injury was sustained during the lifetime of the contract. A private employment agency may be sued jointly and solidarily with its foreign principal for violations of the recruitment agreement and the contracts of employment: Sec. 10. Requirement before recruitment. Before recruiting any worker, the private employment agency shall submit to the Bureau the following documents: (a) A formal appointment or agency contract executed by a foreign-based employer in favor of the license holder to recruit and hire personnel for the former ... xxx xxx xxx 2. Power of the agency to sue and be sued jointly and solidarily with the principal or foreign-based employer for any of the violations of the recruitment agreement and the contracts of employment. [Section 10(a) (2) Rule V, Book I, Rules to Implement the Labor Code].

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Thus, in the recent case of Ambraque International Placement & Services v. NLRC [G.R. No. 77970, January 28,1988], the Court ruled that a recruitment agency was solidarily liable for the unpaid salaries of a worker it recruited for employment in Saudi Arabia. Even if indeed petitioner and the Saudi principal had already severed their agency agreement at the time private respondent was injured, petitioner may still be sued for a violation of the employment contract because no notice of the agency agreement's termination was given to the private respondent: Art 1921. If the agency has been entrusted for the purpose of contra with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. [Civil Code]. In this connection the NLRC elaborated: Suffice it to state that albeit local respondent M. S. Catan Agency was at the time of complainant's accident resulting in his permanent partial disability was (sic) no longer the accredited agent of its foreign principal, foreign respondent herein, yet its responsibility over the proper implementation of complainant's employment/service contract and the welfare of complainant himself in the foreign job site, still existed, the contract of employment in question not having expired yet. This must be so, because the obligations covenanted in the recruitment agreement entered into by and between the local agent and its foreign principal are not coterminus with the term of such agreement so that if either or both of the parties decide to end the agreement, the responsibilities of such parties towards the contracted employees under the agreement do not at all end, but the same extends up to and until the expiration of the employment contracts of the employees recruited and employed pursuant to the said recruitment agreement. Otherwise, this will render nugatory the very purpose for which the law governing the employment of workers for foreign jobs abroad was enacted. [NLRC Resolution, p. 4; Rollo, p. 18]. (Emphasis supplied). 2. Petitioner contends that even if it is liable for disability benefits, the NLRC gravely abused its discretion when it affirmed the award of medical expenses when the said expenses were the consequence of private respondent's negligence in returning to work in Saudi Arabia when he knew that he was not yet medically fit to do so. Again, there is no merit in this contention. No evidence was introduced to prove that private respondent was not medically fit to work when he returned to Saudi Arabia. Exhibit "B", a certificate issued by Dr. Shafquat Niazi, the camp doctor, on November 1, 1983, merely stated that private respondent was "unable to walk properly, moreover he is still complaining [of] pain during walking and different lower limbs movement" [Annex "B", Reply; Rollo, p. 51]. Nowhere does it say that he was not medically fit to work. Further, since petitioner even assisted private respondent in returning to work in Saudi Arabia by purchasing his ticket for him [Exhibit "E"; Annex "A", Reply to Respondents' Comments], it is as if petitioner had certified his fitness to work. Thus, the NLRC found: Furthermore, it has remained unrefuted by respondent that complainant's subsequent departure or return to Saudi Arabia on September 9, 1983 was with the full

knowledge, consent and assistance of the former. As shown in Exhibit "E" of the record, it was respondent who facilitated the travel papers of complainant. [NLRC Resolution, p. 5; Rollo, p. 19]. WHEREFORE, in view of the foregoing, the petition is DISMISSED for lack of merit, with costs against petitioner. SO ORDERED.

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G.R. No. 111924 January 27, 1997 ADORACION LUSTAN, petitioner, vs.COURT OF APPEALS, NICOLAS PARANGAN and SOLEDAD PARANGAN, PHILIPPINE NATIONAL BANK,respondents. Petitioner Adoracion Lustan is the registered owner of a parcel of land otherwise known as Lot 8069 of the Cadastral Survey of Calinog, Iloilo containing an area of 10.0057 hectares and covered by TCT No. T-561. On February 25, 1969, petitioner leased the above described property to private respondent Nicolas Parangan for a term of ten (10) years and an annual rent of One Thousand (P1,000.00) Pesos. During the period of lease, Parangan was regularly extending loans in small amounts to petitioner to defray her daily expenses and to finance her daughter's education. On July 29, 1970, petitioner executed a Special Power of Attorney in favor of Parangan to secure an agricultural loan from private respondent Philippine National Bank (PNB) with the aforesaid lot as collateral. On February 18, 1972, a second Special Power of Attorney was executed by petitioner, by virtue of which, Parangan was able to secure four (4) additional loans, to wit: the sums of P24,000.00, P38,000.00, P38,600.00 and P25,000.00 on December 15, 1975, September 6, 1976, July 2, 1979 and June 2, 1980, respectively. The last three loans were without the knowledge of herein petitioner and all the proceeds therefrom 1 were used by Parangan for his own benefit. These encumbrances were duly annotated on the 2 certificate of title. On April 16, 1973, petitioner signed a Deed of Pacto de Retro Sale in favor of 3 Parangan which was superseded by the Deed of Definite Sale dated May 4, 1979 which petitioner signed upon Parangan's representation that the same merely evidences the loans extended by him unto the former. For fear that her property might be prejudiced by the continued borrowing of Parangan, petitioner demanded the return of her certificate of title. Instead of complying with the request, Parangan asserted his rights over the property which allegedly had become his by virtue of the aforementioned Deed of Definite Sale. Under said document, petitioner conveyed the subject property and all the improvements thereon unto Parangan absolutely for and in consideration of the sum of Seventy Five Thousand (P75,000.00) Pesos. Aggrieved, petitioner filed an action for cancellation of liens, quieting of title, recovery of possession and damages against Parangan and PNB in the Regional Trial Court of Iloilo City. After trial, the lower court rendered judgment, disposing as follows: WHEREFORE and in view of the foregoing, a decision is rendered as follows: 1. Ordering cancellation by the Register of Deeds of the Province of Iloilo, of the unauthorized loans, the liens and encumbrances appearing in the Transfer Certificate of Title No. T-561, especially entries nos. 286231; 338638; and 352794; 2. Declaring the Deed of Pacto de Retro Sale dated April 25, 1978 and the Deed of Definite Sale dated May 6, 1979, both documents executed by Adoracion Lustan in favor of Nicolas Parangan over Lot 8069 in TCT No. T-561 of the Register of Deeds of Iloilo, as null and void, declaring the same to be Deeds of Equitable Mortgage; 3. Ordering defendant Nicolas Parangan to pay all the loans he secured from defendant PNB using thereto as security TCT No. T-561 of plaintiff and defendant PNB to return TCT No. T-561 to plaintiff;

4. Ordering defendant Nicolas Parangan to return possession of the land in question, Lot 8069 of the Calinog Cadastre, described in TCT No. T-561 of the Register of Deeds of Iloilo, to plaintiff upon payment of the sum of P75,000.00 by plaintiff to defendant Parangan which payment by plaintiff must be made within ninety (90) days from receipt of this decision; otherwise, sale of the land will be ordered by the court to satisfy payment of the amount; 5. Ordering defendant Nicolas Parangan to pay plaintiff attorney's fees in the sum of P15,000.00 and to pay the costs of the suit. SO ORDERED.
4

Upon appeal to the Court of Appeals (CA), respondent court reversed the trial court's decision. Hence this petition contending that the CA committed the following errors: IN ARRIVING AT THE CONCLUSION THAT NONE OF THE CONDITIONS STATED IN ART. 1602 OF THE NEW CIVIL CODE HAS BEEN PROVEN TO EXIST BY PREPONDERANCE OF EVIDENCE; IN CONCLUDING THAT PETITIONER SIGNED THE DEED OF SALE WITH KNOWLEDGE AS TO THE CONTENTS THEREOF; IN ARRIVING AT THE CONCLUSION THAT THE TESTIMONY OF WITNESS DELIA CABIAL DESERVES FULL FAITH AND CREDIT; IN FINDING THAT THE SPECIAL POWER OF ATTORNEY AUTHORIZING MORTGAGE FOR "UNLIMITED" LOANS AS RELEVANT. Two main issues confront us in this case, to wit: whether or not the Deed of Definite Sale is in reality an equitable mortgage and whether or not petitioner's property is liable to PNB for the loans contracted by Parangan by virtue of the special power of attorney. The lower court and the CA arrived at different 5 factual findings thus necessitating a review of the evidence on record. After a thorough examination, we note some errors, both in fact and in law, committed by public respondent CA. The court a quo ruled that the Deed of Definite Sale is in reality an equitable mortgage as it was shown 6 beyond doubt that the intention of the parties was one of a loan secured by petitioner's land. We agree. A contract is perfected by mere consent. More particularly, a contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the 8 price. This meeting of the minds speaks of the intent of the parties in entering into the contract respecting the subject matter and the consideration thereof. If the words of the contract appear to be 9 contrary to the evident intention of the parties, the latter shall prevail over the former. In the case at bench, the evidence is sufficient to warrant a finding that petitioner and Parangan merely intended to consolidate the former's indebtedness to the latter in a single instrument and to secure the same with the subject property. Even when a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent of the parties. In this case, parol evidence then becomes
7

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competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the repayment of a loan. And upon proof of the truth of such allegations, the court will enforce the agreement or understanding in consonance with the true intent of the parties at the time of 10 the execution of the contract. Articles 1602 and 1604 of the Civil Code respectively provide: The contract shall be presumed to be an equitable mortgage in any of the following cases: 1) When the price of a sale with right to repurchase is unusually inadequate; 2) When the vendor remains in possession as lessor or otherwise; 3) When upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed; 4) When the vendor binds himself to pay the taxes on the thing sold; 5) When the purchaser retains for himself a part of the purchase price; 6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an absolute sale. From a reading of the above-quoted provisions, for a presumption of an equitable mortgage to arise, we must first satisfy two requisites namely: that the parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing debt by way of mortgage. Under Art. 1604 of the Civil Code, a contract purporting to be an absolute sale shall be presumed to be an equitable mortgage should any of the conditions in Art. 1602 be present. The existence of any of the circumstances therein, not a concurrence nor an overwhelming number of such circumstances, suffices 11 to give rise to the presumption that the contract is an equitable mortgage. Art. 1602, (6), in relation to Art 1604 provides that a contract of sale is presumed to be an equitable mortgage in any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. That the case clearly falls under this category can be inferred from the circumstances surrounding the transaction as herein set forth: Petitioner had no knowledge that the contract she signed is a deed of sale. The contents of the same were not read nor explained to her so that she may intelligibly formulate in her mind the consequences of her conduct and the nature of the rights she was ceding in favor of Parangan. Petitioner is illiterate and her condition constrained her to merely rely on Parangan's assurance that the contract only evidences her indebtedness to the latter. When one of the contracting parties is unable to read, or if the
12

contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing 13 the contract must show that the terms thereof have been fully explained to the former. Settled is the rule that where a party to a contract is illiterate or cannot read or cannot understand the language in which the contract is written, the burden is on the party interested in enforcing the contract to prove that 14 the terms thereof are fully explained to the former in a language understood by him. To our mind, this burden has not been satisfactorily discharged. We do not find the testimony of Parangan and Delia Cabial that the contract was duly read and explained to petitioner worthy of credit. The assessment by the trial court of the credibility of witnesses is entitled to great respect and weight for having had the opportunity of observing the conduct and 15 demeanor of the witnesses while testifying. The lower court may not have categorically declared Cabial's testimony as doubtful but this fact is readily apparent when it ruled on the basis of petitioner's evidence in total disregard of the positive testimony on Parangan's side. We have subjected the records to a thorough examination, and a reading of the transcript of stenographic notes would bear out that the court a quo is correct in its assessment. The CA committed a reversible error when it relied on the testimony of Cabial in upholding the validity of the Deed of Definite Sale. For one, there are noted major contradictions between the testimonies of Cabial and Judge Lebaquin, who notarized the purported Deed of Definite Sale. While the former testified that receipts were presented before Judge Lebaquin, 16 who in turn made an accounting to determine the price of the land , the latter categorically denied the 17 allegation. This contradiction casts doubt on the credibility of Cabial as it is ostensible that her version of the story is concocted. On the other hand, petitioner's witness Celso Pamplona, testified that the contract was not read nor explained to petitioner. We believe that this witness gave a more accurate account of the circumstances surrounding the transaction. He has no motive to prevaricate or concoct a story as he witnessed the execution of the document at the behest of Parangan himself who, at the outset, informed him that he will witness a document consolidating petitioner's debts. He thus testified: Q: In (sic) May 4, 1979, you remember having went (sic) to the Municipality of Calinog? A: Yes, sir. Q: Who invited you to go there? A: Parangan. Q: You mean Nicolas Parangan? A: Yes, sir. Q: What did Nicolas tell you why he invited you to go there? A: He told me that I will witness on the indebtedness of Adoracion to Parangan. Q: Before Adoracion Lustan signed her name in this Exh. "4", was this document read to her?

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A: No, sir. Q: Did Nicolas Parangan right in that very room tell Adoracion what she was signing? A: No, sir. xxx xxx xxx Q: What did you have in mind when you were signing this document, Exh. "4"? A: To show that Adoracion Lustan has debts with Nicolas 18 Parangan. Furthermore, we note the absence of any question propounded to Judge Lebaquin to establish that the deed of sale was read and explained by him to petitioner. When asked if witness has any knowledge 19 whether petitioner knows how to read or write, he answered in the negative. This latter admission impresses upon us that the contract was not at all read or explained to petitioner for had he known that petitioner is illiterate, his assistance would not have been necessary. The foregoing squares with the sixth instance when a presumption of equitable mortgage prevails. The contract of definite sale, where petitioner purportedly ceded all her rights to the subject lot in favor of Parangan, did not embody the true intention of the parties. The evidence speaks clearly of the nature of the agreement it was one executed to secure some loans. Anent the issue of whether the outstanding mortgages on the subject property can be enforced against petitioner, we rule in the affirmative. Third persons who are not parties to a loan may secure the latter by pledging or mortgaging their own 20 property. So long as valid consent was given, the fact that the loans were solely for the benefit of Parangan would not invalidate the mortgage with respect to petitioner's property. In consenting thereto, even granting that petitioner may not be assuming personal liability for the debt, her property shall 21 nevertheless secure and respond for the performance of the principal obligation. It is admitted that petitioner is the owner of the parcel of land mortgaged to PNB on five (5) occasions by virtue of the Special Powers of Attorney executed by petitioner in favor of Parangan. Petitioner argues that the last three mortgages were void for lack of authority. She totally failed to consider that said Special Powers of Attorney are a continuing one and absent a valid revocation duly furnished to the mortgagee, the same continues to have force and effect as against third persons who had no knowledge of such lack of authority. Article 1921 of the Civil Code provides: Art. 1921. If the agency has been entrusted for the purpose of contracting with specified persons, its revocation shall not prejudice the latter if they were not given notice thereof. The Special Power of Attorney executed by petitioner in favor of Parangan duly authorized the latter to represent and act on behalf of the former. Having done so, petitioner clothed Parangan with authority to deal with PNB on her behalf and in the absence of any proof that the bank had knowledge that the last

three loans were without the express authority of petitioner, it cannot be prejudiced thereby. As far as third persons are concerned, an act is deemed to have been performed within the scope of the agent's authority if such is within the terms of the power of attorney as written even if the agent has in fact exceeded the limits of his authority according to the understanding between the principal and the 22 agent. The Special Power of Attorney particularly provides that the same is good not only for the principal loan but also for subsequent commercial, industrial, agricultural loan or credit accommodation that the attorney-in-fact may obtain and until the power of attorney is revoked in a public instrument and 23 a copy of which is furnished to PNB. Even when the agent has exceeded his authority, the principal is solidarily liable with the agent if the former allowed the latter to act as though he had full powers (Article 24 1911, Civil Code). The mortgage directly and immediately subjects the property upon which it is 25 imposed. The property of third persons which has been expressly mortgaged to guarantee an obligation to which the said persons are foreign, is directly and jointly liable for the fulfillment thereof; it is therefore subject to execution and sale for the purpose of paying the amount of the debt for which it is 26 liable. However, petitioner has an unquestionable right to demand proportional indemnification from 27 Parangan with respect to the sum paid to PNB from the proceeds of the sale of her property in case the same is sold to satisfy the unpaid debts. WHEREFORE, premises considered, the judgment of the lower court is hereby REINSTATED with the following MODIFICATIONS: 1. DECLARING THE DEED OF DEFINITE SALE AS AN EQUITABLE MORTGAGE; 2. ORDERING PRIVATE RESPONDENT NICOLAS PARANGAN TO RETURN THE POSSESSION OF THE SUBJECT LAND UNTO PETITIONER UPON THE LATTER'S PAYMENT OF THE SUM OF P75,000.00 WITHIN NINETY (90) DAYS FROM RECEIPT OF THIS DECISION; 3. DECLARING THE MORTGAGES IN FAVOR OF PNB AS VALID AND SUBSISTING AND MAY THEREFORE BE SUBJECTED TO EXECUTION SALE. 4. ORDERING PRIVATE RESPONDENT PARANGAN TO PAY PETITIONER THE AMOUNT OF P15,000.00 BY WAY OF ATTORNEY'S FEES AND TO PAY THE COSTS OF THE SUIT. SO ORDERED.

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G.R. No. 85494 May 7, 1991 CHOITHRAM JETHMAL RAMNANI AND/OR NIRMLA V. RAMNANI and MOTI G. RAMNANI, petitioners, vs. COURT OF APPEALS, SPOUSES ISHWAR JETHMAL RAMNANI, SONYA JETHMAL RAMNANI and OVERSEAS HOLDING CO., LTD., respondents. G.R. No. 85496 May 7, 1991 SPOUSES ISHWAR JETHMAL RAMNANI AND SONYA JET RAMNANI, petitioners, vs. THE HONORABLE COURT OF APPEALS, ORTIGAS & CO., LTD. PARTNERSHIP, and OVERSEAS HOLDING CO., LTD., respondents. This case involves the bitter quarrel of two brothers over two (2) parcels of land and its improvements now worth a fortune. The bone of contention is the apparently conflicting factual findings of the trial court and the appellate court, the resolution of which will materially affect the result of the contest. The following facts are not disputed. Ishwar, Choithram and Navalrai, all surnamed Jethmal Ramnani, are brothers of the full blood. Ishwar and his spouse Sonya had their main business based in New York. Realizing the difficulty of managing their investments in the Philippines they executed a general power of attorney on January 24, 1966 appointing Navalrai and Choithram as attorneys-in-fact, empowering them to manage and conduct their 1 business concern in the Philippines. On February 1, 1966 and on May 16, 1966, Choithram, in his capacity as aforesaid attorney-in-fact of Ishwar, entered into two agreements for the purchase of two parcels of land located in Barrio Ugong, Pasig, Rizal, from Ortigas & Company, Ltd. Partnership (Ortigas for short) with a total area of 2 approximately 10,048 square meters. Per agreement, Choithram paid the down payment and installments on the lot with his personal checks. A building was constructed thereon by Choithram in 1966 and this was occupied and rented by Jethmal Industries and a wardrobe shop called Eppie's Creation. Three other buildings were built thereon by Choithram through a loan of P100,000.00 obtained from the Merchants Bank as well as the income derived from the first building. The buildings were leased out by Choithram as attorney-in-fact of Ishwar. Two of these buildings were later burned. Sometime in 1970 Ishwar asked Choithram to account for the income and expenses relative to these properties during the period 1967 to 1970. Choithram failed and refused to render such accounting. As a consequence, on February 4, 1971, Ishwar revoked the general power of attorney. Choithram and 3 Ortigas were duly notified of such revocation on April 1, 1971 and May 24, 1971, respectively. Said 4 notice was also registered with the Securities and Exchange Commission on March 29, 1971 and was 5 published in the April 2, 1971 issue of The Manila Timesfor the information of the general public. Nevertheless, Choithram as such attorney-in-fact of Ishwar, transferred all rights and interests of Ishwar and Sonya in favor of his daughter-in-law, Nirmla Ramnani, on February 19, 1973. Her husband is Moti, son of Choithram. Upon complete payment of the lots, Ortigas executed the corresponding deeds of 6 sale in favor of Nirmla. Transfer Certificates of Title Nos. 403150 and 403152 of the Register of Deeds of Rizal were issued in her favor.

Thus, on October 6, 1982, Ishwar and Sonya (spouses Ishwar for short) filed a complaint in the Court of First Instance of Rizal against Choithram and/or spouses Nirmla and Moti (Choithram et al. for brevity) and Ortigas for reconveyance of said properties or payment of its value and damages. An amended complaint for damages was thereafter filed by said spouses. After the issues were joined and the trial on the merits, a decision was rendered by the trial court on December 3, 1985 dismissing the complaint and counterclaim. A motion for reconsideration thereof filed by spouses Ishwar was denied on March 3, 1986. An appeal therefrom was interposed by spouses Ishwar to the Court of Appeals wherein in due course a decision was promulgated on March 14, 1988, the dispositive part of which reads as follows: WHEREFORE, judgment is hereby rendered reversing and setting aside the appealed decision of the lower court dated December 3, 1985 and the Order dated March 3, 1986 which denied plaintiffs-appellants' Motion for Reconsideration from aforesaid decision. A new decision is hereby rendered sentencing defendantsappellees Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani, and Ortigas and Company Limited Partnership to pay, jointly and severally, plaintiffsappellants the following: 1. Actual or compensatory damages to the extent of the fair market value of the properties in question and all improvements thereon covered by Transfer Certificate of Title No. 403150 and Transfer Certificate of Title No. 403152 of the Registry of Deeds of Rizal, prevailing at the time of the satisfaction of the judgment but in no case shall such damages be less than the value of said properties as appraised by Asian Appraisal, Inc. in its Appraisal Report dated August 1985 (Exhibits T to T-14, inclusive). 2. All rental incomes paid or ought to be paid for the use and occupancy of the properties in question and all improvements thereon consisting of buildings, and to be computed as follows: a) On Building C occupied by Eppie's Creation and Jethmal Industries from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly rentals paid by Eppie's Creation; b) Also on Building C above, occupied by Jethmal Industries and Lavine from 1974 to 1978, the rental incomes based on then rates prevailing as shown under Exhibit "P"; and from 1979 to 1981, based on then prevailing rates as indicated under Exhibit "Q"; c) On Building A occupied by Transworld Knitting Mills from 1972 to 1978, the rental incomes based upon then prevailing rates shown under Exhibit "P", and from 1979 to 1981, based on prevailing rates per Exhibit "Q"; d) On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to 1978, the rentals based on the Lease Contract, Exhibit "P",

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and from 1979 to 1980, the rentals based on the Lease Contract, Exhibit "Q", and thereafter commencing 1982, to account for and turn over the rental incomes paid or ought to be paid for the use and occupancy of the properties and all improvements totalling 10,048 sq. m based on the rate per square meter prevailing in 1981 as indicated annually cumulative up to 1984. Then, commencing 1985 and up to the satisfaction of the judgment, rentals shall be computed at ten percent (10%) annually of the fair market values of the properties as appraised by the Asian Appraisal, Inc. in August 1985 (Exhibits T to T-14, inclusive.) 3. Moral damages in the sum of P200,000.00; 4. Exemplary damages in the sum of P100,000.00; 5. Attorney's fees equivalent to 10% of the award herein made; 6. Legal interest on the total amount awarded computed from first demand in 1967 and until the full amount is paid and satisfied; and 7. The cost of suit.
7

THE COURT OF APPEALS ACTED WITH GRAVE ABUSE OF DISCRETION AND MANIFEST PARTIALITY IN DISREGARDING THE TRIAL COURTS FINDINGS BASED ON THE DIRECT DOCUMENTARY AND TESTIMONIAL EVIDENCE PRESENTED BY CHOITHRAM IN THE TRIAL COURT ESTABLISHING THAT THE PROPERTIES WERE PURCHASED WITH PERSONAL FUNDS OF PETITIONER CHOITHRAM AND NOT WITH MONEY ALLEGEDLY REMITTED BY RESPONDENT ISHWAR. III THE COURT OF APPEALS ACTED IN EXCESS OF JURISDICTION IN AWARDING DAMAGES BASED ON THE VALUE OF THE PROPERTIES AND THE FRUITS OF 9 THE IMPROVEMENTS THEREON. Similarly, spouses Ishwar filed a petition for review of said amended decision of the appellate court exculpating Ortigas of liability based on the following assigned errors I THE RESPONDENT HONORABLE COURT OF APPEALS COMMITTED GRAVE ERROR AND HAS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND/OR WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT A) IN PROMULGATING THE QUESTIONED AMENDED DECISION (ANNEX "A") RELIEVING RESPONDENT ORTIGAS FROM LIABILITY AND DISMISSING PETITIONERS' AMENDED COMPLAINT IN CIVIL CASE NO. 534-P, AS AGAINST SAID RESPONDENT ORTIGAS; B) IN HOLDING IN SAID AMENDED DECISION THAT AT ANY RATE NO ONE EVER TESTIFIED THAT ORTIGAS WAS A SUBSCRIBER TO THE MANILA TIMES PUBLICATION OR THAT ANY OF ITS OFFICERS READ THE NOTICE AS PUBLISHED IN THE MANILA TIMES, THEREBY ERRONEOUSLY CONCLUDING THAT FOR RESPONDENT ORTIGAS TO BE CONSTRUCTIVELY BOUND BY THE PUBLISHED NOTICE OF REVOCATION, ORTIGAS AND/OR ANY OF ITS OFFICERS MUST BE A SUBSCRIBER AND/OR THAT ANY OF ITS OFFICERS SHOULD READ THE NOTICE AS ACTUALLY PUBLISHED; C) IN HOLDING IN SAID AMENDED DECISION THAT ORTIGAS COULD NOT BE HELD LIABLE JOINTLY AND SEVERALLY WITH THE DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI, AS ORTIGAS RELIED ON THE WORD OF CHOITHRAM THAT ALL ALONG HE WAS ACTING FOR AND IN BEHALF OF HIS BROTHER ISHWAR WHEN IT TRANSFERRED THE RIGHTS OF THE LATTER TO NIRMLA V. RAMNANI;

Acting on a motion for reconsideration filed by Choithram, et al. and Ortigas, the appellate court promulgated an amended decision on October 17, 1988 granting the motion for reconsideration of Ortigas by affirming the dismissal of the case by the lower court as against Ortigas but denying the 8 motion for reconsideration of Choithram, et al. Choithram, et al. thereafter filed a petition for review of said judgment of the appellate court alleging the following grounds: 1. The Court of Appeals gravely abused its discretion in making a factual finding not supported by and contrary, to the evidence presented at the Trial Court. 2. The Court of Appeals acted in excess of jurisdiction in awarding damages based on the value of the real properties in question where the cause of action of private respondents is recovery of a sum of money. ARGUMENTS I THE COURT OF APPEALS ACTED IN GRAVE ABUSE OF ITS DISCRETION IN MAKING A FACTUAL FINDING THAT PRIVATE RESPONDENT ISHWAR REMITTED THE AMOUNT OF US $150,000.00 TO PETITIONER CHOITHRAM IN THE ABSENCE OF PROOF OF SUCH REMITTANCE. II

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D) IN IGNORING THE EVIDENCE DULY PRESENTED AND ADMITTED DURING THE TRIAL THAT ORTIGAS WAS PROPERLY NOTIFIED OF THE NOTICE OF REVOCATION OF THE GENERAL POWER OF ATTORNEY GIVEN TO CHOITHRAM, EVIDENCED BY THE PUBLICATION IN THE MANILA TIMES ISSUE OF APRIL 2, 1971 (EXH. F) WHICH CONSTITUTES NOTICE TO THE WHOLE WORLD; THE RECEIPT OF THE NOTICE OF SUCH REVOCATION WHICH WAS SENT TO ORTIGAS ON MAY 22, 1971 BY ATTY. MARIANO P. MARCOS AND RECEIVED BY ORTIGAS ON MAY 24, 1971 (EXH. G) AND THE FILING OF THE NOTICE WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 29,1971 (EXH. H); E) IN DISCARDING ITS FINDINGS CONTAINED IN ITS DECISION OF 14 MARCH 1988 (ANNEX B) THAT ORTIGAS WAS DULY NOTIFIED OF THE REVOCATION OF THE POWER OF ATTORNEY OF CHOITHRAM, HENCE ORTIGAS ACTED IN BAD FAITH IN EXECUTING THE DEED OF SALE TO THE PROPERTIES IN QUESTION IN FAVOR OF NIRMLA V. RAMNANI; F) IN SUSTAINING RESPONDENT ORTIGAS VACUOUS REHASHED ARGUMENTS IN ITS MOTION FOR RECONSIDERATION THAT IT WOULD NOT GAIN ONE CENTAVO MORE FROM CHOITHRAM FOR THE SALE OF SAID LOTS AND THE SUBSEQUENT TRANSFER OF THE SAME TO THE MATTER'S DAUGHTER-IN-LAW, AND THAT IT WAS IN GOOD FAITH WHEN IT TRANSFERRED ISHWAR'S RIGHTS TO THE LOTS IN QUESTION. II THE RESPONDENT HONORABLE COURT OF APPEALS HAS SO FAR DEPARTED FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL PROCEEDING WHEN IT HELD IN THE QUESTIONED AMENDED DECISION OF 17 NOVEMBER 1988 (ANNEX A) THAT RESPONDENT ORTIGAS & CO., LTD., IS NOT JOINTLY AND SEVERALLY LIABLE WITH DEFENDANTS-APPELLEES CHOITHRAM, MOTI AND NIRMLA RAMNANI IN SPITE OF ITS ORIGINAL DECISION OF 14 MARCH 1988 THAT ORTIGAS WAS DULY NOTIFIED OF THE 10 REVOCATION OF THE POWER OF ATTORNEY OF CHOITHRAM RAMNANI. The center of controversy is the testimony of Ishwar that during the latter part of 1965, he sent the amount of US $150,000.00 to Choithram in two bank drafts of US$65,000.00 and US$85,000.00 for the purpose of investing the same in real estate in the Philippines. The trial court considered this lone testimony unworthy of faith and credit. On the other hand, the appellate court found that the trial court misapprehended the facts in complete disregard of the evidence, documentary and testimonial. Another crucial issue is the claim of Choithram that because he was then a British citizen, as a temporary arrangement, he arranged the purchase of the properties in the name of Ishwar who was an

American citizen and who was then qualified to purchase property in the Philippines under the then Parity Amendment. The trial court believed this account but it was debunked by the appellate court. As to the issue of whether of not spouses Ishwar actually sent US$150,000.00 to Choithram precisely to be used in the real estate business, the trial court made the following disquisition After a careful, considered and conscientious examination of the evidence adduced in the case at bar, plaintiff Ishwar Jethmal Ramanani's main evidence, which centers on the alleged payment by sending through registered mail from New York two (2) US$ drafts of $85,000.00 and $65,000.00 in the latter part of 1965 (TSN 28 Feb. 1984, p. 10-11). The sending of these moneys were before the execution of that General Power of Attorney, which was dated in New York, on January 24, 1966. Because of these alleged remittances of US $150,000.00 and the subsequent acquisition of the properties in question, plaintiffs averred that they constituted a trust in favor of defendant Choithram Jethmal Ramnani. This Court can be in full agreement if the plaintiffs were only able to prove preponderantly these remittances. The entire record of this case is bereft of even a shred of proof to that effect. It is completely barren. His uncorroborated testimony that he remitted these amounts in the " later part of 1965" does not engender enough faith and credence. Inadequacy of details of such remittance on the two (2) US dollar drafts in such big amounts is completely not positive, credible, probable and entirely not in accord with human experience. This is a classic situation, plaintiffs not exhibiting any commercial document or any document and/or paper as regard to these alleged remittances. Plaintiff Ishwar Ramnani is not an ordinary businessman in the strict sense of the word. Remember his main business is based in New York, and he should know better how to send these alleged remittances. Worst, plaintiffs did not present even a scum of proof, that defendant Choithram Ramnani received the alleged two US dollar drafts. Significantly, he does not know even the bank where these two (2) US dollar drafts were purchased. Indeed, plaintiff Ishwar Ramnani's lone testimony is unworthy of faith and credit and, therefore, deserves scant consideration, and since the plaintiffs' theory is built or based on such testimony, their cause of action collapses or falls with it. Further, the rate of exchange that time in 1966 was P4.00 to $1.00. The alleged two US dollar drafts amounted to $150,000.00 or about P600,000.00. Assuming the cash price of the two (2) lots was only P530,000.00 (ALTHOUGH he said: " Based on my knowledge I have no evidence," when asked if he even knows the cash price of the two lots). If he were really the true and bonafide investor and purchaser for profit as he asserted, he could have paid the price in full in cash directly and obtained the title in his name and not thru "Contracts To Sell" in installments paying interest and thru an attorney-in fact (TSN of May 2, 1984, pp. 10-11) and, again, plaintiff Ishwar Ramnani told this Court that he does not know whether or not his late father-in-law borrowed the two US dollar drafts from the Swiss Bank or whether or not his late father-in-law had any debit memo from the Swiss Bank (TSN of May 2, 1984, pp. 911 10). On the other hand, the appellate court, in giving credence to the version of Ishwar, had this to say While it is true, that generally the findings of fact of the trial court are binding upon the appellate courts, said rule admits of exceptions such as when (1) the conclusion is a finding grounded entirely on speculations, surmises and conjectures; (2) when the

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inferences made is manifestly mistaken, absurd and impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts and when the court, in making its findings, went beyond the issues of the case and the same are contrary to the admissions of both appellant and appellee (Ramos vs. Court of Appeals, 63 SCRA 33; Philippine American Life Assurance Co. vs. Santamaria, 31 SCRA 798; Aldaba vs. Court of Appeals, 24 SCRA 189). The evidence on record shows that the t court acted under a misapprehension of facts and the inferences made on the evidence palpably a mistake. The trial court's observation that "the entire records of the case is bereft of even a shred of proof" that plaintiff-appellants have remitted to defendant-appellee Choithram Ramnani the amount of US $ 150,000.00 for investment in real estate in the Philippines, is not borne by the evidence on record and shows the trial court's misapprehension of the facts if not a complete disregard of the evidence, both documentary and testimonial. Plaintiff-appellant Ishwar Jethmal Ramnani testifying in his own behalf, declared that during the latter part of 1965, he sent the amount of US $150,000.00 to his brother Choithram in two bank drafts of US $65,000.00 and US $85,000.00 for the purpose of investing the same in real estate in the Philippines. His testimony is as follows: ATTY. MARAPAO: Mr. Witness, you said that your attorney-in-fact paid in your behalf. Can you tell this Honorable Court where your attorney-in-fact got the money to pay this property? ATTY. CRUZ: Wait. It is now clear it becomes incompetent or hearsay. COURT: Witness can answer. A I paid through my attorney-in-fact. I am the one who gave him the money. ATTY. MARAPAO: xxx xxx xxx Q You gave him the money? A That's right. Q How much money did you give him?

A US $ 150,000.00. Q How was it given then? A Through Bank drafts. US $65,000.00 and US $85,000.00 bank drafts. The total amount which is $ 150,000.00 (TSN, 28 February 1984, p. 10; Emphasis supplied.) xxx xxx xxx ATTY. CRUZ: Q The two bank drafts which you sent I assume you bought that from some banks in New York? A No, sir. Q But there is no question those two bank drafts were for the purpose of paying down payment and installment of the two parcels of land? A Down payment, installment and to put up the building. Q I thought you said that the buildings were constructed . . . subject to our continuing objection from rentals of first building? ATTY. MARAPAO: Your Honor, that is misleading. COURT; Witness (may) answer. A Yes, the first building was immediately put up after the purchase of the two parcels of land that was in 1966 and the finds were used for the construction of the building from the US $150,000.00 (TSN, 7 March 1984, page 14; Emphasis supplied.)

Q These two bank drafts which you mentioned and the use for it you sent them by registered mail, did you send them from New Your? A That is right.

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Q And the two bank drafts which were put in the registered mail, the registered mail was addressed to whom? A Choithram Ramnani. (TSN, 7 March 1984, pp. 14-15). On cross-examination, the witness reiterated the remittance of the money to his brother Choithram, which was sent to him by his father-in-law, Rochiram L. Mulchandoni from Switzerland, a man of immense wealth, which even defendants-appellees' witness Navalrai Ramnani admits to be so (tsn., p. 16, S. Oct. 13, 1985). Thus, on cross-examination, Ishwar testified as follows: Q How did you receive these two bank drafts from the bank the name of which you cannot remember? A I got it from my father-in-law. Q From where did your father- in-law sent these two bank drafts? A From Switzerland. Q He was in Switzerland. A Probably, they sent out these two drafts from Switzerland. (TSN, 7 March 1984, pp. 16-17; Emphasis supplied.) This positive and affirmative testimony of plaintiff-appellant that he sent the two (2) bank drafts totalling US $ 150,000.00 to his brother, is proof of said remittance. Such positive testimony has greater probative force than defendant-appellee's denial of receipt of said bank drafts, for a witness who testifies affirmatively that something did happen should be believed for it is unlikely that a witness will remember what never happened (Underhill's Cr. Guidance, 5th Ed., Vol. 1, pp. 10-11). That is not all. Shortly thereafter, plaintiff-appellant Ishwar Ramnani executed a General Power of Attorney (Exhibit "A") dated January 24, 1966 appointing his brothers, defendants-appellees Navalrai and Choithram as attorney-in-fact empowering the latter to conduct and manage plaintiffs-appellants'business affairs in the Philippines and specifically No. 14. To acquire, purchase for us, real estates and improvements for the purpose of real estate business anywhere in the Philippines and to develop, subdivide, improve and to resell to buying public (individual, firm or corporation); to enter in any contract of sale in oar behalf and to enter mortgages between the vendees and the herein grantors that may be needed to finance the real estate business being undertaken.

Pursuant thereto, on February 1, 1966 and May 16, 1966, Choithram Jethmal Ramnani entered into Agreements (Exhibits "B' and "C") with the other defendant. Ortigas and Company, Ltd., for the purchase of two (2) parcels of land situated at Barrio Ugong, Pasig, Rizal, with said defendant-appellee signing the Agreements in his capacity as Attorney-in-fact of Ishwar Jethmal Ramnani. Again, on January 5, 1972, almost seven (7) years after Ishwar sent the US $ 150,000.00 in 1965, Choithram Ramnani, as attorney-in fact of Ishwar entered into a Contract of Lease with Sigma-Mariwasa (Exhibit "P") thereby re-affirming the ownership of Ishwar over the disputed property and the trust relationship between the latter as principal and Choithram as attorney-in-fact of Ishwar. All of these facts indicate that if plaintiff-appellant Ishwar had not earlier sent the US $ 150,000.00 to his brother, Choithram, there would be no purpose for him to execute a power of attorney appointing his brothers as s attorney-in-fact in buying real estate in the Philippines. As against Choithram's denial that he did not receive the US $150,000.00 remitted by Ishwar and that the Power of Attorney, as well as the Agreements entered into with Ortigas & Co., were only temporary arrangements, Ishwar's testimony that he did send the bank drafts to Choithram and was received by the latter, is the more credible version since it is natural, reasonable and probable. It is in accord with the common experience, knowledge and observation of ordinary men (Gardner vs. Wentors 18 Iowa 533). And in determining where the superior weight of the evidence on the issues involved lies, the court may consider the probability or improbability of the testimony of the witness (Sec. 1, Rule 133, Rules of Court). Contrary, therefore, to the trial court's sweeping observation that 'the entire records of the case is bereft of even a shred of proof that Choithram received the alleged bank drafts amounting to US $ 150,000.00, we have not only testimonial evidence but also documentary and circumstantial evidence proving said remittance of the money and 12 the fiduciary relationship between the former and Ishwar. The Court agrees. The environmental circumstances of this case buttress the claim of Ishwar that he did entrust the amount of US $ 150,000.00 to his brother, Choithram, which the latter invested in the real property business subject of this litigation in his capacity as attorney-in-fact of Ishwar. True it is that there is no receipt whatever in the possession of Ishwar to evidence the same, but it is not unusual among brothers and close family members to entrust money and valuables to each other without any formalities or receipt due to the special relationship of trust between them. And another proof thereof is the fact that Ishwar, out of frustration when Choithram failed to account for the realty business despite his demands, revoked the general power of attorney he extended to Choithram and Navalrai. Thereafter, Choithram wrote a letter to Ishwar pleading that the power of attorney be renewed or another authority to the same effect be extended, which reads as follows: J u n

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e 2 5 , 1 9 7 1 MR. NEW YORK ISHWAR JETHMAL

has been ten months since I have not received a single penny for expenses from Dada (elder brother). Why there are no expenses? We can not draw a single penny from knitting (factory). Well I am not going to write you further, nor there is any need for it. This much I am writing you because of the way you have conducted yourself. But remember, whenever I hale the money I will not keep it myself Right now I have not got anything at all. I am not going to write any further. Keep your business clean with Naru. Otherwise he will discontinue because he likes 13 to keep his business very clean. The said letter was in Sindhi language. It was translated to English by the First Secretary of the Embassy of Pakistan, which translation was verified correct by the Chairman, Department of Sindhi, 14 University of Karachi. From the foregoing letter what could be gleaned is that 1. Choithram asked for the issuance of another power of attorney in their favor so they can continue to represent Ishwar as Ortigas has sued them for unpaid installments. It also appears therefrom that Ortigas learned of the revocation of the power of attorney so the request to issue another. 2. Choithram reassured Ishwar to have confidence in him as he was not after money, and that he was not interested in Ishwar's money. 3. To demonstrate that he can be relied upon, he said that he could have ante-dated the sales agreement of the Ortigas lots before the issuance of the powers of attorney and acquired the same in his name, if he wanted to, but he did not do so. 4. He said he had not received a single penny for expenses from Dada (their elder brother Navalrai). Thus, confirming that if he was not given money by Ishwar to buy the Ortigas lots, he could not have consummated the sale. 5. It is important to note that in said letter Choithram never claimed ownership of the property in question. He affirmed the fact that he bought the same as mere agent and in behalf of Ishwar. Neither did he mention the alleged temporary arrangement whereby Ishwar, being an American citizen, shall appear to be the buyer of the said property, but that after Choithram acquires Philippine citizenship, its ownership shall be transferred to Choithram. This brings us to this temporary arrangement theory of Choithram. The appellate court disposed of this matter in this wise Choithram's claim that he purchased the two parcels of land for himself in 1966 but placed it in the name of his younger brother, Ishwar, who is an American citizen, as a temporary arrangement,' because as a British subject he is disqualified under the 1935 Constitution to acquire real property in the Philippines, which is not so with

(1) Send power of Atty. immediately, because the case has been postponed for two weeks. The same way as it has been send before in favor of both names. Send it immediately otherwise everything will be lost unnecessarily, and then it will take us in litigation. Now that we have gone ahead with a case and would like to end it immediately otherwise squatters will take the entire land. Therefore, send it immediately. (2) Ortigas also has sued us because we are holding the installments, because they have refused to give a rebate of P5.00 per meter which they have to give us as per contract. They have filed the law suit that since we have not paid the installment they should get back the land. The hearing of this case is in the month of July. Therefore, please send the power immediately. In one case DADA (Elder Brother) will represent and in another one, I shall. (3) In case if you do not want to give power then make one letter in favor of Dada and the other one in my favor showing that in any litigation we can represent you and your wife, and whatever the court decide it will be acceptable by me. You can ask any lawyer, he will be able to prepare these letters. After that you can have these letters ratify before P.I. Consulate. It should be dated April 15, 1971. (4) Try to send the power because it will be more useful. Make it in any manner whatever way you have confident in it. But please send it immediately. You have cancelled the power. Therefore, you have lost your reputation everywhere. What can I further write you about it. I have told everybody that due to certain reasons I have written you to do this that is why you have done this. This way your reputation have been kept intact. Otherwise if I want to do something about it , I can show you that inspite of the power you have cancelled you can not do anything . You can keep this letter because my conscience is clear. I do not have anything in my mind. I should not be writing you this, but because my conscience is clear do you know that if I had predated papers what could you have done? Or do you know that I have many paper signed by you and if had done anything or do then what can you do about it? It is not necessary to write further about this . It does not matter if you have cancelled the power. At that time if I had predated and done something about it what could you have done? You do not know me. I am not after money. I can earn money anytime. It

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respect to American citizens in view of the Ordinance Appended to the Constitution granting them parity rights, there is nothing in the records showing that Ishwar ever agreed to such a temporary arrangement. During the entire period from 1965, when the US $ 150,000. 00 was transmitted to Choithram, and until Ishwar filed a complaint against him in 1982 , or over 16 years, Choithram never mentioned of a temporary arrangement nor can he present any memorandum or writing evidencing such temporary arrangement , prompting plaintiff-appellant to observe: The properties in question which are located in a prime industrial site in Ugong, Pasig, Metro Manila have a present fair market value of no less than P22,364,000.00 (Exhibits T to T-14, inclusive), and yet for such valuable pieces of property, Choithram who now belatedly that he purchased the same for himself did not document in writing or in a memorandum the alleged temporary arrangement with Ishwar' (pp. 4-41, Appellant's Brief). Such verbal allegation of a temporary arrangement is simply improbable and inconsistent. It has repeatedly been held that important contracts made without evidence are highly improbable. The improbability of such temporary arrangement is brought to fore when we consider that Choithram has a son (Haresh Jethmal Ramnani) who is an American citizen under whose name the properties in question could be registered , both during the time the contracts to sell were executed and at the time absolute title over the same was to be delivered. At the time the Agreements were entered into with defendant Ortigas & Co. in 1966, Haresh, was already 18 years old and consequently, Choithram could have executed the deeds in trust for his minor son. But, he did not do this. Three (3) years, thereafter, or in 1968 after Haresh had attained the age of 21, Choithram should have terminated the temporary arrangement with Ishwar, which according to him would be effective only pending the acquisition of citizenship papers. Again, he did not do anything. Evidence to be believed, said Vice Chancellor Van Fleet of New Jersey, must not only proceed from the mouth of a credible witness, but it must be credible in itselfsuch as the common experience and observation of mankind can approve as probable under the circumstances. We have no test of the truth of human testimony, except its conformity to our knowledge, observation and experience. Whatever is repugnant to these belongs to the miraculous and is outside of judicial cognizance. (Daggers vs. Van Dyek 37 M.J. Eq. 130, 132). Another factor that can be counted against the temporary arrangement excuse is that upon the revocation on February 4, 1971 of the Power of attorney dated January 24, 1966 in favor of Navalrai and Choithram by Ishwar, Choithram wrote (tsn, p. 21, S. July 19, 1985) a letter dated June 25, 1971 (Exhibits R, R-1, R-2 and R3) imploring Ishwar to execute a new power of attorney in their favor. That if he did not want to give power, then Ishwar could make a letter in favor of Dada and another

in his favor so that in any litigation involving the properties in question , both of them could represent Ishwar and his wife. Choithram tried to convince Ishwar to issue the power of attorney in whatever manner he may want . In said letter no mention was made at all of any temporary arrangement. On the contrary, said letter recognize(s) the existence of principal and attorney-in-fact relationship between Ishwar and himself. Choithram wrote: . . . do you know that if I had predated papers what could you have done? Or do you know that I have many papers signed by you and if I had done anything or do then what can you do about it?' Choithram was saying that he could have repudiated the trust and ran away with the properties of Ishwar by predating documents and Ishwar would be entirely helpless. He was bitter as a result of Ishwar's revocation of the power of attorney but no mention was made of any temporary arrangement or a claim of ownership over the properties in question nor was he able to present any memorandum or document to prove the existence of such temporary arrangement. Choithram is also estopped in pais or by deed from claiming an interest over the properties in question adverse to that of Ishwar . Section 3(a) of Rule 131 of the Rules of Court states that whenever a party has, by his own declaration, act, or omission intentionally and deliberately led another to believe a particular thing true and act upon such belief, he cannot in any litigation arising out of such declaration, act or omission be permitted to falsify it.' While estoppel by deed is a bar which precludes a party to a deed and his privies from asserting as against the other and his privies any right of title in derogation of the deed, or from denying the truth of any material fact asserted in it(31 C.J.S. 195; 19 Am. Jur. 603). Thus, defendants-appellees are not permitted to repudiate their admissions and representations or to assert any right or title in derogation of the deeds or from denying the truth of any material fact asserted in the (1) power of attorney dated January 24, 1966 (Exhibit A); (2) the Agreements of February 1, 1966 and May 16, 1966 (Exhibits B and C); and (3) the Contract of Lease dated January 5, 1972 (Exhibit P). . . . The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles and the equities in the case. It is designed to aid the law in the administration of justice where without its aid injustice might result. It has been applied by court wherever and whenever special circumstances of a case so demands' (Philippine National Bank vs. Court of Appeals, 94 SCRA 357, 368 [1979]). It was only after the services of counsel has been obtained that Choithram alleged for the first time in his Answer that the General Power of attorney (Annex A) with the Contracts to Sell (Annexes B and C) were made only for the sole purpose of assuring defendants' acquisition and ownership of the lots described thereon in due time under the law; that said instruments do not reflect the true intention of the parties

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(par. 2, Answer dated May 30, 1983), seventeen (17) long years from the time he received the money transmitted to him by his brother, Ishwar. Moreover, Choithram's 'temporary arrangement,' by which he claimed purchasing the two (2) parcels in question in 1966 and placing them in the name of Ishwar who is an American citizen, to circumvent the disqualification provision of aliens acquiring real properties in the Philippines under the 1935 Philippine Constitution , as Choithram was then a British subject, show a palpable disregard of the law of the land and to sustain the supposed "temporary arrangement" with Ishwar would be sanctioning the perpetration of an illegal act and culpable violation of the Constitution . Defendants-appellees likewise violated the Anti-Dummy Law (Commonwealth Act 108, as amended),which provides in Section 1 thereof that: In all cases in which any constitutional or legal provision requires Philippine or any other specific citizenship as a requisite for the exercise or enjoyment of a right, franchise or privilege, . . . any alien or foreigner profiting thereby, shall be punished . . . by imprisonment . . . and of a fine of not less than the value of the right, franchise or privileges, which is enjoyed or acquired in violation of the provisions hereof . . . Having come to court with unclean hands, Choithram must not be permitted foist his 'temporary arrangement' scheme as a defense before this court. Being in delicto, he does not have any right whatsoever being shielded from his own wrong-doing, which is not so with respect to Ishwar, who was not a party to such an arrangement. The falsity of Choithram's defense is further aggravated by the material inconsistencies and contradictions in his testimony . While on January 23, 1985 he testified that he purchased the land in question on his own behalf (tsn, p. 4, S. Jan. 23, 1985), in the July 18, 1985 hearing, forgetting probably what he stated before, Choithram testified that he was only an attorney-in-fact of Ishwar (tsn, p. 5, S. July 18, 1985). Also in the hearing of January 23, 1985, Choithram declared that nobody rented the building that was constructed on the parcels of land in question (tsn, pp. 5 and 6), only to admit in the hearing of October 30, 1985, that he was in fact renting the building for P12,000. 00 per annum (tsn, p. 3). Again, in the hearing of July 19, 1985, Choithram testified that he had no knowledge of the revocation of the Power of Attorney (tsn, pp. 20- 21), only to backtrack when confronted with the letter of June 25, 1971 (Exhibits R to R-3), which he admitted to be in "his own writing," indicating knowledge of the revocation of the Power of Attorney. These inconsistencies are not minor but go into the entire credibility of the testimony of Choithram and the rule is that contradictions on a very crucial point by a witness, renders s testimony incredible People vs. Rafallo, 80 Phil. 22). Not only this the doctrine of falsus in uno, falsus in omnibus is fully applicable as far as the testimony of Choithram is concerned. The cardinal rule, which has served in all ages, and has been applied to all conditions of men, is that a witness willfully falsifying the truth in one particular, when upon oath, ought never to be believed upon the strength of his own testimony, whatever he may assert (U.S. vs. Osgood 27 Feb. Case No. 15971-a, p. 364); Gonzales vs. Mauricio, 52 Phil, 728), for what ground of judicial relief can We concur.

there be left when the party has shown such gross insensibility to the difference between right and wrong, between truth and falsehood? (The Santisima Trinidad, 7 Wheat, 283, 5 U.S. [L. ed.] 454). True, that Choithram's testimony finds corroboration from the testimony of his brother, Navalrai, but the same would not be of much help to Choithram. Not only is Navalrai an interested and biased witness, having admitted his close relationship with Choithram and that whenever he or Choithram had problems, they ran to each other (tsn, pp. 17-18, S. Sept. 20, 1985), Navalrai has a pecuniary interest in the success of Choithram in the case in question. Both he and Choithram are business partners in Jethmal and Sons and/or Jethmal Industries, wherein he owns 60% of the company and Choithram, 40% (p. 62, Appellant's Brief). Since the acquisition of the properties in question in 1966, Navalrai was occupying 1,200 square meters thereof as a factory site plus the fact that his son (Navalrais) was occupying the apartment on top of the factory with his family rent free except the amount of P l,000.00 a month to pay for taxes on said properties (tsn, p. 17, S. Oct. 3, 1985). Inherent contradictions also marked Navalrai testimony. "While the latter was very meticulous in keeping a receipt for the P 10,000.00 that he paid Ishwar as settlement in Jethmal Industries, yet in the alleged payment of P 100,000.00 to Ishwar, no 15 receipt or voucher was ever issued by him (tsn, p. 17, S. Oct. 3, 1983).

The foregoing findings of facts of the Court of Appeals which are supported by the evidence is conclusive on this Court. The Court finds that Ishwar entrusted US$150,000.00 to Choithram in 1965 for investment in the realty business. Soon thereafter, a general power of attorney was executed by Ishwar in favor of both Navalrai and Choithram. If it is true that the purpose only is to enable Choithram to purchase realty temporarily in the name of Ishwar, why the inclusion of their elder brother Navalrai as an attorney-in-fact? Then, acting as attorney-in-fact of Ishwar, Choithram purchased two parcels of land located in Barrio Ugong Pasig, Rizal, from Ortigas in 1966. With the balance of the money of Ishwar, Choithram erected a building on said lot. Subsequently, with a loan obtained from a bank and the income of the said property, Choithram constructed three other buildings thereon. He managed the business and collected the rentals. Due to their relationship of confidence it was only in 1970 when Ishwar demanded for an accounting from Choithram. And even as Ishwar revoked the general power of attorney on February 4, 1971, of which Choithram was duly notified, Choithram wrote to Ishwar on June 25, 1971 requesting 16 that he execute a new power of attorney in their favor. When Ishwar did not respond thereto, Choithram nevertheless proceeded as such attorney-in-fact to assign all the rights and interest of Ishwar to his daughter-in-law Nirmla in 1973 without the knowledge and consent of Ishwar. Ortigas in turn executed the corresponding deeds of sale in favor of Nirmla after full payment of the purchase accomplice of the lots. In the prefatory statement of their petition, Choithram pictured Ishwar to be so motivated by greed and ungratefulness, who squandered the family business in New York, who had to turn to his wife for support, accustomed to living in ostentation and who resorted to blackmail in filing several criminal and civil suits against them. These statements find no support and should be stricken from the records. Indeed, they are irrelevant to the proceeding.

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Moreover, assuming Ishwar is of such a low character as Choithram proposes to make this Court to believe, why is it that of all persons, under his temporary arrangement theory, Choithram opted to entrust the purchase of valuable real estate and built four buildings thereon all in the name of Ishwar? Is it not an unconscious emergence of the truth that this otherwise wayward brother of theirs was on the contrary able to raise enough capital through the generosity of his father-in-law for the purchase of the very properties in question? As the appellate court aptly observed if truly this temporary arrangement story is the only motivation, why Ishwar of all people? Why not the own son of Choithram, Haresh who is also an American citizen and who was already 18 years old at the time of purchase in 1966? The Court agrees with the observation that this theory is an afterthought which surfaced only when Choithram, Nirmla and Moti filed their answer. When Ishwar asked for an accounting in 1970 and revoked the general power of attorney in 1971, Choithram had a total change of heart. He decided to claim the property as his. He caused the transfer of the rights and interest of Ishwar to Nirmla. On his representation, Ortigas executed the deeds of sale of the properties in favor of Nirmla. Choithram obviously surmised Ishwar cannot stake a valid claim over the property by so doing. Clearly, this transfer to Nirmla is fictitious and, as admitted by Choithram, was intended only to place the 17 property in her name until Choithram acquires Philippine citizenship. What appears certain is that it appears to be a scheme of Choithram to place the property beyond the reach of Ishwar should he successfully claim the same. Thus, it must be struck down. Worse still, on September 27, 1990 spouses Ishwar filed an urgent motion for the issuance of a writ of preliminary attachment and to require Choithram, et al. to submit certain documents, inviting the attention of this Court to the following: a) Donation by Choithram of his 2,500 shares of stock in General Garments 18 Corporation in favor of his children on December 29, 1989; b) Sale on August 2, 1990 by Choithram of his 100 shares in Biflex (Phils.), Inc., in 19 favor of his children; and c) Mortgage on June 20, 1989 by Nirmla through her attorney-in-fact, Choithram, of the properties subject of this litigation, for the amount of $3 Million in favor of Overseas Holding, Co. Ltd., (Overseas for brevity), a corporation which appears to be organized and existing under and by virtue of the laws of Cayman Islands, with a capital of only $100.00 divided into 100 shares of $1.00 each, and with address at 20 P.O. Box 1790, Grand Cayman, Cayman Islands. An opposition thereto was filed by Choithram, et al. but no documents were produced. A manifestation and reply to the opposition was filed by spouses Ishwar. All these acts of Choithram, et al. appear to be fraudulent attempts to remove these properties to the detriment of spouses Ishwar should the latter prevail in this litigation. On December 10, 1990 the court issued a resolution that substantially reads as follows:

Considering the allegations of petitioners Ishwar Jethmal Ramnani and Sonya Ramnani that respondents Choithram Jethmal Ramnani, Nirmla Ramnani and Moti G. Ramnani have fraudulently executed a simulated mortgage of the properties subject of this litigation dated June 20, 1989, in favor of Overseas Holding Co., Ltd. which appears to be a corporation organized in Cayman Islands, for the amount of $ 3,000,000.00, which is much more than the value of the properties in litigation; that said alleged mortgagee appears to be a "shell" corporation with a capital of only $100.00; and that this alleged transaction appears to be intended to defraud petitioners Ishwar and Sonya Jethmal Ramnani of any favorable judgment that this Court may render in this case; Wherefore the Court Resolved to issue a writ of preliminary injunction enjoining and prohibiting said respondents Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti G. Ramnani and the Overseas Holding Co., Ltd. from encumbering, selling or otherwise disposing of the properties and improvements subject of this litigation until further orders of the Court. Petitioners Ishwar and Sonya Jethmal Ramnani are hereby required to post a bond of P 100,000.00 to answer for any damages d respondents may suffer by way of this injunction if the Court finally decides the said petitioners are not entitled thereto. The Overseas Holding Co., Ltd. with address at P.O. Box 1790 Grand Cayman, Cayman Islands, is hereby IMPLEADED as a respondent in these cases, and is hereby required to SUBMIT its comment on the Urgent Motion for the Issuance of a Writ of Preliminary Attachment and Motion for Production of Documents, the Manifestation and the Reply to the Opposition filed by said petitioners, within Sixty (60) days after service by publication on it in accordance with the provisions of Section 17, Rule 14 of the Rules of Court, at the expense of petitioners Ishwar and Sonya Jethmal Ramnani. Let copies of this resolution be served on the Register of Deeds of Pasig, Rizal, and the Provincial Assessor of Pasig, Rizal, both in Metro Manila, for its annotation on the transfer Certificates of Titles Nos. 403150 and 403152 registered in the name of respondent Nirmla V. Ramnani, and on the tax declarations of the said properties and 21 its improvements subject of this litigation. The required injunction bond in the amount of P 100,000.00 was filed by the spouses Ishwar which was approved by the Court. The above resolution of the Court was published in the Manila Bulletin issue of 22 December 17, 1990 at the expense of said spouses. On December 19, 1990 the said resolution and petition for review with annexes in G.R. Nos. 85494 and 85496 were transmitted to respondent Overseas, Grand Cayman Islands at its address c/o Cayman Overseas Trust Co. Ltd., through the 23 United Parcel Services Bill of Lading and it was actually delivered to said company on January 23, 24 1991. On January 22, 1991, Choithram, et al., filed a motion to dissolve the writ of preliminary injunction alleging that there is no basis therefor as in the amended complaint what is sought is actual damages and not a reconveyance of the property, that there is no reason for its issuance, and that acts already executed cannot be enjoined. They also offered to file a counterbond to dissolve the writ.

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A comment/opposition thereto was filed by spouses Ishwar that there is basis for the injunction as the alleged mortgage of the property is simulated and the other donations of the shares of Choithram to his children are fraudulent schemes to negate any judgment the Court may render for petitioners. No comment or answer was filed by Overseas despite due notice, thus it is and must be considered to be in default and to have lost the right to contest the representations of spouses Ishwar to declare the aforesaid alleged mortgage nun and void. This purported mortgage of the subject properties in litigation appears to be fraudulent and simulated. The stated amount of $3 Million for which it was mortgaged is much more than the value of the mortgaged properties and its improvements. The alleged mortgagee-company (Overseas) was organized only on June 26,1989 but the mortgage was executed much earlier, on June 20, 1989, that is 25 six (6) days before Overseas was organized. Overseas is a "shelf" company worth only $100.00. In the manifestation of spouses Ishwar dated April 1, 1991, the Court was informed that this matter was brought to the attention of the Central Bank (CB) for investigation, and that in a letter of March 20, 1991, the CB informed counsel for spouses Ishwar that said alleged foreign loan of Choithram, et al. from 26 Overseas has not been previously approved/registered with the CB. Obviously, this is another ploy of Choithram, et al. to place these properties beyond the reach of spouses Ishwar should they obtain a favorable judgment in this case. The Court finds and so declares that this alleged mortgage should be as it is hereby declared null and void. All these contemporaneous and subsequent acts of Choithram, et al., betray the weakness of their cause so they had to take an steps, even as the case was already pending in Court, to render ineffective any judgment that may be rendered against them. The problem is compounded in that respondent Ortigas is caught in the web of this bitter fight. It had all the time been dealing with Choithram as attorney-in-fact of Ishwar. However, evidence had been adduced that notice in writing had been served not only on Choithram, but also on Ortigas, of the 27 revocation of Choithram's power of attorney by Ishwar's lawyer, on May 24, 1971. A publication of said notice was made in the April 2, 1971 issue of The Manila Times for the information of the general 28 public. Such notice of revocation in a newspaper of general circulation is sufficient warning to third 29 persons including Ortigas. A notice of revocation was also registered with the Securities and 30 Exchange Commission on March 29, 1 971. Indeed in the letter of Choithram to Ishwar of June 25, 1971, Choithram was pleading that Ishwar execute another power of attorney to be shown to Ortigas who apparently learned of the revocation of 31 Choithram's power of attorney. Despite said notices, Ortigas nevertheless acceded to the representation of Choithram, as alleged attorney-in-fact of Ishwar, to assign the rights of petitioner Ishwar to Nirmla. While the primary blame should be laid at the doorstep of Choithram, Ortigas is not entirely without fault. It should have required Choithram to secure another power of attorney from Ishwar. For recklessly believing the pretension of Choithram that his power of attorney was still good, it must, therefore, share in the latter's liability to Ishwar. In the original complaint, the spouses Ishwar asked for a reconveyance of the properties and/or 32 payment of its present value and damages. In the amended complaint they asked, among others, for actual damages of not less than the present value of the real properties in litigation, moral and exemplary damages, attorneys fees, costs of the suit and further prayed for "such other reliefs as may

be deemed just and equitable in the premises . allegations:

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The amended complaint contain the following positive

7. Defendant Choithram Ramnani, in evident bad faith and despite due notice of the revocation of the General Power of Attorney, Annex 'D" hereof, caused the transfer of the rights over the said parcels of land to his daughter-in-law, defendant Nirmla Ramnani in connivance with defendant Ortigas & Co., the latter having agreed to the said transfer despite receiving a letter from plaintiffs' lawyer informing them of the said revocation; copy of the letter is hereto attached and made an integral part hereof as Annex "H"; 8. Defendant Nirmla Ramnani having acquired the aforesaid property by fraud is, by force of law,considered a trustee of an implied trust for the benefit of plaintiff and is obliged to return the same to the latter: 9. Several efforts were made to settle the matter within the family but defendants (Choithram Ramnani, Nirmla Ramnani and Moti Ramnani) refused and up to now fail and still refuse to cooperate and respond to the same; thus, the present case; 10. In addition to having been deprived of their rights over the properties (described in par. 3 hereof), plaintiffs, by reason of defendants' fraudulent act, suffered actual damages by way of lost rental on the property which defendants (Choithram 34 Ramnani, Nirmla Ramnani and Moti Ramnani have collected for themselves; In said amended complaint, spouses Ishwar, among others, pray for payment of actual damages in an amount no less than the value of the properties in litigation instead of a reconveyance as sought in the original complaint. Apparently they opted not to insist on a reconveyance as they are American citizens as alleged in the amended complaint. The allegations of the amended complaint above reproduced clearly spelled out that the transfer of the property to Nirmla was fraudulent and that it should be considered to be held in trust by Nirmla for spouses Ishwar. As above-discussed, this allegation is well-taken and the transfer of the property to Nirmla should be considered to have created an implied trust by Nirmla as trustee of the property for the 35 benefit of spouses Ishwar. The motion to dissolve the writ of preliminary injunction filed by Choithram, et al. should be denied. Its issuance by this Court is proper and warranted under the circumstances of the case. Under Section 3(c) Rule 58 of the Rules of Court, a writ of preliminary injunction may be granted at any time after commencement of the action and before judgment when it is established: (c) that the defendant is doing, threatens, or is about to do, or is procuring or suffering to be done, some act probably in violation of plaintiffs's rights respecting the subject of the action, and tending to render the judgment ineffectual. As above extensively discussed, Choithram, et al. have committed and threaten to commit further acts of disposition of the properties in litigation as well as the other assets of Choithram, apparently designed to render ineffective any judgment the Court may render favorable to spouses Ishwar.

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The purpose of the provisional remedy of preliminary injunction is to preserve the status quo of the things subject of the litigation and to protect the rights of the spouses Ishwar respecting the subject of 36 the action during the pendency of the Suit and not to obstruct the administration of justice or prejudice 37 the adverse party. In this case for damages, should Choithram, et al. continue to commit acts of disposition of the properties subject of the litigation, an award of damages to spouses Ishwar would 38 thereby be rendered ineffectual and meaningless. Consequently, if only to protect the interest of spouses Ishwar, the Court hereby finds and holds that the motion for the issuance of a writ of preliminary attachment filed by spouses Ishwar should be granted covering the properties subject of this litigation. Section 1, Rule 57 of the Rules of Court provides that at the commencement of an action or at any time thereafter, the plaintiff or any proper party may have the property of the adverse party attached as security for the satisfaction of any judgment that may be recovered, in, among others, the following cases: (d) In an action against a party who has been guilty of a fraud in contracting the debt or incurring the obligation upon which the action is brought, or in concealing or disposing of the property for the taking, detention or conversion of which the action is brought; (e) In an action against a party who has removed or disposed of his property, or is about to do so, with intent to defraud his creditors; . . . Verily, the acts of Choithram, et al. of disposing the properties subject of the litigation disclose a scheme to defraud spouses Ishwar so they may not be able to recover at all given a judgment in their favor, the requiring the issuance of the writ of attachment in this instance. Nevertheless, under the peculiar circumstances of this case and despite the fact that Choithram, et al., have committed acts which demonstrate their bad faith and scheme to defraud spouses Ishwar and Sonya of their rightful share in the properties in litigation, the Court cannot ignore the fact that Choithram must have been motivated by a strong conviction that as the industrial partner in the acquisition of said assets he has as much claim to said properties as Ishwar, the capitalist partner in the joint venture. The scenario is clear. Spouses Ishwar supplied the capital of $150,000.00 for the business. They entrusted the money to Choithram to invest in a profitable business venture in the Philippines. For this purpose they appointed Choithram as their attorney-in-fact. Choithram in turn decided to invest in the real estate business. He bought the two (2) parcels of land in question from Ortigas as attorney-in-fact of Ishwar- Instead of paying for the lots in cash, he paid in installments and used the balance of the capital entrusted to him, plus a loan, to build two buildings. Although the buildings were burned later, Choithram was able to build two other buildings on the property. He rented them out and collected the rentals. Through the industry and genius of Choithram, Ishwar's property was developed and improved into what it is nowa valuable asset worth millions of pesos. As of the last estimate in 1985, while the case was pending before the trial court, the market 39 value of the properties is no less than P22,304,000.00. It should be worth much more today.

We have a situation where two brothers engaged in a business venture. One furnished the capital, the other contributed his industry and talent. Justice and equity dictate that the two share equally the fruit of their joint investment and efforts. Perhaps this Solomonic solution may pave the way towards their reconciliation. Both would stand to gain. No one would end up the loser. After all, blood is thicker than water. However, the Court cannot just close its eyes to the devious machinations and schemes that Choithram employed in attempting to dispose of, if not dissipate, the properties to deprive spouses Ishwar of any possible means to recover any award the Court may grant in their favor. Since Choithram, et al. acted with evident bad faith and malice, they should pay moral and exemplary damages as well as attorney's fees to spouses Ishwar. WHEREFORE, the petition in G.R. No. 85494 is DENIED, while the petition in G.R. No. 85496 is hereby given due course and GRANTED. The judgment of the Court of Appeals dated October 18, 1988 is hereby modified as follows: 1. Dividing equally between respondents spouses Ishwar, on the one hand, and petitioner Choithram Ramnani, on the other, (in G.R. No. 85494) the two parcels of land subject of this litigation, including all the improvements thereon, presently covered by transfer Certificates of Title Nos. 403150 and 403152 of the Registry of Deeds, as well as the rental income of the property from 1967 to the present. 2. Petitioner Choithram Jethmal Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and respondent Ortigas and Company, Limited Partnership (in G.R. No. 85496) are ordered solidarily to pay in cash the value of said one-half (1/2) share in the said land and improvements pertaining to respondents spouses Ishwar and Sonya at their fair market value at the time of the satisfaction of this judgment but in no case less than their value as appraised by the Asian Appraisal, Inc. in its Appraisal Report dated August 1985 (Exhibits T to T-14, inclusive). 3. Petitioners Choithram, Nirmla and Moti Ramnani and respondent Ortigas & Co., Ltd. Partnership shall also be jointly and severally liable to pay to said respondents spouses Ishwar and Sonya Ramnani one-half (1/2) of the total rental income of said properties and improvements from 1967 up to the date of satisfaction of the judgment to be computed as follows: a. On Building C occupied by Eppie's Creation and Jethmal Industries from 1967 to 1973, inclusive, based on the 1967 to 1973 monthly rentals paid by Eppie's Creation; b. Also on Building C above, occupied by Jethmal Industries and Lavine from 1974 to 1978, the rental incomes based on then rates prevailing as shown under Exhibit "P"; and from 1979 to 1981, based on then prevailing rates as indicated under Exhibit "Q"; c. On Building A occupied by Transworld Knitting Mills from 1972 to 1978, the rental incomes based upon then prevailing rates shown under Exhibit "P", and from 1979 to 1981, based on prevailing rates per Exhibit "Q"; d. On the two Bays Buildings occupied by Sigma-Mariwasa from 1972 to 1978, the rentals based on the Lease Contract, Exhibit "P",

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and from 1979 to 1980, the rentals based on the Lease Contract, Exhibit "Q". and thereafter commencing 1982, to account for and turn over the rental incomes paid or ought to be paid for the use and occupancy of the properties and all improvements totalling 10,048 sq. m., based on the rate per square meter prevailing in 1981 as indicated annually cumulative up to 1984. Then, commencing 1985 and up to the satisfaction of the judgment, rentals shall be computed at ten percent (10%) annually of the fair market values of the properties as appraised by the Asian Appraisals, Inc. in August 1985. (Exhibits T to T-14, inclusive.) 4. To determine the market value of the properties at the time of the satisfaction of this judgment and the total rental incomes thereof, the trial court is hereby directed to hold a hearing with deliberate dispatch for this purpose only and to have the judgment immediately executed after such determination. 5. Petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, are also jointly and severally liable to pay respondents Ishwar and Sonya Ramnani the amount of P500,000.00 as moral damages, P200,000.00 as exemplary damages and attorney's fees equal to 10% of the total award. to said respondents spouses. 6. The motion to dissolve the writ of preliminary injunction dated December 10, 1990 filed by petitioners Choithram, Nirmla and Moti, all surnamed Ramnani, is hereby DENIED and the said injunction is hereby made permanent. Let a writ of attachment be issued and levied against the properties and improvements subject of this litigation to secure the payment of the above awards to spouses Ishwar and Sonya. 7. The mortgage constituted on the subject property dated June 20, 1989 by petitioners Choithram and Nirmla, both surnamed Ramnani in favor of respondent Overseas Holding, Co. Ltd. (in G.R. No. 85496) for the amount of $3-M is hereby declared null and void. The Register of Deeds of Pasig, Rizal, is directed to cancel the annotation of d mortgage on the titles of the properties in question. 8. Should respondent Ortigas Co., Ltd. Partnership pay the awards to Ishwar and Sonya Ramnani under this judgment, it shall be entitled to reimbursement from petitioners Choithram, Nirmla and Moti, all surnamed Ramnani. 9. The above awards shag bear legal rate of interest of six percent (6%) per annum from the time this judgment becomes final until they are fully paid by petitioners Choithram Ramnani, Nirmla V. Ramnani, Moti C. Ramnani and Ortigas, Co., Ltd. Partnership. Said petitioners Choithram, et al. and respondent Ortigas shall also pay the costs. SO ORDERED.

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G.R. No. L-28633 March 30, 1971 CENTRAL SURETY and INSURANCE COMPANY, petitioner, vs.C. N. HODGES and THE COURT OF APPEALS, respondents. Appeal by certiorari from a decision of the Court of Appeals, the dispositive part of which reads as follows: WHEREFORE, in view of the foregoing considerations, the decision appealed from is modified and judgment is hereby rendered against Central Surety & Insurance Company: (a) To pay plaintiff C. N. Hodges the sum of P17,826.08 with interest thereon at the rate of 12% per annum from October 24, 1955 until fully paid; (b) To pay plaintiff C. N. Hodges the sum of P1,551.60 as attorney's fees; and (c) To pay the costs. The main facts are not disputed. Prior to January 15, 1954, lots Nos. 1226 and 1182 of the Cadastral Survey of Talisay, Negros Occidental, had been sold by C. N. Hodges to Vicente M. Layson, for the sum of P43,000.90, payable on installments. As of January 15, 1954, the outstanding balance of Layson's debt, after deducting the installments paid by him prior thereto, amounted to P15,516.00. In order that he could use said lots as security for a loan he intended to apply from a bank, Layson persuaded Hodges to execute in his (Layson's) favor a deed of absolute sale over the properties, with the understanding that he would put up a surety bond to guarantee the payment of said balance. Accordingly, on the date above-mentioned, Layson executed, in favor of Hodges, a promissory note for P15,516.00, with interest thereon at the rate of 1% per month, and the sum of P1,551.60, for attorney's fees and costs, in case of default in the payment of the principal or interest of said note. To guarantee the same, on January 23, 1954, the Central Surety and Insurance Company hereinafter referred to as petitioner through the manager of its branch office in Iloilo, Mrs. Rosita Mesa, executed in favor of Hodges the surety bond Annex B, which was good for twelve (12) months from the date thereof. When Layson defaulted in the discharge of his aforesaid obligation, Hodges demanded payment from the petitioner, which, despite repeated extensions of time granted thereto, at its request, failed to honor its commitments under the surety bond. On October 24, 1955, Hodges commenced, therefore. the present action, in the Court of First Instance of Iloilo, against Layson and petitioner herein, to recover from them, jointly and severally, the sums of P17,826.08, representing the principal and interest due up to said date, and P1,551.60, as attorney's fees. In his answer to the complaint, Layson admitted the formal allegations and denied the other allegations thereof. Having failed to file its answer within the reglementary period, the petitioner was, on January 18, 1956, declared in default. When the case was called for trial, insofar as Layson was concerned, the latter did not appear, and Hodges was allowed to introduce his evidence. Then the trial court rendered a partial decision against Layson, petitioner having, in the meantime, filed a motion to set aside the order of default, which motion was still pending resolution. lwph1.t Thereafter, said motion was denied, and upon presentation of the evidence of Hodges against herein petitioner, judgment was rendered against the latter as prayed for in the complaint. Thereupon, petitioner filled a motion for reconsideration and a motion for relief under Rule 38. Acting thereon, His Honor, the trial Judge, later set aside its decision against the petitioner and admitted its answer, attached to the motion to set aside the order of default.

In its answer, petitioner disclaimed liability under the surety bond in question, upon the ground (a) that the same is null and void, it having been issued by Mrs. Rosita Mesa after her authority therefor had been withdrawn on March 15, 1952; (b) that even under her original authority Mrs. Mesa could not issue surety bonds in excess of P8,000.00 without the approval of petitioner's main office which was not given to the surety bond in favor of Hodges; and (c) that the present action is barred by the provision in the surety bond to the effect that all claims and actions thereon should be filed within three (3) months from the date of its expiration on January 23, 1955. Petitioner, moreover, set up a counterclaim for damages. In due course, thereafter, the trial court rendered a decision: a) Condenando a la demandada Central Surety & Insurance Co. que pague al demandante la desde la P8,000.00 con intereses legales a contar desde la fecha de la demanda 24 de Octubre de 1955; b) Condenando a la misma demandada que pague al de mindante la suma de P600.00 en concepto de honorarios de abogado; y c) Condenindo ademas a la misma demandada que pague las costas del juicio. Hodges appealed to the Court of Appeals (CA-G.R. No. L-24684-R) from this decision, insofar as it limited petitioners liability to P8,000.00. Petitioner, also, appealed to said Court upon the ground that the trial court had erred: (a) in holding petitioner liable under a contract entered into by its agent in excess of her authority; (b) in sentencing petitioner to pay Hodges the sum of P8,000.00 with interest thereon, in addition to attorney's fees and the costs; and (c) in "not awarding" petitioner's counterclaim. After appropriate proceedings, the Court of Appeals rendered the decision above referred to, from which petitioner has appealed to this Court, alleging that the Court of Appeals has erred: (1) in finding that petitioner "was liable on a bond issued by an agent whose authority ... had already been withdrawn and revoked"; (2) "in applying the rule on implied admission by reason of failure to deny under oath the authenticity of a pleaded document"; and (3) "in not considering the legal effect of the waiver contained in the disputed bond and in not disposing of this case under the light of such waiver." The first assignment of error is predicated upon the fact that prior to January 23, 1954, when the surety bond involved in this case was executed, or on March 15, 1952, petitioner herein had withdrawn the authority of its branch manager in the City of Iloilo, Mrs. Rosita Mesa, to issue, inter alia, surety bonds and that, accordingly, the surety bond, copy of which was attached to the complaint as Annex B, is null and void. On this point, the Court of Appeals had the following to say: ... we are of the opinion that said surety bond is valid. In the first place, there appears to be no showing that the revocation of authority was made known to the public in general by publication, nor was Hodges notified of such revocation despite the fact that he was a regular client of the firm. And even if Hodges would have inquired from Mrs. Mesa as to her authority to issue said bond, we doubt if she would disclose the contents of the letter of March 15, 1952 in view of Central Surety's claim that she was committing irregularities in her remittances to the main office. Secondly, some surety bonds issued by Mrs. Mesa in favor of Hodges after her authority had allegedly been curtailed, were honored by the Central Surety despite the fact that these were not reported to the main office at the time of their issuance. These accounts were paid on January 31, 1957, to wit: Felicito and Libertad Parra issued on August 16, 1952; Estrella Auayan issued on November 16, 1953; Dominador Jordan issued on August

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26, 1953; and Ladislao Lachica issued on February 28, 1953. (Exhs. F, G, H, I and J). By these acts Central Surety ratified Mrs. Mesa's unauthorized acts and as such it is now estopped from setting forth Mrs. Mesa's lack of authority to issue surety bonds after March 15, 1952. It has been held that although the agent may have acted beyond the scope of his authority, or may have acted without authority at all, the principal may yet subsequently see fit to recognize and adopt the act as his own. Ratification being a matter of assent to and approval of the act as done on account of the person ratifying any words or acts which show such assent and approval are ordinarily sufficient. (Sta. Catalina vs. Espitero, CA-G.R. No. 27075-R, April 28, 1964, citing IV Padilla, CIVIL CODE. 1959 ed., pp. 478-479; Roxas vs. Villanueva, CA-G.R. No. 18928-R, June 20, 1958). Moreover, the relocation of agency does not prejudice third persons who acted in good faith without knowledge of the revocation. (Joson vs. Garcia, CA-G.R. No. 29336-R. Nov. 19, 1962). Indeed, Article 1922 of our Civil Code provides: If the agent had general powers, revocation of the agency does not prejudice third persons who acted in good faith and without knowledge of the revocation. Notice of the revocation in a newspaper of general circulation is a sufficient warning to third persons. It is not disputed that petitioner has not caused to be published any notice of the revocation of Mrs. Mesa's authority to issue surety bonds on its behalf, notwithstanding the fact that the powers of Mrs. Mesa, as its branch manager in Iloilo, were of a general nature, for she had exclusive authority, in the City of Iloilo, to represent petitioner herein, not with a particular person, but with the public in general, "in all the negotiations, transactions, and business in wherein the Company may lawfully transact or engage on subject only to the restrictions specified in their agreement, copy of which was attached to 1 petitioner's answer as Annex 3. Contrary to petitioner's claim, Article 1922 applies whenever an agent has general powers, not merely when the principal has published the same, apart from the fact that the opening of petitioner's branch office amounted to a publication of the grant of powers to the manager of said office. Then, again, by honoring several surety bonds issued in its behalf by Mrs. Mesa subsequently to March 15, 1952, petitioner induced the public to believe that she had authority to issue such bonds. As a consequence, petitioner is now estopped from pleading, particularly against a regular customer thereof, like Hodges, the absence of said authority. Let us now take up the third assignment of error and defer, until after the same has been disposed of, the consideration of the second assignment of error. Under the third assignment of error, petitioner maintains that, having been instituted on October 24, 1955 or nine (9) months after the expiration of petitioner's surety bond on January 23, 1955 the present action is barred by the provision in said bond to the effect that it: ...will not be liable for any claim not discovered and presented to the Company within three (3) months from the expiration of this bond and that the obligee hereby waives his right to file any court action against the surety after the termination of the period of three months above-mentioned. Interpreting an identical provision, court has, however, held "that the three-month period" prescribed therein "established only a condition precedent, not a limitation of action," and that, when a claim has been presented within said period, the action to enforce the claim may be "filed within the statutory time 3 of prescription." This view was clarified in a subsequent case, in the sense that the above-quoted
2

provision was "... merely interpreted to mean that presentation of the claim within three months was a condition precedent to the filing of a court action. Since the obligee in said case presented his claim seasonably although it did not file the action within the same period, this Court ruled that the stipulation in the bond concerning the limitation being ambiguous, the ambiguity should be resolved against the surety, which drafted the agreement, and that the action could be filed within the statutory period of 4 prescription." In the case at bar, it is not contended that Hodges had not presented his claim within three (3) months from January 23, 1955. In fact, he had repeatedly demanded from petitioner herein compliance with its obligations under the surety bond in question, and, in reply to such demands, petitioner asked extensions of time, on January 29, February 16, March 15, May 3, June 16, July 1 and 15, and October 5 15, 1955. After thus securing extensions of time, even beyond three (3) months from January 23, 1955, petitioner cannot plead the lapse of said period to bar the present action. The second assignment of error assails the finding of the Court of Appeals to the effect that the petitioner is liable for the full amount of surety bond despite the fact that it exceeded the sum of P8,000.00 and hence, required, for its validity and binding effect as against petitioner herein, the express approval and confirmation of its Manila office, which were not secured in view of petitioner's failure to deny under oath the genuineness and due execution of said bond, copy of which was attached to the complaint. It is true that, pursuant to section 8 of Rule 8 of the Rules of Court: When an action or defense is founded upon a written instrument, copied in or attached to the corresponding pleading as provided in the preceding section, the genuineness and due execution of the instrument shall be deemed admitted unless the adverse party, under oath, specifically denies them, and sets forth what he claims to be the facts; but this provision does not apply when the adverse party does not appear to be a party to the instrument or when compliance with an order for an inspection of the original instrument is refused. We have however, held that: ... where a case has been tried in complete disregard of the rule and the plaintiff having pleaded a document by copy, presents oral evidence to prove the due execution of the document as well as the agent's authority and no objections are 6 made to the defendant's evidence in refutation, the rule will be considered waived. The reason for such view was explained by this Court as follows: Before entering upon a discussion of the questions raised by the assignments of error, we may draw attention to a matter which has not been mentioned either by counsel or by the court below, but which, to prevent misunderstanding, should be briefly explained: It is averred in the complaint that it is accompanied by a copy of the contract between the parties (Exhibit A) which copy, by the terms of the complaint, is made a part thereof. The copy is not set forth in the bill of exceptions and aside from said averment, there is no indication that the copy actually accompanied the complaint, but an examination of the record of the case in the Court of First Instance shows that a translation of the contract was attached to the complaint and served upon the defendant. As this translation may be considered a copy and as the defendant failed to deny its authenticity under oath, it will perhaps be said that under

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section 103 of the Code of Civil Procedure the omission to so deny it constitutes an admission of the genuineness and due execution of the document as well as of the agent's authority to bind the defendant. (Merchant vs. International Banking Corporation, 6 Phil. 314.) In ordinary circumstances that would be true. But this case appears to have been tried upon the theory that the rule did not apply; at least, it was wholly overlooked or disregarded by both parties.lwph1.tThe plaintiffs at the beginning of the trial presented a number of witnesses to prove the due execution of the document as well as the agent's authority; no objection were made to the defendant's evidence in refutation; all no exceptions taken; and the matter is not mentioned in the decision of the trial court. The object of the rule is 'to relieve a party of the trouble and expense of proving in the first instance an alleged fact, the existence or nonexistence of which is necessarily within the knowledge of the adverse party, and of the necessity (to his opponent's case) of establishing which such adverse party is notified by his opponent's pleading.' (Nery Lim-Chingco vs. Terariray, 5 Phil., at p. 124.) The plaintiff may, of course, waive the rule and that is what he must be considered to have done in the present case by introducing evidence as to the execution of the document and failing to object to the defendant's evidence in refutation; all this evidence is now competent and the case must be decided thereupon. .... Nothing of what has here been said is in conflict with former decisions of this court; it will be found upon examination that in all cases where the applicability of the rule has been sustained the party invoking it has relied on it in the court below and conducted his 7 case accordingly." In the case at bar, the parties acted in complete disregard of or wholly overlooked the rule abovequoted. Hodges had neither objected to the evidence introduced by petitioner herein in order to prove that Mrs. Mesa had no authority to issue a surety bond, much less one in excess of P8,000.00, and took no exception to the admission of said evidence. Hence, Hodges must be deemed to have waived the benefits of said rule and petitioner herein cannot be held liable in excess of the sum of P8,000.00. WHEREFORE, with the modification that petitioner's liability to Hodges is limited to said sum of P8,000.00 the period, the petitioner was, on January 18, 1956, declared it is hereby affirmed in all other respects, without costs. It is so ordered.

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G.R. No. 141525 September 2, 2005 CARLOS SANCHEZ, Petitioners, vs.MEDICARD PHILIPPINES, INC., DR. NICANOR MONTOYA and CARLOS EJERCITO, Respondent. This petition for review on certiorari seeks to reverse the Decision of the Court of Appeals dated February 24, 1999 and its Resolution dated January 12, 2000 in CA-G.R. CV No. 47681. The facts, as established by the trial court and affirmed by the Court of Appeals, follow: Sometime in 1987, Medicard Philippines, Inc. (Medicard), respondent, appointed petitioner as its special corporate agent. As such agent, Medicard gave him a commission based on the "cash brought in." In September, 1988, through petitioners efforts, Medicard and United Laboratories Group of Companies (Unilab) executed a Health Care Program Contract. Under this contract, Unilab shall pay Medicard a fixed monthly premium for the health insurance of its personnel. Unilab paid Medicard P4,148,005.00 representing the premium for one (1) year. Medicard then handed petitioner 18% of said amount or P746,640.90 representing his commission. Again, through petitioners initiative, the agency contract between Medicard and Unilab was renewed for another year, or from October 1, 1989 to September 30, 1990, incorporating therein the increase of premium fromP4,148,005.00 to P7,456,896.00. Medicard paid petitioner P1,342,241.00 as his commission. Prior to the expiration of the renewed contract, Medicard proposed to Unilab, through petitioner, an increase of the premium for the next year. Unilab rejected the proposal "for the reason that it was too high," prompting Dr. Nicanor Montoya (Medicards president and general manager), also a respondent, to request petitioner to reduce his commission, but the latter refused. In a letter dated October 3, 1990, Unilab, through Carlos Ejercito, another respondent, confirmed its decision not to renew the health program contract with Medicard. Meanwhile, in order not to prejudice its personnel by the termination of their health insurance, Unilab, through respondent Ejercito, negotiated with Dr. Montoya and other officers of Medicard, to discuss ways in order to continue the insurance coverage of those personnel. Under the new scheme, Unilab shall pay Medicard only the amount corresponding to the actual hospitalization expenses incurred by each personnel plus 15% service fee for using Medicard facilities, which amount shall not be less than P780,000.00. Medicard did not give petitioner any commission under the new scheme. In a letter dated March 15, 1991, petitioner demanded from Medicard payment of P338,000.00 as his commission plus damages, but the latter refused to heed his demand.
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Thus, petitioner filed with the Regional Trial Court (RTC), Branch 66, Makati City, a complaint for sum of money against Medicard, Dr. Nicanor Montoya and Carlos Ejercito, herein respondents. After hearing, the RTC rendered its Decision dismissing petitioners complaint and respondents counterclaim. On appeal, the Court of Appeals affirmed the trial courts assailed Decision. The Appellate Court held that there is no proof that the execution of the new contract between the parties under the "cost plus" system is a strategy to deprive petitioner of his commission; that Medicard did not commit any fraudulent act in revoking its agency contract with Sanchez; that when Unilab rejected Medicards proposal for an increase of premium, their Health Care Program Contract on its third year was effectively revoked; and that where the contract is ineffectual, then the agent is not entitled to a commission. Petitioner filed a motion for reconsideration, but this was denied by the Court of Appeals on January 12, 2000. Hence, the instant petition for review on certiorari. The basic issue for our resolution is whether the Court of Appeals erred in holding that the contract of agency has been revoked by Medicard, hence, petitioner is not entitled to a commission. It is dictum that in order for an agent to be entitled to a commission, he must be the procuring cause of the sale, which simply means that the measures employed by him and the efforts he exerted must result 2 in a sale. In other words, an agent receives his commission only upon the successful conclusion of a 3 sale. Conversely, it follows that where his efforts are unsuccessful, or there was no effort on his part, he is not entitled to a commission. In Prats vs. Court of Appeals, this Court held that for the purpose of equity, an agent who is not the efficient procuring cause is nonetheless entitled to his commission, where said agent, notwithstanding the expiration of his authority, nonetheless, took diligent steps to bring back together the parties, such that a sale was finalized and consummated between them. In Manotok Borthers vs. Court of 5 Appeals, where the Deed of Sale was only executed after the agents extended authority had expired, this Court, applying its ruling in Prats, held that the agent (in Manotok) is entitled to a commission since he was the efficient procuring cause of the sale, notwithstanding that the sale took place after his authority had lapsed. The proximate, close, and causal connection between the agents efforts and the principals sale of his property can not be ignored. It may be recalled that through petitioners efforts, Medicard was able to enter into a one -year Health Care Program Contract with Unilab. As a result, Medicard paid petitioner his commission. Again, through his efforts, the contract was renewed and once more, he received his commission. Before the expiration of the renewed contract, Medicard, through petitioner, proposed an increase in premium, but Unilab rejected this proposal. Medicard then requested petitioner to reduce his commission should the contract be renewed on its third year, but he was obstinate. Meantime, on October 3, 1990, Unilab informed Medicard it was no longer renewing the Health Care Program contract. In order not to prejudice its personnel, Unilab, through respondent Ejercito, negotiated with respondent Dr. Montoya of Medicard, in order to find mutually beneficial ways of continuing the Health Care Program. The negotiations resulted in a new contract wherein Unilab shall pay Medicard the
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hospitalization expenses actually incurred by each employees, plus a service fee. Under the "cost plus" system which replaced the premium scheme, petitioner was not given a commission. It is clear that since petitioner refused to reduce his commission, Medicard directly negotiated with Unilab, thus revoking its agency contract with petitioner. We hold that such revocation is authorized by Article 1924 of the Civil Code which provides: "Art. 1924. The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons." Moreover, as found by the lower courts, petitioner did not render services to Medicard, his principal, to entitle him to a commission. There is no indication from the records that he exerted any effort in order that Unilab and Medicard, after the expiration of the Health Care Program Contract, can renew it for the third time. In fact, his refusal to reduce his commission constrained Medicard to negotiate directly with Unilab. We find no reason in law or in equity to rule that he is entitled to a commission. Obviously, he was not the agent or the "procuring cause" of the third Health Care Program Contract between Medicard and Unilab. WHEREFORE, the petition is DENIED. The challenged Decision and Resolution of the Court of Appeals in CA-G.R. CV No. 47681 are AFFIRMED IN TOTO. Costs against petitioner. SO ORDERED.

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G.R. No. L-41420 July 10, 1992 CMS LOGGING, INC., petitioner, vs.THE COURT OF APPEALS and D.R. AGUINALDO CORPORATION, respondents. This is a petition for review on certiorari from the decision dated July 31, 1975 of the Court of Appeals in CA-G.R. No. 47763-R which affirmed in toto the decision of the Court of First Instance of Manila, Branch VII, in Civil Case No. 56355 dismissing the complaint filed by petitioner CMS Logging, Inc. (CMS, for brevity) against private respondent D.R. Aguinaldo Corporation (DRACOR, for brevity) and ordering the former to pay the latter attorney's fees in the amount of P1,000.00 and the costs. The facts of the case are as follows: Petitioner CMS is a forest concessionaire engaged in the logging business, while private respondent DRACOR is engaged in the business of exporting and selling logs 1 and lumber. On August 28, 1957, CMS and DRACOR entered into a contract of agency whereby the former appointed the latter as its exclusive export and sales agent for all logs that the former may produce, for a period of five (5) years. The pertinent portions of the agreement, which was drawn up by 2 DRACOR, are as follows: 1. SISON [CMS] hereby appoints DRACOR as his sole and exclusive export sales agent with full authority, subject to the conditions and limitations hereinafter set forth, to sell and export under a firm sales contract acceptable to SISON, all logs produced by SISON for a period of five (5) years commencing upon the execution of the agreement and upon the terms and conditions hereinafter provided and DRACOR hereby accepts such appointment; xxx xxx xxx 3. It is expressly agreed that DRACOR shall handle exclusively all negotiations of all export sales of SISON with the buyers and arrange the procurement and schedules of the vessel or vessels for the shipment of SISON's logs in accordance with SISON's written requests, but DRACOR shall not in anyway [sic] be liable or responsible for any delay, default or failure of the vessel or vessels to comply with the schedules agreed upon; xxx xxx xxx 9. It is expressly agreed by the parties hereto that DRACOR shall receive five (5%) per cent commission of the gross sales of logs of SISON based on F.O.B. invoice value which commission shall be deducted from the proceeds of any and/or all moneys received by DRACOR for and in behalf and for the account of SISON; By virtue of the aforesaid agreement, CMS was able to sell through DRACOR a total of 77,264,672 board feet of logs in Japan, from September 20, 1957 to April 4, 1962. About six months prior to the expiration of the agreement, while on a trip to Tokyo, Japan, CMS's president, Atty. Carlos Moran Sison, and general manager and legal counsel, Atty. Teodoro R. Dominguez, discovered that DRACOR had used Shinko Trading Co., Ltd. (Shinko for brevity) as agent, representative or liaison officer in selling CMS's logs in Japan for which Shinko earned a commission of

U.S. $1.00 per 1,000 board feet from the buyer of the logs. Under this arrangement, Shinko was able to 3 collect a total of U.S. $77,264.67. CMS claimed that this commission paid to Shinko was in violation of the agreement and that it (CMS) is entitled to this amount as part of the proceeds of the sale of the logs. CMS contended that since DRACOR had been paid the 5% commission under the agreement, it is no longer entitled to the additional commission paid to Shinko as this tantamount to DRACOR receiving double compensation for the services it rendered. After this discovery, CMS sold and shipped logs valued at U.S. $739,321.13 or P2,883,351.90, directly to several firms in Japan without the aid or intervention of DRACOR. CMS sued DRACOR for the commission received by Shinko and for moral and exemplary damages, while DRACOR counterclaimed for its commission, amounting to P144,167.59, from the sales made by CMS of logs to Japanese firms. In its reply, CMS averred as a defense to the counterclaim that DRACOR had retained the sum of P101,167.59 as part of its commission for the sales made by 5 CMS. Thus, as its counterclaim to DRACOR's counterclaim, CMS demanded DRACOR return the amount it unlawfully retained. DRACOR later filed an amended counterclaim, alleging that the balance 6 of its commission on the sales made by CMS was P42,630.82, thus impliedly admitting that it retained the amount alleged by CMS. In dismissing the complaint, the trial court ruled that no evidence was presented to show that Shinko received the commission of U.S. $77,264.67 arising from the sale of CMS's logs in Japan, though the trial court stated that "Shinko was able to collect the total amount of $77,264.67 US Dollars (Exhs. M 7 and M-1)." The counterclaim was likewise dismissed, as it was shown that DRACOR had waived its rights to the balance of its commission in a letter dated February 2, 1963 to Atty. Carlos Moran Sison, president of CMS. 8 From said decision, only CMS appealed to the Court of Appeals. The Court of Appeals, in a 3 to 2 decision, affirmed the dismissal of the complaint since "[t]he trial court could not have made a categorical finding that Shinko collected commissions from the buyers of Sison's logs in Japan, and could not have held that Sison is entitled to recover from Dracor the amount collected by Shinko as commissions, plaintiff-appellant having failed to prove by competent evidence its 10 claims." Moreover, the appellate court held: There is reason to believe that Shinko Trading Co. Ltd., was paid by defendantappellee out of its own commission of 5%, as indicated in the letter of its president to the president of Sison, dated February 2, 1963 (Exhibit "N"), and in the Agreement between Aguinaldo Development Corporation (ADECOR) and Shinko Trading Co., Ltd. (Exhibit "9"). Daniel R. Aguinaldo stated in his said letter: . . . , I informed you that if you wanted to pay me for the service, then it would be no more than at the standard rate of 5% commission because in our own case, we pay our Japanese agents 2-1/2%. Accordingly, we would only add a similar amount of 211 1/2% for the service which we would render you in the Philippines. Aggrieved, CMS appealed to this Court by way of a petition for review on certiorari, alleging (1) that the Court of Appeals erred in not making a complete findings of fact; (2) that the testimony of Atty. Teodoro
9 4

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R. Dominguez, regarding the admission by Shinko's president and director that it collected a commission of U.S. $1.00 per 1,000 board feet of logs from the Japanese buyers, is admissible against DRACOR; (3) that the statement of DRACOR's chief legal counsel in his memorandum dated May 31, 1965, Exhibit "K", is an admission that Shinko was able to collect the commission in question; (4) that the fact that Shinko received the questioned commissions is deemed admitted by DRACOR by its silence under Section 23, Rule 130 of the Rules of Court when it failed to reply to Atty. Carlos Moran Sison's letter dated February 6, 1962; (5) that DRACOR is not entitled to its 5% commission arising from the direct sales made by CMS to buyers in Japan; and (6) that DRACOR is guilty of fraud and bad faith in its dealings with CMS. With regard to CMS's arguments concerning whether or not Shinko received the commission in question, We find the same unmeritorious. To begin with, these arguments question the findings of fact made by the Court of Appeals, which are 12 final and conclusive and can not be reviewed on appeal to the Supreme Court. Moreover, while it is true that the evidence adduced establishes the fact that Shinko is DRACOR's 13 agent or liaison in Japan, there is no evidence which established the fact that Shinko did receive the amount of U.S. $77,264.67 as commission arising from the sale of CMS's logs to various Japanese firms. The fact that Shinko received the commissions in question was not established by the testimony of Atty. Teodoro R. Dominguez to the effect that Shinko's president and director told him that Shinko received a commission of U.S. $1.00 for every 1,000 board feet of logs sold, since the same is hearsay. Similarly, 14 the letter of Mr. K. Shibata of Toyo Menka Kaisha, Ltd. is also hearsay since Mr. Shibata was not presented to testify on his letter. CMS's other evidence have little or no probative value at all. The statements made in the memorandum 15 of Atty. Simplicio R. Ciocon to DRACOR dated May 31, 1965, the letter dated February 2, 1963 of Daniel 16 17 R. Aguinaldo, president of DRACOR, and the reply-letter dated January 9, 1964 by DRACOR's counsel Atty. V. E. Del Rosario to CMS's demand letter dated September 25, 1963 can not be categorized as admissions that Shinko did receive the commissions in question. The alleged admission made by Atty. Ciocon, to wit Furthermore, as per our records, our shipment of logs to Toyo Menka Kaisha, Ltd., is only for a net volume of 67,747,732 board feet which should enable Shinko to collect a commission of US $67,747.73 only can not be considered as such since the statement was made in the context of questioning CMS's tally of logs delivered to various Japanese firms. Similarly, the statement of Daniel R. Aguinaldo, to wit . . . Knowing as we do that Toyo Menka is a large and reputable company, it is obvious that they paid Shinko for certain services which Shinko must have satisfactorily performed for them in Japan otherwise they would not have paid Shinko

and that of Atty. V. E. Del Rosario, . . . It does not seem proper, therefore, for CMS Logging, Inc., as principal, to concern itself with, much less question, the right of Shinko Trading Co., Ltd. with which our client debt directly, to whatever benefits it might have derived form the ultimate consumer/buyer of these logs, Toyo Menka Kaisha, Ltd. There appears to be no justification for your client's contention that these benefits, whether they can be considered as commissions paid by Toyo Menka Kaisha to Shinko Trading, are to be regarded part of the gross sales. can not be considered admissions that Shinko received the questioned commissions since neither statements declared categorically that Shinko did in fact receive the commissions and that these arose from the sale of CMS's logs. As correctly stated by the appellate court: It is a rule that "a statement is not competent as an admission where it does not, under a reasonable construction, appear to admit or acknowledge the fact which is sought to be proved by it". An admission or declaration to be competent must have been expressed in definite, certain and unequivocal language (Bank of the Philippine 18 Islands vs. Fidelity & Surety Co., 51 Phil. 57, 64). CMS's contention that DRACOR had admitted by its silence the allegation that Shinko received the commissions in question when it failed to respond to Atty. Carlos Moran Sison's letter dated February 6, 1963, is not supported by the evidence. DRACOR did in fact reply to the letter of Atty. Sison, through 19 the letter dated March 5, 1963 of F.A. Novenario, which stated: This is to acknowledge receipt of your letter dated February 6, 1963, and addressed to Mr. D. R. Aguinaldo, who is at present out of the country. xxx xxx xxx We have no record or knowledge of any such payment of commission made by Toyo Menka to Shinko. If the payment was made by Toyo Menka to Shinko, as stated in your letter, we knew nothing about it and had nothing to do with it. The finding of fact made by the trial court, i.e., that "Shinko was able to collect the total amount of $77,264.67 US Dollars," can not be given weight since this was based on the summary prepared by CMS itself, Exhibits "M" and "M-1". Moreover, even if it was shown that Shinko did in fact receive the commissions in question, CMS is not entitled thereto since these were apparently paid by the buyers to Shinko for arranging the sale. This is therefore not part of the gross sales of CMS's logs. However, We find merit in CMS's contention that the appellate court erred in holding that DRACOR was entitled to its commission from the sales made by CMS to Japanese firms.

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The principal may revoke a contract of agency at will, and such revocation may be express, or 20 implied, and may be availed of even if the period fixed in the contract of agency as not yet 21 expired. As the principal has this absolute right to revoke the agency, the agent can not object 22 thereto; neither may he claim damages arising from such revocation, unless it is shown that such was 23 done in order to evade the payment of agent's commission. In the case at bar, CMS appointed DRACOR as its agent for the sale of its logs to Japanese firms. Yet, during the existence of the contract of agency, DRACOR admitted that CMS sold its logs directly to several Japanese firms. This act constituted an implied revocation of the contract of agency under Article 1924 of the Civil Code, which provides: Art. 1924 The agency is revoked if the principal directly manages the business entrusted to the agent, dealing directly with third persons. In New Manila Lumber Company, Inc. vs. Republic of the Philippines, this Court ruled that the act of a contractor, who, after executing powers of attorney in favor of another empowering the latter to collect whatever amounts may be due to him from the Government, and thereafter demanded and collected from the government the money the collection of which he entrusted to his attorney-in-fact, constituted revocation of the agency in favor of the attorney-in-fact. Since the contract of agency was revoked by CMS when it sold its logs to Japanese firms without the intervention of DRACOR, the latter is no longer entitled to its commission from the proceeds of such sale and is not entitled to retain whatever moneys it may have received as its commission for said transactions. Neither would DRACOR be entitled to collect damages from CMS, since damages are generally not awarded to the agent for the revocation of the agency, and the case at bar is not one falling under the exception mentioned, which is to evade the payment of the agent's commission. Regarding CMS's contention that the Court of Appeals erred in not finding that DRACOR had committed acts of fraud and bad faith, We find the same unmeritorious. Like the contention involving Shinko and the questioned commissions, the findings of the Court of Appeals on the matter were based on its appreciation of the evidence, and these findings are binding on this Court. In fine, We affirm the ruling of the Court of Appeals that there is no evidence to support CMS's contention that Shinko earned a separate commission of U.S. $1.00 for every 1,000 board feet of logs from the buyer of CMS's logs. However, We reverse the ruling of the Court of Appeals with regard to DRACOR's right to retain the amount of P101,536.77 as part of its commission from the sale of logs by CMS, and hold that DRACOR has no right to its commission. Consequently, DRACOR is hereby ordered to remit to CMS the amount of P101,536.77. WHEREFORE, the decision appealed from is hereby MODIFIED as stated in the preceding paragraph. Costs de officio. SO ORDERED.
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G.R. No. 163720

December 16, 2004

In his Answer, Ybaez claimed that Saban was not entitled to any commission because he concealed the actual selling price from him and because he was not a licensed real estate broker. Lim, for her part, argued that she was not privy to the agreement between Ybaez and Saban, and that she issued stop payment orders for the three checks because Ybaez requested her to pay the purchase price directly to him, instead of coursing it through Saban. She also alleged that she agreed with Ybaez that the purchase price of the lot was only P200,000.00. Ybaez died during the pendency of the case before the RTC. Upon motion of his counsel, the trial 10 court dismissed the case only against him without any objection from the other parties. On May 14, 1997, the RTC rendered its Decision dismissing Sabans complaint, declaring the four (4) checks issued by Lim as stale and non-negotiable, and absolving Lim from any liability towards Saban. Saban appealed the trial courts Decision to the Court of Appeals. On October 27, 2003, the appellate court promulgated its Decision reversing the trial courts ruling. It 13 held that Saban was entitled to his commission amounting to P236,743.00. The Court of Appeals ruled that Ybaezs revocation of his contract of agency with Saban was invalid because the agency was coupled with an interest and Ybaez effected the revocation in bad faith in 14 order to deprive Saban of his commission and to keep the profits for himself. The appellate court found that Ybaez and Lim connived to deprive Saban of his commission. It declared that Lim is liable to pay Saban the amount of the purchase price of the lot corresponding to his commission because she issued the four checks knowing that the total amount thereof corresponded to Sabans commission for the sale, as the agent of Ybaez. The appellate court further ruled that, in issuing the checks in payment of Sabans commission, Lim acted as an accommodation party. She signed the checks as drawer, without receiving value therefor, for the purpose of lending her name to a 15 third person. As such, she is liable to pay Saban as the holder for value of the checks. Lim filed a Motion for Reconsideration of the appellate courts Decision, but her Motion was denied by 16 the Court of Appeals in a Resolution dated May 6, 2004. Not satisfied with the decision of the Court of Appeals, Lim filed the present petition. Lim argues that the appellate court ignored the fact that after paying her agent and remitting to Saban the amounts due for taxes and transfer of title, she paid the balance of the purchase price directly to 17 Ybaez. She further contends that she is not liable for Ybaezs debt to Saban under the Agency Agreement as she is not privy thereto, and that Saban has no one but himself to blame for consenting to the dismissal 18 of the case against Ybaez and not moving for his substitution by his heirs. Lim also assails the findings of the appellate court that she issued the checks as an accommodation 19 party for Ybaez and that she connived with the latter to deprive Saban of his commission.
12 11

GENEVIEVE LIM, petitioner, vs.FLORENCIO SABAN, respondents. The late Eduardo Ybaez (Ybaez), the owner of a 1,000-square meter lot in Cebu City (the "lot"), entered into anAgreement and Authority to Negotiate and Sell (Agency Agreement) with respondent Florencio Saban (Saban) on February 8, 1994. Under the Agency Agreement, Ybaez authorized Saban to look for a buyer of the lot for Two Hundred Thousand Pesos (P200,000.00) and to mark up the selling price to include the amounts needed for payment of taxes, transfer of title and other 3 expenses incident to the sale, as well as Sabans commission for the sale. Through Sabans efforts, Ybaez and his wife were able to sell the lot to the petitioner Genevieve Lim (Lim) and the spouses Benjamin and Lourdes Lim (the Spouses Lim) on March 10, 1994. The price of 4 the lot as indicated in the Deed of Absolute Sale is Two Hundred Thousand Pesos (P200,000.00). It appears, however, that the vendees agreed to purchase the lot at the price of Six Hundred Thousand Pesos (P600,000.00), inclusive of taxes and other incidental expenses of the sale. After the sale, Lim remitted to Saban the amounts of One Hundred Thirteen Thousand Two Hundred Fifty Seven Pesos (P113,257.00) for payment of taxes due on the transaction as well as Fifty Thousand Pesos 5 (P50,000.00) as brokers commission. Lim also issued in the name of Saban four postdated checks in the aggregate amount of Two Hundred Thirty Six Thousand Seven Hundred Forty Three Pesos (P236,743.00). These checks were Bank of the Philippine Islands (BPI) Check No. 1112645 dated June 12, 1994 for P25,000.00; BPI Check No. 1112647 dated June 19, 1994 for P18,743.00; BPI Check No. 1112646 dated June 26, 1994 for P25,000.00; and Equitable PCI Bank Check No. 021491B dated June 20, 1994 for P168,000.00. Subsequently, Ybaez sent a letter dated June 10, 1994 addressed to Lim. In the letter Ybaez asked Lim to cancel all the checks issued by her in Sabans favor and to "extend another partial payment" for 6 the lot in his (Ybaezs) favor. After the four checks in his favor were dishonored upon presentment, Saban filed a Complaint for collection of sum of money and damages against Ybaez and Lim with the Regional Trial Court (RTC) 7 of Cebu City on August 3, 1994. The case was assigned to Branch 20 of the RTC. In his Complaint, Saban alleged that Lim and the Spouses Lim agreed to purchase the lot for P600,000.00, i.e.,with a mark-up of Four Hundred Thousand Pesos (P400,000.00) from the price set by Ybaez. Of the total purchase price of P600,000.00, P200,000.00 went to Ybaez, P50,000.00 allegedly went to Lims agent, andP113,257.00 was given to Saban to cover taxes and other expenses 8 incidental to the sale. Lim also issued four (4) postdated checks in favor of Saban for the 9 remaining P236,743.00. Saban alleged that Ybaez told Lim that he (Saban) was not entitled to any commission for the sale since he concealed the actual selling price of the lot from Ybaez and because he was not a licensed real estate broker. Ybaez was able to convince Lim to cancel all four checks. Saban further averred that Ybaez and Lim connived to deprive him of his sales commission by withholding payment of the first three checks. He also claimed that Lim failed to make good the fourth check which was dishonored because the account against which it was drawn was closed.

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Lim prays that should she be found liable to pay Saban the amount of his commission, she should only be held liable to the extent of one-third (1/3) of the amount, since she had two co-vendees (the Spouses 20 Lim) who should share such liability. In his Comment, Saban maintains that Lim agreed to purchase the lot for P600,000.00, which consisted of theP200,000.00 which would be paid to Ybaez, the P50,000.00 due to her broker, the P113,257.00 earmarked for taxes and other expenses incidental to the sale and Sabans commission as broker for Ybaez. According to Saban, Lim assumed the obligation to pay him his commission. He insists that 21 Lim and Ybaez connived to unjustly deprive him of his commission from the negotiation of the sale. The issues for the Courts resolution are whether Saban is entitled to receive his commission from the sale; and, assuming that Saban is entitled thereto, whether it is Lim who is liable to pay Saban his sales commission. The Court gives due course to the petition, but agrees with the result reached by the Court of Appeals. The Court affirms the appellate courts finding that the agency was not revoked since Ybaez requested that Lim make stop payment orders for the checks payable to Saban only after the consummation of the sale on March 10, 1994. At that time, Sa ban had already performed his obligation as Ybaezs agent when, through his (Sabans) efforts, Ybaez executed the Deed of Absolute Sale of the lot with Lim and the Spouses Lim. To deprive Saban of his commission subsequent to the sale which was consummated through his efforts would be a breach of his contract of agency with Ybaez which expressly states that Saban would be entitled to any excess in the purchase price after deducting the P200,000.00 due to Ybaez 22 and the transfer taxes and other incidental expenses of the sale. In Macondray & Co. v. Sellner, the Court recognized the right of a broker to his commission for finding a suitable buyer for the sellers property even though the seller himself consummated the sale with the 24 buyer. The Court held that it would be in the height of injustice to permit the principal to terminate the contract of agency to the prejudice of the broker when he had already reaped the benefits of the brokers efforts. In Infante v. Cunanan, et al., the Court upheld the right of the brokers to their commissions although the seller revoked their authority to act in his behalf after they had found a buyer for his properties and negotiated the sale directly with the buyer whom he met through the brokers efforts. The Court ruled that the sellers withdrawal in bad faith of the brokers authority cannot unjustly deprive the brokers of their commissions as the sellers duly constituted agents. The pronouncements of the Court in the aforecited cases are applicable to the present case, especially considering that Saban had completely performed his obligations under his contract of agency with Ybaez by finding a suitable buyer to preparing the Deed of Absolute Sale between Ybaez and Lim and her co-vendees. Moreover, the contract of agency very clearly states that Saban is entitled to the excess of the mark-up of the price of the lot after deducting Ybae zs share of P200,000.00 and the taxes and other incidental expenses of the sale. However, the Court does not agree with the appellate courts pronouncement that Sabans agency was one coupled with an interest. Under Article 1927 of the Civil Code, an agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted, or if a
25 23

partner is appointed manager of a partnership in the contract of partnership and his removal from the management is unjustifiable. Stated differently, an agency is deemed as one coupled with an interest where it is established for the mutual benefit of the principal and of the agent, or for the interest of the principal and of third persons, and it cannot be revoked by the principal so long as the interest of the agent or of a third person subsists. In an agency coupled with an interest, the agents interest must be in the subject matter of the power conferred and not merely an interest in the exercise of the power because it entitles him to compensation. When an agents interest is confined to earning his agreed compensation, the agency is not one coupled with an interest, since an agents interest in obtaining his 26 compensation as such agent is an ordinary incident of the agency relationship. Sabans entitlement to his commission having been settled, the Court must now determine whether Lim is the proper party against whom Saban should address his claim. Sabans right to receive compensation for negotiating as broker for Ybaez arises from the Agency Agreement between them. Lim is not a party to the contract. However, the record reveals that she had knowledge of the fact that Ybaez set the price of the lot at P200,000.00 and that the P600,000.00the price agreed upon by her and Saban was more than the amount set by Ybaez because it included the amount for payment of taxes and for Sabans commission as broker for Ybaez. According to the trial court, Lim made the following payments for the lot: P113,257.00 for taxes, P50,000.00 for her broker, and P400.000.00 directly to Ybaez, or a total of Five Hundred Sixty 27 Three Thousand Two Hundred Fifty Seven Pesos (P563,257.00). Lim, on the other hand, claims that on March 10, 1994, the date of execution of the Deed of Absolute Sale, she paid directly to Ybaez the amount of One Hundred Thousand Pesos (P100,000.00) only, and gave to Saban P113,257.00 for 28 payment of taxes and P50,000.00 as his commission, and One Hundred Thirty Thousand Pesos 29 (P130,000.00) on June 28, 1994, or a total of Three Hundred Ninety Three Thousand Two Hundred Fifty Seven Pesos (P393,257.00). Ybaez, for his part, acknowledged that Lim and her co-vendees paid 30 him P400,000.00 which he said was the full amount for the sale of the lot. It thus appears that he received P100,000.00 on March 10, 1994, acknowledged receipt (through Saban) of the P113,257.00 earmarked for taxes and P50,000.00 for commission, and received the balance of P130,000.00 on June 28, 1994. Thus, a total of P230,000.00 went directly to Ybaez. Apparently, although the amount actually paid by Lim wasP393,257.00, Ybaez rounded off the amount to P400,000.00 and waived the difference. Lims act of issuing the four checks amounting to P236,743.00 in Sabans favor belies her claim that she and her co-vendees did not agree to purchase the lot at P600,000.00. If she did not agree thereto, there would be no reason for her to issue those checks which is the balance of P600,000.00 less the amounts of P200,000.00 (due to Ybaez), P50,000.00 (commission), and the P113,257.00 (taxes). The only logical conclusion is that Lim changed her mind about agreeing to purchase the lot at P600,000.00 after talking to Ybaez and ultimately realizing that Sabans commission is even more than what Ybaez received as his share of the purchase price as vendor. Obviously, this change of mind resulted to the prejudice of Saban whose efforts led to the completion of the sale between the latter, and Lim and her co-vendees. This the Court cannot countenance. The ruling of the Court in Infante v. Cunanan, et al., cited earlier, is enlightening for the facts therein are similar to the circumstances of the present case. In that case, Consejo Infante asked Jose Cunanan and Juan Mijares to find a buyer for her two lots and the house built thereon for Thirty Thousand Pesos (P30,000.00) . She promised to pay them five percent (5%) of the purchase price plus whatever overprice they may obtain for the property. Cunanan and Mijares offered the properties to Pio Noche who in turn expressed willingness to purchase the properties. Cunanan and Mijares thereafter

47

introduced Noche to Infante. However, the latter told Cunanan and Mijares that she was no longer interested in selling the property and asked them to sign a document stating that their written authority to act as her agents for the sale of the properties was already cancelled. Subsequently, Infante sold the properties directly to Noche for Thirty One Thousand Pesos (P31,000.00). The Court upheld the right of Cunanan and Mijares to their commission, explaining that [Infante] had changed her mind even if respondent had found a buyer who was willing to close the deal, is a matter that would not give rise to a legal consequence if [Cunanan and Mijares] agreed to call off the transaction in deference to the request of [Infante]. But the situation varies if one of the parties takes advantage of the benevolence of the other and acts in a manner that would promote his own selfish interest. This act is unfair as would amount to bad faith. This act cannot be sanctioned without according the party prejudiced the reward which is due him. This is the situation in which [Cunanan and Mijares] were placed by [Infante]. [Infante] took advantage of the services rendered by [Cunanan and Mijares], but believing that she could evade payment of their commission, she made use of a ruse by inducing them to sign the deed of cancellation.This act of subversion cannot be sanctioned and cannot serve 31 as basis for [Infante] to escape payment of the commission agreed upon. The appellate court therefore had sufficient basis for concluding that Ybaez and Lim connived to deprive Saban of his commission by dealing with each other directly and reducing the purchase price of the lot and leaving nothing to compensate Saban for his efforts. Considering the circumstances surrounding the case, and the undisputed fact that Lim had not yet paid the balance of P200,000.00 of the purchase price of P600,000.00, it is just and proper for her to pay Saban the balance of P200,000.00. Furthermore, since Ybaez received a total of P230,000.00 from Lim, or an excess of P30,000.00 from his asking price of P200,000.00, Saban may claim such excess from Ybaezs estate, if that remedy is 32 still available, in view of the trial courts dismissal of Sabans complaint as against Ybaez, with 33 Sabans express consent, due to the latters demise on November 11, 1994. The appellate court however erred in ruling that Lim is liable on the checks because she issued them as an accommodation party. Section 29 of the Negotiable Instruments Law defines an accommodation party as a person "who has signed the negotiable instrument as maker, drawer, acceptor or indorser, without receiving value therefor, for the purpose of lending his name to some other person." The accommodation party is liable on the instrument to a holder for value even though the holder at the time of taking the instrument knew him or her to be merely an accommodation party. The accommodation 34 party may of course seek reimbursement from the party accommodated. As gleaned from the text of Section 29 of the Negotiable Instruments Law, the accommodation party is one who meets all these three requisites, viz: (1) he signed the instrument as maker, drawer, acceptor, or indorser; (2) he did not receive value for the signature; and (3) he signed for the purpose of lending his name to some other person. In the case at bar, while Lim signed as drawer of the checks she did not satisfy the two other remaining requisites. The absence of the second requisite becomes pellucid when it is noted at the outset that Lim issued the checks in question on account of her transaction, along with the other purchasers, with Ybaez which was a sale and, therefore, a reciprocal contract. Specifically, she drew the checks in payment of the balance of the purchase price of the lot subject of the transaction. And she had to pay the agreed

purchase price in consideration for the sale of the lot to her and her co-vendees. In other words, the amounts covered by the checks form part of the cause or consideration from Ybaezs end, as vendor, 35 while the lot represented the cause or consideration on the side of Lim, as vendee. Ergo, Lim received value for her signature on the checks. Neither is there any indication that Lim issued the checks for the purpose of enabling Ybaez, or any other person for that matter, to obtain credit or to raise money, thereby totally debunking the presence of the third requisite of an accommodation party. WHEREFORE, in view of the foregoing, the petition is DISMISSED. SO ORDERED.

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G.R. No. L-10881

September 30, 1958

Section 116 of the Public Land Act (Act No. 2874), under which the homestead was granted to the appellees' father, provides: Lands acquired under the free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of the issuance of the patent or grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period; but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations. The encumbrance or alienation of lands acquired by free patent or homestead in violation of this section 1 is null and void. There is no question that the mortgage on the improvements of the parcel of land executed by Tiburcio del Rosario in favor of Primitivo Abad (Annex B, complaint, pp. 10-13, Rec. on App.) is valid. The power of attorney executed by Tiburcio del Rosario in favor of Primitivo Abad (Annex A, complaint, pp. 7-9, Rec. on App.) providing, among others, that is coupled with an interest in the subject matter thereof in favor of the said attorney and are therefore irrevocable, and . . . conferring upon my said attorney full and ample power and authority to do and perform all things reasonably necessary and proper for the due carrying out of the said powers according to the true tenor and purport of the same, . . ." does not create an agency coupled with an interest nor does it clothe the agency with an irrevocable character. A mere statement in the power of attorney that it is coupled with an interest is not enough. In what does such interest consist must be stated in the power of attorney. The fact that Tiburcio del Rosario, the principal, had mortgaged the improvements of the parcel of land to Primitivo Abad, the agent, (Annex B, complaint, pp. 10-13, Rec. on App.) is not such an interest as could render irrevocable the power of attorney executed by the principal in favor of the agent. In fact no mention of it is made in the power of attorney. The mortgage on the improvements of the parcel of land has nothing to do with the power of attorney and may be foreclosed by the mortgagee upon failure of the mortgagor to comply with his obligation. As the agency was not coupled with an interest, it was terminated upon the death of Tiburcio del Rosario, the principal, sometime in December 1945, and Primitivo Abad, the agent, could no longer validly convey the parcel of land to Teodorico Abad on 9 June 1947. The sale, therefore, to the later was null and void. But granting that the irrevocable power of attorney was lawful and valid it would subject the parcel of land to an encumbrance. As the homestead patent was issued on 12 December 1936 and the power of attorney was executed on 24 February 1937, it was in violation of the law that prohibits the alienation or encumbrance of land acquired by homestead from the date of the approval of the application and for a term of five years from and after the issuance of the patent or grant. Appellants contend that the power of attorney was to be availed of by the agent after the lapse of the prohibition period of five years, and that in fact Primitivo Abad sold the parcel of land on 9 June 1947, after the lapse of such period. Nothing to that effect is found in the power of attorney. Appellants claim that the trial court should have directed the appellees to reimburse Teodorico Abad for what he had paid to Primitivo Abad to discharge the mortgage in the latter's favor as part of the consideration of the sale. As the sale to Teodorico Abad is null and void, the appellees can not be compelled to reimburse Teodorico Abad for what he had paid to Primitivo Abad. The former's right of action is against the latter, without prejudice to the right of Primitive Abad to foreclose the mortgage on the improvements of the parcel of land if the mortgage debt is not paid by the appellees, as heirs and successors-in-interest of the mortgagor. The judgment appealed from is affirmed, with costs against the appellants.

EULOGIO DEL ROSARIO, AURELIO DEL ROSARIO, BENITO DEL ROSARIO, BERNARDO DEL ROSARIO, ISIDRA DEL ROSARIO, DOMINGA DEL ROSARIO and CONCEPCION BORROMEO, plaintiff-appellees, vs. PRIMITIVO ABAD and TEODORICO ABAD, defendants-appellants. Appeal from a judgment rendered by the Court of First Instance of Nueva Ecija in civil case No. 1084. The facts are undisputed, the parties having entered into an agreed statement thereof, the pertinent and materials part of which are: The plaintiffs are the children and heirs of the late Tiburcio del Rosario. On 12 December 1936, the Secretary of Agriculture and Commerce, by authority of the President of the Commonwealth of the Philippines, issued under the provisions of the Public Land Act (Act No. 2874) homestead patent No. 40596 to Tiburcio del Rosario. The homestead with an area of 9 hectares, 43 ares and 14 centares is situated in barrio San Mauricio, municipality of San Jose, province of Nueva Ecija. On 11 February 1937, the Registrar of Deeds in and for the province of Nueva Ecija issued original certificate of title No. 4820 in the name of the homesteader (Annex A, stipulation of facts, pp. 25-30, Rec. on App.). On 24 February 1937, Tiburcio del Rosario obtained a loan from Primitivo Abad in the sum of P2,000 with interest at the rate of 12% per annum, payable on 31 December 1941. As security for the payment thereof he mortgaged the improvements of the parcel of land in favor of the creditor (Annex B, complaint, pp. 10-13, Rec. on App.). On the same day, 24 February, the mortgagor executed an "irrevocable special power of attorney coupled with interest" in favor of the mortgagee, authorizing him, among others, to sell and convey the parcel of land (Annex A, complaint, pp. 7-9, Rec. on App.). Thereafter the mortgagor and his family moved to Santiago, Isabela, and there established a new residence. Sometime in December 1945 the mortgagor died leaving the mortgage debt unpaid. On 9 June 1947, Primitivo Abad, acting as attorney-in-fact of Tiburcio del Rosario, sold the parcel of land to his son Teodorico Abad for and in consideration of the token sum of P1.00 and the payment by the vendee of the mortgage debt of Tiburcio del Rosario to Primitivo Abad (Annex C, complaint, pp. 13-16, Rec. on App.). The vendee took possession of the parcel of land. Upon the filing and registration of the last deed of sale, the Registrar of Deeds in and for the province of Nueva Ecija cancelled original certificate of title No. 4820 in the name of Tiburcio del Rosario and in lieu thereof issued transfer certificate of title No. 1882 in favor of the vendee Teodorico Abad. On 29 December 1952 the plaintiffs brought suit against the defendants to recover possession and ownership of the parcel of land, damages, attorney's fees and costs. The defendants answered the complaint and prayed for the dismissal thereof, damages, attorney's fees and costs. On 25 October 1954, after the parties had submitted the case upon a stipulation of facts, the Court rendered judgment, the dispositive part of which is: WHEREFORE, the deed of sale executed by Primitivo Abad in favor of Teodorica Abad, Annex C, is hereby declared null and void; and Teodorico Abad is hereby ordered to execute a deed of reconveyance of the land originally with OCT No. 4820, now covered by Transfer Certificate of Title No. 1880, in favor of the plaintiffs. No pronouncement as to costs. The defendants appealed to the Court of Appeals, which certified the case to this Court as no question of fact is involved.

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G.R. No. 74623 August 31, 1987 BISAYA LAND TRANSPORTATION CO., INC., ANTONIO V. CUENCO and BENJAMIN G. ROA, petitioners, vs. MARCIANO C. SANCHEZ AND THE HON. INTERMEDIATE APPELLATE COURT, respondents. This is a petition for certiorari to review the decision * of respondent Intermediate Appellate Court, dated 25 April 1986, in AC-G.R. No. CV-01300 which affirmed the decision ** of the Regional Trial Court, 7th Judicial Region, Branch XII, Cebu City, dated 14 February 1983, in Civil Case No. R-18830 which was a suit for Specific Performance with Preliminary Injunction and Damages. Petitioner Bisaya Land Transportation Company, Inc. (BISTRANCO, for short) has been engaged in the shipping business, operating several passenger-cargo vessels, and among the ports of call of these vessels has been Butuan City. As early as 1954, private respondent Marciano Sanchez (Sanchez, for short) was an employee of BISTRANCO, specifically, a quartermaster in one of its vessels, In 1959, he ceased to be an employee as he engaged in stevedoring services in the port of Butuan City and rendered steverdoring services for the vessels of BISTRANCO. 1 In May 1975, Sanchez was appointed by BISTRANCO as shipping agent in Butuan City for the vessel 2 3 M/V Don Mariano. The new Butuan City Agent referred to in the letter "Exhibit "C" was Marciano Sanchez. Later, on 12 March 1976, when BISTRANCO was under receivership, Sanchez was appointed by its Receiver, Atty. Adolfo V. Amor, as acting shipping agent, also for M/V Doa Remedies, in addition to M/V Doa Filomena, in the port of Butuan City "pending the execution of the formal 4 contract of agency. When Sanchez was constituted as acting shipping agent, he received the same commission as his predecessor, one ONG YUI who received 10% for all freight and passenger 5 revenues coming from Butuan City and 5 % for all freight going to Butuan. Thereafter, or on 27 July 1976, a formal Contract of Agency, marked as Exhibit "F", was executed between BISTRANCO, represented by Receiver Atty. Adolfo V. Amor and Marciano C. Sanchez, represented by his authorized representative Exequiel Aranas. On 30 July 1976, after Sanchez found that Paragraph 16 of the Contract of agency was quite prejudicial to him, he executed with BISTRANCO a Supplemental Shipping Agency Contract, marked as Exhibit "G", which was duly signed by Receiver 6 Atty. Adolfo V. Amor on behalf of BISTRANCO and Marciano C. Sanchez himself. But, both the Contract of Agency and the Supplemental Shipping Agency Contract were never submitted by Atty. Adolfo Amor to the receivership court for its approval. By virtue of the Contract of Agency and the Supplemental Shipping Agency Contract (hereinafter referred to as Contracts), Sanchez performed his duties as shipping agent of BISTRANCO, and he received his corresponding commissions as such shipping agent. Pursuant to the Contracts, Sanchez leased a parcel of land owned by Jose S. Mondejar which was used as the wharf and berthing facilities 7 of BISTRANCO. At an expense of more than P100,000.00, Sanchez constructed the wharf on the land he leased and the wharf was used to facilitate the loading and unloading of cargoes of the BISTRANCO vessels at the port of Butuan City from 1976 to December 1979. Sanchez also constructed a bodega at his wharf for use in connection with the shipping business of BISTRANCO. He constructed an office for the agency and, as of December 1979, he had an office force of 13 employees, all paid and maintained by him. Sanchez operated six (6) cargo trucks and one (1) jeep for the service of the shipping agency. As shipping agent, Sanchez put up billboards and other forms of advertisement to enhance the shipping business of BISTRANCO. He established good business relations with the business community of 8 Butuan City. In these endeavors, Sanchez succeeded in increasing the volume of the shipping

business of BISTRANCO at the Butuan City port, so much so that his earnings on freight alone increased from an average of P8,535.00 a month in 1975 to an average of about P32,000.00 a month in 9 the last seven months of 1979. While the shipping business of BISTRANCO in Butuan City flourished, evidently to the mutual benefit of both parties, on 26 December 1979, co-petitioner Benjamin G. Roa, as Executive Vice-President of BISTRANCO, wrote Sanchez a letter 10 advising him that, effective 1 January 1980, BISTRANCO would commence operating its branch office in Butuan City. Prior to this, on 11 December 1979, Sanchez was invited to attend a meeting of the Board of Directors of BISTRANCO wherein he was told by co-petitioner Antonio V. Cuenco that the Board was to open a branch office in Butuan City and he was asked what would be his proposals. Sanchez submitted his proposals in writing, marked as Exhibit "NN", but these were not acceptable to BISTRANCO. 11 Realizing that the letter, marked as Exhibit "FF", was in effect a repudiation of the Contracts, Sanchez filed an action for specific performance with preliminary injunction and damages with the Regional Trial Court of Cebu City on 28 December 1979. Pursuant to the letter (Exhibit "FF"), BISTRANCO actually opened and operated a branch office in Butuan City on 15 January 1980. BISTRANCO through its new representative contacted the shippers in Butuan City and neighboring towns, advising them to transact their business directly with its new branch office in Butuan City. Under these circumstances, the business of Sanchez, as shipping agent of BISTRANCO in Butuan City, was seriously impaired and undermined He could not solicit as many passengers as he used to, because the passenger tickets issued to him by BISTRANCO were limited. The cargoes solicited by Sanchez were loaded on a "chance basis" because those that were solicited by the branch office were given priority. 12 After due hearing and their respective memorandum filed, the trial court rendered judgment in favor of Sanchez, the dispositive portion of which is quoted hereunder: 13 WHEREFORE, judgment is hereby rendered declaring the contracts, Exhibits "F" and "G", as valid and binding between the plaintiff and defendant BISTRANCO up to its expiry date on July 27, 1981, and ordering the defendant BISTRANCO to pay the plaintiff the total sum of FIVE HUNDRED EIGHTY EIGHT THOUSAND PESOS (P588,000.00) in concept of unearned commissions as well as damages, with interest at the legal rate counted from July 28, 1981 up to the time the amount is fully paid, and the further sum of P15,000.00 as attorney's fees, and the costs of this action. Thereafter, BISTRANCO appealed to the Court of Appeals which, as heretofore stated, affirmed the decision of the trial court in toto. Hence this Petition for certiorari brought to this Court, with the petitioners raising the following issues: 14 I CAN A COURT APPOINTED RECEIVER VALIDLY ENTER INTO A CONTRACT WITHOUT COURT APPROVAL?

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II IS THE OPENING BY BISTRANCO OF A BRANCH OFFICE IN BUTUAN CITY A VIOLATION OF THE CONTRACT OF AGENCY AND SUPPLEMENTAL SHIPPING AGENCY CONTRACT EXHIBITS "F" and "G") ASSUMING THEM TO BE VALID? III WHAT EFFECT DID THE WORKING AGREEMENTS (EXHIBITS "S" and "U") HAVE ON AFORESAID QUESTIONED CONTRACTS? IV IS THE AWARD FOR UNEARNED COMMISSION AND DAMAGES JUSTIFIED? The general powers of a court-appointed receiver are provided in Section 7, Rule 59 of the Rules of Court. Under such rule, the receiver is "subject to the control of the court in which the action is pending" and he can "generally do such acts respecting the property as the court may authorize". The act of Receiver Amor in entering into a contract of agency with Sanchez is not one of the acts specifically allowed in the mentioned rule. While such act of Amor may be arguably implied from the power of the receiver to "take and keep possession of the property in controversy", and that the act of Amor is covered by the broad phrase that a receiver can "generally do such acts respecting the property as the court may authorize", still, it is necessary that the acts of the receiver have the approval or authorization of the court which appointed him as a receiver. As held in one case, 15 a court-appointed receiver cannot validly enter into a contract without the approval of the court. What then is the status of the Contracts which Receiver Amor entered into with Sanchez, without the approval of the court which appointed him receiver? Even the petitioners noticeably waver as to the exact status of these Contracts. The petitioners allege in their Memorandum 16 submitted to this Court that they are void contracts under Article 1409(l) of the Civil Code, whereas, in their Petition, 17 they labelled the contracts as unenforceable under Article 1403(l) of the Civil Code. The determination, therefore, of whether the questioned contracts are void or merely unenforceable is important, because of the settled distinction that a void and inexistent contract can not be ratified and become enforceable, whereas an unenforceable contract may still be ratified and, thereafter, enforced. The petitioners allege that the Contracts are void, citing Article 1409(l) of the Civil Code which provides that contracts whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy, are inexistent and void from the beginning. In the case at bar, the contracts of agency were entered into for the management and operation of BISTRANCO's business in Butuan City. Said Contracts necessarily imposed obligations and liabilities on the contracting parties, thereby affecting the disposition of the assets and business of the company under receivership. But a perusal of the Contracts in question would show that there is nothing in their cause, object or purpose which renders them void. The purpose of the Contracts was to create an agency for BISTRANCO with Marciano Sanchez as its agent in Butuan City. Even as to the other provisions of the Contracts, there is nothing in their cause or object which can be said as contrary to law, morals, good customs, public order or public policy so as to render them void.

On the other hand, paragraph 1. Article 1403 of the Civil Code provides that contracts "entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers" are unenforceable, unless they are ratified. In the case at bar, it is undisputed that Atty. Adolfo Amor was entrusted, as receiver, with the administration of BISTRANCO and it business. But the act of entering into a contract is one which requires the authorization of the court which appointed him receiver. Consequently, the questioned Contracts can rightfully be classified as unenforceable for having been entered into by one who had acted beyond his powers, due to Receiver Amor's failure to secure the court's approval of said Contracts. These unenforceable Contracts were nevertheless deemed ratified in the case at bar, based upon the facts and circumstances on record which have led this Court to conclude that BISTRANCO had actually ratified the questioned Contracts. Private respondent Sanchez filed his complaint in the lower court on 28 December 1979. But on 10 January 1980, copetitioner Benjamin G. Roa, as Executive Vice-President of BISTRANCO, still sent Sanchez three (3) separate letters with the following contents: (3) reducing his passage commission from 10%, as he used to receive in the previous years, to 7-1/2% "as stated in the agency contract dated 27 July 1976, 18 (2) advising Sanchez that in view of "his failure to post a bond or such other securities acceptable to the company in the sum of P5,000.00 pursuant to par. 8 of the Contract executed by Sanchez the plaintiff with BISTRANCO on 27 July 1976, we are recalling all unused passage tickets issued your agency" and reminding him (Sanchez) also that "pursuant to par. 2 of aforementioned Contract, solicitation of cargo and passengers shall be undertaken by you strictly in accordance with the scheduled rates of the Company; 19 and (3) informing Sanchez that "we (petitioners) are abiding strictly with the terms of the contracts executed between Marciano C Sanchez, 20 and Atty. Adolfo V Amor in behalf of BISTRANCO, etc. etc. The three (3) letters of Benjamin G. Roa in effect recognized and gave efficacy to the Contracts in question. The declaration of Benjamin G. Roa that BISTRANCO did not have any knowledge about the Contracts before the complaint was filed on 28 December 1979 is contradicted by his own testimony that, as early as 14 December 1979, he was already looking for the contract, after he saw Exhibit "NN", wherein Sanchez requested the company "to abide with the terms of the contract which will expire on 21 July 1981; Besides, the pretended lack which will expire on July 1981 of knowledge of Benjamin G. Roa can not be equated with BISTRANCO's. It should be noted that Roa started to work for 22 BISTRANCO only on 27 April 1979, whereas, the Contracts were executed in 1976. The people who were more in a position to know about the Contracts, like the company officers and members of the board of directors at the time the Contracts were entered into, especially Antonio V. Cuenco, were never presented as witnesses. Aside from this, the company cannot deny its ratification of the Contracts even before the time of Benjamin G. Roa, because when Atty. Fulveo Pelaez succeeded Atty. Adolfo Amor as Receiver, he was represented by BISTRANCO's shipping manager as having taken cognizance of these Contracts and sanctioned the acts of Sanchez as shipping agent of 23 BISTRANCO in Butuan City. This is shown by a letter, dated 15 February 1977, written by Capt. 24 Federico Reyes, the shipping manager of BISTRANCO at that time. The letter states that "the Receiver (Atty. Fulveo Pelaez) maintains that the previous agency contract remains and (sic) basically the same except that the rates of the agency commission were modified. Furthermore, it is clear that BISTRANCO received material benefits from the contracts of agency of Sanchez, based upon the monthly statements of income of BISTRANCO, upon which the commissions

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of Sanchez were based. A perusal of the Contracts will also show that there is no single provision therein that can be said as prejudicial or not beneficial to BISTRANCO. As held in Savings v. Ball26 Bearing Chain Co. Not every act within the letter of an order can be sanctioned, nor everything done without the direction of the court condemned. The tests to be applied are: (1) was the act under investigation within the authority conferred by an order of court? (2) If so, was it performed with reference to the preservation of the estate, as a man of ordinary sagacity and prudence would have performed it under like circumstances? (3) If without authority, was it beneficial to the estate? Besides, in our considered opinion, the doctrine of estoppel precludes BISTRANCO from repudiating an obligation voluntarily assumed by it, after having accepted benefits therefrom. To countenance such, repudiation would be contrary to equity and would put a premium on fraud or 27 misrepresentation, which this Court will not sanction. Anent the issue of whether the Memorandum of Agreement and the Working Agreement (Exhibits "S" and "U") which were executed by the parties in this case on 4 February 1977 and 28 May 1979, respectively, novated the questioned Contracts, the answer is also in the negative. BISTRANCO avers that Exhibit "S" substantially altered or changed the principal terms and conditions of Exhibits "F" and "G" on material points, such as, reduction of the rate of commission for freight and passage (from 10% to 7-1/2%), the manner of liquidation and remittance of collections of the agent, the mode of payment of the agent's commissions, and the term of the Contract which is from a period of 5 years to a term of 1 year renewable yearly upon mutual consent; and that Exhibit "U" ,furthermore, bolstered this novation theory. Novation is not equivalent or synonymous to mere alteration, modification or amendment. Novation is the substitution of a new obligation for an existing or old one, which is thereby extinguished. Novation 28 takes place when the object or principal condition of an obligation is changed or altered. Novation is never presumed; it must be explicitly stated or there must be a manifest incompatibility between the old 29 and the new obligations in every aspect. The test of incompatibility between two obligations or contracts, is whether or not they can stand together, each one having an independent existence. If they cannot, they are incompatible, and the later obligation novates the first. In the case at bar, it can be deduced that the Agreements, Exhibits "S" and "U", were not meant to novate the herein questioned contracts. Rather, the intent of the parties was to suspend some of the provisions of the Contracts for a period of one (1) year, during which, the provisions of the Agreements will prevail. As par. 8 of the Memorandum of Agreement provides: "It is in this spirit of cooperation with the Receiver to enable him to pay huge obligations of the company that the agent Marciano Sanchez has acceded to the request of Messrs. Miguel Cuenco and Antonio Cuenco to accept the reduction of his commissions." It would not be equitable to Sanchez to say now that the Contracts were extinguished and substituted by the Agreements. It would be tantamount to punishing Sanchez for the concessions he extended to BISTRANCO. Besides, the changes were not really substantial to bring about a novation. The changes pointed out by BISTRANCO between the Contracts and the Agreements do not go into the essence of the cause or object of the former. Under the Agreements, Sanchez remains the agent of BISTRANCO in Butuan City. There is really no clear proof of incompatibility. In fact, the Contracts and the Agreements can be reconciled. The provisions of the Agreements which were more of changes on how to enforce the agency, prevailed during the period provided in them, but after their expiration, the conditions under the

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Contracts were implemented again. The term of the agency contract which was for a period of five (5) years still continued, until 27 July 1981. Considering that the contract of agency and the supplemental shipping agency contract are valid and binding between BISTRANCO and Sanchez, the former's opening of a branch in Butuan City was, in effect, a violation of the Contracts. Sanchez entered into the agency Contract because of the expected income and profits for himself. There could be no other motive from a businessman's point of view. A provision in the Supplemental Shipping Agency Contract reads: 6. That in consideration of the foregoing additional particular obligations of the AGENT, the COMPANY agrees not to appoint or employ another agent in Butuan City or in any of the City's neighboring towns without the written consent of the AGENT first obtained. (Exhibit "G ") The additional particular obligations referred to in Exhibit "G" were the putting up of an adequate agency office in Butuan City, the employment of canvassers of passengers and solicitors of cargoes, that the Agent shall provide at least two (2) cargo trucks and a private docking and berthing facilities for the vessels of the company, at the expense of Sanchez. Aside from this, Sanchez also had to spend for the lease of the wharf and the construction of the bodega at the wharf. It may be true that there is no express prohibition for BISTRANCO to open its branch in Butuan City. But, the very reason why BISTRANCO agreed not to employ or appoint another agent in Butuan City was to prevent competition against Sanchez' agency, in order that he might recover what he invested and eventually maximize his profits. The opening by BISTRANCO of a branch in Butuan City virtually resulted in consequences to Sanchez worse than if another agent had been appointed. In effect, the opening of a branch office in Butuan City was a violation of the Contracts of agency. Article 1315 of the Civil Code provides: Contracts are perfected by mere consent, and from that moment the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. In the case at bar, good faith required that BISTRANCO refrain from opening its branch in Butuan City during the effectivity of the agency contract with Sanchez, or until 27 July 1981. Moreover, the opening of the branch office which, in effect, was a revocation of the contracts of agency is not sanctioned by law because the agency was the means by which Sanchez could fulfill his obligations under Exhibits "F" and "G". Article 1927 of the Civil Code, among others, provides: "An agency cannot be revoked if a bilateral contract depends upon it, or if it is the means of fulfilling an obligation already contracted". As to the issue of whether the award of P588,000.00 to Sanchez for unearned commissions and damages is justified, the answer is also in the affirmative, considering that BISTRANCO violated the Contracts of agency and that Sanchez, before the breach by BISTRANCO of said agency Contracts, was already earning an average monthly commission of P32,000.00, as shown by the statements of commissions prepared by BISTRANCO itself. WHEREFORE, the petition is denied. The decision of the respondent Court is affirmed.

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G.R. No. L-24332 January 31, 1978 RAMON RALLOS, Administrator of the Estate of CONCEPCION RALLOS, petitioner, vs. FELIX GO CHAN & SONS REALTY CORPORATION and COURT OF APPEALS, respondents. This is a case of an attorney-in-fact, Simeon Rallos, who after of his death of his principal, Concepcion Rallos, sold the latter's undivided share in a parcel of land pursuant to a power of attorney which the principal had executed in favor. The administrator of the estate of the went to court to have the sale declared uneanforceable and to recover the disposed share. The trial court granted the relief prayed for, but upon appeal the Court of Appeals uphold the validity of the sale and the complaint. Hence, this Petition for Review on certiorari. The following facts are not disputed. Concepcion and Gerundia both surnamed Rallos were sisters and registered co-owners of a parcel of land known as Lot No. 5983 of the Cadastral Survey of Cebu covered by Transfer Certificate of Title No. 11116 of the Registry of Cebu. On April 21, 1954, the sisters executed a special power of attorney in favor of their brother, Simeon Rallos, authorizing him to sell for and in their behalf lot 5983. On March 3, 1955, Concepcion Rallos died. On September 12, 1955, Simeon Rallos sold the undivided shares of his sisters Concepcion and Gerundia in lot 5983 to Felix Go Chan & Sons Realty Corporation for the sum of P10,686.90. The deed of sale was registered in the Registry of Deeds of Cebu, TCT No. 11118 was cancelled, and a new transfer certificate of Title No. 12989 was issued in the named of the vendee. On May 18, 1956 Ramon Rallos as administrator of the Intestate Estate of Concepcion Rallos filed a complaint docketed as Civil Case No. R-4530 of the Court of First Instance of Cebu, praying (1) that the sale of the undivided share of the deceased Concepcion Rallos in lot 5983 be d unenforceable, and said share be reconveyed to her estate; (2) that the Certificate of 'title issued in the name of Felix Go Chan & Sons Realty Corporation be cancelled and another title be issued in the names of the corporation and the "Intestate estate of Concepcion Rallos" in equal undivided and (3) that plaintiff be indemnified by way of attorney's fees and payment of costs of suit. Named party defendants were Felix Go Chan & Sons Realty Corporation, Simeon Rallos, and the Register of Deeds of Cebu, but subsequently, the latter was dropped from the complaint. The complaint was amended twice; defendant Corporation's Answer contained a crossclaim against its co-defendant, Simon Rallos while the latter filed third-party complaint against his sister, Gerundia Rallos While the case was pending in the trial court, both Simon and his sister Gerundia died and they were substituted by the respective administrators of their estates. After trial the court a quo rendered judgment with the following dispositive portion: A. On Plaintiffs Complaint (1) Declaring the deed of sale, Exh. "C", null and void insofar as the one-half pro-indiviso share of Concepcion Rallos in the property in question, Lot 5983 of the Cadastral Survey of Cebu is concerned; (2) Ordering the Register of Deeds of Cebu City to cancel Transfer Certificate of Title No. 12989 covering Lot 5983 and to issue in lieu

thereof another in the names of FELIX GO CHAN & SONS REALTY CORPORATION and the Estate of Concepcion Rallos in the proportion of one-half (1/2) share each pro-indiviso; (3) Ordering Felix Go Chan & Sons Realty Corporation to deliver the possession of an undivided one-half (1/2) share of Lot 5983 to the herein plaintiff; (4) Sentencing the defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to plaintiff in concept of reasonable attorney's fees the sum of P1,000.00; and (5) Ordering both defendants to pay the costs jointly and severally. B. On GO CHANTS Cross-Claim: (1) Sentencing the co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay to defendant Felix Co Chan & Sons Realty Corporation the sum of P5,343.45, representing the price of one-half (1/2) share of lot 5983; (2) Ordering co-defendant Juan T. Borromeo, administrator of the Estate of Simeon Rallos, to pay in concept of reasonable attorney's fees to Felix Go Chan & Sons Realty Corporation the sum of P500.00. C. On Third-Party Complaint of defendant Juan T. Borromeo administrator of Estate of Simeon Rallos, against Josefina Rallos special administratrix of the Estate of Gerundia Rallos: (1) Dismissing the third-party complaint without prejudice to filing either a complaint against the regular administrator of the Estate of Gerundia Rallos or a claim in the Intestate-Estate of Cerundia Rallos, covering the same subject-matter of the thirdparty complaint, at bar. (pp. 98-100, Record on Appeal) Felix Go Chan & Sons Realty Corporation appealed in due time to the Court of Appeals from the foregoing judgment insofar as it set aside the sale of the one-half (1/2) share of Concepcion Rallos. The appellate tribunal, as adverted to earlier, resolved the appeal on November 20, 1964 in favor of the 1 appellant corporation sustaining the sale in question. The appellee administrator, Ramon Rallos, 2 moved for a reconsider of the decision but the same was denied in a resolution of March 4, 1965. What is the legal effect of an act performed by an agent after the death of his principal? Applied more particularly to the instant case, We have the query. is the sale of the undivided share of Concepcion Rallos in lot 5983 valid although it was executed by the agent after the death of his principal? What is the law in this jurisdiction as to the effect of the death of the principal on the authority of the agent to act for and in behalf of the latter? Is the fact of knowledge of the death of the principal a material factor in determining the legal effect of an act performed after such death?

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Before proceedings to the issues, We shall briefly restate certain principles of law relevant to the matter tinder consideration. 1. It is a basic axiom in civil law embodied in our Civil Code that no one may contract in the name of 3 another without being authorized by the latter, or unless he has by law a right to represent him. A contract entered into in the name of another by one who has no authority or the legal representation or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly, by the person on whose behalf it has been executed, before it is revoked by the other contracting 4 party. Article 1403 (1) of the same Code also provides: ART. 1403. The following contracts are unenforceable, unless they are justified: (1) Those entered into in the name of another person by one who hi - been given no authority or legal representation or who has acted beyond his powers; ... Out of the above given principles, sprung the creation and acceptance of the relationship of agency whereby one party, caged the principal (mandante), authorizes another, called the agent (mandatario), to act for and in his behalf in transactions with third persons. The essential elements of agency are: (1) there is consent, express or implied of the parties to establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agents acts as a 5 representative and not for himself, and (4) the agent acts within the scope of his authority. Agency is basically personal representative, and derivative in nature. The authority of the agent to act emanates from the powers granted to him by his principal; his act is the act of the principal if done within the scope of the authority. Qui facit per alium facit se. "He who acts through another acts 6 himself". 2. There are various ways of extinguishing agency, but her We are concerned only with one cause death of the principal Paragraph 3 of Art. 1919 of the Civil Code which was taken from Art. 1709 of the Spanish Civil Code provides: ART. 1919. Agency is extinguished. xxx xxx xxx 3. By the death, civil interdiction, insanity or insolvency of the principal or of the agent; ... (Emphasis supplied) By reason of the very nature of the relationship between Principal and agent, agency is extinguished by 8 the death of the principal or the agent. This is the law in this jurisdiction. Manresa commenting on Art. 1709 of the Spanish Civil Code explains that the rationale for the law is found in thejuridical basis of agency which is representation Them being an in. integration of the personality of the principal integration that of the agent it is not possible for the representation to continue to exist once the death of either is establish. Pothier agrees with Manresa that by reason of the nature of agency, death is a necessary cause for its extinction. Laurent says that the juridical tie between the principal and the agent is severed ipso jure upon the death of either without necessity for 9 the heirs of the fact to notify the agent of the fact of death of the former.
7

The same rule prevails at common law the death of the principal effects instantaneous and absolute 10 revocation of the authority of the agent unless the Power be coupled with an interest. This is the prevalent rule in American Jurisprudence where it is well-settled that a power without an interest confer. red upon an agent is dissolved by the principal's death, and any attempted execution of the power 11 afterward is not binding on the heirs or representatives of the deceased. 3. Is the general rule provided for in Article 1919 that the death of the principal or of the agent extinguishes the agency, subject to any exception, and if so, is the instant case within that exception? That is the determinative point in issue in this litigation. It is the contention of respondent corporation which was sustained by respondent court that notwithstanding the death of the principal Concepcion Rallos the act of the attorney-in-fact, Simeon Rallos in selling the former's sham in the property is valid and enforceable inasmuch as the corporation acted in good faith in buying the property in question. Articles 1930 and 1931 of the Civil Code provide the exceptions to the general rule afore-mentioned. ART. 1930. The agency shall remain in full force and effect even after the death of the principal, if it has been constituted in the common interest of the latter and of the agent, or in the interest of a third person who has accepted the stipulation in his favor. ART. 1931. Anything done by the agent, without knowledge of the death of the principal or of any other cause which extinguishes the agency, is valid and shall be fully effective with respect to third persons who may have contracted with him in good. faith. Article 1930 is not involved because admittedly the special power of attorney executed in favor of Simeon Rallos was not coupled with an interest. Article 1931 is the applicable law. Under this provision, an act done by the agent after the death of his principal is valid and effective only under two conditions, viz: (1) that the agent acted without knowledge of the death of the principal and (2) that the third person who contracted with the agent himself acted in good faith. Good faith here means that the third person was not aware of the death of the principal at the time he contracted with said agent. These two requisites must concur the absence of one will render the act of the agent invalid and unenforceable. In the instant case, it cannot be questioned that the agent, Simeon Rallos, knew of the death of his principal at the time he sold the latter's share in Lot No. 5983 to respondent corporation. The knowledge of the death is clearly to be inferred from the pleadings filed by Simon Rallos before the trial 12 court. That Simeon Rallos knew of the death of his sister Concepcion is also a finding of fact of the 13 court a quo and of respondent appellate court when the latter stated that Simon Rallos 'must have known of the death of his sister, and yet he proceeded with the sale of the lot in the name of both his sisters Concepcion and Gerundia Rallos without informing appellant (the realty corporation) of the death 14 of the former. On the basis of the established knowledge of Simon Rallos concerning the death of his principal Concepcion Rallos, Article 1931 of the Civil Code is inapplicable. The law expressly requires for its application lack of knowledge on the part of the agent of the death of his principal; it is not enough that the third person acted in good faith. Thus in Buason & Reyes v. Panuyas, the Court applying Article 1738 of the old Civil rode now Art. 1931 of the new Civil Code sustained the validity , of a sale made after the death of the principal because it was not shown that the agent knew of his principal's

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demise. To the same effect is the case of Herrera, et al., v. Luy Kim Guan, et al., 1961, where in the words of Justice Jesus Barrera the Court stated: ... even granting arguemendo that Luis Herrera did die in 1936, plaintiffs presented no proof and there is no indication in the record, that the agent Luy Kim Guan was aware of the death of his principal at the time he sold the property. The death 6f the principal does not render the act of an agent unenforceable, where the latter had no knowledge of such extinguishment of the agency. (1 SCRA 406, 412) 4. In sustaining the validity of the sale to respondent consideration the Court of Appeals reasoned out that there is no provision in the Code which provides that whatever is done by an agent having knowledge of the death of his principal is void even with respect to third persons who may have 16 contracted with him in good faith and without knowledge of the death of the principal. We cannot see the merits of the foregoing argument as it ignores the existence of the general rule enunciated in Article 1919 that the death of the principal extinguishes the agency. That being the general rule it follows a fortiorithat any act of an agent after the death of his principal is void ab initio unless the same fags under the exception provided for in the aforementioned Articles 1930 and 1931. Article 1931, being an exception to the general rule, is to be strictly construed, it is not to be given an interpretation or application beyond the clear import of its terms for otherwise the courts will be involved in a process of legislation outside of their judicial function. 5. Another argument advanced by respondent court is that the vendee acting in good faith relied on the power of attorney which was duly registered on the original certificate of title recorded in the Register of Deeds of the province of Cebu, that no notice of the death was aver annotated on said certificate of title 17 by the heirs of the principal and accordingly they must suffer the consequences of such omission. To support such argument reference is made to a portion in Manresa's Commentaries which We quote: If the agency has been granted for the purpose of contracting with certain persons, the revocation must be made known to them. But if the agency is general iii nature, without reference to particular person with whom the agent is to contract, it is sufficient that the principal exercise due diligence to make the revocation of the agency publicity known. In case of a general power which does not specify the persons to whom represents' on should be made, it is the general opinion that all acts, executed with third persons who contracted in good faith, Without knowledge of the revocation, are valid. In such case, the principal may exercise his right against the agent, who, knowing of the revocation, continued to assume a personality which he no longer had. (Manresa Vol. 11, pp. 561 and 575; pp. 15-16, rollo) The above discourse however, treats of revocation by an act of the principal as a mode of terminating an agency which is to be distinguished from revocation by operation of law such as death of the principal which obtains in this case. On page six of this Opinion We stressed that by reason of the very nature of the relationship between principal and agent, agency is extinguished ipso jure upon the death of either principal or agent. Although a revocation of a power of attorney to be effective must be 18 communicated to the parties concerned, yet a revocation by operation of law, such as by death of the principal is, as a rule, instantaneously effective inasmuch as "by legal fiction the agent's exercise of

15

authority is regarded as an execution of the principal's continuing will. With death, the principal's will ceases or is the of authority is extinguished. The Civil Code does not impose a duty on the heirs to notify the agent of the death of the principal What the Code provides in Article 1932 is that, if the agent die his heirs must notify the principal thereof , and in the meantime adopt such measures as the circumstances may demand in the interest of the latter. Hence, the fact that no notice of the death of the principal was registered on the certificate of title of the property in the Office of the Register of Deeds, is not fatal to the cause of the estate of the principal 6. Holding that the good faith of a third person in said with an agent affords the former sufficient protection, respondent court drew a "parallel" between the instant case and that of an innocent purchaser for value of a land, stating that if a person purchases a registered land from one who acquired it in bad faith even to the extent of foregoing or falsifying the deed of sale in his favor the registered owner has no recourse against such innocent purchaser for value but only against the 20 forger. To support the correctness of this respondent corporation, in its brief, cites the case of Blondeau, et al., v. Nano and Vallejo, 61 Phil. 625. We quote from the brief: In the case of Angel Blondeau et al. v. Agustin Nano et al., 61 Phil. 630, one Vallejo was a co-owner of lands with Agustin Nano. The latter had a power of attorney supposedly executed by Vallejo Nano in his favor. Vallejo delivered to Nano his land titles. The power was registered in the Office of the Register of Deeds. When the lawyer-husband of Angela Blondeau went to that Office, he found all in order including the power of attorney. But Vallejo denied having executed the power The lower court sustained Vallejo and the plaintiff Blondeau appealed. Reversing the decision of the court a quo, the Supreme Court, quoting the ruling in the case of Eliason v. Wilborn, 261 U.S. 457, held: But there is a narrower ground on which the defenses of the defendant- appellee must be overruled. Agustin Nano had possession of Jose Vallejo's title papers. Without those title papers handed over to Nano with the acquiescence of Vallejo, a fraud could not have been perpetuated. When Fernando de la Canters, a member of the Philippine Bar and the husband of Angela Blondeau, the principal plaintiff, searched the registration record, he found them in due form including the power of attorney of Vallajo in favor of Nano. If this had not been so and if thereafter the proper notation of the encumbrance could not have been made, Angela Blondeau would not have sent P12,000.00 to the defendant Vallejo.' An executed transfer of registered lands placed by the registered owner thereof in the hands of another operates as a representation to a third party that the holder of the transfer is authorized to deal with the land. As between two innocent persons, one of whom must suffer the consequence of a breach of trust, the one who made it possible by his act of coincidence bear the loss. (pp. 19-21)

19

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The Blondeau decision, however, is not on all fours with the case before Us because here We are confronted with one who admittedly was an agent of his sister and who sold the property of the latter after her death with full knowledge of such death. The situation is expressly covered by a provision of law on agency the terms of which are clear and unmistakable leaving no room for an interpretation contrary to its tenor, in the same manner that the ruling in Blondeau and the cases cited therein found a basis in Section 55 of the Land Registration Law which in part provides: xxx xxx xxx The production of the owner's duplicate certificate whenever any voluntary instrument is presented for registration shall be conclusive authority from the registered owner to the register of deeds to enter a new certificate or to make a memorandum of registration in accordance with such instruments, and the new certificate or memorandum Shall be binding upon the registered owner and upon all persons claiming under him in favor of every purchaser for value and in good faith: Provided however, That in all cases of registration provided by fraud, the owner may pursue all his legal and equitable remedies against the parties to such fraud without prejudice, however, to the right, of any innocent holder for value of a certificate of title. ... (Act No. 496 as amended) 7. One last point raised by respondent corporation in support of the appealed decision is an 1842 ruling of the Supreme Court of Pennsylvania in Cassiday v. McKenzie wherein payments made to an agent after the death of the principal were held to be "good", "the parties being ignorant of the death". Let us take note that the Opinion of Justice Rogers was premised on the statement that the parties were ignorant of the death of the principal. We quote from that decision the following: ... Here the precise point is, whether a payment to an agent when the Parties are ignorant of the death is a good payment. in addition to the case in Campbell before cited, the same judge Lord Ellenboruogh, has decided in 5 Esp. 117, the general question that a payment after the death of principal is not good. Thus, a payment of sailor's wages to a person having a power of attorney to receive them, has been held void when the principal was dead at the time of the payment. If, by this case, it is meant merely to decide the general proposition that by operation of law the death of the principal is a revocation of the powers of the attorney, no objection can be taken to it. But if it intended to say that his principle applies where there was 110 notice of death, or opportunity of twice I must be permitted to dissent from it. ... That a payment may be good today, or bad tomorrow, from the accident circumstance of the death of the principal, which he did not know, and which by no possibility could he know? It would be unjust to the agent and unjust to the debtor. In the civil law, the acts of the agent, done bona fide in ignorance of the death of his principal are held valid and binding upon the heirs of the latter. The same rule holds in the Scottish law, and I cannot believe the common law is so unreasonable... (39 Am. Dec. 76, 80, 81; emphasis supplied) To avoid any wrong impression which the Opinion in Cassiday v. McKenzie may evoke, mention may be made that the above represents the minority view in American jurisprudence. Thus in Clayton v. Merrett, the Court said.

There are several cases which seem to hold that although, as a general principle, death revokes an agency and renders null every act of the agent thereafter performed, yet that where a payment has been made in ignorance of the death, such payment will be good. The leading case so holding is that of Cassiday v. McKenzie, 4 Watts & S. (Pa) 282, 39 Am. 76, where, in an elaborate opinion, this view ii broadly announced. It is referred to, and seems to have been followed, in the case of Dick v. Page,17 Mo. 234, 57 AmD 267; but in this latter case it appeared that the estate of the deceased principal had received the benefit of the money paid, and therefore the representative of the estate might well have been held to be estopped from suing for it again. . . . These cases, in so far, at least, as they announce the doctrine under discussion, are exceptional. The Pennsylvania Case, supra (Cassiday v. McKenzie 4 Watts & S. 282, 39 AmD 76), is believed to stand almost, if not quite, alone in announcing the principle in its broadest scope. (52, Misc. 353, 357, cited in 2 C.J. 549) So also in Travers v. Crane, speaking of Cassiday v. McKenzie, and pointing out that the opinion, except so far as it related to the particular facts, was a mere dictum, Baldwin J. said: The opinion, therefore, of the learned Judge may be regarded more as an extrajudicial indication of his views on the general subject, than as the adjudication of the Court upon the point in question. But accordingly all power weight to this opinion, as the judgment of a of great respectability, it stands alone among common law authorities and is opposed by an array too formidable to permit us to following it. (15 Cal. 12,17, cited in 2 C.J. 549) Whatever conflict of legal opinion was generated by Cassiday v. McKenzie in American jurisprudence, no such conflict exists in our own for the simple reason that our statute, the Civil Code, expressly provides for two exceptions to the general rule that death of the principal revokes ipso jure the agency, to wit: (1) that the agency is coupled with an interest (Art 1930), and (2) that the act of the agent was executed without knowledge of the death of the principal and the third person who contracted with the agent acted also in good faith (Art. 1931). Exception No. 2 is the doctrine followed in Cassiday, and again We stress the indispensable requirement that the agent acted without knowledge or notice of the death of the principal In the case before Us the agent Ramon Rallos executed the sale notwithstanding notice of the death of his principal Accordingly, the agent's act is unenforceable against the estate of his principal. IN VIEW OF ALL THE FOREGOING, We set aside the ecision of respondent appellate court, and We affirm en toto the judgment rendered by then Hon. Amador E. Gomez of the Court of First Instance of Cebu, quoted in pages 2 and 3 of this Opinion, with costs against respondent realty corporation at all instances. So Ordered.

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TRUSTS
G.R. No. L-16962 February 27, 1962

TRUSTEESHIP OF THE MINORS BENIGNO, ANGELA and ANTONIO, all surnamed PEREZ Y TUASON, ANTONIO M. PEREZ, judicial-guardian-appellant, vs. J. ANTONIO ARANETA, trustee-appellee. Sometime in 1948, Angela S. Tuason died leaving a will, paragraph 4 of which reads: Instituyo como mis unicos herederos a mis mencionados tres hijos, a rason de una novena parte del caudal hereditario que dejare para cada uno de ellos. Lego a mi hijo Antonio otra porcion equivalente a dos novenas partes del caudal hereditario. Lego asimismo a mis nietos que fueren de mi hija Nieves, otra porcion equivalente a dos novenas partes del caudal hereditario. Y finalmente lego a mis nietos que fueren hijos de mi hija Angela otra porcion equivalente de dos novenas partes del caudal hereditario. Dichos tres legados, sin embargo, estan sujetos a la manda que se menciona en el parrafo siguiente. Los dos legados, a favor de mis mencionados nietos seran administrados por mi albacea, J. Antonio Araneta (y en defecto de este, su hermano, Salvador Araneta), con amplios poderes de vender los mismos, y con suproducto adquirir otros bienes, y con derecho a cobrar por su administracion, honorarios razonables. Los poderos de dicho administrador seran los de un trustee con los poderes mas amplios permitidos por la ley. Deberasin embargo, rendir trimestralmente, cuenta de su administracion a los legatarious que fueren mayores de edad. Y asimismo, debera hacerles entrega de la participacion que a cada legatario corresponda en las rentas netas de la administracion. La administracion sobre un grupo cesara cuando todos misnietos de dicho grupo llegare a su mayoria de edad, y una mayoria de los mismos acordaren la terminacion de la administracion. Por nietos, debe entederse no solamente a los nietos varones sino tambien a los nietos mujeres. In conformity with this provision of said will, the present trusteeship proceedings was instituted and certain properties of the estate of the deceased, valued P900,00 were turned over in 1950 to J. Antonio Araneta, as trustee for the benefit of Benigno, Angela and Antonio, all surnamed Perez y Tuason, the grandchildren of the decedent referred to in her aforementioned will. Portions of said properties constituting the trust were sold in 1956, 1957 and 1958 at prices exceedingly by P13,418.42, P4,023.52 and P81,386.94, respectively aggregating P98,828.88 the original appraised value thereof. On September 28, 1959, the judicial guardian and father of said minors filed a motion in the trusteeship proceedings alleging that said sum of P98,828.88 represents profits or income of the trusteeship to which said minors are entitled, pursuant to the above quoted provision of the will, and praying that the trustee be accordingly instructed to deliver said sum to the movant. The trustee objected to the motion, which, after due hearing, was denied by an order dated March 10, 1960, from which said guardian has appealed. The appeal hinges on whether or not the aforesaid sum of P98,828.88 is a profit or income which should be turned over to the guardian of said minors according to the provisions of the will quoted above. Appellant maintains that it is, because said sum was included as profit in the statements of profits and losses attached to the corresponding income tax returns. This pretense is untenable.

To begin with, the issue as to whether or not the minors are entitled to the delivery of said sum of P98,828.88 is a matter dependent exclusively upon the conditions upon which the trust had been established, as provided in the above quoted paragraph of the will of the decedent, which in turn depends upon the latter's intent, as set forth in said paragraph. Upon the other hand, the question whether the sum in question is a profit or not within the purview of our internal revenue law depends upon the provisions of the latter, regardless of the will of the decedent. 1wph1.t Secondly, the proceeds of the sale of portions of the real estate held in trust, merely take the place of the property sold. What is more, the provision of the will of the decedent explicitly authorizing the trustee to sell the property held in trust and to acquire, with the proceeds of the sale, other property ("con amplios poderos de vender los mismos, y con su producto adquirir otros bienes,") leaves no room for doubt about the intent of the testatrix to keep, as part of the trust, said proceeds of the sale, and not to turn the same over to the beneficiary as net rentals ("rentas netas"). Thirdly, under the principles of general law on trust, insofar as not in conflict with the Civil Code, the Code of Commerce, the Rules of Court and Special laws, are now part of our laws (Article 1442, Civil Code of the Philippines). Pursuant to the general law on trust, "a provision in the instrument to the effect that the beneficiary shall be entitled to the 'income and profits of' of the trust estate is not ordinarily sufficient to indicate an intention that he should be entitled to receive gains arising from the sale of trust property ..." ( In re Account of Houston's Trustees, 165 Atl. 132; Lauman v. Foster, 50 A.L.R. 531; Guthrie's Trustee v. Akers, 157 Ky. 649; Estate of Gartenlaule, 198 Cal. 204, 244 Pac. 348, 48 A.L.R. [M.S. 793]). Indeed:. The corpus of the estate, no matter what changes of form it undergoes, should be regarded as the same property. That the trust property is originally money, later becomes bonds, and still later real estate, ought not to affect the status of the property as the capital fund. (In re Graham's Estate, 198 Pa. 216, 219, 47 A. 1108; See Bogert on Trusts, 2d Ed., p. 436.) Hence, it is well settled that profits realized in the sale of trust properties are part of the capital held in trust to which the beneficiaries are not entitled as income. (First Nat. Bank of Carlisle v. Lee, 23 Ky. L. Rep. 1897; Coleman vs. Grimes, 33 Ky. L. Rep. 455; Bains v. Globe Bank & Trust Co., 136 Ky. 332; Smith v. Hooper, 95 Md. 16; Chase v. Union National Bank, 275 Mass. 503; First National Bank of Canton vs. Mulholland, 13 A.L.R. 1000 [1920] [land]; Stewart v. Phelps, 75 N. & Supp. 526 Rathbun v. Colton, 15 Pick. 471; Gibson v. Cooke, 1 Met. 75; See Scott on Trusts Vol. 2 p. 1259.) In the language of the Restatement of the Law:. Subject to the allocation of receipts from unproductive or wasting property, and except as stated in Comment c, money or other property received by the trustee as the proceeds of a sale or exchange of the principal of trust property is principal. Similarly, where trust property is taken on eminent domain, the proceeds received by the trustee are principal. If trust property is destroyed by fire or other casualty, the proceeds of insurance thereon received by the trustee are principal. .... "Where it is provided by the terms of the trust that the 'income and profits' of the trust estate shall be paid to the life beneficiary, it is a question of interpretation whether the life beneficiary is to receive more than he would receive if it were provided that the 'income' should be paid to him. Ordinarily the inference is that he is not to receive more, and if trust property is sold at a profit, the profit is principal. (Restatement of the Law, Trusts, Vol. I, pp. 682 and 691.) WHEREFORE, the order appealed from is hereby affirmed, with costs against appellant, Antonio M. Perez. It is so ordered.

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G.R. No. 96727 August 28, 1996 RIZAL SURETY & INSURANCE COMPANY, petitioner, vs. COURT OF APPEALS and TRANSOCEAN TRANSPORT CORPORATION, respondents. Was a trust relationship established between an insurer and the two insureds over the balance of the insurance proceeds being held by the insurer for the account of the two insureds, pending a final settlement by and between the two insureds of their respective claims to said proceeds? Can the insurer whether or not considered a trustee be held liable for interest on the said insurance proceeds, which proceeds the said insurer failed or neglected to deposit in an interest-bearing account, contrary to the specific written instructions of the two insureds? And should attorney's fees be awarded in this case? These questions confronted the Court in resolving the instant petition for review on certiorari, which 1 2 assailed the Decision of the Court of Appeals promulgated October 25, 1990 affirming and modifying 3 4 the decision dated September 19, 1986 of the Regional Trial Court of Manila, Branch 33, in Civil Case No. 125886. The Facts As culled from the stipulations between the parties and the assailed Decision, the factual background of this case is as follows: On December 5, 1961, the Reparations Commission (hereinafter referred to as REPACOM) sold to private respondent Transocean Transport Corporation the vessel 'M/V TRANSOCEAN SHIPPER' payable in twenty (20) annual installments. On June 22, 1974, the said vessel was insured with petitioner Rizal Surety & Insurance Company for US$3,500,000.00, with stipulated value in Philippine 5 Currency of P23,763,000.00 under Marine Hull Policy MH-1322 and MH-1331. The said policies named REPACOM and herein private respondent as the insured. Subsequently, petitioner reinsured the vessel with a foreign insurance firm. Sometime in February, 1975, during the effectivity of the aforementioned marine insurance policies, the vessel 'M/V TRANSOCEAN SHIPPER' was lost in the Mediterranean Sea. The insured filed claims against herein petitioner for the insurance proceeds. Shortly thereafter, a partial compromise agreement was entered into between the REPACOM and respondent Transocean regarding the insurance proceeds. On April 18, 1975, anticipating payment of the insurance proceeds in dollars, private respondent requested the Central Bank (CB) to allow it to retain the expected dollar insurance proceeds for a period 6 of three (3) months, to enable it to complete its study and decide on how to utilize the said amount . The CB granted the request subject to conditions, one of which was that the proceeds be deposited with 7 a local commercial bank in a special dollar account up to and until July 31, 1975. On November 18, 1975, private respondent and REPACOM requested petitioner to pay the insurance 8 proceeds in their joint names, despite problems regarding the amount of their respective claims.

On November 20, 1975, the CB authorized petitioner to receive the insurance proceeds from the English re-insurance firm in foreign currency and to deposit it in the same currency with any local bank 9 in a non-interest bearing account, jointly in the names of private respondent and REPACOM. On December 2, 1975, upon the request of petitioner, CB authorized it to receive and deposit the dollar insurance proceeds in a non-interest bearing account in the name of petitioner and for the joint 11 account of REPACOM and private respondent. On January 3, 1976, petitioner informed private respondent and REPACOM that the entire insurance proceeds for the loss of the vessel M/V "Transocean Shipper", consisting of: (a) P2,614,150.00 from local insurance companies and reinsurers, and (b) US$3,083,850.00 from the petitioner's London insurance broker, had been deposited with Prudential Bank and Trust Company, Escolta Branch, 12 Manila, the latter sum in a non-interest bearing account as authorized by CB. On January 29, 1976, private respondent and REPACOM entered into a partial compromise 13 agreement, wherein they agreed to divide and distribute the insurance proceeds in such a manner that each would receive as its initial share thereof that portion not disputed by the other party (thus, REPACOM US$434,618.00, and private respondent US$1,931,153.00), leaving the balance in dispute for future settlement, either by way of compromise agreement or court litigation, pending which the said balance would continue to be kept in the same bank account in trust for private respondent and REPACOM unless the parties otherwise agree to transfer said balance to another bank account. Copies of this compromise agreement were sent to petitioner. In response to the March 10, 1976 letter-request of the parties, the CB on March 15, 1976 authorized private respondent and REPACOM to transfer the balance of the insurance proceeds, amounting to 14 US$718,078.20, into an interest-bearing special dollar account with any local commercial bank. The CB's letter-authorization was addressed to REPACOM, with private respondent and petitioner duly copy-furnished. Having obtained the CB authorization, REPACOM and private respondent then wrote the petitioner on April 21, 1976, requesting the latter to remit the said US$718,078.20 to the Philippine National Bank, 15 Escolta Branch for their joint account. In a reply dated May 10, 1976, petitioner indicated that it would effect the requested remittance when both REPACOM and private respondent shall have unconditionally and absolutely released petitioner from all liabilities under its policies by executing and delivering the Loss and Subrogation Receipt 16 prepared by petitioner. Because the parties proposed certain amendments and corrections to the Loss and Subrogation Receipt, a revised version thereof was finally presented to the Office of the Solicitor General, and on May 25, 1977, then Acting Solicitor General Vicente V. Mendoza wrote petitioner demanding that it pay 1 interest on the dollar balance per the CB letter-authority. His letter read in relevant part. 7 From the foregoing, it is clear that effective as of the date of your receipt of a copy of the letter of the Central Bank authorizing the deposit of the amount in an interestbearing special dollar account . . . , the same should bear interest at the authorized rates, and it was your duty as trustee of the said funds to see to it that the same earned the interest authorized by the Central Bank. As trustee, you were morally and legally bound to deposit the funds under terms most advantageous to the
10

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beneficiaries. If you did not wish to transfer the deposit from the Prudential Bank and Trust Company, which we understand is your sister company, to another bank where it could earn interest, it was your obligation to require the Prudential Bank and Trust Company, at least, to place the deposit to an interest-bearing account. In view hereof, we hereby demand in behalf of the Reparations Commission payment of interest on the dollar deposit from the date of your receipt of the authorization by the Central Bank at the authorized rates. In a reply dated June 14, 1977, petitioner through counsel rejected the Acting Solicitor General's demand, asserting that (i) there was no trust relationship, express or implied, involved in the transaction; (ii) there was no obligation on the part of petitioner to transfer the dollar deposit into an interest-bearing account because the CB authorization was given to REPACOM and not to petitioner, (iii) REPACOM did not ask petitioner to place the dollars in an interest-bearing account, and, (iv) no Loss and Subrogation Receipt was executed. On October 10, 1977, private respondent and REPACOM sent petitioner the duly executed Loss and Subrogation Receipt, dated January 31, 1977, without prejudice to their claim for interest on the dollar balance from the time CB authorized its placement in an interest bearing account. On February 27, 1978, a final compromise agreement was entered into between private respondent and REPACOM, whereby the latter, in consideration of an additional sum of one million pesos paid to it by the former, transferred, conveyed and assigned to the former all its rights, interests and claims in and to the insurance proceeds. The dollar balance of the insurance proceeds was then remitted to the Philippine National Bank, Escolta branch for the sole account of private respondent. On April 14, 1978, a demand letter for interest on the said dollar balance was sent by private respondent's counsel to petitioner and Prudential Bank, which neither replied thereto nor complied therewith. On August 15, 1979, private respondent filed with the Regional Trial Court of Manila, Branch 33, a complaint for collection of unearned interest on the dollar balance of the insurance proceeds. On September 19, 1986, the trial court issued its decision holding that (i) a trust relationship existed between petitioner as trustee and private respondent and REPACOM as beneficiaries, (ii) from April 21, 1976, petitioner should have deposited the remaining dollar deposit in an interest-bearing account either by remitting the same to the PNB in compliance with the request of REPACOM and private respondent, or by transferring the same into an interest-bearing account with Prudential Bank, and (iii) this duty to deposit the funds in an interest-bearing account ended when private respondent signed the Loss and Subrogation Receipt on January 31, 1977. Thus, petitioner was ordered to pay (1) interest on the balance of US$718,078.20 at 6% per annum, computed from April 21, 1976 until January 31, 1977 based on the then prevailing peso-dollar rate of exchange; (2) interest of 6% per annum on the accrued interest earned until fully paid; (3) 10% of the total amount claimed as attorney's fees and (4) costs of 19 suit. The complaint against defendant Prudential Bank and Trust was dismissed for lack of merit. Both petitioner and private respondent appealed the trial court's decision. Private respondent alleged that the trial court erred when it absolved defendant Prudential Bank from liability and when it ruled that the interest on the balance of the dollar deposit, for which petitioner was held liable, should be computed only until January 31, 1977 (when the Loss and Subrogation Receipt was signed) instead of
18

January 10, 1978 (when the actual transfer of the dollar deposit was made to the bank chosen by 20 private respondent). On the other hand, petitioner charged that the trial court had seriously erred in finding that a trust relationship, existed and that petitioner was liable for the interest on the dollar balance despite the execution of the Loss and Subrogation Receipt wherein petitioner was 21 unconditionally and absolutely released from all its liabilities under the marine hull policies. On October 25, 1990, the Court of Appeals upheld the judgment of the trial court, and confirmed that a trust had in fact been established and that petitioner became liable for interest on the dollar account in its capacity as trustee, not as insurer. As for the Loss and Subrogation document, the appellate Court ruled that petitioner gave undue importance thereto, and that the execution thereof did not bar the claims for accrued interest. By virtue of that document, petitioner was released only from its liabilities arising from the insurance policies, i.e., in respect of the principal amount representing the insurance proceeds, but not insofar as its liability for accrued interest was concerned, which arose from the violation of its duty as trustee i.e., its refusal to deposit the dollar balance in an interest-bearing account, under terms most advantageous to the beneficiaries. The respondent Court modified the trial court's judgment by ordering petitioner to pay said interest computed from April 21, 1976 up to January 10, 1978. On December 17, 1990, the Court of Appeals denied the petitioner's motion for reconsideration. Hence, this petition. Assignment of Errors Petitioner alleges that the Court of Appeals erred: I. . . . when it held that Rizal is liable to Transocean for supposed interest on the balance of US$718,078.20 after admitting that Transocean and REPACOM had unconditionally and absolutely released and discharged Rizal from its total liabilities when they signed the loss and subrogation receipt . . . on January 31, 1977; II. . . . in assuming that REPACOM and Transocean on one hand and Rizal, on the other, intended to create a trust; III. . . . in not holding that Transocean had acted in palpable bad faith and with malice in filing this clearly unfounded civil action, and in not ordering Transocean to pay to Rizal moral and punitive damages . . . , plus attorney's fees and expenses of litigation . . . ; and IV. . . . in affirming the RTC decision which incorrectly awarded attorney's fees and 22 costs of suit to Transocean. The foregoing grounds are almost exactly the same grounds pleaded by petitioner before the respondent Court. At the heart of the matter is the question of whether the petitioner is liable for accrued interest on the dollar balance of the insurance proceeds. Reiterating the arguments it ventilated before the respondent appellate Court, petitioner continues to deny the existence of the trust, alleging that it never intended to enter into a fiduciary relationship with private respondent and REPACOM and that it held on to the dollar balance only as a means to protect its interest. Furthermore, petitioner insists that

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the Loss and Subrogation Receipt signed by the insureds released and absolved petitioner from all liabilities, including the claimed interest. Briefly, the key issues in this case may be re-stated thus: I. The existence of a trust relationship; II. The significance of the Loss and Subrogation Receipt; III. Petitioner's liability for accrued interest on the dollar balance; and IV. Correctness of the award of attorney's fees. The Court's Ruling The shop-worn arguments recycled by petitioner are mainly devoid of merit. We searched for arguments that could constitute reversible errors committed by the respondent Court, but found only one in the last issue. First Issue: The Trust Relationship Crucial in the resolution of this case is the determination of the role played by petitioner. Did it act merely as an insurer, or was it also a trustee? In ruling that petitioner was a trustee of the private respondent and REPACOM, the Court of Appeals ratiocinated thus: The respondent (trial) court sustained the theory of TRANSOCEAN and was of the view that RIZAL held the dollar balance of US$718,078.20 as trustee for the benefit of REPACOM and plaintiff corporation (private respondent herein) upon consideration of the following facts and the said court's observation 1. That pursuant to RIZAL's letter to the Central Bank dated November 25, 1975, it requested that is authority to deposit the dollar proceeds with any local bank be amended by allowing it to deposit the same in the name of "Rizal Surety & Insurance Company for the joint account of the Reparations Commission and Transocean Transport Corporation." It further states, to wit: This is in conformity with our agreement on this matter with the respective officers of our insureds, Reparations Commission and Transocean Transport Corporation, during our conference held in the office of Solicitor General Estelito Mendoza, last 18 November 1975. (Exhibit I) From these facts, it is very clear that the parties thereto intended that the entire dollar insurance proceeds be held in trust by defendant RIZAL for the benefit of REPACOM and plaintiff corporation.

2. This agreement was further fortified by the Central Bank's reply to the abovementioned letter authorizing RIZAL to deposit the dollar insurance proceeds in the name of "Rizal Surety & Insurance Company for the joint account of Transocean Transport Corporation and Reparations Commission" (Exhibit J). 3. Likewise, defendant RIZAL's letter to REPACOM and plaintiff corporation confirming the fact that the insurance proceeds were then deposited with Prudential Bank and it was recorded under the name of Rizal Surety & Insurance Company for the joint account of Transocean Transport Corporation and REPACOM (Exhibit L). 4. The partial compromise agreement entered into between the insureds on January 29, 1976 over the division of the insurance proceeds which provides as follows: 4. The disputed portion or the balance of the insurance proceeds remaining after deducting the undisputed portions as agreed above shall be kept in the same bank deposit in trust for and in the joint name of REPACOM and TRANSOCEAN until such time as there is a court decision or a compromise agreement on the full amount or portion thereof, or until such time as REPACOM and TRANSOCEAN shall agree jointly to transfer such balance to another bank account. It appears clearly that even from the start of the communications among themselves, especially between defendant RIZAL on one hand and REPACOM and the plaintiff corporation, on the other hand, it shows that the parties intended that the dollar insurance proceeds be held in the name of defendant RIZAL for the joint benefit of REPACOM and plaintiff corporation. No repudiation was ever made or any one of the parties for that matter questioned said agreement. There was, therefore, created a trust relationship between RIZAL on one hand and the REPACOM and plaintiff corporation on the other, over the dollar insurance proceeds of the lost vessel. . . . Indeed, the aforesaid enumerated facts sufficiently manifest the intention between REPACOM and TRANSOCEAN on one hand and RIZAL, on the other, to create a trust. It was RIZAL itself which requested the Central Bank that it be allowed to deposit the dollars in its name and "for the joint account of REPACOM and TRANSOCEAN" instead of in the joint account of REPACOM and TRANSOCEAN as originally authorized. Moreover, the Partial Compromise Agreement explicitly states that the dollars "shall be kept in the same bank deposits in trust for and in the joint name of REPACOM and TRANSOCEAN". While it is true, that RIZAL was not a party to the Compromise Agreement, nevertheless, RIZAL was furnished a copy of the same and did not in any way manifest objection thereto. On the contrary, RIZAL even implemented certain provisions thereof.

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xxx xxx xxx The intention to create a trust relation can be inferred from the surrounding factual circumstances. Thus: Such a manifestation can in fact be determined merely by construction of, and inference from, the surrounding factual circumstances, so long as the proof thereof is clear, satisfactory, and convincing, and does not rest on loose, equivocal or indefinite declarations (Medina vs. CA, 109 SCRA 437). Petitioner claims that respondent Court was misled by the trial court's crucial mis-assumption that 23 petitioner was the one which took the initiative of requesting authorization from CB to deposit the dollar proceeds in its name, into concluding that a trust relationship had been created. Petitioner insists that it did so only in reaction to the earlier CB letter dated November 20, 1975 which first ordered petitioner to receive the dollar insurance proceeds and deposit the same with any local bank in a noninterest bearing account in the names of Transocean and REPACOM jointly, and that it (petitioner) made such request to avoid having the dollar proceeds paid directly to the account of the two insured, as that would be tantamount to full payment of the loss without first securing petitioner's release from its liabilities under the insurance policies. In short, petitioner claims it was just trying to protect its interest when it made such request. Petitioner further scores the respondent Court for relying on the two insured's arrangement contained in the Partial Compromise Agreement that the dollar balance be kept in the same bank deposit (held by petitioner) "in trust for and in the joint name of REPACOM and TRANSOCEAN". Petitioner insists it was never a party to said compromise agreement, and that therefore, it should not be held bound by anything contained therein, and simply because it "did not in 24 any way manifest objection thereto" Petitioner's arguments notwithstanding, we hold that the courts below were correct in concluding that a trust relationship existed. It is basic in law that a trust is the right, enforceable solely in equity, to the 25 beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary 26 relationship concerning property which obliges a person holding it (i.e., the trustee) to deal with the property for the benefit of another (i.e. the beneficiary). The Civil Code provides that: Art. 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. . . . Art. 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. Express trusts are created by direct and positive acts of the parties, by some writing or deed, or will, or 2 by words either expressly or impliedly evincing an intention to create a trust. 7 The evidence on record is clear that petitioner held on to the dollar balance of the insurance proceeds because (1) private respondent and REPACOM requested it to do so as they had not yet agreed on the amount of their respective claims, and the Final Compromise Agreement was yet to be executed, and (2) they had not, prior to January 31, 1977, signed the Loss and Subrogation Receipt in favor of petitioner.

Furthermore, petitioner's letter dated November 20, 1975 addressed to the CB expressly stated that the deposit in Prudential Bank was being made in its name for the joint account of the private respondent and REPACOM. Petitioner never claimed ownership over the funds in said deposit. In fact, it made several tenders of payment to the private respondent and REPACOM, albeit the latter declined to accept since the dispute as to their respective claims could not yet be resolved at that time. By its own allegation, petitioner held on to the dollar balance of the insurance proceeds to protect its interest, as it was not yet granted the right of subrogation over the total loss of the vessel. As petitioner continued holding on to the deposit for the benefit of private respondent and REPACOM, petitioner obviously recognized its fiduciary relationship with said parties. This is the essence of the trust flowing from the actions and communications of petitioner. In Mindanao Development Authority vs. Court of Appeals,
28

this Court held:

. . . It is fundamental in the law of trusts that certain requirements must exist before an express trust will be recognized. Basically, these elements include a competent trustor and trustee, an ascertainable trust res, and sufficiently certain beneficiaries. Stilted formalities are unnecessary, but nevertheless each of the above elements is required to be established, and, if any one of them is missing, it is fatal to the trusts (sic). Furthermore, there must be a present and complete disposition of the trust property, notwithstanding that the enjoyment in the beneficiary will take place in the future. It is essential, too, that the purpose be an active one to prevent trust from being executed into a legal estate or interest, and one that is not in contravention of some prohibition of statute or rule of public policy. There must also be some power of administration other than a mere duty to perform a contract although the contract is for a third-party beneficiary. A declaration of terms is essential, and these must be stated with reasonable certainty in order that the trustee may administer, and that the court, if called upon so to do, may enforce, the trust. ( citing Sec. 31, Trusts, Am Jur 2d, pp. 278-279.) Undeniably, all the abovementioned elements are present in the instant case. Petitioner's argument that it was never a party to the Partial Compromise Agreement is unavailing, since, upon being furnished a copy of the same, it undoubtedly became aware if it was not already aware even prior thereto that the parties to said agreement considered petitioner as their trustee in respect of said dollar balance; in short, it is all too evident that petitioner fully grasped the situation and realized that private respondent and REPACOM were constituting petitioner their trustee. Yet, petitioner not only did not manifest any objection thereto, but it instead proceeded to accept its role and responsibility as such trustee by implementing the compromise agreement. Equally as significant, petitioner never committed any act amounting to an unequivocal repudiation of its role as trustee. Petitioner's desperate attempt to establish a viable defense by way of its allegation that no fiduciary relationship could have existed because of the joint insured's adversary positions with respect to the insurance proceeds deserves scant consideration. The so-called adversary positions of the parties had no effect on the trust as it never changed the position of the parties in relation to each other and to the dollar proceeds, i.e., petitioner held it for private respondent and REPACOM, which were the real owners of the money. Second Issue: The Loss and Subrogation Receipt Significance Of The

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The respondent Court committed no reversible error in its appreciation of the Loss and Subrogation Receipt, which reads in relevant part. . . . we have unconditionally and absolutely accepted full payment from Rizal Surety & Insurance Company, as insurer, of its total liabilities. In consideration of this full payment, we hereby assign, cede and transfer to said Insurance Company any and all claims, interests and demands of whatever nature against any person, entity, corporation or property arising from or otherwise connected with such total loss of the insured property and we hereby acknowledge that the said Company is subrogated in our place and stead to any and all claims, interests and demands that we have, or in the future might have, against all persons, entities, corporations or properties to the full extent of the abovementioned payment received by us. Said receipt absolved the petitioner only from all claims arising from the insurance policies it issued. It did not exculpate petitioner from its liability for the accrued interest as this obligation arose in connection with its role as trustee and its unjustified refusal to deposit the money in an interest-bearing account as required. The respondent Court correctly held that: RIZAL gives undue importance to the Loss and Subrogation Receipt (Exh. U-1) signed by TRANSOCEAN and REPACOM in an effort to absolve itself from liability. The execution of the said Loss and Subrogation Receipt did not preclude the joint insured from claiming the accrued interest. TRANSOCEAN and REPACOM released RIZAL only from its (RIZAL) liabilities arising from the insurance policies issued, that is, in regard to the principal amount representing the insurance proceeds but not to the accrued interest which stemmed from its refusal to deposit the disputed dollar portion in violation of its duty as a trustee to deposit the same under the terms most advantageous to TRANSOCEAN and REPACOM. Corollary thereto, RIZAL was subrogated to the rights which stemmed from the insurance contract but not to those which arise from the trust relationship; otherwise, that would lead to an absurd situation. At most, the signing of the Loss and Subrogation Receipt was a valid pre-condition before petitioner could be compelled to turn over the whole amount of the insurance proceeds to the two insured. Thus, in response to the letter of private respondent and REPACOM to petitioner dated April 21, 1975, petitioner reiterated its offer to pay the balance of the insurance claim provided the former sign the Loss and Subrogation Receipt. But this was done only on October 10, 1977. Third Issue: Accrued Interest Liability Of Petitioner For

choice as specifically instructed, nor just deposit the same in an interest-bearing account at Prudential Bank. Petitioner's other contention that it was not bound by the CB order, despite its having been informed thereof and copy furnished by private respondent and REPACOM, simply because said order was not directed to it, is even more ridiculous and undeserving of further comment. Originally, petitioner, as shown by its November 25, 1975 letter, only agreed to receive and deposit the money under its name for the joint account of the private respondent and REPACOM in a non-interest bearing account. At that point, as trustee, it could have easily discharged its obligation by simply transferring and paying the dollar balance to private respondent and REPACOM and by so doing, would have dissolved the trust. However, when the trustors instructed petitioner as trustee to deposit the funds in an interest-bearing account, the latter ought, as a matter of ordinary common sense and common decency, to have at least informed the insured that it could not or would not, for whatever reason, carry out said instructions. This is the very least it could have done if indeed it wanted to repudiate its role as trustee or be relieved of its obligations as such trustee at that point. Instead of doing thus, petitioner chose to remain silent. After petitioner's receipt of the April 21, 1976 letter of private respondent and REPACOM requesting petitioner to remit the the dollar balance to an interest-bearing account, petitioner merely tendered payment of the said dollar balance in exchange for the signed Loss and Subrogation Receipt. This falls far short of the requirement to clearly inform the trustor-beneficiaries of petitioner's refusal or inability to comply with said request/instruction. Such silence and inaction in the face of specific written instructions from the trustors-beneficiaries could not but have misled the latter into thinking that the trustee was amenable to and was carrying out their instructions, there being no reason for them to think otherwise. This in turn prevented the trustors-beneficiaries from early on taking action to discharge the unwilling trustee and appointing a new trustee in its place or from otherwise effecting the transfer of the deposit into an interest-bearing account. The result was that the trustorsbeneficiaries, private respondent and REPACOM, suffered prejudice in the form of loss of interest income on the dollar balance. As already mentioned, such prejudice could have been prevented had petitioner acted promptly and in good faith by communicating its real intentions to the trustors. Beyond the foregoing considerations, we must also make mention of the matter of undue enrichment. We agree with private respondent that the dollar balance of US$718,078.20 was certainly a large sum of money. Leaving such an enormous amount in a non-interest bearing bank account for an extended period of time about one year and nine months would undoubtedly have not only prejudiced the owner(s) of the funds, but, equally as true, would have resulted to the immense benefit of Prudential Bank (which happens to be a sister company of the petitioner), which beyond the shadow of a doubt must have earned income thereon by utilizing and relending the same without having to pay any interest cost thereon. However one looks at it, it is grossly unfair for anyone to earn income on the money of another and still refuse to share any part of that income with the latter. And whether petitioner benefited directly, or indirectly as by enabling its sister company to earn income on the dollar balance, is immaterial. The fact is that petitioner's violation of its duty as trustee was at the expense of private respondent, and for the ultimate benefit of petitioner or its stockholders. This we cannot let pass. Fourth Issue: Award of Attorney's Fees is Improper Petitioner argues that respondent Court erred in affirming the RTC's award of attorney's fees and costs of suit, repeating the oft-heard refrain that it is not sound public policy to place a premium on the right to litigate. It is well settled that attorney's fees should not be awarded in the absence of stipulation except under the instances enumerated in Art. 2208 of the New Civil Code. As held by this Court in Solid Homes, 29 Inc. vs. Court of Appeals:

Petitioner argues, rather unconvincingly, that it was of the belief that, as it was never the trustee for the insured and thus was under no obligation to execute the instruction to transfer the dollar balance into an interest-bearing account, therefore, it was also not obligated and hence it did not bother to advise private respondent and REPACOM that it would neither remit the dollar balance to the insured's bank of

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Article 2208 of the Civil Code allows attorney's fees to be awarded by a court when its claimant is compelled to litigate with third persons or to incur expenses to protect his interest by reason of an unjustified act or omission of the party from whom it is sought. While judicial discretion is here extant, an award thereof demands, nevertheless, a factual, legal or equitable justification. The matter cannot and should not be left to speculation and conjecture (Mirasol vs. De la Cruz, 84 SCRA 337; Stronghold Insurance Company, Inc. vs. Court of Appeals, 173 SCRA 619). In the case at bench, the records do not show enough basis for sustaining the award for attorney's fees and to adjudge its payment by petitioner. . . . Likewise, this Court held in Stronghold Insurance Company, Inc. vs. Court of Appeals
30

that:

In Abrogar v. Intermediate Appellate Court [G.R. No. 67970, January 15, 1988, 157 SCRA 57] the Court had occasion to state that "[t]he reason for the award of attorney's fees must be stated in the text of the court's decision, otherwise, if it is stated only in the dispositive portion of the decision, the same must be disallowed on appeal. . . . The Court finds that the same situation obtains in this case. A perusal of the text of the decisions of the trial court and the appellate Court reveals the absence of any justification for the award of attorney's fees made in the falloor dispositive portions. Hence, the same should be disallowed and deleted. WHEREFORE, the petition is DENIED, and the assailed Decision is hereby AFFIRMED with the sole modification that the award of attorney's fees in favor of private respondent is DELETED. SO ORDERED.

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G.R. No. L-26107 November 27, 1981 THE HEIRS OF PEDRO MEDINA, represented by MARGARITA MEDINA, petitioners vs. THE HON. COURT OF APPEALS, * RESTITUTA ZURBITO VDA. DE MEDINA and ANDRES NAVARRO, JR.,respondents. The Court upholds the decision of the Court of Appeals which dismissed petitioners' complaint to recover from private respondents a parcel of land situated in Oac, Milagros, Masbate, together with the Spanish title (Titulo Real No. 349581) covering it. The Court of Appeals correctly found that petitioners failed to prove their claim that respondents were holding the property on the basis of an express trust, the existence of which, according to law and to established jurisprudence, cannot be proven by mere parol evidence and cannot rest on vague and uncertain evidence or on loose, equivocal or indefinite declarations. Thus, assuming that there existed a constructive trust in petitioners' favor, petitioners' action to recover the property had been lost by both extinctive and acquisitive prescription by virtue of respondents' continuous, uninterrupted and unchallenged possession and occupancy of the premises adversely and in the concept of owner-buyer for thirty-three years, counted from the execution in 1924 of the deed of sale in respondents' favor to the filing of the action in 1957. The late Francisco Medina had eight children, namely, Gregorio, Sotero, Narciso, Victorina, Simona, Carmen,Pedro and Hospicia, all of whom are deceased. Petitioner Margarita Medina, who filed the complaint on behalf of the heirs of Pedro Medina in the Court of First Instance of Masbate, is the 1 daughter of Pedro Medina who predeceased his father Francisco Medina. Restituta Zurbito Vda. de Medina, herein private respondent, and defendant in the trial court, is the widow of Sotero Medina (brother of Pedro Medina); and Andres Navarro, Jr., her herein co-respondent and co-defendant in the trial court, is her grandson. On March 6, 1957, herein petitioners filed the complaint in the trial court seeking to recover from herein respondents a parcel of land situated in the sitio of Oac, municipality of Milagros, province of Masbate, containing an area of 321.1156 hectares and praying that respondents be ordered to deliver to them possession and ownership thereof with accounting, damages and costs and litigation expenses. Among others, the complaint alleged that petitioner Margarita Medina as plaintiff inherited with her sister Ana Medina the said parcel of land from their father Pedro Medina; that upon their father's death, she and her sister Ana Medina being then minors were placed under the care and custody of the spouses Sotero Medina and Restituta Zurbito, as guardians of their persons and property; that the land in dispute was placed under the management of Sotero Medina as administrator thereof, and upon Sotero's death under the management of his widow, Restituta Zurbito; that she later discovered that the land in question was surreptitiously declared for taxation purposes in the name of Andres Navarro, Jr., grandson of Restituta Zurbito; that said respondents as defendants had without color of title denied petitioners' ownership and instead had claimed ownership thereof since the year 1948 and exercised acts of possession and ownership thereon to the exclusion of petitioners; that petitioners had demanded that respondents vacate the premises and deliver possession and ownership thereof, but the latter failed and refused to do so; that respondent Andres Navarro, Jr. had excavated soil from the land in question and sold the same to the Provincial Government of Masbate without the knowledge and consent of petitioners and appropriated the proceeds thereof to his personal benefit to the damage and prejudice of the plaintiff; and that respondent Restituta Zurbito Vda. de Medina never rendered an accounting of the income of the property in question in spite of their repeated demands and instead appropriated all the income therefrom to her personal use and benefit.

Respondents as defendants alleged on the other hand that petitioner Margarita and her deceased sister Ana were but illegitimate children of Pedro Medina and for that reason did not enjoy the status of recognized natural children, such that when Pedro died intestate, Francisco Medina, Pedro's father who was still living, succeeded to his properties; that upon the death of Francisco, his children succeeded to his properties and the land in dispute was adjudicated to Gregorio, Sotero, and Narciso Medina; that in a deed of extrajudicial partition the land was later adjudicated solely to Narciso Medina; that Narciso Medina having become sole and exclusive owner of the land in question by virtue of said partition sold the same to Restituta and her husband Sotero Medina on June 29, 1924, as evidenced by a deed of sale; that from that day, respondents had actually possessed the land in question in the concept of owners, publicly, openly and continuously and adversely against the whole world so that whatever right, interest, title or participation petitioners had or might have had in the property had been lost by extinctive prescription and by virtue of the 33 years of exclusive actual possession in the concept of owner of the spouses Sotero and Restituta Medina who had thereby acquired title thereto by acquisitive prescription, even grantingarguendo that petitioners had some title, right or interest over the land. After trial, judgment was rendered declaring petitioner Margarita Medina with her co-heirs as the lawful owners of the land in question; ordering respondents to deliver unto them the "titulo real No. 349581 " and to restore to them the actual possession thereof; and ordering respondents to pay them certain amounts representing the produce of the land and attorneys' fees and costs of litigation. Upon appeal, respondent Court of Appeals reversed the trial court's decision and sustaining respondents' defenses of prescription of action and acquisitive prescription, ordered the dismissal of the complaint. Petitioners twice moved in vain to reconsider the appellate court's adverse decision. Hence, this petition for review, which we find to be without merit. At the outset, it should be mentioned that the avowed status of petitioner Margarita Medina and her deceased sister Ana Medina as "legitimate daughters" of Pedro Medina, which assertion had been vigorously objected both in the trial and appellate courts by respondents (who challenged the trial court's admission of petitioners' amended reply asserting their status as "legitimate children," changing and amending the statement in their original reply that they were "acknowledged natural daughters" of 2 their father Pedro Medina and recognized by their "deceased natural grandparents" ), was determined positively in favor of petitioners by the Court of Appeals which ruled that there was sufficient 'evidence upholding the trial court's finding on their legitimate filiation based on the testimonies of witnesses who testified on the fact of the marriage of their parents Pedro Medina and Rosario Ramirez. Said findings of fact may no longer be disturbed in these proceedings, and at any rate do not affect the disposition of the case. The decisive issue at bar, bearing in mind the legitimate filiation of petitioners, and thus the would be validity of their claim to the land, is simply whether or not petitioners' action for recovery thereof has been barred by prescription. The validity of respondents' defense of prescription in turn rests upon whether or not an express trust over the property in litigation has been constituted by petitioners' father Pedro Medina (who predeceased his father Francisco Medina) upon his brother Sotero and Sotero's wife Restituta Zurbito for the benefit of his children, petitioner Margarita Medina and her deceased sister Ana Medina and the latter's heirs.

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As provided by our Civil Code, "Trusts are either express or implied. Express trusts are created by the intention of the trusts are of the parties. Implied trusts come into being by operation of law." (Art. 1441) "No express trusts concerning an immovable or any interest therein may be proven by parol evidence." 3 (Art. 1443) "An implied trust may be proven by oral evidence." (Art. 1457) Applied to the case at bar, if an express trust had been constituted upon the occupancy of the property by respondents in favor of the petitioners, prescription of action would not lie, the basis of the rule being that the possession of the trustee is not adverse to the beneficiary. But if there were merely a constructive or implied trust, the action to recover may be barred by prescription of action or by acquisitive prescription by virtue of respondents' continuous and adverse possession of the property in the concept of owner-buyer for thirty-three years. The appellate court correctly held that the facts and evidence of record do not support petitioners' claim of the creation of an express trust and imprescriptibility of their claim, ruling squarely that "the facts do not warrant the conclusion that an express trust was created over the land in dispute. Although no particular words are required for the creation of an express trust, a clear intention to create a trust must be shown (Article 1444, Civil Code of the Philippines); and the proof of fiduciary relationship must be clear and convincing g (Quiogue vs. Arambulo, 45 O. G. 305; Espinosa vs. Tumulak, CA-G. R. No. 30075-R, June 26, 1964). Express trusts are those intentionally created by the direct and positive act of the trustor, by some writing, deed or win, or oral declaration (54 Am. Jur. 33-34). The creation of an express trust must be manifested with reasonable certainty and cannot be inferred from loose and vague declarations or from ambiguous circumstances susceptible of other interpretations (54 Am. Jur. 48-49). Nowhere in the record is there any evidence, and the plaintiffs do not even raise the pretention, that the original owner of the property Pedro Medina, father of plaintiff Margarita Medina, appointed, designated or constituted Sotero Medina (the husband of defendant Restituta Zurbito Medina) as the trustee of the land in dispute. Plaintiffs' contention that there was an express trust must, therefore, 4 fail." Concretely, petitioners anchor their claim of an express trust on the following circumstances: (1) respondents' possession of the titulo real covering the land; (2) the deed of partition of the estate of the common predecessor Francisco Medina dated February 3, 1924, adjudicating the land solely to his son Narciso Medina; (3) the deed of sale of the land dated June 29, 1924, executed by Narciso Medina in favor of his brother Sotero Medina; and (4) the testimony of respondent Restituta Zurbito Vda. de Medina (Sotero's wife) to the effect that her husband used to "administer" and then later on, she herself "administered" the land. These circumstances do not make out the creation of an express trust. Respondents' possession of the Spanish title issued in the late Pedro Medina's name may just be the consequence of the sale of the land by Narciso (to whom it had been adjudicated in the partition) to the spouses Sotero Medina and Restituta Zurbito on June 29, 1924 and is by no means an evidence of an express trust created for the benefit of petitioners. Spanish titles are defeasible, and "although evidences of ownership . ... may be 5 lost through prescription." Neither is the deed of partition (which apparently excluded Pedro Medina) entered into earlier any indication of an express creation of a trust. In fact, these documents are adverse to petitioners' cause, and are evidences of transfer of ownership of the land from one owner/owners to another or others and they in fact negate the creation or existence of an express trust. Neither does the testimony of Sotero's widow, Restituta Zurbito, to the effect that her husband and then later she herself "administered" the land support petitioners' claim of an express trust. There is no showing that the term "administration" as used by said respondent in her testimony is by reason of an appointment as such on behalf of another owner or beneficiary, such as to support the existence of an

express trust. On the contrary, it appears clear from the context of her testimony that her use of the term "administer" was in the concept of an owner-buyer "administering" and managing his/her property, Thus, petitioner cite her following testimony: Q. In what manner did you possess this property from the time you bought it from Narciso Medina? A. First my husband was the one who administered the property and then later on, I administered there. (T.s.n., Dec. 4, 1963, p. 119.) But continuing her testimony, she clearly declared, as follows: Q. How did you hold the property? In what manner? A. Because I bought it, I was the one possessing it. Q. From the date of this document which is June 1924, (Exhibit 2) has there been anybody who disturbed you in your possession of your property? A. No sir, we were not disturbed there.
6

The appellate court thus likewise correctly held, absent the existence of an express trust, that "The legal construction most favorable to (petitioners) that can be impressed upon the facts of the case is that a 7 constructive or implied trust was created by operation of law upon the property in question," but petitioners' cause of action had prescribed upon the lapse of the ten-year period of acquisitive 8 prescription provided by the then applicable statute (section 41 of Act 190) for unregistered lands such as the land herein involved. As found by the Court of Appeals, the land was sold to Sotero Medina on June 29, 1924 from which date Sotero and his wife took open, public, continuous and adverse possession of the land in the concept of owner. In 1957 when the present action was filed, thirty-three (33) years, much more than the 10-year statutory period for acquisitive prescription, had already elapsed. In addition, the appellate court further held that petitioners' action to recover was likewise time-barred, pointing out that "the ten-year period under the statute of limitation within which plaintiffs could file an action for recovery of real property commenced to run, in 1933 when plaintiff Margarita Medina was informed that the land in dispute belonged to her father Pedro Medina, for in that year she could have brought an action for reconveyance. The period of prescription commences to run from the day the action may be brought (Article 1150, Civil Code of the Philippines), and in an action based on fraud, as is the basis of the present action, the period of prescription begins from the discovery of the fraud (IV Tolentino's Civil Code of the Philippines 40, citing Anuran vs. Aquino, 38 Phil. 29 and Solatorio vs. Solatorio, 52 Phil. 444); the reasons a party might have had for not immediately taking judicial action is immaterial and does not stop the running of the period (Lamko vs. Dioso No. L-6923, October 31, 9 1955)." Respondent court had referred to such non-action as "perhaps in deference to the defendants 10 who had raised and clothed her."

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The similar case of Cuaycong vs. Cuaycong, where the Court, after finding the non-existence of an express trust applying Article 1443 of the Civil Code which bars parol evidence in proving the alleged creation of an express trust over immovables, held that "even assuming the alleged trust to be an implied one, the right alleged by plaintiffs would have already prescribed since starting in 1936 when the trustor died, plaintiffs had already been allegedly refused by the aforesaid defendants in their demands over the land, and the compliance filed only in 1961 more than the 1 year period of prescription for the enforcement of such rights under the trust. It is settled that the right to enforce an implied trust in one's favor prescribes in. ten (10) years. And even under the Code of Civil Procedure, action to recover real property such as lands prescribes in ten years (Sec. 40, Act 190)," fully supports the correctness of the decision under review. ACCORDINGLY, the appealed decision is hereby affirmed.

11

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G.R. No. L-38018 October 31, 1978 MARCELO SOTTO, Administrator of the Estate of Filemon Sotto, petitioner, vs. PILAR TEVES, FLORENTINO TEVES, DULCE TEVES KIAMKO assisted by husband FELIPE KIAMKO DOLORES TEVES ARCENAS, assisted by husband MARIANO ARCENAS, MARIA CAMARA GUMBAN, assisted by husband NICANOR GUMBAN, BELEN CAMARA BROWN, assisted by husband ROGER BROWN and the HONORABLE COURT OF APPEALS, respondents. This is a petition for review on certiorari of the Resolution of the Court of Appeals, Special Division of 1 Five dated Sept. 14, 1973 in CA-G.R. No. 44351 R which reconsidered the decision of the Eight 2 Division , same Court dated November 25, 1972 and from the Resolution dated December 13, 1973 of the said Special Division of Five, denying the motion for reconsideration of the previous Resolution. The dispositive portion of the appealed Resolution states: WHEREFORE, the decision rendered in the above-entitled case is hereby reconsidered. The appealed judgment is hereby reversed and set aside. Plaintiffs are hereby declared the absolute owners of Lots Nos. 7547, 842, 2179-A, 123 and 1370. Reconveyance and delivery of possession of the aforesaid five lots to plaintiffs are hereby ordered. Defendant is hereby sentenced to pay plaintiffs the sum corresponding to P4,500.00 a month from October 10, 1966 until the reconveyance and delivery of possession as above ordered have been effected, with legal interest thereon from said date until fully paid, and the sum of P5,000.00 as and for attorney's 3 fees, with costs of both instances against the defendant. The voluminous records and pleadings in this case establish the following undisputed facts which are stated in the appealed Resolution of the Special Division of Five dated Sept. 14, 1973, as follows: Subject of the plaintiffs' action for declaration of ownership and/or reconveyance, and for the recovery of possession, rentals, damages and attorney's fees, are five (5) parcels of land, all located in Cebu City, more particularly described in the complaint, and denominated as Lots Nos. 7547, 842, 2179-A, 123, and 1370. There is no dispute as to the fact that the aforesaid properties originally belonged to the conjugal partnership of the spouses Florentino Rallos and Maria Fadullon. When Florentino Rallos died on March 14, 1912 in the City of Cebu, the parcels of land in question, together with the other properties comprising the estate of the deceased, descended in testate succession to his sole heirs, his widow, Maria Fadullon, and two children, named Concepcion Rallos and Carmen Rallos. The lawyer to whom the Rallos heirs entrusted the settlement of the estate was Atty. Filemon Sotto. Shortly after the closure of the probate proceeding in 1913, Atty. Sotto married Carmen Rallos. Carmen died in 1945 without leaving any issue. Concepcion died later leaving many children. Maria Fadullon predeceased her two daughters. Atty. Sotto died intestate on October 10, 1966. Competing for the ownership of the five lots are the direct descendants and blood relatives of Florentino Rallos and Maria Fadullon, opposed by the administrator of the intestate estate of Atty. Sotto. The children of Concepcion Rallos, or the grandchildren of Florentino Rallos and Maria Fadullon, some of whom are assisted by their spouses, are the plaintiffs in this case. Defendant administrator represents

Atty. Sotto's children out of wedlock. It is claimed by the defendant that Atty. Sotto was at the time of his death the owner of the five lots in question. In life, Atty. Filemon Sotto was a very prestigious man. He wielded tremendous social and political influence. Successively, he was municipal councilor, vice-president of Cebu City, Assemblyman, Senator and Delegate to the Constitutional Convention of 1934. He was editor and publisher of many newspapers among which was the famous "La Revolucion" which featured quite prominently in the celebrated Wood-Sotto libel case. When his life, however, was almost at an end, he was declared incompetent. In 1962, while Atty. Sotto was under guardianship, Cesar Sotto, his nephew and protegee and one of the guardians judicially appointed to take care of his estate, delivered to Pilar Teves, one of the herein plaintiffs, certain documents which had lain in secrecy in the private files of Atty. Sotto. All along, the direct descendants and blood relatives of Florentino Rallos had rested on the belief that the properties in question, which are the fruits of the sweat and toil of their grandfather, would one day be delivered unto them. The revelation of Cesar Sotto, however, led the plaintiffs to the discovery that all the properties in question were now titled in the name of Atty. Sotto. and were in danger of falling into the hands of his children out of wedlock, who are total strangers to the spouses Rallos and Fadullon. Upon such discovery, the plaintiffs initiated the present lawsuit forthwith." On June 13, 1967, the herein private respondents filed suit in the Court of First Instance of Cebu against petitioner Marcelo Sotto, as administrator of the intestate estate of Filemon Sotto, for the recovery of possession and ownership of the 5 parcels of land described in the complaint, with damages. The complaint was based mainly upon the theory that a trust relation was established and created with respect to the said properties, with Atty. Filemon Sotto as trustee and as cestuis que trust, his mother-in-law, Maria Fadullon Vda. de Rallos; his wife, Carmen Rallos; and his sister-in-law, Concepcion Rallos (predecessor in interest of herein private respondents); and that in gross violation of the trust reposed upon him by Concepcion Rallos and after her death, by her heirs, the said Atty. Filemon Sotto, through sheer manipulation, fraudulent acts and means, non-existent and void decrees, fictitious sales and transfers, succeeded in causing the transfer of the ownership of the properties to the name of his wife Carmen Rallos, and finally to his name alone. The complaint alleged five causes of action. Under the first cause of action, it is alleged that on January 25, 1913, Atty. Filemon Sotto as counsel, not only for the widow, Maria Fadullon Vda. de Rallos, but also for her daughters, Carmen and Concepcion both surnamed Rallos, filed a motion in said Special Proceedings No. 365-0 praying to relieve the executrix Maria Fadullon Vda. de Rallos from presenting a project of partition inasmuch as his clients had the desire to conserve pro-indiviso the properties in their 4 possession, which motion is as follows: MOCION SOBRE LA DISPOSICION DE LOS BIENES Maria Fadullon, conyuge viuda de Florentino Rallos, y sus hijas Carmen Rallos y Concepcion Rallos, unicas herederas de dicho finado comparecen hoy por medio del Abogado Filemon Sotto para exponer lo que sigue: Que habiandose hecho por el Juzgado una declaracion de "unicas herederas" de los bienes del finado Florentino Rallos en favor de las comparecientes, y siendo todas ellas mayores de edad, pidan al Juzgado que se la releve a la Albacea de presenter cualquier proyecto de reparticion, pues las exponentes tienen el preposito de conservar por ahora "por indivisos" los susodichos bienes, en poder de ellas mismas.

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Cebu, 25 Enero de 1913. (SGD.) FILEMON SOTTOAbogado de la mocionantes Maria Fadullon y sus hijas Carmen y Concepcion Rallos manifiestan. Que son la mismas mencionadas en la preinserta mocion y que estan conformes con todo el contenido de la misma. Cebu, 25 de Enero de 1913. (SGD.) CONCHITA RALLOS DE TEVESGD.) CARMEN J. RALLOS(SGD.) MARIA F. VDA. DE RALLOS Upon approval by the Court of the above quoted Mocion Sobre La Disposicion de los Bienes , the said probate proceedings was terminated. The complaint further alleged that at that time Atty. Filemon Sotto (then known as Don Filemon Sotto) was still single, but he already enjoyed considerable prestige and influence and was well-known for his sagacity he having become a municipal councilor, municipal vice-mayor, fiscal and assemblyman; that he married Carmen J. Rallos on Sept. 27, 1913 and he later became senator, delegate to the Constitutional Convention and editor, besides being a practicing lawyer. It is furthermore alleged that Atty. Filemon Sotto, having married Carmen Rallos, thereby virtually making him a member of the Rallos family, was looked upon as the head of the Rallos family to look after the properties inherited from the deceased Florentino Rallos including the 5 parcels of land hereinbefore mentioned, thereby establishing a trust relation with Don Filemon Sotto as trustee of the said properties for the benefit of his mother-in-law Maria Fadullon Vda. de Rallos, his wife Carmen Rallos de Sotto and sister-in-law Concepcion Rallos and the heirs of the latter, as cestuis que trust; that the aforesaid trust reposed upon him continued even after the deaths of Maria Fadullon Vda. de Rallos, Carmen Rallos de Sotto and Concepcion Rallos, the latter who married twice, first to Mariano Teves and second to Mariano Camara, and lasted up to Don Filemon Sotto's death on October 10, 1966; that on November 29, 1916, Don Filemon Sotto in violation of the trust reposed upon him by, and his duty as attorney for, the heirs of the deceased Florentino Rallos, illegally caused Decree No. 64101 dated Jan. 26, 1918 to be issued in Case No. 9, G.R.L.O No. 9465 of the Court of First Instance of Cebu on the entire Lot No. 7547 in question, in the name alone of Carmen Rallos de Sotto, the wife of Filemon Sotto, to the great prejudice and damage of the other co-owners thereof namely Maria Fadullon Vda. de Rallos and Concepcion Rallos de Camara; that said Decree is inexistent, null and void ab initio and without force and effect for it should have been issued not in the name of Carmen Rallos de Sotto but in the names of Maria Fadullon Vda. de Rallos share and the remaining share thereof in the names of Carmen Rallos de Sotto and Concepcion Rallos de Camara in equal proportion of share each; that on February 9, 1918, as a result of the said inexistent, null and void Decree No. 64101, Original Certificate of Title No. 1034 was issued in the name of Carmen Rallos de Sotto, wife of Filemon Sotto; that sometime in 1922, Atty. Filemon Sotto had caused Lot No. 7547 to be transferred by his wife to the name of another person as a result of which O.C.T. No. 1034 was cancelled and Transfer Certificate of Title No. 6278 was issued, for fear that said lot might be attached in connection with the libel suit filed against the newspaper, La Revolucion edited by Don Filemon Sotto at the instance of the then Gov. Gen. Leonard Wood; that on June 5, 1933, Don Filemon Sotto caused Transfer Certificate of Title No. 6278 of Lot 7547 to be reconveyed not in the name of his wife but in his own name under Transfer Certificate of Title No. 12740 and was thereafter reconstituted administratively by the guardian

of his properties as Transfer Certificate of Title No. RT-6890 in the name of Filemon Sotto, widower,and finally the present Certificate of Title No. 27710 was issued by the Register of Deeds in the name of Filemon Sotto, widower. Under the second, third, fourth and fifth causes of action, respondents alleged specific similar violations of the trust relation reposed upon him with respect to the other 4 parcels of land in that Atty. Filemon Sotto illegally caused said lots to be registered either in the name of his wife Carmen Rallos de Sotto alone or jointly with Maria Fadullon Vda. de Rallos, to the prejudice of the other co-owner, Concepcion Rallos, and thereafter thru manipulations and fraudulent means, unregistered deeds of sale, fictitious and simulated transfers, incumbrances and reconstitution, these properties were in gross violation of the trust reposed upon him by the heirs, finally titled in the name alone of Carmen Rallos de Sotto and ultimately to that of his name as Don Filemon Sotto, widower. Under the sixth cause of action, demand was made for the payment of rental income of the lots in question at P4,500.00 a month from Oct. 10, 1966 until delivery of possession and ownership of said lots as actual or compensatory damages, P20,000.00 as moral damages, P10,000.00 as exemplary damages and P20,000.00 for professional services. Answering the complaint, petitioner Marcelo Sotto as administrator of the estate of Atty. Filemon Sotto, denied that there was any trust relation between Don Filemon Sotto on one hand and Maria Fadullon Vda. de Rallos, Carmen Rallos and Concepcion Rallos on the other; that granting that such relationship existed between Don Filemon Sotto and Concepcion Rallos, such a relationship could not have endured until the death of Don Filemon Sotto; that the decree of Lot No. 7547 was issued in the name of Carmen Rallos pursuant to an agreement among the heirs of Florentino Rallos that this parcel of land, together with the other parcels of land involved in this case, be adjudicated to Carmen Rallos as her share in the estate of Florentino Rallos, in the same manner that several parcels of land were likewise adjudicated to, and decrees issued in the name of Concepcion Rallos, as her share in the estate of Florentino Rallos; that the partition agreement adjudicating Lots No. 7547 and each of Lots Nos. 842, 2179-A and Lots Nos. 123 and 1370 were adjudicated to Carmen Rallos and the other halves of Lot Nos. 842 and 2179 were adjudicated to Maria Fadullon Vda. de Rallos and decrees were accordingly issued later on by the Cadastral Court relative to the said properties of land in pursuance to said partition agreement; that more than 1 year having elapsed from their issuance, the decrees had become indefeasible; that the parcels of land, having been transferred to the purchasers for value and in good faith, the present action for reconveyance will not prosper; that the plaintiffs have no cause of action as the same is barred by prescription, laches and estoppel; and assuming that there was any trust relation between Atty. Sotto and Concepcion Rallos, the trust was repudiated by Atty. Filemon Sotto a long time ago as shown by the series of transfers of these lots made by him personally. A counterclaim for exemplary damages, moral damages and attorney's fees were also set up. The issues having been joined and trial concluded, the Court of First Instance of Cebu rendered its 5 decision dismissing the complaint, holding that no express trust relation existed between Atty. Filemon Sotto on one hand and Maria Fadullon Vda. de Rallos, Carmen Rallos and Concepcion Rallos on the other with respect to the lots in question; that there was no implied trust subsisting between Atty. Sotto and the said heirs and that there was actual partition between them whereby the 5 lots were given to Carmen Rallos as her share; that Carmen Rallos exercised acts of ownership over the 5 city lots in question to the exclusion of Concepcion Rallos and Maria Fadullon Vda. de Rallos, registering them in her name under the Torrens system; that Concepcion Rallos and her children after her death were thus notified constructively and actually by Carmen Rallos de Sotto's raising the flag of exclusive ownership and repudiation of the trust relation, if there was any, and since then the period of prescription of 10

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years for bringing the action tolled against an implied trust. Laches or inaction on the part of Concepcion Rallos and her heirs have thus rendered their demand sale or no longer enforceable. The heirs of Concepcion Rallos appealed to the Court of Appeals. In the Decision promulgated Nov. 25, 1972, the Court of Appeals, Eighth Division, affirmed the judgment of the lower court. The appellate court agreed with the conclusion of the lower court that no express trust was created between Atty. Filemon Sotto and the heirs of Florentino Rallos by the mere signing of the Mocion in behalf of the heirs of Florentino Rallos; that when the surviving heirs of the deceased manifested in the petition filed by Atty. Filemon Sotto during the probate of the will that it is their desire not to partition the estate so as to preserve and maintain co-ownership over the properties, there can be no doubt that by direct and positive acts in holding the estate pro-indiviso, they intended to create an express trust among themselves; that Filemon Sotto who merely represented the heirs in that probate proceedings and filed the petition in court was not made a co-trustee by reason of his marriage to Carmen Rallos even if he was the lawyer of the Rallos family enjoying the prestige of being a prominent lawyer with political influence; that the estate of Florentino Rallos was already partitioned whether in 1925, prior or subsequent thereto, does not matter but the fact is that the Original Transfer Certificates of Title covering the 5 parcels of land were originally issued in the name of Carmen Rallos alone with respect to lot No. 7547 and jointly in the name of Carmen Rallos and Maria Fadullon Vda. de Rallos as regards Lots Nos. 842, 2179-A, 123 and 1370, to the exclusion of Concepcion Rallos: that there was repudiation of the trust relation among the co-owners, the date of which the Court can only be guided by the registration and issuance of the certificates of title when Carmen Rallos put the stakes of exclusive ownership over the lands and repudiated whatever trust was reposed in her by her co-heirs; that from the moment Carmen Rallos asserted her title over the questioned properties, the statute of limitation operated against her co-heirs, irrespective of plain Sotto vs. Teves, plaintiffs' pretension that they discovered much too late that the 5 lots were already titled in the name of Carmen Rallos, for such discovery is deemed to have taken place when the certificates of title to the properties were issued in favor of Carmen Rallos. The above decision of the Appellate Court having been assailed on a Motion for Reconsideration filed by plaintiffs-appellants, now the herein private respondents, the Court of Appeals, Special Division of Five, reversed the said decision in its Resolution of Sept. 14, 1973. The Court, however, agreed with the ruling of the original decision declaring that the heirs of Florentino Rallos had "by manifesting to the probate court that it was their desire to preserve and maintain the ownership of the inherited properties thereby intended and created by direct and positive acts an express trust among themselves," as it was 8 in conformity with the evidence and the law. The court also noted that "(t)he parties ceased to debate the question as to whether or not an express trust was created by and among the Rallos heirs after our decision was promulgated. They came to agree that such a relationship was indeed created and that it existed. In the present motion for reconsideration, the dispute centers on the issue as to whether the express trust subsisted or it was repudiated. The parties are also in disaccord on the question as to whether Atty. Sotto should be considered a party in the express trust or should be regarded merely as a 9 constructive trust." The respondent Court of Appeals said that upon the facts and under the law, Atty. Sotto can be regarded as the constructive trustee of his wife and of the widow and descendants of Florentino Rallos; that Atty. Sotto's special relations with the Rallos heirs inhibited him from any act or conduct that could put his interests above or in direct collision with the interests of those who had reposed their trust and confidence in him. The Court also found that the trust continued to subsist and did not terminate in 1925 by an adjudication of the lots to Carmen Rallos, for no such adjudication took place; that the registration of the lots was not
7 6

the result of such adjudication or partition and said registration did not amount to a repudiation of the express trust. The titling of the lots in the names of Carmen Rallos and Maria Fadullon Vda. de Rallos was done in their capacities as trustees and not as absolute and exclusive owners thereof. In 1925 an oral agreement founded upon and in reaffirmation of the 1913 written agreement was reached among the Rallos heirs under which the 5 lots would remain under co-ownership of the 3 heirs, with Carmen Rallos as administratrix who would be entitled to a lifetime of usufruct of the properties but upon her death, ownership of the lots would devolve to Concepcion Rallos and her heirs. The Court ruled that Carmen Rallos could not legally deprive Concepcion Rallos and her heirs of their rights to the properties through the execution of a will in favor of her husband Filemon Sotto, considering that the same were trust properties held by her in trust for the benefit of Concepcion Rallos and her heirs, hence, Atty. Filemon Sotto must be deemed to have received the properties impressed with the subsisting trust, not for himself but for the benefit of the cestuis que trust. Concluding, the Court said: "Upon the facts, under the applicable laws, and even on the basis of equity, plaintiffs are entitled to be declared the owners of the properties which admittedly originated from their ancestor and blood relative, their grandfather Florentino Rallos. As owners of the lots in question plaintiffs are also entitled to the fruits 10 thereof. ... Petitioner's motion for reconsideration having been denied, he now comes to Us to review the reversal of the original decision of the appellate court and makes the following assignment of errors: I. The Court of Appeals erred in finding that an express trust was created among the heirs of Florentino Rallos by virtue of the Mocion Sobre la Disposicion de los Bienes filed by Filemon Sotto. II. The Court of Appeals erred in not finding that the legal relationships created by the said Mocion Sobre La Disposicion De los Bienes was a simple co-ownership. III. The Court of Appeals erred in finding that Don Filemon Sotto became a co-trustee by virtue of his subsequent marriage to Carmen Rallos. IV. The Court of Appeals erred in not finding that the heirs of Florentino Rallos entered into an actual, effective and mutually accepted partition of the estate. V. The Court of Appeals erred in finding that an express trust existed by the use of parol evidence, disregarding the weight of a torrens title and a public document mutually admitted by the parties. VI. The Court of Appeals erred in not finding that even if an express trust was created, the same was expressly repudiated by both parties. VII. The Court of Appeals erred not finding the respondents guilty of laches and estoppel. The first and second assignments of error relate to the Mocion Sobre la Disposicion de los Bienes hence We are constrained to consider and resolve them together. Petitioner faults the Court of Appeals in finding that an express trust was created among the heirs of Florentino Rallos by virtue of the Mocion filed by Atty. Sotto, and in not finding that the legal relationship created by the Mocion was a simple co-ownership. Petitioner contends that the "motion is very clear and categorical and the only purpose of that Motion is to keep the properties in a co-ownership by the heirs of Florentino Rallos, not

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to create a relationship of express trust among the heirs." He argues that "(s)ince the alleged source of express trust is a written document, applying therefore the document aforecited it is necessary that 12 the document expressly state and provide for the express trust," and that it is a contradiction in terms for the Court of Appeals to imply from the document an express trust. Petitioner's contention is without merit. It may be true that the heirs of Florentino Rallos intended and desired to keep the properties in co-ownership pro-indiviso when they signed the Mocion filed in their behalf by Atty. Filemon Sotto in the probate proceedings to terminate the same but the legal effect of said agreement to preserve the properties in co-ownership as expressed in writing and embodied in the Mocion was to create a form of an express trust among themselves as co-owners of the properties. In the case of Castrillo, et al. vs. Court of Appeals, et al.,10 SCRA 549, the Supreme Court, speaking thru Chief Justice Makalintal, said that "co-ownership is a form of trust and every co-owner is a trustee for the other." In co-ownership, the relationship of each co-owner to the other co-owners is fiduciary in character and attribute. Whether established by law or by agreement of the co owners, the property or thing held pro-indiviso is impressed with a fiducial nature that each co-owner becomes a trustee for the benefit of his co-owners and he may not do any act prejudicial to the interest of his co-owners. Under the law on Trusts, it is not necessary, as petitioner insists, that the document expressly state and provide for the express trust, for no particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. (Art. 1444, N.C.C.) An express trust is created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. Cuaycong et al. vs. Cuaycong, et al., G.R. No. L-21616, Dec. 11, 1967). We agree with the findings of the respondent Court of Appeals that an express trust was created by the heirs of Florentino Rallos in respect to the properties in litigation when they agreed to preserve said properties in co-ownership among themselves as manifested and expressed into writing and filed as a pleading captioned Mocion Sobre la Disposicion de los Bienes. Incidentally, this is the same finding of the original decision of the Eight Division, same Court which was, however, reconsidered on other grounds. We find no reason to disturb this finding of the respondent Court, the same being in accordance with law and the facts as clearly established. We now consider the third assignment of error. Petitioner contends that the Court of Appeals erred in finding that Don Filemon Sotto became a co-trustee by virtue of his subsequent marriage to Carmen Rallos. Petitioner, while admitting that as a lawyer some form of trust devolved upon the shoulders of Filemon Sotto; that as the husband of Carmen Sotto, some form of trust devolved on his shoulders; that because of overwhelming social and political standing during his time some form of trust was carried by 13 Filemon Sotto, argues that this is not the Trust that is defined in our Civil Code most especially if it is the express trust under Articles 1441 and 1444 which is relied upon by the respondent Court of Appeals, Special Division of Five. The trust on the shoulder of Filemon Sotto as the family lawyer in the intestate proceedings of Florentino Rallos was only coterminous with the duration of the proceedings itself. The trust on the shoulder of Filemon Sotto by virtue of his marriage to Carmen Rallos was only as much as the trust on the shoulders of the two husbands of Concepcion Rallos, Mariano Teves and 14 Mariano Camara, and this trust is not the trust defined in our Civil Code on express trust." We find no merit in petitioner's contention. In the first place, petitioner's argument is based on an incorrect assumption. Petitioner assumes that the respondent Court of Appeals found the existence of an express trust between Atty. Filemon Sotto and the heirs of Florentino Rallos, which is not correct. What the appellate court held is that Atty. Sotto can be regarded as the constructive trustee of his wife and of the widow and descendants of Florentino Rallos. In fact the Court declared, thus

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Upon the record, we have no doubt but that there existed more than mere professional relationship of attorney and client between Atty. Sotto and the members of the family of Florentino Rallos. Shortly after the closure of the testate proceeding, Atty. Sotto contracted marriage with one of the daughters of Florentino Rallos. The attorney thereby became not only a family lawyer but also an actual member on the Rallos family by affinity. By reason of his marriage to Carmen Rallos, and on account of his prestige and tremendous social and political influence, Atty. Sotto enjoyed and exercised a personal, domestic, social, political and moral ascendancy and superiority not only over his wife but also over Maria Fadullon, Concepcion Rallos, and the latter's children. The evidence reveals that the Ralloses looked up to Atty. Sotto as protector and benefactor, as one on whom they could repose their trust and confidence and who would take care of the properties inherited from Florentino Rallos, and on his part, Atty. Sotto acknowledged his position as protector of the rights and interests of the Rallos family. Like a pater familias, he attended to the financial and medical needs of the direct descendants of Florentino Rallos and Maria Fadullon (Exhs. U and T). When one of the five parcels in question, Lot 7547, was being claimed by a certain Manuel Ocejo, Atty. Sotto represented the Rallos family as defendants in Civil Case No. 1641 of the Court of First Instance of Cebu, and the lot was adjudicated in favor of the Rallos family. The acts and conduct of the Ralloses and Atty. Sotto fostered a close and fiduciary relationship between them. Upon the facts and under the law, Atty. Sotto can be regarded as the constructive trustee of his wife and of the widow and descendants of Florentino Rallos. For the settled rule is that: The relation between parties, in order to be a fiduciary relation" need not be legal, but may be moral, social, domestic or merely personal; and where by reason of kinship, business association, disparity in age or physical or mental condition or other reason, the grantee is in an especially intimate position with regard to another and the latter reposes a degree of trust and confidence in the former, confidential relationship exists which prohibits the one entrusted from seeking a selfish benefit for himself during the course of relationship, and affords a basis for imposing a constructive trust. (89 CJS Art. 151, pp. 1054-1057) Atty. Sotto's special relationship with the Rallos heirs inhibited him from any act or conduct that would put his interests above, or in direct collision with, the interests of those who had reposed their trust and 15 confidence in him." Secondly, it is also not quite correct for petitioner to claim that the respondent Court ruled that Don Filemon Sotto became a co-trustee by virtue of his subsequent marriage to Carmen Rallos. The truth of the matter is that, according to the Court, Atty. Sotto became a constructive trustee not only by reason of his marriage to Carmen Rallos but also on account of his prestige and tremendous social and political influence, also because Atty. Sotto enjoyed and exercised a personal, domestic, social, political and moral ascendancy and superiority over his wife, over Maria Fadullon, Concepcion Rallos and the latter's children, besides being the protector of the rights and interests of the Rallos family acting like a pater familias attending to their financial and medical needs, as well as the family lawyer. We are in full accord with these findings and conclusion of the respondent Court as the same are final, conclusive and binding upon Us, there being no exceptional circumstances or reasons to review or revise the same.

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With respect to the fourth assignment of error, petitioner impugns the Court of Appeals in not finding that the heirs of Florentino Rallos entered into an actual, effective and mutually accepted partition of the estate. Petitioner claims that partition of the inherited properties took place between the heirs in 1925 in accordance with which the 5 parcels of land under litigation were adjudicated to Carmen Rallos and that by reason of the partition and adjudication, the lots were granted to Carmen Rallos and titles were secured and issued in her favor and name. On the other hand, the private respondents claim that there was such a partition agreed upon in 1925 when, on the occasion of the visit of Maria Fadullon Vda. de Rallos and Carmen Rallos to Concepcion Rallos after the latter's delivery of a child, it was agreed that the properties in Carmen, Cebu and one lot in Basak, Cebu City, all assessed at P9,000.00 were to remain with Concepcion Rallos, while the 5 lots now in litigation, then owned in common among the three heirs, and assessed at P55,000.00 would be administered by Carmen Rallos, the fruits thereof to be received by Carmen Rallos during her lifetime and that upon the death of Carmen the properties will devolve to Concepcion and to her children. The respondent Court rejected petitioner's claim of partition and adjudication, declaring that We cannot embrace the theory advanced by defendant, which is bereft of evidentiary support, that in 1925, on the occasion of the visit paid by Maria Fadullon and Carmen Rallos to Concepcion Rallos, the five lots in question were adjudicated to Carmen Rallos. To begin with, there is no concrete evidence of record on which to lay such claim. It is our belief that the realities of the situation of the parties and the practicable and equitable utility of the inheritance of Florentino Rallos are better determinants of the question as to whether defendant's theory would be accepted or rejected. Carmen Rallos was admittedly without any child to support. On the other hand, Concepcion Rallos was burdened with many children. The lots in Carmen and Basak, which were allowed to be retained by Concepcion, were assessed at a mere P9,000.00, whereas the five lots in question had an assessed value of P55,000.00 in 1925. It is very difficult to believe that Carmen Rallos and Maria Fadullon had gone to Concepcion, on the occasion when another child had just been added to the latter's burden, to tell her that they were depriving her of a valuable share in the inheritance, such share to be given to Carmen who was childless. Such theory of defendant is utterly un Filipino and is thoroughly irreconcilable with our customs and ways of treating close relatives. The more probable and believable is the testimony of Pilar Teves that Maria Fadullon and Carmen Rallos came to Concepcion, as Magis bearing gifts, to tell her that the five lots would go to her and to her children upon Carmen's death. The testimony of Pilar jibes with the evidence that Florentino Rallos had expressed the wish that a portion of the inherited properties should be devoted to defray the expenses for the 16 education of his grandchildren. " We uphold the stand of the respondent Court of Appeals, Special Division of Five in giving credence and belief to respondents' claim of partition as testified to by Pilar Teves, one of the private respondents, because the Court's findings and its ruling is based on the grounds of human experience, the ordinary course of things and our own native customs, culture and tradition to revere the memory of our ancestor by keeping intact the estate in inheritance as long as possible, and to help one's brothers and sisters to benefit from the sweat and toil of our parents, rather than dispossess them or given the inheritance away to perfect strangers, strangers to family ties and filial affection. It is unconscionable and contrary to morals that a parent should deprive his children of what lawfully belongs to them. (De Guzman vs. Aquino, 34 SCRA 236).

Petitioner's version of the partition and adjudication is, from a factual viewpoint, clearly untenable; it is even inconsistent with his evidence. The facts show that all the lots were registered originally before the alleged partition and adjudication in 1925. Lots 123 and 1370 were registered on Sept. 23, 1913; Lot 842 on Feb. 5, 1918; Lot 2179-A on June 17, 1921 and Lot 7547 on February 9, 1918. Base on their respective dates, the acts of registration preceded the supposed partition and adjudication which inexplicably reversed the usual order of occurrence which is, that partition and adjudication normally precede registration. More than that, the first 4 lots mentioned above were registered jointly in the names of Maria Fadullon Vda. de Rallos and Carmen Rallos, which strongly belied petitioner's contention that all the 5 lots were adjudicated to Carmen Rallos alone. The conclusion is inescapable that petitioner's version did not take place and that the registration of the lots could not have resulted from the supposed partition and adjudication. As We have heretofore stressed, the findings of fact of the Court of Appeals are conclusive. Likewise, question of credibility is left to the Court of Appeals. (De Garcia vs. Court of Appeals, 37 SCRA 129). Appreciation of evidence is within the domain of the Court of Appeals because its findings of facts are not reviewable by the Supreme Court. (Talosig vs. Vda. de Nieba, 43 SCRA 472; Tingco vs. de la Merced, 58 SCRA 89). The Supreme Court will not review findings of facts of the Court of Appeals, (Evangelista & Co. vs. Santos, 51 SCRA 416). On appeal from a decision of the Court of Appeals, the findings of fact made in said decision are final, except: (1) When the conclusion is a finding grounded entirely on speculations, surmises or conjectures; (2) When the inference is manifestly mistaken, absurd or impossible; (3) When there is a grave abuse of discretion; (4) When the judgment is based on a misapprehension of facts; (5) When the findings of fact are conflicting, (6) When the Court of Appeals, in making its findings, went beyond the issues of the case and the same is contrary to the admissions of both appellant and appellee. (Napolis vs. Court of Appeals, 43 SCRA 301). In the case at bar, We are convinced and satisfied that the above exceptions do not obtain. Petitioner exacerbates that the Court of Appeals erred in finding that an express trust existed by the use of parol evidence, disregarding the weight of a torrens title and a public document mutually admitted by the parties, in his fifth assignment of error. We reject petitioner's contention as baseless. In the first place, the respondent Court did not find that an express trust existed by the use of parol evidence. Actually, the Court, on this point said: "On the basis of undisputed facts, we held in our decision that the heirs of Florentino Rallos, by manifesting to the probate court that it was their desire to preserve and maintain the co-ownership over the inherited properties, thereby intended and created, by direct positive acts, an express trust among themselves. (pp. 19, 24, Decision). It is our view that this holding should be maintained because it is in conformity 17 with the evidence and the law." In a later portion of the Resolution appealed from, the Court said: "As early as in 1913, the Rallos heirs had already agreed expressly and in writing that the five parcels shall remain in co-ownership, and that in regard to them each one of the heirs shall be a trustee for the 18 others." In the second place, the oral testimony of Pilar Teves simply affirmed the existence of such trust relation; it gave proof that the heirs desired to continue the express trust and co-ownership over the five lots. It was not necessary that the heirs create a new agreement of co-ownership over the said properties. They merely reiterated their written agreement made in 1913 that the five parcels would be preserved in co-ownership but made provisions for their administration, collection of rentals and final disposition upon the death of Carmen Rallos.

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There is, therefore, no violation of Art. 1443, N.C.C which provides that "no express trust concerning an immovable or any interest therein may be proved by parol evidence," as the same is not applicable herein. As to the pretension that the respondent appellate court disregarded the weight of a torrens title and a public document mutually admitted by the parties, the latter refering to the will executed by Carmen Rallos in 1942 bequeathing all her properties to her husband, Atty. Filemon Sotto, petitioner's reasoning holds no water because from the very nature of a trust relation which existed between Carmen Rallos and her co-owners, she cannot obtain and secure a torrens title to the properties in her name much less dispose of them by testament to her husband, a constructive trustee, to the prejudice and deprivation of the rights and interests of said co-heirs. A fiduciary relationship may exist even if the title to the property subject to the trust appears in the name of the trustee alone, because in cases of trusteeship, the legal title usually appears in the name of the trustee, while the equitable title remains with the cestui que trust. (Palma vs. Cristobal, 77 Phil. 712). True it is that Torrens titles were issued in the name of Carmen Rallos, but the principle holds that a trustee who takes a Torrens title in his name cannot repudiate the trust by relying on the registration, which is one of the well- known stations upon the finality of a decree of title. (Alvarez, et al. vs. E spiritu, L-18833, August 14, 1965, 14 SCRA 892; Paterno Vda. de Padilla vs. Bibby de Padilla, 74 Phil. 377; Nery vs. Lorenzo, L-23096, April 27, 1972, 44 SCRA 431, 439 and the cases cited therein). Neither an the will executed by Carmen Rallos deprive the private respondents of their ownership over the five parcels of land. These lots were trust properties; Carmen Rallos was holding them in trust for her sister Concepcion Rallos and the latter's children. Not being the absolute owner thereof, Carmen Rallos could not legally convey their ownership by including them in their will. To all intents and purposes, the will and last testament of Carmen Rallos was merely a vehicle of an existing trust and therefore, Atty. Filemon Sotto must be deemed to have received the properties not for himself but for the benefit of the cestui que trust. And as a trustee of these trust properties, Atty. Sotto never alienated or disposed any of these properties during his lifetime, thereby recognizing his position as trustee and that he held them for the benefit and interest of the cestuis que trust. On the penultimate and ultimate assignments of error, petitioner fulminates against the appellate court in not finding that, assuming that an express trust was created, the same was expressly repudiated by the parties and in not finding respondents guilty of laches and estoppel. The resolution of these supposed errors, the 6th and the 7th, must follow as a consequence to Our ruling a propos petitioner's 4th and 5th assignments of error. We sustained the respondent Court in rejecting petitioner's version of the partition and adjudication and that the registration of the lots could not have resulted from the supposed partition and adjudication. We affirmed that the express trust and co-ownership over the 5 parcels of land created and agreed in 1913 by and among the Rallos heirs did not terminate in 1925 but subsisted and was maintained by them thereafter. We also declared that the registration of the 4 lots in the names of Carmen Rallos and Maria Fadullon Vda. de Rallos and 1 lot in favor of Carmen Rallos alone was done in their capacities as trustees and not as absolute or exclusive owners, and not only in their own behalf and benefit but also for the other co-owner, Concepcion Rallos. With these previous pronouncements in mind, We must overrule petitioner's stand that the trust was expressly repudiated by the parties although he makes capital of the fact of registration of the properties in the names of Carmen Rallos and Maria Fadullon Vda. de Rallos, contending strongly that such registration is evidence of repudiation of the express trust. The rationale of Our conclusion in meeting petitioner's 4th assignment of error, including the authorities cited thereunder, holds with equal force

and persuasion over petitioner's contention of alleged repudiation by the parties. The registration of the property in the name of the trustee in possession thereof must be deemed to have been effected for the benefit of the cestui que trust. (Severino vs. Severino, 44 Phil 343; Baretto vs. Tuason, 50 Phil. 888). Petitioner points to the fact that Concepcion Rallos had expressly repudiated the trust by selling the Basak properties which were converted into a subdivision, as well as to acts of exclusive ownership over the properties of the estate by each of the co-owners to show that the trust relationship and coownership was repudiated, renounced and terminated when the parties agreed to an actual partition of the estate. Petitioner's advocation is futile. Besides the falsity of its basis for the reason that We found no partition as theorized by petitioner and that the trust relation subsisted and was maintained in 1925 and thereafter, the acts of exclusive ownership pointed by petitioner do not appear to be clear, open and unequivocal repudiation of the trust. Thus 1. The sale by Concepcion Rallos of some of the properties originally forming part of the estate of Florentino Rallos cannot be considered as a repudiation of the express trust by Concepcion herself. Said properties were given to her in the aforementioned agreement testified to by Pilar Teves and did not form part of the five parcels of land over which an express trust was established in 1913 and reiterated in 1925. 2. With respect to Lots 123 and 1370, Atty. Filemon Sotto, soon after the creation of the express trust in 1913, caused the registration of these two lots and the issuance of Original Certificate of Title No. 251253 dated Sept. 23, 1913 in the names of Maria Fadullon and Carmen Rallos, to the exclusion of Concepcion Rallos. Thereafter, Atty. Sotto caused the deed of sale to be executed by Maria Fadullon whereby she purportedly sold her share in the two lots to Carmen Rallos, and by virtue of such deed, Atty. Sotto was able to obtain Transfer Certificate of Title in the name of his wife Carmen Rallos. That the registration of these two lots took place in 1913, barely 8 months after the creation of the express trust, and being inconsistent with the terms of said Motion that they preserve the inheritance in coownership and in equal shares, do not clearly show that Carmen Rallos intended to repudiate their original agreement as contained in the Mocion. Since the titles were issued in the name of Carmen Rallos thru the professional services of her lawyer-husband Atty. Filemon Sotto, it is more believable and consistent with the express trust relation created under the Mocion dated and filed on Jan 25, 1913 that the title was taken in the name of Carmen Rallos but for the benefit of the other heirs, namely Maria Fadullon Rallos and Concepcion Rallos. 3. With respect to Lot 2179-A, the Original Certificate of Title was obtained by Atty. Filemon Sotto on June 17, 1921 in the name of Maria Fadullon de Rallos and Carmen Rallos, again excluding Concepcion Rallos. When Gov. Gen. Wood sued Atty. Sotto for damages in the famous Wood-Sotto libel case, Atty. Sotto, fearful of the issuance of attachments proceedings, caused Maria Fadullon and Carmen Rallos to sell Lot 2179-A in favor of the spouses Agustin Jereza and Beatriz de Jereza, in whose names the Original Certificate of Title were then transferred. However, Atty. Sotto obliged the Jerezas to execute a counter deed of sale in his favor and consequently a Transfer Certificate of Title was issued in the name of Atty. Filemon Sotto. The fictitious transfer of the lot to the Jereza spouses which was proved by the testimony of the Private Secretary of Atty. Filemon Sotto does not indicate a clear repudiation of the trust or of the co-ownership; the alleged repudiation was not open, public and deliberate. The acts, on the contrary, were secretive and fraudulent assertions of exclusive ownership. 4. With regards to Lot 842, the same was registered on Feb. 5, 1918 in the name of Carmen Rallos and her mother Maria Fadullon Rallos, also to the exclusion of Concepcion Rallos. A deed of sale executed by Maria Fadullon purported to sell her share of the lot in favor of Concepcion Rallos. This deed was among the documents kept in the private files of Atty. Sotto which were delivered by Cesar Sotto to the

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respondents. This deed was not registered in the Office of the Register of Deeds but was kept secret in the files of Atty. Sotto. Thereafter, another deed was registered whereby Maria Fadullon sold her share to Carmen Rallos and upon the registration of the latter deed, title was consolidated in the name of Carmen Rallos, who was issued a new Transfer Certificate of Title. That the deed of sale supposedly asserting a claim of ownership and transfer thereof was kept under seal of secrecy cannot be considered as unequivocal acts of repudiation of the trust and of the co-ownership. Although the title to the lot was finally consolidated in the name of Carmen Rallos thru this secret manner, We must regard the registration to be for the benefit of the other co-heirs who cannot be prejudiced by such furtive and stealthy act. The finding of the respondent Court of Appeals that "(t)he issuance of titles and the execution of the purported sales and transfers, which all culminated in Atty. Sotto's acquisition of titles in his name, occurred during the existence of the express trust, and were shrouded by a cloud of secrecy, at least as far as Concepcion Rallos was concerned. AU the papers and documents pertaining to the issuance of titles and to the transfers and sales were kept in Atty. Sotto's possession, and concealed from the knowledge of Concepcion Rallos. At the time Concepcion Rallos was being deprived of a valuable share in the inheritance, she was kept completely in the dark. Under the facts, appellee cannot rely on the certificates of title in the names of Atty. Sotto to defeat the plaintiffs' right and cause of 19 action," clearly appears to be correct and well-founded that the same will not be disturbed by Us in the present petition for review on certiorari. In Diaz, et al. vs. Gorricho and Aguado Phil. 261, the Supreme Court, speaking thru Justice J.B.L. Reyes, said. The express trusts disable the trustee from acquiring for his own benefit the property committed to his management or custody, at least while he does not openly repudiate the trust, and makes such repudiation known to the beneficiary or cestui que trust. For this reason, the old Code of Civil Procedure (Act 190) declared that the rules on adverse possession do not apply to "continuing and subsisting" (i.e., unrepudiated) trusts." In Valdez, et al vs. Olarga et al., 51 SCRA 71, the Supreme Court, with Acting Chief Justice Makalintal as ponente, held: "And from the standpoint of acquisitive prescription, or prescription of ownership, this Court has held in numerous decisions involving fiduciary relations such as those occupied by a trustee with respect to the cestui que trust that as a general rule the former's possession is not adverse and therefore cannot ripen into a title by prescription. Adverse possession in such a case requires the concurrence of the following circumstances: (a) that the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) that such positive acts of repudiation have been made known to the cestui que trust and (c) that the evidence thereon should be clear and conclusive." In the light of the above doctrinal , We rule that the registration of the lots in the names of Carmen Rallos and her mother Maria Fadullon Vda de Rallos and their subsequent transfers and consolidation to Carmen Rallos' name alone in a manner shown to be fictitious, fraudulent and secretive, thereby keeping the cestuis que trust in the dark did not constitute acts of repudiation of the express trust. Such registrations were ineffective and not binding upon the cestui que trust. We are persuaded and convinced that the circumstances required by said decisions are not present in the case at bar. Petitioner finally raises a number of points which according to him constitute acts of repudiation by Concepcion Rallos such as her failure and that of her heirs to oppose the probate of the will of Carmen and that this failure also constitute laches; that the failure of the three inventories of properties submitted in the intestate proceedings of Concepcion Rallos to include the five parcels of land in question is a repudiation; that this omission has also placed the respondents in estoppel to claim now

the properties; and that the failure of respondents to take any action to recover the properties during the lifetime of Filemon Sotto constitute laches. Laches has been defined as 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. (Tijam, et al. v. Sibonghanoy, et al., No. L21450, April 15, 1968, 23 SCRA 29, 35). The defense of laches is an equitable one and does not concern itself with the character of the defendant's title, but only with whether or not by reason of the plaintiff's long inaction or inexcusable neglect he should be barred from asserting his claim at all. (Pabalate v. Echarri, Jr., 35 SCRA 518). Estoppel, on the other hand, rests on this rule: whenever a party has, by his declaration, act or omission, intentionally and deliberately led the other to believe a particular thing true, and to act, upon such belief, he cannot, in any litigation arising out of such declaration, act, or omission, be permitted to falsify it." (De Castro vs. Ginete, L-30058, March 28, 1969, 27 SCRA 623). Estoppel has its origin in equity and being based on moral and natural justice, finds applicability whatever and whenever the special circumstances of a case so demand (Castrillo vs. Court of Appeals, L-18046, March 31, 1964, 10 SCRA 549; Beronilla vs. Government Service Insurance System, L-21723, November 26, 1970, 36 SCRA 44). In determining whether a delay in seeking to enforce a right constitutes laches, the existence of a confidential relationship between the parties is an important circumstance for consideration, a delay under such circumstances not being so strictly regarded as where the parties are strangers to each other. The doctrine of laches is not strictly applied between near relatives, and the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise unreasonable delay. The claim that the heirs of Concepcion Rallos are guilty of laches and are estopped from claiming the properties deserves scant consideration, for in fiduciary relationship, the beneficiaries have the right to rely on the trust and confidence reposed in the trustee. In the case at bar, there being no effective repudiation of the express trust created by and among the Rallos heirs, the defense of laches invoked by petitioner is unvailing. (Buencamino, et al., G.R. No. L-19012, October 30, 1967). Moreover, under the facts established and showing the complete dominance of Atty. Sotto over the heirs and descendants of the Rallos family, the confidential relationship between the parties connected by ties of marriage and the reliance of the heirs with complete and absolute confidence in their uncle-in-law, Atty. Sotto, who, however, kept the heirs in total ignorance and suppressed from them the real truth regarding said properties that they were already registered in Atty. Sotto's name as finally revealed to them by Cesar Sotto, the nephew and protegee of Atty. Sotto and were in danger of being lost to total strangers, the doctrine of laches is not strictly applicable. Furthermore, Atty. Sotto received from his wife, Carmen Rallos, the properties under her will fully impressed with their fiduciary character and in the full knowledge that said properties were trust properties as far back in 1913 when he drafted and prepared the Mocion Sobre la Disposicion de los Bienes and filed the same in the probate proceedings. This knowledge he carried into his marriage with Carmen Rallos and throughout his lifetime so that the will executed by Carmen Rallos bequeathing the properties to her husband, Atty. Sotto, was merely a vehicle of an existing trust. He thereby became a trustee of the trust properties, not as an innocent third party and neither for a valuable consideration. Notwithstanding the fact that the titles to the properties were ultimately transferred to the name of Atty. Filemon Sotto, widower, through administrative proceedings, the titling thereof must be regarded as for the benefit and interest of the cestui que trust, the private respondents herein.

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In passing, it must be mentioned here that Don Filemon Sotto was a distinguished figure in the political history of the nation, having been elected a delegate from Cebu to the Constitutional Convention that formulated the 1935 Philippine Constitution. In recognition of his wisdom and sagacity, Don Filemon was chosen Chairman of the Committee of Seven that drafted and sponsored the 1935 Philippine Constitution. It is to the great credit and commendation to the moral integrity of Don Filemon that having preserved and maintained the properties in question under his name without alienating or transferring them to third persons, and realizing the responsibilities of the trust reposed in him, he must have intended said properties to be restored to their rightful owners who are the Rallos heirs, the private respondents herein. We are satisfied that respondents, upon discovery of the fraudulent transfers, fictitious sales and concealed deeds relating to the trust properties which were revealed to them by Cesar Sotto, the very nephew and protegee of Atty. Filemon Sotto and guardian appointed over the latter's estate, promptly and seasonably filed the present action for reconveyance. There is no absolute rule as to what constitutes laches or staleness of demand; each case is to he determined according to its particular circumstances. The question of laches is addressed to the sound discretion of the court and since laches is an equitable doctrine, its application is controlled by equitable considerations. It cannot be invoked to defeat justice or to perpetrate fraud and injustice. It would be rank injustice and patently iniquitous to deprive the lawful heirs of their rightful inheritance. Private respondents are entitled to the relief prayed for, which is for the reconveyance of the properties to them. Since their grandmother, Maria Fadullon Vda. de Rallos die in 1938, her pro-indiviso share in the properties then owned in co-ownership descended by intestacy to her daughters, Concepcion and Carmen. Upon Carmen's death in 1945 without issue, the properties devolved to Concepcion pursuant to their agreement in 1925 as testified to by Pilar Teves. When Concepcion Rallos died, her heirs, who are now the private respondents, are entitled to these properties and should be declared owners thereof. They are also entitled to the fruits thereof, the rentals of the properties, including damages and attorney's fees as assessed by the appellate court which We find just and reasonable. WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby affirmed, with costs against the petitioner. SO ORDERED.

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G.R. No. 76590 February 26, 1990 HEIRS OF MARIA DE LA CRUZ Y GUTIERREZ, petitioners, vs. COURT OF APPEALS and HEIRS OF MARIA DE LA CRUZ Y GUEVARRA, respondents. This is a petition for review on certiorari of the June 17, 1986 decision * of the then Intermediate Appellate Court in AC-G.R. CV No. 05785 reversing the appealed decision of the Regional Trial Court of Angeles City, and the November 12, 1986 resolution of the same court denying the motion for reconsideration. Herein petitioners are the heirs (children) of the late Maria de la Cruz y Gutierrez, married to Mateo del Rosario Lansang, while herein private respondents are the heirs of Maria de la Cruz y Guevarra, married to Calixto Dimalanta, and Fermin de la Cruz. The controversy involves a 1,980 square meters portion of Lot 1488. From 1921 until her death in 1951, Maria de la Cruz y Gutierrez resided in the questioned lot in the concept of an owner. She declared the lot for tax purposes in her name. Later, she entrusted the administration of the said lot to her niece Maria de la Cruz y Guevarra. When cadastral proceedings were held in Porac, in Cadastral Case No. 18, on March 17, 1926, Maria de la Cruz y Gutierrez filed an answer to the questioned lot. In the said filed answer, over the handwritten name "Maria de la Cruz y Gutierrez" is a thumbmark presumably affixed by her, Exhibit "2-C"; that in paragraph 7, a person named therein as Fermin de la Cruz y Gutierrez is stated to have an interest or participation on the said lot. However, in the space provided in paragraph 8 to be filled up with the personal circumstances of claimant Maria de la Cruz y Gutierrez, what appears therein is the name Maria de la Cruz, married to Calixto Dimalanta, instead of Maria de la Cruz y Gutierrez, Exhibit "2-A"; and in the space provided in paragraph 9, intended for the personal circumstances of other person or persons who may have an interest on the said lot, the name Fermin de la Cruz, single, appears, Exhibit "2-B". Accordingly, the trial court rendered a decision adjudicating Lot No. 1488 in favor of Maria de la Cruz, 26 years old, married to Calixto Dimalanta and Fermin de la Cruz, Single. Finally, Original Certificate of Title No. 16684 of the Register of Deeds of Pampanga was issued in their names. Petitioners, claiming to have learned of the same only on July 1, 1974, on October 1, 1974 (allegedly barely three months after discovery of the registration, and two years after the death of Maria de la Cruz y Guevarra who, before she died in 1974, revealed to petitioners Daniel Lansang and Isidro Lansang that the lot of their mother Maria de la Cruz y Gutierrez had been included in her title), filed with the then Court of First Instance of Pampanga, Branch IV, presided over by Hon. Cesar V. Alejandria, a complaint for reconveyance, docketed therein as Civil Case No. 2148. The same was amended on June 16, 1975. The main thrust of the complaint is that the claimant of Lot 1488 in Cadastral Case No. 18 was Maria de la Cruz y Gutierrez and not Maria de la Cruz y Guevarra who by not using her maternal surname "Guevarra" succeeded in registering Lot 1488 in her name and that of her brother Fermin de la Cruz. Under the circumstances, it is claimed that Maria de la Cruz married to Calixto Dimalanta and Fermin de la Cruz hold the property in trust for the petitioners. In their answer (Rollo, pp. 62-65), private respondents claimed that the land in questi n is their exclusive property, having inherited the same from their parents and the OCT No. 16684 was issued in their names. Moreover, they asserted that petitioners have lost their cause of action by prescription.

During the pre-trial, the parties stipulated the following facts: 1. That Lot No. 1488 is the lot in question as stated in Paragraph 3 of the Complaint; 2. That on March 17, 1926, Maria de la Cruz y Gutierrez filed her Answer over the cadastral lot in question; 3. That Maria de la Cruz y Gutierrez affixed her thumbmark in the Answer dated March 17, 1926; 4. That by virtue of the Answer over Cadastral lot in question filed by Maria de la Cruz y Gutierrez on March 17, 1926, OCT No. 16684 was issued covering the lot in question; 5. That the maternal surname of Maria de la Cruz and Fermin de la Cruz is Guevarra and not Gutierrez; and 6. That Maria de la Cruz y Guevarra and Fermin de la Cruz y Guevarra did not file their answer over the lot in question. (p. 3, Intermediate Appellate Court Decision; p. 46, Rollo) The issues stated are as follows: 1. Whether or not the handwritings in the Answer of Maria de la Cruz y Gutierrez were her handwritings; 2. Whether or not the heirs of Maria de la Cruz y Gutierrez are paying the land taxes of the lot in question proportionately to their respective shares; 3. Whether or not Lot 1488, the lot in question, is declared in the name of Maria de la Cruz y Gutierrez; 4. Whether or not during the lifetime of Maria de la Cruz y Gutierrez up to the time of her death, she was in actual possession of the lot in question; and 5. If there was fraud in securing OCT No. 16684 in the name of Maria de la Cruz, married to Calixto Dimalanta, and Fermin de la Cruz, single. (pp. 3-4, Intermediate Appellate Court Decision; pp. 4647, Rollo) After trial, the trial court, in a decision dated November 17, 1983 ( ibid., pp. 34-42), ruled in favor of the petitioners. The decretal portion of the said decision, reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs;

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(a) ordering the above-named defendants to reconvey to the plaintiffs a portion of 1,980 square meters of Lot No. 1488 covered by Original Certificate of Title No. 16684 of the Register of Deeds of Pampanga, by executing a deed of reconveyance and registering the same with the said Office at their own expense; (b) ordering the parties to cause the survey and division of Lot No. 1844 into two equal parts in order that two separate titles, one for the plaintiffs and the other for the defendants can be issued by the Register of Deeds of Pampanga in their favor and one-half of the expenses therefore to be shouldered by the plaintiffs, and the other half by the defendant; (c) ordering that the land to be adjudicated to the plaintiffs should include the portion where the existing house of the late Maria de la Cruz y Gutierrez is situated; (d) ordering the plaintiffs and the defendants to pay the corresponding estate and inheritance taxes if the parcels of land inherited by them are subject to the payment of the same; (e) ordering the defendants to pay the costs of suit. On appeal, considering the action as based on an implied trust, the then Intermediate Appellate Court in its decision promulgated on June 17, 1986 (Ibid., pp. 44-53) reversed the decision of the trial court. The dispositive portion reads: WHEREFORE, the Court is constrained to REVERSE the decision appealed from. A new one is hereby entered dismissing the complaint. A Motion for Reconsideration was filed, but the same was denied in a resolution dated November 12, 1986 (Ibid.,p. 66). Hence, the instant petition. Petitioners raised three (3) reasons warranting review, to wit: I RESPONDENT COURT ERRED WHEN IT RULED THAT THE ACTION FOR RECONVEYANCE FILED BY HEREIN PETITIONERS WITH THE LOWER COURT HAD ALREADY PRESCRIBED; II RESPONDENT COURT ERRED IN RULING THAT PETITIONERS WERE GUILTY OF LACHES; and III

RESPONDENT COURT ERRED IN RULING THAT THERE WAS NO EVIDENCE OF FRAUD COMMITTED BY THE PREDECESSOR-IN-INTEREST OF PRIVATE RESPONDENTS IN SECURING TITLE TO THE LOT IN QUESTION. (pp. 13, 20 and 22, Petition for Review pp. 21, 28, and 30 Rollo) The instant petition is impressed with merit. The main issue in this case is whether or not petitioners' action for reconveyance has already prescribed. The answer is in the negative. As aptly argued by petitioners, the Court of Appeals erred when it ruled that their action has already prescribed; obviously on the wrong premise that the action is one based on implied or constructive trust. As maintained by petitioners, their action is one based on express trust and not on implied or constructive trust. Petitioners' predecessor-in-interest, Maria de la Cruz y Gutierrez, was an unlettered woman, a fact borne out by her affixing her thumbmark in her answer in Cadastral Case No. 18, Exhibit "2-C". Because of her mental weakness, in a prepared document for her, Exhibit "B-3", she consented and authorized her niece Maria de la Cruz y Guevarra to administer the lot in question. Such fact is corroborated by the testimony of Daniel Lansay, the son of Maria de la Cruz y Gutierrez that Maria de la Cruz y Guevarra was the one entrusted with the paying of land taxes. Private respondents argue that said Exhibit "B-3" is a portion of the tax declaration (Exhibit "B") which was prepared by the Office of the Municipal Assessor/Treasurer where the lot in question is located, and clearly not the written instrument constituting an express trust required under Article 1443 of the Civil Code. This argument of private respondents, is untenable. It has been held that under the law on Trusts, it is not necessary that the document expressly state and provide for the express trust, for it may even be created orally, no particular words are required for its creation (Article 1444, Civil Code). An express trust is created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust (Sotto v. Teves, 86 SCRA 154 [1978]). No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended (Vda. de Mapa v. Court of Appeals, 154 SCRA 294 [1987]). Hence, petitioner's action, being one based on express trust, has not yet prescribed. Be it noted that Article 1443 of the Civil Code which states "No express trusts concerning an immovable or any interest therein may be proved by parol evidence," refers merely to enforceability, not validity of a contract between the parties. Otherwise stated, for purposes of validity between the parties, an express trust concerning an immovable does not have to be in writing. Thus, Article 1443 may be said to be an extension of the Statute of Frauds. The action to compel the trustee to convey the property registered in his name for the benefit of the cestui for trust does not prescribe. If at all, it is only when the trustee repudiates the trust that the period of prescription may run (Enriquez v. Court of Appeals, 104 SCRA 656 [1981]). PREMISES CONSIDERED, the June 17, 1986 decision of the Intermediate Appellate Court is hereby REVERSED and the November 17, 1983 decision of the trial court is hereby REINSTATED, excpt as to the latter court's finding that this case deals with an implied trust. SO ORDERED.

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G.R. No. 144148. March 18, 2005] SPS. FELIZA DUYAN GOMEZ and EUGENIO GOMEZ, petitioners, vs. PURISIMA DUYAN, ROLANDO DUYAN, EMERITA DUYAN, DIGNA DUYAN, EDUARDO DUYAN, LUCRECIA DUYAN, ROBERTO DUYAN, CRESENCIA DUYAN, RODRIGO DUYAN, REULGINA DUYAN, DOMINICIA DUYAN, AVECENCIO DUYAN, MARIA SALOME DUYAN and DIVINA DUYAN, respondents. Before this Court is a petition for review on certiorari assailing the Decision of the Court of Appeals in CA-G.R. CV No. 49163 ordering the reconveyance by the petitioners to the respondents of the property covered by Transfer Certificate of Title (TCT) No. 281115 and declaring said title cancelled, [2] thereby reversing the Decision of the Regional Trial Court (RTC) of Quezon City, Branch 80 which dismissed the complaint. The dispositive portion of the challenged Decision reads as follows: WHEREFORE, premises considered, the assailed decision of the Regional Trial Court of Quezon City, Branch 80 in Civil Case No. Q-91-8821 is hereby REVERSED and SET ASIDE. ACCORDINGLY, defendants-appellees are hereby ordered to RECONVEY in favor of plaintiffs-appellants the property [3] covered by TCT No. 281115, which title is hereby declared CANCELLED. With costs. The facts as culled from the records are as follows: The parties in this case are relatives residing at 96 General Avenue, Project 8, Quezon City which consists of four houses situated in an eight hundred-square meter (800 sq.m.) lot, covered by TCT No. 41717 issued by the Register of Deeds of Quezon City in the name of Eulogio Duyan (now deceased) married to Purisima Duyan, one of the respondents in this case. The property in dispute which constitutes one-half of the property previously covered by TCT No. 41717 is now covered by TCT No. [4] 281115 issued in the name of petitioner spouses. Eulogio Duyan and Feliza Duyan are siblings. In his desire to help his sister, Eulogio allowed her [5] to construct a house on the disputed lot sometime in 1968. Petitioners acknowledged the fact that the disputed property was owned by Eulogio and that they were staying in the disputed property solely due to his benevolence. Accordingly, an instrument entitledPagpapahayag was executed by the siblings on 5 May 1974. The instrument provides that in the event that the property will be registered in Felizas name, she will continue to acknowledge Eulogio as the owner and will never assert ownership over the [6] same, except in accordance with her brothers wishes. The pertinent portions of the instrument read: Na napagkasunduan naming magcapatid na bouin ang documentong ito bilang katibayan ang lahat; .... 4. Na kaming magkapatid ay magtutulongan at magdadamayan maging sa hirap at ginhawa alang-alang sa ikabubuti ng aming mga mahal sa buhay; 5. Na ito ay mailagay sa pangalan man ng aming Ama o pangalan ko ay itoy hindi ko pag-aari kundi ari ito ng aking kuya, Eulogio V. Duyan, at6. Na ito ay aming igagalang maging saan man makarating ngayon at kailan man.
[7] [1]

the sum of One Thousand Pesos (P1,000.00). Thereafter, petitioners allegedly asserted ownership not [8] only over the said house but over the whole lot covered by TCT No. 41717. This prompted Eulogios legal wife, Purisima, to file a complaint for recovery of possession and damages against petitioners with [9] the then Court of First Instance of Rizal, Branch IV-B, Quezon City. Deciding the case in favor of Purisima, the trial court ordered petitioners to surrender possession of the property to her. On appeal, the Court of Appeals dismissed the case after the parties entered into [10] an amicable settlement. On 25 January 1978, Eulogio and Purisima this time, as vendors, executed a Deed of Absolute Sale in favor of petitioners with respect to the disputed lot for the sum of Twenty Thousand Pesos [11] (P20,000.00). Purisima claims that the deed of sale was executed merely to give color of legality to petitioners stay in the disputed property so that she and her children will not drive them away after they (Purisima [12] and her children) manifested their opposition to Eulogios decision to let them stay therein. Petitioners claim otherwise, contending that the sale was freely agreed upon by the parties thereto; hence, it was [13] authentic and validly executed. Subsequent to the execution of the deed of sale or on 10 February [14] 1978, another Pagpapahayag was executed between Eulogio and Feliza, where the latter [15] acknowledged that the lot subject of the deed of sale will eventually be transferred to respondents [16] herein who are her nephews and nieces and the children of Eulogio. The pertinent portions of the second Pagpapahayag read: Na pagkatapos ng lahat ng hidwaan sa Husgado ay aming isasagawa agad and conwaring pagbibili muli ng nasabing xxx aming binili sa aking capatid na si Gg. Eulogio V. Duyan. At pag mangyari ang nasabing hatian ng lote, ay aming ilalagay agad sa pangalan ng aming mga pamangkin na sina Salome V. Duyan, Divina V. Duyan, Cresencia V. Duyan, Reulgina V. Duyan, [17] Domincia, Rodrigo at Avencio C. Duyan. Notwithstanding the second Pagpapahayag, petitioners caused the registration of the deed of sale dated 25 January 1978 with the Register of Deeds of Quezon City. As a consequence, TCT No. [18] 281115 covering the disputed lot was issued on 22 September 1981 in the name of petitioners. On 20 May 1991, respondents filed a suit for reconveyance of real property and cancellation of TCT No. 281115 with damages against petitioners before Branch 80 of the Quezon City RTC. On 5 September 1994, the trial court rendered a decision, dismissing the complaint and ordering respondents to pay jointly and severally defendants therein, now petitioners, the amount of Ten [19] Thousand Pesos (P10,000,00) as reasonable attorneys fees and to pay the costs of the suit. In dismissing the case, the trial court held that: [the] TCT No. 281115 (Exh. 4) was validly issued pursuant to the Absolute Deed of Sale dated January 25, 1978 (Exh. 3) duly registered at the Office of the Registry of Deeds of Quezon City. The same became indefeasible and conclusive upon the expiration of one year period from its entry as it [20] was not attacked directly by anyone due to fraud. On appeal, the Court of Appeals reversed the decision and held that an implied trust arose in favor of respondents over the disputed property by virtue of the Pagpapahayag dated 10 February 1978. It

On 11 May 1974, a deed of sale covering a residential house situated on the disputed lot was executed by Eulogio and Regina Velasquez, a common-law wife of the former, in favor of petitioners for

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held that the action for reconveyance of property was properly filed by respondents against [21] petitioners. Petitioners motion for reconsideration having been denied by the appellate court in [23] a Resolution promulgated on 28 June 2000, the case was elevated to this Court by way of a petition for review. Petitioners in their petition for review contend that the Court of Appeals acted with grave abuse [25] of discretion when it reversed the RTC decision and that the error, if not corrected, will cause them [26] great injustice. They claim that the Court of Appeals erred when it ordered the reconveyance by petitioners to respondents of the property covered by TCT No. 281115 and declared the cancellation of [27] said title . The contention is without merit. The Court of Appeals did not err in ordering the reconveyance of the property in dispute. As found by the appellate court, the trial court failed to consider the law on trusts despite the existence of uncontroverted evidence establishing the creation of a trust as it anchored its decision solely on the indefeasibility of title aspect. Although it recognized the instruments creating the trust, the trial court nevertheless held that: In the document entitled Pagpapahayag (Exh. B), although the defendant Felisa Gomez stipulated therein that she will not claim ownership over the lot covered by TCT No. 41717, even in the event that the same will be transferred in her name, the same does not bar her totally from becoming as owner because of the exception provided therein that she can still own the lot or part thereof in accordance with the wishes of the deceased which was clearly manifested when the Absolute Deed of Sale of the half of the lot covered by TCT No. 41717 was executed between the deceased and his spouse Purisima [28] Duyan (plaintiff) and the defendants. While citing the provisions of the Pagpapahayag dated 5 May 1974 and concluding therefrom that Feliza was not actually prohibited from claiming ownership over the property, the trial court completely disregarded and missed the import of the other Pagpapahayag dated 10 February 1978. In express terms, Feliza undertook in the subsequent Pagpapahayag to convey the property subject of the fictitious deed of sale to her own nephews and nieces who are the children of her brother Eulogio. To reiterate, Feliza stated At pag mangyari ang nasabing hatian ng lote, ay aming ilalagay agad sa pangalan ng aming mga pamangkin na sina Salome V. Duyan, Divina V. Duyan, Cresencia V. [29] Duyan, Reulgina V. Duyan, Domincia, Rodrigo at Avencio C. Duyan. It must be noted that this Pagpapahayag was entered into by Eulogio and Feliza after the supposed sale of the property on 25 January 1978. Based on the clear provisions of this document, the intent of the siblings to create a trust was manifest with Eulogio as the trustor, Feliza as the trustee and Eulogios children as the [30] [31] beneficiaries or the cestui qui trust of the res which was the disputed property. This is based on the provision of the law on trusts which states that: Art. 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose [32] benefit the trust has been created is referred to as the beneficiary. However, the trust created was not merely implied as held by the Court of Appeals but belongs to the express kind. Based on the provisions of the Civil Code and jurisprudence, Express trusts are those which the direct and positive acts of the parties create, by some writing, deed or will, or words [33] evincing an intention to create a trust.
[24] [22]

In this case, the provisions of the Pagpapahayag dated 10 February 1978 left no room for doubt. It was clearly intended therein by Eulogio and Feliza that the property subject of the sale will subsequently be placed by the latter in the name of respondents, thus creating a trust relationship over the property in dispute. Even if the word trust was not expressly used by the signatories to the 10 February 1978 Pagpapahayag and the document did not expressly state that a trust was being established by reason thereof, the establishment of an express trust cannot be discounted. Under the Civil Code, No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly [34] intended. In a decision penned by Justice Paras, this Court held that under the law on Trusts, it is not necessary that the document expressly state and provide for the express trust, for it may even be created orally, no particular words are required for its creation (Art. 1444, Civil [35] Code). The Pagpapahayag dated 10 February 1978 having been freely entered into by Eulogio and Feliza, it had the force of law between them. It was therefore incumbent upon Feliza as trustee to comply with the provisions of the instrument and have the subject property registered in the names of her nephews and nieces. Petitioners subsequent act of registering the disputed property in their own names and resisting the action for reconveyance later filed by respondents was clearly a betrayal of the provisions of the express trust created by the 10 February 1978 Pagpapahayag. By these actions, petitioners not only failed to comply with the provisions of thePagpapahayag, but actually circumvented them. It is worthy of note that petitioners never denied the existence, authenticity and due execution of [36] the 10 February 1978 Pagpapahayag as they merely objected to the purpose of its presentation. As held by the appellate court: Neither refutation nor denial of the existence of such document exist in the records of the case at bar. Particularly, Feliza did not even raise any objection as to the due execution and authenticity of the Pagpapahayag dated 10 February 1978. In relation thereto, it is worthy to note that an objection as to the purpose of its presentation is not tantamount to an objection as to the authenticity and due execution of the document. In view of the absence of such objection, the GOMEZES as signatories [37] thereto, are deemed bound by the stipulations therein. A trust is sacred and inviolable. The courts have therefore shielded fiduciary relations against [38] every manner of chicanery or detestable design cloaked by legal technicalities. Considering this pronouncement of the Supreme Court and the betrayal by petitioners of the provisions of the Pagpapahayag creating the trust in this case, the Court of Appeals rightly ordered the reconveyance of the disputed property to respondents and the cancellation of TCT No. 21885. Moreover, petitioners admitted in the Pagpapahayag itself that the 25 January 1978 sale was [39] fictitious. This is evident by the use of the phrase conwaring pagbibili which means simulated or fictitious sale. Thus, petitioners are estopped from claiming or asserting ownership over the subject property based on the 25 January 1978 deed of sale. Felizas admission in the said Pagpapahayag of the falsity of the sale is deemed conclusive upon her and her co-petitioner Eugenio Gomez. Under the Civil Code, Through estoppel an admission or representation is rendered conclusive upon the person [40] making it, and cannot be denied or disproved as against the person relying thereon. That admission cannot now be denied by Feliza as against Eulogio and his successors-in-interest, the latter having relied upon her representation. Petitioners argue that the action for reconveyance filed by respondents against them is not proper, [41] the latter not being the owners of the property in question. Invoking the 25 January 1978 deed of sale despite Felizas admission adverted to above that such sale was fictitious, petitioners assert that they

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are the owners of the subject property. They claim that the best proof of ownership of a piece of land is [42] the certificate of title, and the TCT being in their name, they are the rightful owners thereof. They [43] further argue that based on the case of Dela Pea vs. Court of Appeals among others, reconveyance is a remedy granted only to the owner of the property alleged to be wrongfully titled in anothers [44] name. The argument begs the question. Reconveyance is precisely the proper action for respondents to take against petitioners since the former are claiming that they are the rightful owners of the property in question, not petitioners. By filing an action for reconveyance, a party seeks to show that the person [45] who secured the registration of the questioned property is not the real owner thereof. Petitioners cannot rely on the registration of the disputed property and the corresponding issuance of a certificate of title in their name as vesting ownership on them simply because an express trust over the property was created in favor of respondents. It has been held that a trustee who obtains a Torrens title over the property held in trust by him for another cannot repudiate the trust by relying on the [46] registration. The law safeguards the rightful partys interest in titled land from fraud and improper technicalities by allowing such party to bring an action for reconveyance of whatever he has been deprived of as long [47] as the property has not been transferred or conveyed to an innocent purchaser for value. The action while respecting the registration decree as incontrovertible, seeks to transfer or reconvey the land from [48] the registered owner to the rightful owner. As this Court held in the case ofEscobar vs. Locsin, The [49] Torrens system was never calculated to foment betrayal in the performance of a trust. In a further effort to bolster the claim that they own the property in dispute, petitioners attempt to introduce new evidence annexed to their petition in the form of a purported declaration made by Eulogio [50] dated 19 February 1979. The declaration purports to state that the previous instruments entered into [51] by him and the petitioners are void because he had already sold the lot to them. This declaration, although annexed to the Petition for Review appears nowhere in the records of the trial court and the appellate court. This is a piece of factual evidence which should have been presented before the trial court to be considered and to allow respondents the opportunity to rebut it or to present evidence to the contrary. The Rules of Court specifically provides that The court shall consider no evidence which has [52] not been formally offered The alleged declaration not having been formally offered in evidence is deemed to be a mere scrap of paper which has no evidentiary value. Lastly, petitioners contend that the conflict between the decision of the appellate court and that of [53] the trial court provides this Court with a ground to review the decisions of both courts. That may be true but the circumstance does not suffice to warrant the reversal of the Court of Appeals Decision. Quite the contrary, the undisputed facts and the applicable law ineluctably support the conclusion that the appellate court did not commit any reversible error. WHEREFORE, the petition is DENIED due course and the Decision of the Court of Appeals is AFFIRMED. Costs against petitioners. SO ORDERED.

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G.R. No. L-19012

October 30, 1967

[That neither may the land which was exchanged for the farm with four cavanes of seedlings be demanded immediately;] Victoria Julio, in turn, joined Clemente Dalandan in the execution of, and also swore to, the said document, in this wise: Na, ako VICTORIA JULIO, na binabanggit sa itaas nito sa salaysay ni CLEMENTE DALANDAN, ay nagpapatunay na tutoong lahat ang kanyang salaysay na iyon at tinatanggap ko ang kanyang mga sinasabi. [That I, VICTORIA JULIO, mentioned in the above statement of CLEMENTE DALANDAN, attest to the truth of, and accept, all that he stated therein.] Back to the complaint herein. Plaintiff went on to aver that the land of Clemente Dalandan set forth in the document, Annex "A" of the complaint, referred to six small parcels described in paragraph 4 thereof with a total area of barely two hectares "the only land owned by Clemente Dalandan at the time of the execution of the document" except fifty plots or "banigan" (saltbeds), which were previously conveyed to plaintiff's mother by mean of pacto de retro sale and title to which had already been vested in the latter; that after the death of Clemente Dalandan, plaintiff requested from defendants, Clemente's legitimate and surviving heirs who succeeded in the possession of the land thus conveyed, to deliver the same to her; that defendants "insisted that according to the agreement", neither delivery of the land nor the fruits thereof could immediately be demanded, and that "plaintiff acceded to this contention of defendants and allowed them to continue to remain in possession" thereof; that demands have "been made upon defendants to fix the period within which they would deliver to the herein plaintiff the abovedescribed parcels of land but defendants have refused and until now still refuse to fix a specific time within which they would deliver to plaintiff the aforementioned parcels of land." Predicated upon the foregoing allegations, plaintiff prayed for judgment against defendants: (a) Adjudging the herein plaintiff as owner of the land described in paragraph 4 hereof;

VICTORIA JULIO, plaintiff-appellant, vs. EMILIANO DALANDAN and MARIA DALANDAN, defendants-appellees. Disputing the correctness of the lower court's order of April 29, 1961 dismissing the complaint, plaintiff 1 elevated the case to this Court on appeal. Plaintiff's complaint which defendants, by a motion to dismiss, successfully overturned in the court below is planted upon a document Annex "A" of the complaint, labeled in the national language "SALAYSAY" (Statement). It was in the form of an affidavit subscribed and sworn to by one Clemente Dalandan on September 8, 1950. By the terms of this writing, Clemente Dalandan, deceased father of defendants Emiliano and Maria Dalandan, acknowledged that a four-hectare piece of riceland in Las acknowledged that a four-hectare piece of riceland in Las Pias, Rizal belonging to Victoriana Dalandan, whose only child and heir is plaintiff Victoria Julio, was posted as security for an obligation which he, Clemente Dalandan, assumed but, however, failed to fulfill. The result was that Victoriana's 2 said land was foreclosed. The key provisions of said document are: 3. Na ang lupang palayang ito na pagaari ni VICTORIANA DALANDAN at sa kasalukuyan ay walang ibang tagapagmana kung di si VICTORIA JULIO, ay napafianza sa akin nuong bago pa dumating ang huling digmaan at dahil sa hindi ako nakatupad sa aking pananagutang na sasagutan ng bukid niyang ito ay naembargo ang nasabi niyang lupa; [That this riceland owned by VICTORIANA DALANDAN whose sole heir is VICTORIA JULIO was posted as security for an obligation assumed by me even before the outbreak of the last war and because I failed to fulfill the obligation secured by her said farm the same was foreclosed;] 4. Na dahil dito ay ako samakatuwid ay nanagot sa kanya (VICTORIA JULIO), pagkakaembargo ng lupa niyang iyong kung kaya't nagkasundo kami na ako ay nanagot kanya sa pagkaembargong iyon at ipinangako ko sa kanya na ang lupa niyang iyon naembargo ng dahil sa aking pananagutan ay aking papalitan ng bukid din na may mahigit APAT (4) na hectarea (o humigit kumulang sa APAT NA KABANG BINHI); sa sa na na

(b) Fixing a time within which defendants should deliver the said parcels of land to the herein plaintiff as well as the fruits thereof; (c) Adjudging that upon the expiration of the said time defendants convey and deliver to the herein plaintiff the said parcels of land as well as the fruits thereof; (d) Ordering the defendants to pay the plaintiff the sum of P2,000.00 as attorneys' fees; (e) Ordering the defendants to pay the costs of the suit; and granting such other relief and remedy as may be just and equitable in the premises. Defendants met the complaint with a motion to dismiss grounded on: (1) prescription of plaintiff's action; (2) pendency of another suit between the same parties for the same cause; and (3) release and/or abandonment of the claim set forth in plaintiff's complaint. By its order of April 29, 1961, the lower court ruled that plaintiff's suit, viewed either as an action for specific performance or for the fixing of a term, had prescribed. Reason: the 10-year period from the

[That because of this, and as agreed upon between us, I accordingly held myself liable to Victoria Julio for the foreclosure of her said land, and I promised her that I would replace her aforesaid land which was foreclosed because of my obligation with another farm of more than four; (4) hectares, that is, one planted to four cavanes of seedlings, more or less;] 5. Na hindi maaring pilitin ang aking mga anak (EMILIANO AT MARIA DALANDAN), na hingin ang ani ng bukid na nabangit sa itaas ng salaysay na ito; [That my children (EMILIANO AND MARIA DALANDAN) may not be forced to give up the harvest of the farm herein above mentioned;] 6. Na hindi rin maaring hingin kaaggad sa lalong madaling panahon ang kapalit ng bukid na may apat na kabang binhi;

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date of the document had elapsed. The lower court found it unnecessary to pass upon the other grounds for the motion to dismiss. Hence, this appeal. 1. The threshold problem, basic to an understand of the issues herein involved, is the meaning to be attached to the document now under review. Undoubtedly, bad more felicitous terms been employed, the intention of the parties could easily be read. Unfortunately, ineptness of expression exacts of us an examination of the document. Familiar rules of interpretation of documents tell us that in ascertaining the intention of the parties, the contents thereof should not be interpreted piecemeal; all parts, provisions or terms are to be considered; each paragraph clause or phrase must be read not in isolation, but in the light of the entire writing; doubtful ones should be given that sense which may result from all of them, considered as a whole. Such construction will be adopted as will result from an overall view of the document itself. It is, in this perspective that we now look into the writing. Adverting to paragraph 4 of the deed, defendants take the position that the deceased Clemente Dalandan simply "promised" to Victoria Julio a farm of about four hectares to replace the land of Victoriana Dalandan (mother of Victoria Julio) which was foreclosed. But this view loses sight of the later provisions thereof. By paragraph 5, Clemente's children may not be forced to give up the harvest of the farm mentioned in the deed. This was followed by paragraph 6 which states that Victoria Julio may not immediately demand the substitute (kapalit) for the forfeited land. These last two statements in the deed express the dominant purpose of the instrument. They convey the idea that the naked ownership of the land in substitution was, indeed, transferred to Victoria Julio. Else there would have been no sense in the proviso that the fruits as well as the physical possession of the land could not immediately be demanded by Victoria Julio from Clemente's children, the herein defendants. For, the right to demand fruits and physical possession of property has been known to be attributes of ownership. The disputed complaint in paragraphs 6 and 7 thereof, in essence, avers plaintiff's request for the delivery of the real property; defendants' answer that "according to the agreement" neither land nor fruits thereof could immediately be taken away from them, and plaintiff's conformity thereto; and plaintiff's demands that the period for delivery be fixed and defendants' refusal. The allegations of the complaint just noted carry us to another aspect of the document: defendants' rights over the land vis-a-vis plaintiff's. What rights were transmitted to defendants by their father, Clemente Dalandan? Paragraphs 6 and 7 of the document supply the answer. They are usufructuaries for an undetermined length of time. For so long as that period has not been fixed and has not elapsed, they hold the property. Theirs is to enjoy the fruits of the land and to hold the same as trustees of Victoria Julio. And this because, by the deed, Clemente Dalandan divested himself of the ownership qualified solely by withholding enjoyment of the fruits and physical possession. In consequence, 3 Clemente Dalandan cannot transmit to his heirs, the present defendants, such ownership. Nemo dat quod non habet. And then, the document is a declaration by Clemente Dalandan, now deceased, 4 against his own proprietary interests. Such document is binding upon his heirs. 2. But, defendants aver that recognition of the trust may not be proved by evidence aliunde. They argue that by the express terms of Article 1443 of the Civil Code, "[n]o express trusts concerning an immovable or any interest therein may be proved by parol evidence." This argument overlooks the fact that no oral evidence is necessary. The express trust imposed upon defendants by their predecessor appears in the document itself. For, while it is true that said deed did not in definitive words institute defendants as trustees, a duty is therein imposed upon them when the proper time comes to turn over both the fruits and the possession of the property to Victoria Julio. Not that this view is without statutory support. Article 1444 of the Civil Code states that: "No particular words are required for the

creation of an express trust, it being sufficient that a trust is clearly intended." In reality, the development of the trust as a method of disposition of property, so jurisprudence teaches, "seems in large part due to 5 its freedom from formal requirements." This principle perhaps accounts for the provisions in Article 1444 just quoted. For, "technical or particular forms of words or phrases are not essential to the 6 manifestation of intention to create a trust or to the establishment thereof." Nor would the use of some such words as "trust" or "trustee" essential to the constitution of a trust as we have held in Lorenzo vs. Posadas, 64 Phil. 353, 368. Conversely, the mere fact that the word "trust" or "trustee" was employed would not necessarily prove an intention to create a trust. What is important is whether the trustor manifested an intention to create the kind of relationship which in law is known as a trust. It is unimportant that the trustor should know 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 7 trust." Here, that trust is effective as against defendants and in favor of the beneficiary thereof, plaintiff 8 Victoria Julio, who accepted it in the document itself. 3. Plaintiff is not to be handicapped by a lack of a clear statement as to the actual description of the land referred to in the trust deed, basis of plaintiff's cause of action. Obviously, the document was not prepared by a learned scrivener. It imperfectly speaks of a "farm of more than four (4) hectares." But averment in the complaint is not lacking to clear the uncertainty as to the identity of the land mentioned in that document. Plaintiff points out in paragraph 4 of her complaint that while said deed does not specifically define its boundaries "the parties to the said document actually refer" to the land which was "the only land owned by Clemente Dalandan at the time of the execution" thereof, and which is set forth in small parcels under said paragraph. This allegation in the complaint does not add any new term or stipulation to the writing. Rather, it explains an obscurity occasioned by lack of precision in a clumsily prepared document. Thus it is, that authorities are not wanting in support of the view that "in so far as the identity of land involved" in a trust is concerned, "it has also been held that the writings, in being considered for the purpose of satisfying the statute of frauds, are to be considered in their setting, and that parol evidence is admissible to make clear the terms of a trust the existence of which is established 9 by a writing, . . ." 4. This case having been brought before us on a motion to dismiss, we need but stress that we are to be guided solely by the averments of the complaint. So guided, we must say that there is sufficient showing in the complaint that there is an acknowledgment on the part of defendants that they hold the property not as their own, but in trust. There is no statement in the complaint intimating disavowal of such trust; the complaint alleges refusal to deliver possession. In the sense in which we understand the complaint to be, it cannot be said that plaintiff's action to recover the property thus held in trust has prescribed. Given the fiduciary relation which according to the complaint is recognized by defendants, 10 the latter may not invoke the statute of limitations as a bar to plaintiff's action. 5. Even on the assumption that defendants have not been constituted as trustees under the document in question, still we arrive at the same conclusion. For, plaintiff's action is aimed, by an alleged owner of real property at recovery of possession thereof, conditioned upon the fixing of the period therefor. Since plaintiff claims ownership, possession, in the words of this Court "is a mere consequence of 11 ownership." It may not be said that plaintiff's suit is barred by the statute of limitations. She is protected by Article 1141 of the Civil Code, which reads: "Real actions over immovables prescribe after thirty years." We take this view for the obvious reason that defendants' motion to dismiss on this score is directed at the prescription of plaintiff's action not on acquisitive prescription. 6. Defendants in their brief draw attention, by way of counter-assignment of error, to their claim that this case should also be dismissed upon the ground that there exists another action pending between the same parties for the same cause, and on the further ground of release and/or abandonment.

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The facts bearing on this issue are: In Land Registration Case N-706, G.L.R.O. Record No. N-7014, Court of First Instance of Rizal, defendants are applicants. That case so defendants aver covers the very same land set forth in plaintiff's complaint. In their opposition to that application, herein plaintiff prayed that the same land the subject of this suit (covered by Plan PSU 129514) be registered "in the names of the herein applicants and oppositor with the specific mention therein that the herein oppositor owns fifty salt beds therein and having an absolute right to the use of the depositories." Defendants argue that if plaintiff was the real owner of the entire area, opposition should have been presented on the whole, not merely as to fifty salt beds. Parenthetically, the question of ownership over the portion of fifty salt beds had already been resolved by this Court in a decision promulgated on February 29, 1964 in L-19101 (Emiliano Dalandan and Maria Dalandan, plaintiffs, vs. Victoria Julio, et al., defendants). There, this Court affirmed the order dismissing the complaint filed by defendants herein, plaintiffs therein, for the repurchase of fifty salt beds which were the subject of a sale withpacto de retro executed on September 24, 1932 by Clemente Dalandan in favor of Victoriana Dalandan, predecessor of plaintiff. There is no point in the argument that an action is pending between plaintiff and defendants. Because, with the exception of the fifty salt beds which according to the complaint is not included in the deed plaintiff filed no opposition to defendants' application for land registration. Failure to so object in reference to the registration of a bigger portion of the land, simply means that there is no case between the parties in reference thereto in the land registration proceeding. Not that plaintiff released or abandoned the claim to that bigger portion. For, there is an averment in the complaint that an agreement exists between plaintiff and defendants to defer delivery thereof; and that defendants thereafter refused to fix the period for such delivery. So that, on the assumption that defendants should succeed in obtaining title to the property in the land registration case, such would not bar Victoria Julio from requiring them to execute a conveyance of the property in her favor, in the event she (plaintiff herein) prevails in the present case. And this, because defendants could here be declared 12 as mere trustees of plaintiff, if the averments of the complaint are found to be true." For the reasons given, the order of the Court of First Instance of Rizal dated April 29, 1961 dismissing the complaint is hereby reversed and set aside, with instructions to remand the case to the court below for further proceedings. Costs against defendants-appellees. So ordered.

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G.R. No. 103635. February 1, 1996] CATALINA BUAN VDA. DE ESCONDE, CONSTANCIA ESCONDE VDA. DE PERALTA, ELENITA ESCONDE and BENJAMIN E SCONDE, petitioners, vs. HONORABLE COURT OF APPEALS and PEDRO ESCONDE, respondents. This petition for review on certiorari seeks the reversal of the January 22, 1992 decision in CA G.R. CV No. 26795 of the Court of Appeals affirming the Decision of the Regional Trial Court of Bataan, [2] Branch 2. The lower court declared that petitioners action for reconveyance of real property based on an implied trust has been barred by prescription and laches. Petitioners Constancia, Benjamin and Elenita, and private respondent Pedro, are the children of [3] the late Eulogio Esconde and petitioner Catalina Buan. Eulogio Esconde was one of the children and heirs of Andres Esconde. Andres is the brother of Estanislao Esconde, the original owner of the disputed lot who died without issue on April 1942. Survived by his only brother, Andres, Estanislao left an estate consisting of four (4) parcels of land in Samal, Bataan, namely: (a) Lot No. 1865 with 22,712 square meters; (b) Lot No. 1902 with 54,735 square meters; (c) Lot No. 1208 with 20,285 square meters; and (d) Lot No. 1700 with 547 square meters. Eulogio died in April, 1944 survived by petitioners and private respondent. At that time, Lazara and Ciriaca, Eulogios sisters, had already died without having partitioned the estate of the late Estanislao Esconde. On December 5, 1946, the heirs of Lazara, Ciriaca and Eulogio executed a deed of extrajudicial [4] partition, with the heirs of Lazara identified therein as the Party of the First Part, that of Ciriaca, the Party of the Second Part and that of Eulogio, the Party of the Third Part. Since the children of Eulogio, with the exception of Constancia, were then all minors, they were represented by their mother and judicial guardian, petitioner Catalina Buan vda. de Esconde who renounced and waived her usufructuary rights over the parcels of land in favor of her children in the same deed. Salient provisions of the deed state as follows: 1. TO ARTURO DOMINGUEZ, minor, Party of the First Part is adjudicated: (a) (b) Lot No. 1865 of Samal Cadastre; Portion of Lot No. 1208, Samal Cadastre, which portion has an area of FIVE (5) Luang;
[1]

(a) Lot No. 1208 Samal Cadastre, subject to the encumbrance of the right of ownership of Arturo Dominguez on the FIVE LUANG; 4. TO PEDRO ESCONDE is adjudicated exclusively Lot No. 1700 of the Cadastral Survey of Samal; (Italics supplied.) The deed bears the thumbmark of Catalina Buan and the signature of Constancia Esconde, as [5] well as the approval and signature of Judge Basilio Bautista. Pursuant to the same deed, transfer certificates of title were issued to the new owners of the [6] properties. Transfer Certificate of Title No. 394 for Lot No. 1700 was issued on February 11, 1947 in the name of private respondent but Catalina kept it in her possession until she delivered it to him in 1949 when private respondent got married. Meanwhile, Benjamin constructed the family home on Lot No. 1698-B which is adjacent to Lot No. 1700. A portion of the house occupied an area of twenty (20) square meters, more or less, of Lot No. 1700. Benjamin also built a concrete fence and a common gate enclosing the two (2) lots, as well as an artesian well within Lot No. 1700. Sometime in December, 1982, Benjamin discovered that Lot No. 1700 was registered in the name of his brother, private respondent. Believing that the lot was co-owned by all the children of Eulogio [8] Esconde, Benjamin demanded his share of the lot from private respondent. However, private respondent asserted exclusive ownership thereof pursuant to the deed of extrajudicial partition and, in 1985 constructed a buho fence to segregate Lot No. 1700 from Lot No. 1698-B. Hence, on June 29, 1987, petitioners herein filed a complaint before the Regional Trial Court of Bataan against private respondent for the annulment of TCT No. 394. They further prayed that private respondent be directed to enter into a partition agreement with them, and for damages (Civil Case No. 5552). In its decision of July 31, 1989, the lower court dismissed the complaint and the counterclaims. It found that the deed of extrajudicial partition was an unenforceable contract as far as Lot No. 1700 was concerned because petitioner Catalina Buan vda. de Esconde, as mother and judicial guardian of her children, exceeded her authority as such in donating the lot to private respondent or waiving the rights thereto of Benjamin and Elenita in favor of private respondent. Because of the unenforceability of the deed, a trust relationship was created with private respondent as trustee and Benjamin and Elenita as beneficiaries. The court said: Although the parties to the partition did not either contemplate or express it in said document, the resulting trust arose or was created by operation of Article 1456 of the new Civil Code, which reads: If property is acquired through mistake or fraud, the person obtaining it is,by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. The persons from whom the two-thirds portion of Lot 1700 came are plaintiffs Benjamin and Elenita Esconde and the trustee was defendant Pedro Esconde, who acquired such portion through mistake by virtue of the subject partition. The mistake was the allotment or assignment of such portion to Pedro Esconde [9] although it had rightfully belonged to said two plaintiffs more than two (2) years before. However, the lower court ruled that the action had been barred by both prescription and laches. Lot No. 1700 having been registered in the name of private respondent on February 11, 1947, the action to annul such title prescribed within ten (10) years on February 11, 1957 or more than thirty (30) years before the action was filed on June 29, 1987. Thus, even if Art. 1963 of the old Civil Code
[7]

2. TO JOVITA BUAN, RICARDO BUAN, and MELODY and LEOPOLDO OCONER, are adjudicated Lot No. 1902 Samal Cadastre, and to de (sic) divided as follows: (a) (b) (c) (d) Jovita Buan - Undivided one-third (1/3) share; Ricardo Buan - Undivided one-third (1/3) share; Melody Oconer - Undivided one-sixth (1/6) share; Leopoldo Oconer - Undivided one-sixth (1/6) share;

3. TO CONSTANCIA, PEDRO, BENJAMIN and ELENITA, all Surnamed ESCONDE, are adjudicated, in undivided equal shares each, the following:

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providing for a 30-year prescriptive period for real actions over immovable properties were to be applied, still, the action would have prescribed on February 11, 1977. Hence, petitioners elevated the case to the Court of Appeals which affirmed the lower courts decision. The appellate court held that the deed of extrajudicial partition established an implied trust arising from the mistake of the judicial guardian in favoring one heir by giving him a bigger share in the hereditary property. It stressed that an action for reconveyance based on implied or constructive trust prescribes in ten (10) years counted from the registration of the property in the sole name of the co [10] heir. Petitioners are now before this Court charging the Court of Appeals with having erred in: (a) denying their appeal by reason of prescription and laches, and (b) not reversing the decision of the lower court insofar as awarding them damages is concerned. Trust is the legal relationship between one person having an equitable ownership in property and another person owning the legal title to such property, the equitable ownership of the former entitling [11] him to the performance of certain duties and the exercise of certain powers by the latter. Trusts are either express or implied. An express trust is created by the direct and positive acts of the parties, by [12] some writing or deed or will or by words evidencing an intention to create a trust. No particular words [13] are required for the creation of an express trust, it being sufficient that a trust is clearly intended. On the other hand, implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by [14] operation of law as matters of equity, independently of the particular intention of the parties. In turn, implied trusts are either resulting or constructive trusts. These two are differentiated from each other as follows: 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 [15] property which he ought not, in equity and good conscience, to hold. While the deed of extrajudicial partition and the registration of Lot No. 1700 occurred in 1947 when the Code of Civil Procedure or Act No. 190 was yet in force, we hold that the trial court correctly applied [16] Article 1456. In Diaz, et al. v. Gorricho and Aguado, the Court categorically held that while it is not a retroactive provision of the new Civil Code, Article 1456 merely expresses a rule already recognized by our courts prior to the Codes promulgation. This article provides: Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court stated: A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que

trust. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the [17] so-called trustee neither accepts any trust nor intends holding the property for the beneficiary. In the case at bench, petitioner Catalina Buan vda. de Esconde, as mother and legal guardian of her children, appears to have favored her elder son, private respondent, in allowing that he be given Lot No. 1700 in its entirety in the extrajudicial partition of the Esconde estate to the prejudice of her other children. Although it does not appear on record whether Catalina intentionally granted private respondent that privileged bestowal, the fact is that, said lot was registered in private respondents name. After TCT No. 394 was handed to him by his mother, private respondent exercised exclusive rights of ownership therein to the extent of even mortgaging the lot when he needed money. If, as petitioners insist, a mistake was committed in allotting Lot No. 1700 to private respondent, then a trust relationship was created between them and private respondent. However, private respondent never considered himself a trustee. If he allowed his brother Benjamin to construct or make improvements thereon, it appears to have been out of tolerance to a brother. Consequently, if indeed, [18] by mistake, private respondent was given the entirety of Lot No. 1700, the trust relationship between him and petitioners was a constructive, not resulting, implied trust. Petitioners, therefore, correctly questioned private respondents exercise of absolute ownership over the property. Unfortunately, however, petitioners assailed it long after their right to do so had prescribed. The rule that a trustee cannot acquire by prescription ownership over property entrusted to him [19] until and unless he repudiates the trust, applies to express trusts and resulting implied [20] [21] trusts. However, in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of the said trust is not a condition precedent to the running of the prescriptive period. Since the action for the annulment of private respondents title to Lot No. 1700 accrued during the effectivity of Act No. 190, Section 40 of Chapter III thereof applies. It provides: Sec. 40. Period of prescription as to real estate. - An action for recovery of title to, or possession of, real property, or an interest therein, can only be brought within ten years after the cause of such action accrues. Thus, in Heirs of Jose Olviga v. Court of Appeals, the Court ruled that the ten-year prescriptive period for an action for reconveyance of real property based on implied or constructive trust which is counted from the date of registration of the property, applies when the plaintiff is not in possession of the contested property. In this case, private respondent, not petitioners who instituted the action, is in actual possession of Lot No. 1700. Having filed their action only on June 29, 1987, petitioners action has been barred by prescription. Not only that. Laches has also circumscribed the action for, whether the implied trust is [23] constructive or resulting, this doctrine applies. As regards constructive implied trusts, the Court held [24] in Diaz, et al. v. Gorricho and Aguado that: x x x in constructive trusts (that are imposed by law), there is neither promise nor fiduciary relation; the so-called trustee does not recognize any trust and has no intent to hold for the beneficiary; therefore, the latter is not justified in delaying action to recover his property. It is his fault if he delays; hence, he may be estopped by his own laches.
[22]

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It is tragic that a land dispute has once again driven a wedge between brothers. However, credit [25] must be given to petitioner Benjamin Esconde for resorting to all means possible in arriving at a [26] settlement between him and his brother in accordance with Article 222 of the Civil Code. Verbally [27] and in two letters, he demanded that private respondent give him and his sisters their share in Lot No. 1700. He even reported the matter to the barangay authorities for which three conferences [28] were held. Unfortunately, his efforts proved fruitless. Even the action he brought before the court was filed too late. On the other hand, private respondent should not be unjustly enriched by the improvements introduced by his brother on Lot No. 1700 which he himself had tolerated. He is obliged by law to indemnify his brother, petitioner Benjamin Esconde, for whatever expenses the latter had incurred. WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned decision AFFIRMED subject to the modification that private respondent shall indemnify petitioner Benjamin Esconde the expenses the latter had incurred for the improvements on Lot No. 1700. No costs. SO ORDERED.

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[G.R. No. 148180. December 19, 2001] CATALINA VDA. DE RETUERTO as surviving widow of the late PANFILO RETUERTO; LORETO RETUERTO, represented by his surviving heirs namely: ROMEO RETUERTO; ANTONIA RETUERTO, NARCISA RETUERTO, CORAZON RETUERTO, and PATROCINIO RETUERTO; GAUDENCIO, FRANCISCA, CRUZ, FRANCISCO, EFIGENIA and GUILLERMO, all surnamed RETUERTO; and Spouses JOSE and ROSA GESALEM, petitioners, vs. ANGELO P. BARZ and MERLINDA BARZ,respondents. This is a petition for review on certiorari of the decision of the Court of Appeals, dated December 29, 2000 in CA-GR CV No. 59975, affirming the decision of the Regional Trial Court, Branch 55, of Mandaue City in a case for quieting of title with damages filed by herein respondents Angelo and Melinda Barz against petitioners, as surviving heirs of th e late Panfilo Retuerto. The RTCs decision declared respondents as the absolute owners of the lot subject of the litigation. The facts as found by the Court of Appeals and admitted by herein petitioners are as follows: During the period from September to October, 1911, a survey was made of a parcel of land, located in Mandaue, Cebu, identified as Lot No. 896 of Plan No. II -5121, a part of the Hacienda de Mandaue occupied by the Spouses Esteban Perez and Lorenza Sanchez. The survey was amended during the period from November, 1926 to March 21, 1927, identified as Amendment No. 2, Ap-6243, with an area of 20,486 square meters, bearing the following boundaries: Northwest - Lots 1251 and 1252 (Remigio Judilla and Manuel Judilla); Southeast Southwest Northwest Lot 894 (Gregorio Perez); Lot 895; Lots 897 and 898 (Juan Perez)

On the North - Remegio Judilla, measuring 29.72 sq.m. On the East - Paula Perez, measuring 85.35 sq.m. On the South- Juana Perez, measuring 29.72 sq.m. On the West - Teofista Perez, measuring 84.32 sq.m. However, on April 26, 1935, Panfilo Retuerto purchased the aforementioned parcel of land, this time, from the Archbishop of Cebu, under a Deed of Absolute Sale, for the price of P150.00 (Exhibit 4) and declared the same for taxation purposes under Tax Declaration No. 34652, effective 193 7 (Exhibit 2). In the meantime, the San Carlos Seminary in Cebu filed a Petition with the then Juzgado de Primera Instancia in Cebu (now the Regional Trial Court) entitled and docketed El Seminario de San Carlos de Cebu, Solicitante, Expediente No. 3, G.L.R.O. Record 4030 for the issuance of titles over several parcels of land in Hacienda de Mandaue, including Lot No. 896 -A, earlier purchased by Panfilo Retuerto from Juana Perez and from the Archbishop of Cebu. In August, 1937, the Court promulgated a Decision finding and declaring Panfilo Retuerto the owner of the said lot (Exhibit 9). On July 22, 1940, the Court issued an Order directing the General del Registro de Terrenos (later the Land Registration Commission) for the issuance of the appropriate Decree in favor of Panfilo Retuerto over the said parcel of land. However, no such Decree was issued as directed by the Court because, by December 8, 1941, the Second World War ensued in the Pacific. However, Panfilo Retuerto failed to secure the appropriate decree after the war. Two (2) decades elapsed. In the meantime, Juana Perez Barz died intestate and was survived by her son, Pedro Barz, who filed an application, with the then Court of First Instance of Cebu, sometime in 1966, for the confirmation of his title over Lot 896 of Plan No. II-5121, entitled and docketed as IN THE MATTER OF THE REGISTRATION OF TITLE, Pedro Barz, Applicant, Land Registration Case No. N 529, LRC Record No. N24736. The Spouses Panfilo Retuerto did not file any opposition to the application. After appropriate proceedings, the Court promulgated a decision in favor of Pedro Barz declaring him the lawful owner of the said property. On August 18, 1966, Decree No. N-110287 was issued over the property, in favor of Pedro Barz, on the basis of which Original Certificate of Title No. 521 was issued, on November 13, 1968, by the Register of Deeds over the property (Exhibit A). The property was then subdivided into four (4) lots namely, Lot 896-A, with an area of 507 square meters (Exhibit B-5), Lot 896-B, with an area of 2,142 square meters (Exhibit B -6), Lot 896-C, with an area of 5,580 square meters (Exhibit B-7), and Lot 896-D, with an area of 12,253 square meters (Exhibit B8). On October 18, 1967, Pedro Barz executed a Deed of Absolute Sale over subdivision Lot 896 -C in favor of Jose Gesalem for P7,000.00. On the basis of the said deed, Original Certificate of Title was partially cancelled and, in lieu thereof, Transfer Certificate of Title No. 7509 was issued over said lot in favor of the vendee. In the interim, Panfilo Retuerto declared the property, covered by Tax Declaration No. 34652, under his name, under Tax Declaration No. 54960, effective 1974 (Exhibit 3). Subsequently, Panfilo Retuerto died intestate, on December 29, 1975, and was survived by his widow, Catalina Retuerto and their children, namely Gaudencio Retuerto, Loreto Retuerto, Francisca Retuerto, Francisco Retuerto, Efigenia Retuerto and Guillerma Retuerto. The said heirs executed, on January 4, 1976, Extrajudicial Settlement and Sale of the Estate of Panfilo Retuerto adjudicating unto themselves, as owners, the said property and deeding the same unto Loreto Retuerto a portion thereof, with an area of 1,703

When the Spouses Esteban Perez and Lorenza Sanchez died intestate, their rights over the property were inherited by their daughter, Juana Perez, married to Numeriano Barz, who then declared the property, for taxation purposes, under her name, under Tax Declaration No. 21969, but with an area of only 13,160 square meters, more or less, bounded on the north, by a piece of land, under the name of Pampila (sic) Retuerto, as follows: North - Pampila Retuerto South - Vidal Judilla and Catalina Ceniza East - Paula Perez West - Felipe Berdijo On April 16, 1929, Juana Perez, widow of Numeriano Barz, executed a deed confirming her execution of a Deed of Absolute Sale, in favor of Panfilo Retuerto, married to Catalina Ceniza, over a parcel of land, located in Barrio Pagsabungan, Mandaue, Cebu, identified as Lot No. 896-A, a portion of the Hacienda de Mandaue, Cebu, with an approximate area of 2,505 square meters, described as follows:

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square meters, and the rest of the property, with an area of 440 square meters, to Efigenia Retuerto, as follows: FOR OR TO LORETO RETUERTO: a portion of the above described parcel of land containing an area of ONE THOUSAND SEVEN HUNDRED TWO (1,702) SQUARE METERS and bounded by the following: on the Northeast by Pagsabungan Road; on the Southeast by Lot 896; on the Northwest by Lot 897; and on the Southwest by the portion sold to Efigenia Retuerto; FOR OR TO EFIGENIA RETUERTO: a portion of the parcel of land described in paragraph no. 7 hereof containing an area of FOUR HUNDRED FORTY (440) SQUARE METERS and bounded as follows: on the Northeast by the portion sold to Loreto Retuerto; on the Southeast by Lot 896; on the Northwest by Lot 897 and on the Southwest by Lot 896. (at page 38, Reco rds) Loreto Retuerto and Efigenia Retuerto then declared the property, for taxation purposes, under their names, under Tax Declaration No. 69084, effective 1976 (Exhibit 7). The property covered by Tax Declaration No. 69084 was subdivided into two (2) lots, one with an area of 440 square meters, and the other, with an area of 1,702 square meters. Efigenia Retuerto declared the property, with an area of 440 square meters, under her name, under Tax Declaration No. 69083, effective 1976 (Exhibit 7 -A) while Loreto Retuerto declared the property, with an area of 1,702 square meters, for taxation purposes, under his name, under Tax Declaration No. 01298 effective 1976. (Exhibit 7-B). In the meantime, Pedro Barz died intestate and was survived by his heirs, Angelo P. Barz and Merlinda Barz. Loreto Retuerto likewise, died intestate and was survived by his heirs, namely, Romeo Retuerto, Antonia Retuerto, Narcisa Retuerto, Corazon Retuerto and Patrocinia Retuerto. Ominously, the heirs of Panfilo Retuerto claimed ownership over subdivision Lot 896-B and a part of subdivision Lot 896-A, covered by Original Certificate of Title No. 521 under the name of Teofilo Barz. As it was, subdivision Lot 896-B was subdivided by the heirs of Panfilo Retuerto, one of which subdivision lots, with an area of 440 square meters, was forthwith sold to the Spouses Jose Gesalem and Rosa Gesalem. When apprised of the aforementioned events, Angelo Barz and Merlinda Barz, the heirs of Teofilo Barz, and the heirs of Panfilo Retuerto, including the Spouses Jose Gesalem had a confrontation during which the Spouses Jose Gesalem admitted having purchased a portion of subdivision Lot 896-B with an area of 440 square meters. On September 5, 1989, Angelo P. Barz and Merlinda Barz filed a complaint against Catalina Retuerto and the other heirs of Panfilo Retuerto, including Loreto, who the Plaintiffs believed, was still alive, and the Spouses Jose Gesalem, with the Regional Trial Court of Mandaue for Quieting of Title, Damages and Attorneys Fees. The Plaintiffs alleged, inter alia, that subdivision Lots 896 -A and 896-B were portions of Lot 896 subject of LRC 529 and covered by Original Certificate of Title No. 521 under the name of Teofilo Barz after whose death, the Plaintiffs inherited the property, despite which the Defendants claimed ownership over Lots 896-A and 896-B covered by Original Certificate of Title No. 521. xxx Romeo Retuerto, Antonia Retuerto, Narcisa Retuerto, Corazon Retuerto, Patrocinia Retuerto, the heirs of Loreto Retuerto, filed an Answer to the complaint alleging, inter alia, by way of affirmative defense, that their father, Loreto Retuerto, was already dead and was survived, by them as his heirs; what was sold to the Defendants Spouses Jose Gesalem was a portion of Lot 896, with an area of 440 square meters, which was conveyed to Efigenia Retuerto and not that portion of Lot 896-B deeded to Loreto Retuerto under the Extrajudicial Settlement of Real Property of Panfilo Retuerto, who was the lawful

owner of the said property, that they were not aware of LRC Case No. 529 and/or that the property, sold by Juana Perez to Panfilo Retuerto, had been included in Original Certificate of Title No. 521 under the name of Teofilo Barz. xxx In their Answer to the complaint, the Defendants Spouses Jose Gesalem averred, inter alia, by way of affirmative defense, that they purchased a portion of subdivision Lot 896-B, with an area of 440 square meters, more or less; Lot 896-B (formerly Lot 896-A) which had been sold by Juana Perez Barz to Panfilo Retuerto had been the subject of LRC Case No. 3 wherein Panfilo Retuerto was declared the lawful owner of the property; that the inclusion of the subject property in Original Certificate of Title No. 521 issued to and under the name of Teofilo Barz did not vest ownership over the title in favor of Pedro Barz but constituted the latter merely as a trustee under a constructive trust with the concomitant obligation to convey the said property to the Defendants Heirs of Panfilo Retuerto and to the Defendants Spouses, as vendees of the said property; Plaintiffs action was barred by laches. xxx On April 3, 1997, the Regional Trial Court of Mandaue City promulgated its decision declaring herein respondents as the absolute owners in fee simple of Lots 896-A and Lot 896-B; declaring the documents adduced by herein petitioners unenorceable and ineffective against OCT No. 521; nullifying the deed of sale between herein petitioners and the spouses Gesalem; and ordering herein petitioners [1] to vacate the premises of Lots 896-A and 896-B. The Court of Appeals, on December 29, 2000, [2] affirmed the decision of the trial court except as to the award of attorneys fees which was deleted. Hence, this appeal by the heirs of Panfilo Retuerto and the spouses Gesalem, assigning the following errors: I The Court of Appeals gravely erred in concluding that petitioners had only ten years from the date of issuance of OCT No. 521, which erroneously included their Lot No. 896-A, within which to ask for its reconveyance, in the light of their judicially declared and recognized possession thereof since time immemorial. II The Court of Appeals erred in not finding that it was respondents right to question petitioners ownership and possession over the subject property that has been lost thru laches. III The Court of Appeals erred in concluding that petitioners could not ventilate their claim of title over the subject property by way of affirmative defense as this would constitute collateral attack on respondents original certificate of title. We do not find merit in the petition. Both the Court of Appeals and the Regional Trial Court correctly applied the principles of the Torrens system of land registration to the present case. It is a fundamental principle in land registration that a certificate of title serves as evidence of an indefeasible and incontrovertible title to the property in favor of the person whose name appears [3] therein. Such indefeasibility commences after the lapse or expiration of one year from the date of [4] entry of the decree of registration. The act of registration is considered a constructive notice to all

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persons respecting title to property; hence, after the lapse of one year, title to the property can no longer be contested. This system was so effected in order to quiet title to land. Records show that in 1966, an application for confirmation of title over Lot 896 was filed by Pedro Barz, herein respondents predecessor-in-interest, with the Court of First Instance of Cebu docketed as LRC Case No. N-529. Thereafter, a decision declaring Pedro Barz as the lawful owner of the said property was rendered by the court and consequently, an original certificate of title, OCT No. 521, was issued in his name on November 13, 1968. Thus, after the lapse of one year, which was November 13, 1969, private respondents title to the property already became indefeasible and can no longer be controverted. Petitioners contest such title and claim that as early as 1929, their predecessor-in-interest, Panfilo Retuerto, bought the property from Juana Perez Barz and that in 1937, the then Juzgado de Primera Instancia de Cebu adjudicated said property to Panfilo Retuerto in GLRO Record No. 4030. However, nowhere has it been shown that a decree of registration was ever issued affecting the property. The alleged earlier sale of the subject property by petitioners predecessor -in-interest to respondents predecessor-in-interest was not registered. Also, despite the alleged decision in 1937 by the Juzgado de Primero Justancia in favor of Panfilo Retuerto, the latter failed to intervene and introduce the said decision in the petition for confirmation of title filed by Pedro Barz in 1966. Also, since the issuance of OCT No. 521 in the name of Pedro Barz in 1968, no action had been taken by petitioners directly attacking said title and seeking reconveyance of the property. It was only sometime in 1989 or twenty-one (21) years later, when they were finally impleaded by private respondents in an action for quieting of title that petitioners actively asserted ownership of the subject property in their answer to the complaint. Petitioners insist that despite the indefeasibility of private respondents title, they can still maintain an action for reconveyance of the said property on the ground of fraud pursuant to Section 32 of Presidential Decree No. 1529. It is alleged that respondents predecessor-in-interest, Pedro Barz misrepresented with the land registration court that he inherited the whole of Lot 896 when in truth and in fact a portion thereof designated as Lot 896-A had already been disposed of to Panfilo Retuerto; hence, a constructive trust was created over the property for and in behalf of Panfilo Retuerto and his heirs. The contention is bereft of merit. Constructive trusts are created in equity to prevent unjust enrichment, arising against one who, by fraud, duress or abuse of confidence, obtains or holds the legal [6] right to property which he ought not, in equity and good conscience, to hold. Petitioners failed to substantiate their allegation that their predecessor-in-interest had acquired any legal right to the property subject of the present controversy. Nor had they adduced any evidence to show that the certificate of title of Pedro Barz was obtained through fraud. Even assuming arguendo that Pedro Barz acquired title to the property through mistake or fraud, petitioners are nonetheless barred from filing their claim of ownership. An action for reconveyance based on an implied or constructive trust prescribes within ten years from the time of its creation or [7] upon the alleged fraudulent registration of the property. Since registration of real property is considered a constructive notice to all persons, then the ten-year prescriptive period is reckoned from [8] the time of such registering, filing or entering. Thus, petitioners should have filed an action for reconveyance within ten years from the issuance of OCT No. 521 in November 16, 1968. This, they failed to do so. Relying on the case of Heirs of Jose Olviga vs. Court of Appeals, petitioners argue that the tenyear period for filing an action for reconveyance of property arising from an implied or constructive trust applies only when the person enforcing the trust is not in possession of the property, since if a person claiming to be the owner is in actual possession of the property, the action to seek reconveyance or to
[9]

[5]

quiet title does not prescribe. Petitioners claim that they and their predecessors-in-interest were the ones in actual possession of the subject property alleging that in the survey made by Geodetic Engineer Leopoldo Tuastumban, it was reported that there were nine houses and one rattan shop owned by the [10] heirs of Loreto Retuerto constructed thereon. Again, the contention does not persuade us. In the 1966 decision of the Land Registration Court in LRC No. 529, it was found that Pedro Barz, private respondents predecessor-in-interest, was the lawful owner of the subject property as he and his predecessors-in-interest had been in peaceful, continuous and open possession thereof in the concept of owner since 1915. Said court declared that: Lot 896: This lot is covered by Tax Declaration No. 21969 in the name of Juana Perez, Exh. O -Pedro Barz, containing an area of 20,486 sq. meters. It originally belonged to the spouses Esteban Perez and Lorenza Sanchez. After their death, the same was inherited by Juana Perez who died in 1942 and was succeeded by her lone heir son Pedro Barz, Filipino citizen, married to Teofila Pedroza and resident of Mandaue, Cebu. Juana Perez owned and possessed this lot since 1915 up to her death in 1942 when Pedro Barz reached the age of consciousness or when he was around 8 years old; that her possession had been peaceful, continuous, open and in concept of owner. From 1942 up to the present, the possession of Pedro Barz over this property had been likewise peaceful, continuous and in concept of owner as he was religious in the payment of real estate taxes, as shown in Exh. N -2 Pedro [11] Barz. As previously stated, no action for reconveyance has been filed by herein petitioners. They interposed their claim of ownership for the first time in their Answer and by way of Affirmative Defenses to the complaint for quieting of title filed by herein respondents in 1989. This cannot be allowed. Under Section 48 of PD 1529 or the Property Registration Decree, a certificate of title cannot be subject to [12] collateral attack; it cannot be altered, modified or cancelled except in a direct proceeding. The issue of the validity of title, i.e., whether or not it was fraudulently issued, can only be raised in an action [13] expressly instituted for that purpose. WHEREFORE, the Decision of the Court of Appeals dated December 29, 2000 in CA-GR CV No. 59975 is hereby AFFIRMED. SO ORDERED.

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G.R. No. 109307 November 25, 1999 TEODORA SALTIGA DE ROMERO, PRESENTACION ROMERO MAMA, Represented by SABDULLAH MAMA, LUCITA ROMERO PACAS, GLORIOSA ROMERO RASONABLE and MINDALINA ROMERO NUENAY,petitioners, vs. THE HONORABLE COURT OF APPEALS, THE HONORABLE SEVENTEENTH DIVISION and LUTERO ROMERO and NATIVIDAD ROMERO and THE DEVELOPMENT BANK OF THE PHILIPPINES, ILIGAN BRANCH, ILIGAN CITY and THE REGISTER OF DEEDS OF LANAO DEL NORTE, respondents. Before us is a Petition for Review on Certiorari of the decision of the Court of Appeals in CA-G.R. CV No. 33164 entitled TEODORA SALTIGA DE ROMERO ET. AL. vs. LUCERO ROMERO ET. AL. and LUTERO ROMERO, ET. AL. vs. SPOUSES MELITON PACAS, ET. AL. involving two civil cases which were tried jointly by the Regional Trial Court of Lanao Del Norte, Branch 7, namely: 1. Civil Case No. 591, which was filed by herein Petitioners Teodora Saltiga De Romero, Presentacion Romero-Mama (PRESENTACION), Lucita Romero-Pacas (LUCITA), Gloriosa Romero-Rasonable (GLORIOSA), and Mindalina Romero-Nuenay (MINDALINA) against Lutero Romero (LUTERO) and the Development Bank of the Philippines (DBP) for reconveyance of their share in a parcel of land, Lot 23 Pls-35, titled in the name of LUTERO; and 2. Civil Case No. 1056, which was filed by LUTERO and his wife Natividad S. Romero against LUCITA and her husband Meliton Pacas, PRESENTACION and her husband Sabdullah Mama and GLORIOSA and her husband Dionisio Rasonable for annulment of three affidavits wherein LUTERO supposedly sold to them shares over Lot No. 23 Pls-35. The facts as found by the Court of Appeals are as follows: From the evidence presented by the appellants, it appears that on December 12, 1939 Eugenio Romero bought from spouses Celedonio Jaug and Sofia Macan the latter's "rights, interest, participation, ownership and possession" of 12 hectares of land. The land in question was then public land. When Eugenio Romero applied for a homestead patent for said land, the same was disapproved by the Bureau of Lands because said Romero already had applied for a homestead patent for 24 hectares and was disqualified from owning the additional 12 hectares. Eugenio Romero placed the application in the name of his eldest son, Eutiquio Romero, allegedly in trust for all the children of Eugenio. When Eutiquio got married and had children, his brothers and sisters got worried that his heirs may claim the land so the application was transferred in the name of Lutero Romero, the second son of Eugenio who was then still single. When Lutero in turn got married, he relinquished the application in favor of his younger brother Ricardo through an instrument dated July 5, 1952.
1

The spouses Eugenio Romero and Teodora Saltiga had nine (9) children. Other than the three (3) sons aforenamed, they had six (6) daughters, namely Generosa, Diosdada, Mindalina, Lucita, Presentacion and Gloriosa. Eugenio Romero died sometime in 1948. In 1961 his widow Teodora caused the land in question to be subdivided among six (6) of her children, the other three (3) having already been given their shares in the other properties of the Romero spouses. The twelve (12) hectares were supposedly divided equally among Lutero, Ricardo, Mindalina, Lucita, Presentacion, and Gloriosa who all got about two (2) hectares each. Subsequently, however, Ricardo conveyed his share to Lucita and Gloriosa who therefore had 3 hectares each. On the other hand, Mindalina left her share in the care of her mother Teodora and her sister Presentacion because she left for Davao City. Lutero later requested that he be allowed to farm this share of Mindalina, thus he occupied a total of 4 hectares with the consent of his mother Teodora and sister Presentacion. The appellants further claimed that after the partition, they had been in occupancy of their respective shares through their tenants. However, appellee Lutero Romero presented evidence to the effect that sometime in 1969 a policeman picked him up and brought him to the office of Mayor Pablito Abragan of Kapatagan where he found his mother Teodora and his three (3) sisters Gloriosa, Presentacion and Lucita and the respective husbands of the latter two. He testified that when he arrived at the office, he was presented three (3) affidavits for his signature. Said affidavits were to the effect that he sold three (3) hectares each out of the 12 hectares of land to his sister Gloriosa, his brother-in-law Sabdullah Mama married to Presentacion Romero, and to Meliton Pacas married to Lucita Romero for a consideration of P3,000.00 each. Appellee Lutero Romero testified that he told the mayor that he was not selling the land and that he could not do so because the five-year period had not yet elapsed but the mayor told him to just sign the affidavits because after five (5) years his sisters will get the land and pay for them and that if they would not pay, the mayor will take steps to return the land personally to him. Lutero stated that he has not been paid for the land by his sisters. Lutero Romeo claimed that as early as 1940-1941 he had already been in occupancy of the 12 hectares in question when it was shown to him by this father who owned the adjoining parcel; and that the said land had been titled in his name even while his father Eugenio was still alive. Indeed it appears that the title to the property, O.C.T No. P-2,261, had been issued to Lutero Romero as early as April 26, 1967, after the homestead patent was issued in his favor on April 7, 1967. He said that his three (3) sisters occupied portions of the property only in 1969, after he was forced to sign the affidavits by Mayor Abragan. Lutero Romero had thereafter repudiated the three (3) affidavits on August 12, 1974. Because of this, estafa charges were filed against him by the three (3) parties concerned but said charges were dismissed.

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It further appears that Lutero Romero obtained a loan from the Development Bank of the Philippines on December 3, 1975 and mortgaged the land in question as collateral for said loan. Appellants claim that only then did they know that the land had been titled in the name of Lutero Romero. Thereafter, through a letter dated August 2, 1976, Lutero Romero asked his sisters to vacate the land in question. A few days thereafter, or on August 14, 1976, Civil Case No. 591 was filed against 2 Lutero Romero. On March 11, 1991, the RTC rendered a decision the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered: 1. Declaring the three (3) affidavits of sale as null and void and no effect; 2. Ordering the plaintiffs in Civil Case No. 591 and defendants in Civil Case No. 1056, namely Sabdullah Mama, Presentation Romero-Mama Gloriosa Romero Rasonable, Meliton Pacas and Lucita Romero to surrender and to deliver to Lutero Romero the possession of all the portions of Lot 23, Pls-35; 3. Ordering the Municipal Assessor of Kapatagan, Lanao del Norte to cancel Tax Declaration Nos. 6029, 6030, 6031 and 6032 in the names of defendants (Civil Case No. 1056) Sabdullah Mama, Gloriosa Rasonable, plaintiff Lutero Romero and defendant Meliton Pacas and to restore Tax Declaration No. 1347 in the name of Lutero Romero for the entire Lot 23, Pls-35; 4. Ordering the defendants (Civil Case No. 1056) to pay to the plaintiff the sum of TEN THOUSAND (P10,000.00) PESOS as actual damages; 5. Ordering the defendants (Civil Case no. 1056) to pay to the plaintiffs the sum of TEN THOUSAND (P10,000.00) Pesos as moral damages; and 6. Ordering the defendants (Civil Case No. 1056) to pay the cost of this proceeding. SO ORDERED.
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WHETHER OR NOT LUTERO ROMERO IS A TRUSTEE OF LOT 23 PLS-35 FOR THE BENEFIT OF THE HEIRS OF EUGENIO ROMERO. WHETHER OR NOT WITH OR WITHOUT SAID THREE (3) AFFIDAVITS IN 4 QUESTION PETITIONERS' VALID CAUSE OF ACTION CAN STAND OR NOT. DBP filed its comment to the petition and seeks the dismissal of the case against it considering that the agricultural loan in favor of LUTERO has been paid in full. DBP maintains that since the mortgage was 5 already cancelled, petitioners have no cause of action against it. Petitioners contend that LUTERO merely holds Lot 23 Pls-35 in trust for the benefit of the heirs of his father EUGENIO since it was actually EUGENIO who first applied for the homestead but considering that EUGENIO was already granted a homestead, the application had to be placed in the name of his eldest son EUTIQUIO. The application was subsequently transferred to the name of LUTERO who later transferred the application in the name of Ricardo Romero (RICARDO), his younger brother. To support their contention, petitioners point to the testimony of LUTERO during the investigation of the homestead application of RICARDO to the effect that he transferred and relinquished his rights as trustee of the lot to RICARDO. The fact that LUTERO was able to cause the issuance of the Homestead title of the land in question under his name clearly shows that LUTERO employed fraud in procuring the same. Consequently, herein petitioners are entitled to recover the said lot. Petitioners also rely on the three affidavits of sale executed by LUTERO wherein he sold portions of Lot 23 Pls-35 in favor of GLORIOSA, PRESENTACION and her husband and LUCITA and her husband. They claim that 6 pursuant to these three affidavits, LUTERO no longer has a claim over Lot 23 Pls-35. On the other hand, respondents maintain that LUTERO did not commit fraud in the titling of Lot 23 Pls35. They allege that the petitioners failed to prove this during the trial of the case. On the contrary, LUTERO complied with all the requirements of the law when he successfully obtained title to the lot. Respondents also deny that LUTERO held the land in trust for the benefit of the heirs of his father EUGENIO. According to them, this violates the provisions of The Public Land Act. Even assuming that a trust in fact was created, such is null and void for being contrary to law. Finally, respondents maintain that the three affidavits of sale executed in favor of the petitioners are void since they were simulated and not supported by any consideration; and they were executed within the five-year prohibitory period 7 from the issuance of the patent. The Court of Appeals ruled in favor of LUTERO, stating: Appellants herein maintain that the land was held by Lutero Romero, only in trust for his brothers and sisters because the land belonged to their father Eugenio Romero. We do not find any basis for this posture. Eugenio Romero was never the owner of the land in question because all he bought from the Jaug spouses were the alleged rights and interests, if there was any, to the said land which was then part of the public domain. The Jaugs could not have sold said land to Eugenio as they did not own it. Eugenio Romero was not granted, and could not have been granted, a patent for said land because he was disqualified by virtue of the fact that he already had applied for the maximum limit of 24 hectares to which he was entitled. The land in question could not therefore have passed on from him to his children. On the other hand, Lutero Romero applied for a homestead patent over the land in question and his application was duly approved. The appellants have not established

Not satisfied with the decision of the RTC, petitioners appealed to the Court of Appeals, which affirmed the decision of the RTC in favor of LUTERO. Hence this petition where the petitioners assign the following issues:

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that there was any fraud committed in this application. In fact it appears that there was even a hearing conducted by the Bureau of Lands on the application because a certain Potenciano Jaug had been contesting the application. Under the presumption of law, that official duty has been regularly performed, there appears to be no ground to question the grant of the patent to Lutero Romero in 1967. His sisters Gloriosa, Presentacion, and Lucita apparently recognized Lutero's ownership of the property when in 1969 they sought the help of the mayor of Kapatagan to convince Lutero to execute affidavits of sale in their favor. However, Lutero could not have sold any portion of the property to them. Any such sale executed within five (5) year period from the date of the issuance of the title is null and void even if the sale was made by the homesteader in favor of his/her descendants (Gayapano vs. IAC, 199 SCRA 309). Furthermore, it has been established that the three supposed vendees never paid any consideration for the supposed sale of the lots they occupied. We agree with the observation of the appellee that under the theory of the appellants, the latter had sought to circumvent the law. It would appear that because Eugenio Romero could not legally qualify to have the land in question, he had allegedly sought to place the application in another's name with the same intention to own it through 8 another. This certainly cannot be countenanced. We find no reversible error committed by the Court of Appeals. The core issue in this case is whether LUTERO acquired Lot 23 Pls-35 in trust for the benefit of the heirs of EUGENIO. "A trust is the legal relationship between a person having an equitable ownership in property and another person owning the legal title to such property, the equitable ownership of the former entitling 9 him to performance of certain duties and the exercise of certain powers by the latter." Trust relations 10 between parties may 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 evidencing an intention to 11 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 12 a matter of equity, independently of the particular intention of the parties. Implied trusts may either be resulting or constructive trusts, both coming into 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 hold the legal right to 13 property, which he ought not, in equity and good conscience, to hold. However, it has been held that a trust will not be created when, for the purpose of evading the law prohibiting one from taking or holding real property, he takes a conveyance thereof in the name of a 14 third person.

In the present case, the petitioners did not present any evidence to prove the existence of the trust. Petitioners merely alleged that LUTERO, through fraudulent means, had the title of Lot 23 Pls-35 issued in his name contrary to the alleged agreement between the family that LUTERO would merely hold the lot in trust for the benefit of EUGENIO's heirs. The alleged agreement was not proven and even assuming that the petitioners duly proved the existence of the trust, said trust would be of doubtful validity considering that it would promote a direct violation of the provisions of the Public Land Act as regards the acquisition of a homestead patent. A homestead applicant is required by law to occupy and 15 cultivate the land for his own benefit, and not for the benefit of someone else. Furthermore, under Section 12 of The Public Land Act (CA 141), a person is allowed to enter a homestead not exceeding twenty-four (24) hectares. In the present case, it is not disputed that EUGENIO already applied for a homestead patent for twenty-four (24) hectares of land and was disqualified from applying for an additional twelve (12) hectares. If we uphold the theory of the petitioners and rule that a trust in fact existed, we would be abetting a circumvention of the statutory prohibitions stated under the Public Land Act. We therefore find no legal or factual basis to sustain the contention of the petitioners that LUTERO merely held Lot 23 Pls-35 in trust for the benefit of the heirs of EUGENIO. As for the alleged sale of three portions of the lot for a consideration of P3,000.00 each evidenced by the three affidavits of sale executed by LUTERO in favor of GLORIOSA, PRESENTACION and LUCITA, the Court of Appeals correctly declared the three conveyances void. CA 141 prohibits the alienation of a homestead within five years from the issuance of the patent and grant under Section 118, which states: Sec. 118. Except in favor of the Government or any of its branches, units, or institutions, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of issuance of the patent and grant, nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period, but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations. No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after the issuance of title shall be valid without the approval of the Secretary of Agriculture and Commerce, which approval shall not be denied except on constitutional and legal grounds. "The conveyance of a homestead before the expiration of the five-year prohibitory period following the issuance of the homestead patent is null and void and cannot be enforced, for it is not within the competence of any citizen to barter away what public policy by law seeks to 16 preserve." In the present case, since the sales were made on January 17, 1969 or less than two years after the issuance of LUTERO's title to the homestead on April 7, 1967, the sales are clearly void. Finally, we cannot grant DBP's prayer to be dropped from the case even if the mortgage in its favor has been cancelled. DBP did not appeal the decision of the Court of Appeals and cannot therefore seek affirmative relief from this Court other than the ones granted in the decision of 17 the court below. All that said appellee can do is to make a counter-assignment of errors or to argue on issues raised at the trial only for he purpose of sustaining the judgment in his favor, even on grounds not included in the decision of the court a quo nor raised in the appellant's assignment of errors or arguments.

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WHEREFORE, the instant petition is hereby DENIED. SO ORDERED.

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G.R. No. 116211 March 7, 1997 MEYNARDO POLICARPIO, petitioner, vs. COURT OF APPEALS and ROSITO PUECHI S. UY, respondents. The Court finds occasion to apply the general principles of constructive trust as authorized by the Civil Code in granting this petition and in compelling private respondent to implement his trust relationship with petitioner. This is a petition under Rule 45 of the Rules of Court to reverse the Decision of public respondent in 3 CA-G.R. CV No. 32821 promulgated on March 21, 1994, and the Resolution promulgated on July 5, 1994, denying petitioner's motion for reconsideration. The dispositive portion of the assailed Decision reads:
4 1 2

which the Ministry can avail of to help bonafide ( sic) tenants/residents of a certain area. Failing to get the assistance of the government, the tenants undertook to negotiate directly with the owners of the Barretto Apartments. Initially, Private Respondent Rosito Uy orally expressed to Mrs. Rosita Barretto Ochoa the tenants' desire to purchase their respective units. Later, in a letter dated May 29, 1985, signed by thirty (30) tenants of the commercial and residential units, the tenants formally expressed to Mrs. Ochoa their intent to purchase. On July 27, 1985, Serapia Real Estate, Inc., sent to Rosito Uy, in his capacity as president of the 8 Association, the following letter: Sir: This is in response to your letter regarding your intent to buy our property together with its improvements located at corners Haig and Romualdez Streets and along Gen. Kalentong Street, Mandaluyong, Metro Manila. We would like to inform you that we are offering to sell the said property at a price of FOUR MILLION FIVE HUNDRED THOUSAND (P4,500,000.00) PESOS ONLY, under the following Terms and Conditions: AREA: 2,237 square meters Manner of Payment: An earnest money of P100,000.00 within 30 days. Full payment payable within 60 days. This offer is on a "FIRST COME FIRST SERVED BASIS" and our price is good only within 60 days or until September 30, 1985 only. Thank You. In addition, Serapia Realty, Inc., sent to spouses Gayatin a mimeographed letter stating:

WHEREFORE, in view of the foregoing, judgment is hereby rendered: 1. REVERSING and SETTING ASIDE the appealed decision dated 10 September 1990; 2. DISMISSING the Complaint; and 3. Without pronouncement as to costs. The Facts The facts of the case, as culled from the challenged Decision, are simple. Petitioner (along with his co5 plaintiffs in the antecedent cases, namely, Rodolfo Gayatin, Jose Villacin and Jocelyn Montinola ) and private respondent were former tenants of the 30-door Barretto Apartments formerly owned by Serapia Realty, Inc.. Sometime in April 1984, private respondent was elected President of the Barretto Tenants Association (hereafter referred to as the "Association") which was formed, among others, "to promote, 6 safeguard and protect the general interest and welfare of its members." In a letter dated July 30, 1984, private respondent as president of the Association sought the assistance of the then Minister of Human Settlements to cause the expropriation of the subject property under the Urban Land Reform Program for subsequent resale to its tenants. The matter was endorsed to the Human Settlements Regulatory Commission, which in a letter dated November 5, 1984, signed by Commissioner and Chief Executive Officer Ernesto C. Mendiola, rejected the tenant's request for 7 expropriation. The letter stated in part: At the moment, the effects of the provisions of PD 1517, otherwise known as the Urban Land Reform Decree, are limited only to the proclaimed 245 APD's and/or ULRZ's. Be informed further that, pursuant to Rule VIII & IX of the Rules and Regulations of the abovementioned Decree, expropriation will be availed of only as a last resort as there are various modes of Land Acquisition/Disposition techniques

November 15, 1985 Mr./Mrs. Gayatin SIR/MADAM: Please be informed that we are intending to sell the unit you are now occupying. We are therefore giving you the first priority to purchase the same, if you desire.

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We are giving you a period of ten (10) days from receipt hereof to see us(,) otherwise, we will consider your inaction a waiver in (sic) your part to purchase the same. Very truly yours,SERAFIA REALTY INC.By: T/ Mrs. Rosa Kalentong Mandaluyong, (Authorize (sic) representative) S/ Mrs. B. Metro Rosa B. Ochoa Ochoa Manila

the name of said defendant and to issue other certificates of title in favor of the four above-named plaintiffs, respectively; and to pay to the plaintiffs the following sums: a) P15,000.00 as attorney's fees; b) P40,000.00 as moral damages; and c) P20,000.00 as exemplary damages, all with interest at 12% per annum from date of this decision; 2. Dismissing the Complaint in Civil Case No. 54444 as far as defendant Serapia Real Estate Inc. is concerned; 3. Dismissing defendants' counterclaims in Civil Case No. 54444; and 4. Dismissing Rosito Puechi Uy's complaint in Civil Case No. 55739. Costs against defendant Uy. Private respondent appealed the decision to public respondent which as earlier stated reversed the decision and denied the subsequent motion for reconsideration. Hence, this petition only by Meynardo 13 Policarpio. His co-plaintiff in the antecedent case, Jose Villacin, filed a Petition for Intervention on March 28, 1995, which the First Division of this Court in a Resolution dated June 26, 1995, denied for lack of merit, because Villacin's earlier petition docketed as G.R. No. 116137 (Jose Villacin vs. Court of 14 Appeals, et al.) had already been dismissed for failure to attach an affidavit of service. The Issue The sole issue raised by petitioner in this appeal is:
15

On November 20, 1985, Rodolfo Gayatin acknowledged receipt of the said letter with a request that he 10 be furnished with the following information: a. Consideration of the sale; b. Terms and conditions of the sale; and c. Plan indicating the areas and boundaries of each unit. Letters acknowledging receipt of Mrs. Ochoa's letter of intent to sell the apartment unit occupied by the tenants were sent by Dionisio Enriquez and Elena J. Baares. The tenants designated and appointed private respondent as their president to negotiate with Serapia Realty, Inc.. But the negotiations apparently did not ripen into a perfected sale. One and a half years later, on March 12, 1987, petitioner and his co-plaintiffs were notified that private respondent was the new owner of the apartment units occupied by them. Believing that they had been betrayed by their Association president, petitioner sued for "Redemption and Damages with Prayer For Preliminary Injunction." Private respondent counter-sued for Damages and Accion Publiciana with Preliminary Attachment. Joint trial of the two cases ensued. The trial court found that private respondent had been designated and entrusted by plaintiffs to negotiate with the Barretto family for the sale of the units. It also found that a constructive trust was created between the private respondent as "the cestui que trust [should be 11 trustee] and plaintiffs as beneficiaries [or cestuis que trust] vis-a-vis the subject units." The dispositive portion of the trial court decision 12 reads: WHEREFORE, judgment is hereby rendered in the above-entitled cases in favor of plaintiffs Rodolfo Gayatin, Jose Villacin, Jocelyn Montinola and Meynardo Policarpio, and against defendant, Rosito Puechi S. Uy, 1. Ordering said defendant to execute the corresponding deeds of conveyance in favor of plaintiffs Meynardo Policarpio, Jocelyn Montinola, Jose Villacin and Rodolfo Gayatin covering Door 8, Lot 14; Door 3, Lot 9; Door 2, Lot 9; and Door 1, Lot 9, upon refund by the plaintiffs to the defendant of the sums of P35,200.00; P35,520.00; P35,600.00 and P47,200.00 respectively, without any interest. Should defendant Uy fail to so execute the deeds of conveyance herein ordered within fifteen (15) days from finality of judgment, the Clerk of this Court will execute the same and the Register of Deeds will be ordered to nullify the certificates of title in

The respondent Court erred in reversing the finding of the trial court that a constructive trust existed between the plaintiffs and the defendant. Public respondent, in finding that a constructive trust had not been created, ruled:
16

The contemporary and subsequent acts of the parties herein fail to convince Us that a constructive trust exists for the benefit of the appellees (tenants). A reading of the Articles of Incorporation of Barretto Apartment Tenants Association, Inc. (Exh. "J") shows that the purpose for its formation is couched in general terms without specifically stipulating the proposed purchase and sale of the apartment units. While it may be conceded that the sale to the tenants was a general concern that would have redounded to their benefit, still it cannot be denied that the transaction could not have been effected unless the tenants and the owners came to terms regarding the sale. The record reveals that appellant (herein private respondent) did in fact send several communications, first to the Ministry of Human Settlements and when this avenue did not prosper, to the Barretto family in an effort to pursue their common desire to own

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their respective unit(s). The letter to the Minister of Human Settlements is dated July 30, 1984 (Exh. "J") about a year before the execution of the Articles of Incorporation on 06 August 1985. Incidentally, no evidence appears on record to show that the Association filed the requisite documents for incorporation with the Securities and Exchange Commission. The Deeds of Absolute Sale in favor of appellant over appellees' unit appear to have been executed on 05 August 1986 (Exhs. "B" to "F") or about two (2) years after appellant was designated President of the Association and approximately one (1) year after the Articles of Incorporation were drawn up and signed by the parties. (Exhibit "S") Public respondent contended that plaintiffs were informed of the negotiations for the purchase and sale of property. Further, public respondent said: it appears incumbent upon the tenants to verify from time to time on (sic) the progress of the negotiations not only from Mrs. Ochoa but also from appellant who live ( sic) in the same apartment complex. Their inaction leads to the impression that they lacked interest to pursue their original plan to purchase the property or they could not agree 17 on the terms and conditions for the sale. Before us, petitioner argues that public respondent erred in stating that "there was no common interest 18 on the pan of the members of the association to purchase units they were occupying." He also maintains that it is immaterial whether the intent to buy the units was specifically stated in the purposes of the Association. What is important is that the "contemporary and subsequent acts of parties indicated such a purpose." Petitioner insists that the tenants had authorized and private respondent had agreed to negotiate with the owners regarding the terms of the sale, precisely to conform to the desire of the owners to deal with only one person. Petitioner vehemently denies that the co-tenants of private respondent "had revoked or withdrawn the authority and trust reposed on the private respondent to act 19 as negotiator in their behalf." Private respondent rebuts by saying that the entire property consisting of thirty (30) doors was not sold on one particular date. Rather, there were actually two batches of sale. He asserts that petitioner, in feigning ignorance of the two batches of sale and siting private respondent, had created an alibi to 20 suspend payment of rental for years. It should also be considered, states private respondent, that upon denial of the tenants' request for expropriation by the Ministry of Human Settlements, and the revelation that Barretto's apartments were heavily encumbered, tenants "completely abandoned the plan to organize a formal association." Assuming for the sake of argument, adds private respondent, that the informal Association created a relationship among the parties, "the same ceased and expired by virtue of the act of the owners of the 21 22 apartment who directly deal with the tenants" under Article 1924 of the Civil Code. The Court's Ruling We find for petitioner. As a rule, the jurisdiction of this Court in cases brought before it from the Court of Appeals is limited to the review and revision of errors of law allegedly committed by the appellate court. However, when

there is conflict between the factual findings of the Court of Appeals and the trial court, review such findings and conclusions, as we now do.

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the Court may

We hold that an implied trust was created by the agreement between petitioner (and the other tenants) and private respondent. Implied trusts are those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, independently of the particular 24 intention of the parties. Constructive trusts are created in order to satisfy the demands of justice and prevent unjust enrichment. They arise 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 25 hold. It is not necessary that the intention of the tenants to purchase their apartments units be categorically stated in the purposes of their Association. A constructive trust as invoked by petitioner can be implied from the nature of the transaction as a matter of equity, regardless of the absence of such intention in the purposes of their Association. During his negotiations with Serapia Realty, Inc., private respondent admitted that he was not only representing himself but also the other tenants as president of the Association. This admission recognized the confidence reposed in him by his co26 tenants. He testified: Q Apart from the Regulatory Commission, and from the First Lady Imelda Marcos, you did not make any communication to any person or body in your capacity as President of the Association anymore? A We also tried to negotiate with Mr. Ochoa. Q What was your purpose of attempting to communicate with Mr. Ochoa? A So that those who cannot afford to pay in cash can be allowed to pay in installment. Q You used the word "we", to whom are you referring to? A My co-tenants in the apartment. Q And when you made representations with the owner of the apartment, you were doing this in your capacity as President? A Both as individual member and as President. Q In your capacity as both individual member and President? A Yes, sir. Alfonso Barretto, president of Serapia Real Estate Corporation, testified that the owners wanted to deal 27 with one "spokesman." Hence, the tenants authorized private respondent to negotiate on their behalf. Unfortunately, private respondent negotiated for himself only, and successfully purchased eight (8) apartment units and secured an authority to sell the remaining twenty-two (22) units.

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Private respondent alleges that, after being informed by the owner, petitioner, together with the latter's co-plaintiffs in the action for redemption, did not want to contribute funds to redeem the encumbered apartment. (Such redemption was required before the units could be sold.) The trial court debunked this 28 allegation thus: . . . . It taxes the mind no end to accept defendant's claim that when the units which the tenants have for years been dreaming of owning one day were ready to be sold to them, all of them would suddenly become "reluctant," to quote his word, to buy them. Considering the virtually (sic) give-away considerations (P42,200.00, P35,600.00, P35,520.00 and P35,200.00) for the subject units all of which were uniformly twostorey apartments with "2 bedrooms, living and dining rooms and kitchen" (citing TSN, January 12, 1990, p. 7) situated in a strategic and prime area, it is unbelievable and inconsistent with the ordinary imperatives of human experience for the plaintiffs to suddenly show reluctance towards the opportunity they have been expecting and preparing for all along. If only the tenants had been informed by private respondent of this predicament of the owners, surely they would have raised the required amount to redeem the property and, in turn, acquired the units being rented by them. The incriminating admission of private respondent that he had not informed the plaintiffs in the redemption case of the prices at which the apartment units were sold demonstrated 29 beyond cavil his betrayal of their trust: Q Did you inform vergally (sic) these 4 plaintiffs that their apartments were being bought at P47,200.00, P35,600, P35,520 and P35,200? A I did not. Q As President of the association who got the trust and confidence of the members including the 4 plaintiffs, did you not consider it in keeping with trust and confidence to officially inform them that these apartments is (sic) being sold at that (sic) prices and if you could buy this (sic), you pay this (sic) amount. You did not inform them, is it not? ATTY. BALLELOS (counsel for private respondent): Already answered. He did not inform them but as far as the amount is concerned as a matter of discretion. The ability of the tenants to pay the purchase price for their units was clearly found by trial court to be 30 sufficient; and this finding was not contested by private respondent, to wit: The ability of the plaintiffs to pay for their respective apartment units in question is demonstrated when they promptly complied with the Court's Order of March 15, 1990 "to pay to the Branch Clerk of this Court all the rentals due on their respective units from the time they stopped paying up to this month of March, which amounts were ordered to be deposited "with the Philippine National Bank, Pasig Branch, Shaw Blvd., Pasig, in self-renewing 120-day time deposits," which now stands at

P126,434.84 (including "the monthly rentals in the same amount that they were last paying to defendant Serapia Real Estate, Inc.," from the month of April 1990 to July 1990) per PNB Certificates of Time Deposit Nos. 713637-C, 713638-C, 713639-C, 713640-C and 6713641-C, all dated August 30, 1990, now in the possession of the Branch Clerk of this Court. The tenants could not be faulted for not inquiring into the status of private respondent's negotiation with the owners of the apartments. They had a right to expect private respondent to be true to his duty as their representative and to take the initiative of informing them of the progress of his negotiations. The sale of the apartments in favor of private respondent was on August 6, 1986. Yet, it was only on March 27, 1987, that he informed the tenants of such sale. If he was in good faith, why the delay? Obviously, he hid the perfection of the sale from them. Why did he not inform the tenants that he was the owner as soon as the sale was consummated if, according to him, his co-tenants were unwilling to share the expenses of redemption? His co-tenants could not have blamed him for acquiring the entire property; after all, they supposedly did not have the money to contribute. Truly, the actuations of private respondent show nothing but greed on his part; he purchased the units for himself at bargain prices so he could resell them at a profit at the expense of the tenants. This violation of the trust reposed in him warrants the sanction provided by the equitable rule on which constructive trust is founded. Unfortunately, however, not all the plaintiffs in the original redemption case will be able to avail of this award because a party who has not appealed from the decision may not obtain any affirmative relief from the appellate court other than what he had obtained from the lower court, if any, whose decision is 31 brought up on appeal. The conclusion we thus reach in this case, finding constructive trust under Article 1447 of the New Civil Code, rests on the general principles on trust which, by Article 1442, have been adopted or incorporated into our civil law, to the extent that such principles are not inconsistent with the Civil Code, other statutes and the Rules of Court. This Court has ruled in the case of Sumaoang vs. Judge, RTC, Br. XXXI, Guimba, Nueva Ecija
33 32

that:

A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son tort, an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy. It is raised by equity to satisfy the demands of justice. However, a constructive trust does not arise on every moral wrong in acquiring or holding property or on every abuse of confidence in business or other affairs; ordinarily such a trust arises and will be declared only on wrongful acquisitions or retentions of property of which equity, in accordance with its fundamental principles and the traditional exercise of its jurisdiction or in accordance with statutory provision, takes cognizance. It has been broadly ruled that a breach of confidence, although in business or social relations, rendering an acquisition or retention of property by one person unconscionable against another, raises a constructive trust. And specifically applicable to the case at bar is the doctrine that "A constructive trust is substantially an appropriate remedy against unjust enrichment. It is raised by equity

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in respect of property, which has been acquired by fraud, or where although acquired originally without fraud, it is against equity that it should be retained by the person holding it." The above principle is not in conflict with the New Civil Code, Codes of Commerce, Rules of Court and special laws. And since We are a court of law and of equity, the case at bar must be resolved on the general principles of law on constructive trust which basically rest on equitable considerations in order to satisfy the demands of justice, morality, conscience and fair dealing and thus protect the innocent against fraud. As the respondent court said, "It behooves upon the courts to shield fiduciary relations against every manner of chicanery or detestable design cloaked by legal technicalities." Although the citations in the said case originated from American jurisprudence, they may well be applied in our jurisdiction. "(S)ince the law of trust has been more frequently applied in England and in the United States than it has been in Spain, we may draw freely upon American precedents in determining the effects of trusts, especially so because the trusts known to American and English equity jurisprudence are derived from the fidei commissa of the Roman Law and are based entirely upon civil 34 law principles." Having concluded that private respondent willfully violated the trust reposed in him by his co-tenants, we consider it a serious matter of "justice, morality, conscience and fair dealing" that he should not be allowed to profit from his breach of trust. "Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter 35 without just or legal ground, shall return the same to him." Thus, petitioner is granted the opportunity to purchase the property which should have been his long ago had private respondent been faithful to his trust. We only regret that we cannot grant the same opportunity to the other beneficiaries or cestuis que trust for their failure to perfect their petitions for review of the respondent Court's Decision. WHEREFORE, the petition is hereby GRANTED. The assailed Decision and Resolution are hereby REVERSED and SET ASIDE. Consistent with the trial court's decision, Private Respondent Rosito Puechi S. Uy is ORDERED to EXECUTE a deed of conveyance covering Door 8, Lot 14, in favor of Petitioner Meynardo Policarpio upon the latter's payment of P35,200.00 without any interest. No costs. SO ORDERED.

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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. 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, 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 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. DECISION 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

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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. 4 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 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. 5 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. 9 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 the defects of the complaint. 13 The insufficiency of the allegations in the complaint is deemed ipso facto rectified. 14 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. 18 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

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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. 22 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. 28 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. 29 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 "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 KusangLoob, 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. 33 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 respondentspouses 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

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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." 40 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. 42 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.

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G.R. No. 160488

1

September 3, 2004

FELOMINA ABELLANA, petitioner, vs. SPOUSES ROMEO PONCE and LUCILA PONCE and the REGISTER OF DEEDS of BUTUAN CITY,respondents. This is a petition for review on certiorari assailing the June 16, 2003 decision of the Court of Appeals in 3 CA-G.R. CV No. 69213, which reversed and set aside the August 28, 2000 decision of the Regional Trial Court of Butuan City, Branch 2, in Civil Case No. 4270. The facts as testified to by petitioner Felomina Abellana are as follows: On July 15, 1981, Felomina, a spinster, pharmacist and aunt of private respondent Lucila Ponce, 4 5 purchased from the late Estela Caldoza-Pacres a 44,297 square meter agricultural lot with the 6 intention of giving said lot to her niece, Lucila. Thus, in the deed of sale, the latter was designated as the buyer of Lot 3, Pcs-10-000198, covered by Original Certificate of Title No. P-27, Homestead Patent 7 No. V-1551 and located at Los Angeles, Butuan City. The total consideration of the sale was 8 P16,500.00, but only P4,500.00 was stated in the deed upon the request of the seller. Subsequently, Felomina applied for the issuance of title in the name of her niece. On April 28, 1992, 9 Transfer Certificate of Title (TCT) No. 2874 over the subject lot was issued in the name of 10 Lucila. Said title, however, remained in the possession of Felomina who developed the lot through 11 12 Juanario Torreon and paid real property taxes thereon. The relationship between Felomina and respondent spouses Romeo and Lucila Ponce, however, turned sour. The latter allegedly became disrespectful and ungrateful to the point of hurling her insults and even attempting to hurt her physically. Hence, Felomina filed the instant case for revocation of implied 13 trust to recover legal title over the property. Private respondent spouses Lucila, also a pharmacist, and Romeo, a marine engineer, on the other hand, claimed that the purchase price of the lot was only P4,500.00 and that it was them who paid the same. The payment and signing of the deed of sale allegedly took place in the office of Atty. Teodoro Emboy in the presence of the seller and her siblings namely, Aquilino Caldoza and the late Lilia 14 Caldoza. A year later, Juanario approached Lucila and volunteered to till the lot, to which she agreed. In 1987, the spouses consented to Felominas proposal to develop and lease the lot. They, however, shouldered the real property taxes on the lot, which was paid through Felomina. In 1990, the spouses demanded rental from Felomina but she refused to pay because her agricultural endeavor was allegedly not 16 profitable. When Lucila learned that a certificate of title in her name had already been issued, she confronted Felomina who claimed that she already gave her the title. Thinking that she might have misplaced the title, Lucila executed an affidavit of loss which led to the issuance of another certificate of title in her 17 name.
15 2

On August 28, 2000, the trial court rendered a decision holding that an implied trust existed between Felomina and Lucila, such that the latter is merely holding the lot for the benefit of the former. It thus ordered the conveyance of the subject lot in favor of Felomina. The dispositive portion thereof, reads: IN VIEW OF THE FOREGOING, judgment is hereby rendered declaring, directing and ordering that: a) An implied trust was created with plaintiff as trustor and private defendant Lucila A. Ponce married to private defendant Engr. Romeo D. Ponce as trustee pursuant to Article 1448 of the New Civil Code; b) The implied trust, having been created without the consent of the trustee and without any condition, is revoked; c) The private defendants, who are spouses, execute the necessary deed of conveyance in favor of the plaintiff of the land, covered by and embraced in TCT NO. T-2874, in controversy and in the event private defendants refuse to execute the deed of conveyance, the public defendant City Register of Deeds of Butuan to cancel TCT No. T-2874 and issue a new one in lieu thereof in the name of the plaintiff; d) The private defendants spouses to pay jointly and severally plaintiff the sum of PhP25,000.00 as attorneys fees and PhP4,000.00 as expenses of litigation; e) The dismissal of the counterclaim of private defendants spouses[;] and f) The private defendants to pay the costs. SO ORDERED.
18

Private respondent spouses appealed to the Court of Appeals which set aside the decision of the trial court ruling that Felomina failed to prove the existence of an implied trust and upheld respondent spouses ownership over the litigated lot. The appellate court further held that even assuming that Felomina paid the purchase price of the lot, the situation falls within the exception stated in Article 1448 of the Civil Code which raises a disputable presumption that the property was purchased by Felomina as a gift to Lucila whom she considered as her own daughter. The decretal portion thereof, states WHEREFORE, premises considered, the appealed decision of the Regional Trial Court, Branch 2, Butuan City, in Civil Case No. 4270, is hereby REVERSED AND SET ASIDE. A new one is heretofore rendered dismissing the complaint below of plaintiff-appellee, F[e]lomina Abellana. SO ORDERED.
19

Felomina filed a motion for reconsideration but the same was denied.

20

Hence, the instant petition.

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The issue before us is: Who, as between Felomina and respondent spouses, is the lawful owner of the controverted lot? To resolve this issue, it is necessary to determine who paid the purchase price of the lot. After a thorough examination of the records and transcript of stenographic notes, we find that it was Felomina and not Lucila who truly purchased the questioned lot from Estela. The positive and consistent testimony of Felomina alone, that she was the real vendee of the lot, is credible to debunk the contrary claim of respondent spouses. Indeed, the lone testimony of a witness, if credible, is 21 sufficient as in the present case. Moreover, Aquilino Caldoza, brother of the vendor and one of the 22 witnesses to the deed of sale, categorically declared that Felomina was the buyer and the one who 23 paid the purchase price to her sister, Estela. Then too, Juanario, who was allegedly hired by Lucila to develop the lot, vehemently denied that he approached and convinced Lucila to let him till the land. According to Juanario, he had never spoken to 24 Lucila about the lot and it was Felomina who recruited him to be the caretaker of the litigated property. The fact that it was Felomina who bought the lot was further bolstered by her possession of the following documents from the time of their issuance up to the present, to wit: (1) the transfer certificate 25 26 of title and tax declaration in the name of Lucila; (2) the receipts of real property taxes in the name of 27 28 Felomina Abellana for the years 1982-1984, 1992-1994 and 1995; and (3) the survey plan of the lot. Having determined that it was Felomina who paid the purchase price of the subject lot, the next question to resolve is the nature of the transaction between her and Lucila. It appears that Felomina, being of advanced age with no family of her own, used to purchase properties and afterwards give them to her nieces. In fact, aside from the lot she bought for Lucila (marked as Exhibit "R-2"), she also purchased 2 lots, one from Aquilino Caldoza (marked as Exhibit "R1") and the other from Domiciano Caldoza (marked as Exhibit "R-3"), which she gave to Zaida Bascones (sister of Lucila), thus: Q I am showing to you again Exhibit R, according to you[,] you bought Exhibits R-1, R-2 and R-3, do you remember that? A Yes sir. xxx xxx xxx
29

A Not in my name. Q In whose name was this lot in Exhibit R-1 now? A In the name of Zaida Bascones. Q Who prepared the deed of sale? A At the start it was in the name of Rudy [Torreon]. Because Rudy [Torreon] knew that there is some trouble already about that lot he made a deed of sale to the name of Zaida Bascones, which I planned to give that land to her (sic). Q As regards Exhibit R-1, you bought it actually? A Yes, sir. Q But the original deed of sale was in the name of Rudolfo [Torreon]? A Yes, sir. Q And later on Rudolfo [Torreon] again transferred it to Zaida Bascones? A Yes, sir.
31 30

Likewise, in the case of Lucila, though it was Felomina who paid for the lot, she had Lucila designated in the deed as the vendee thereof and had the title of the lot issued in Lucilas name. It is clear therefore that Felomina donated the land to Lucila. This is evident from her declarations, viz: Witness A In 1981 there was a riceland offered so I told her that I will buy that land and I will give to her later (sic), because since 1981 up to 1992 Mrs. Lucila Ponce has no job. Q Where is the land located? A In Los Angeles, Butuan City. Q Who was the owner of this land? A The owner of that land is Mrs. Estela Caldoza-Pacr[e]s. The husband is Pacr[e]s. xxx xxx xxx

Q Aquilin[o] Caldoza conveyed this land in Exhibit R-1 to you? A Yes, sir. Q Is this now titled in your name? A No. I was planning to give this land to my nieces. One of which [was] already given to Mrs. [Lucila] Ponce. Q I am talking only about this lot in Exhibit R-1[.]

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Q What did you do with this land belonging to Mrs. Estela-Caldoza- Pacr[e]s? A I paid the lot, then worked the lot, since at the start of my buying the lot until now (sic). Q You said that you told Lucila Ponce that you would give the land to her later on, what did you do in connection with this intention of yours to give the land to her? A So I put the name of the title in her name in good faith (sic). Q You mean to tell the court that when you purchased this land located at Los Angeles, Butuan City, the instrument of sale or the deed of sale was in the name of Lucila Ponce? A Yes, sir. xxx
32

Unlike ordinary contracts (which are perfected by the concurrence of the requisites of consent, object 38 and cause pursuant to Article 1318 of the Civil Code), solemn contracts like donations are perfected 39 40 only upon compliance with the legal formalities under Articles 748 and 749. Otherwise stated, absent the solemnity requirements for validity, the mere intention of the parties does not give rise to a contract. The oral donation in the case at bar is therefore legally inexistent and an action for the declaration of the 41 inexistence of a contract does not prescribe. Hence, Felomina can still recover title from Lucila. Article 1448 of the Civil Code on implied trust finds no application in the instant case. The concept of implied trusts is that from the facts and circumstances of a given case, the existence of a trust 43 relationship is inferred in order to effect the presumed intention of the parties. Thus, one of the recognized exceptions to the establishment of an implied trust is where a contrary intention is 44 proved, as in the present case. From the testimony of Felomina herself, she wanted to give the lot to Lucila as a gift. To her mind, the execution of a deed with Lucila as the buyer and the subsequent issuance of title in the latters name were the acts that would effectuate her generosity. In so carrying out what she conceived, Felomina evidently displayed her unequivocal intention to transfer ownership of the lot to Lucila and not merely to constitute her as a trustee thereof. It was only when their relationship soured that she sought to revoke the donation on the theory of implied trust, though as previously discussed, there is nothing to revoke because the donation was never perfected. In declaring Lucila as the owner of the disputed lot, the Court of Appeals applied, among others, the second sentence of Article 1448 which states "x x x However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child." Said presumption also arises where the property is given to a person to whom the person paying the 45 price stands in loco parentis or as a substitute parent. The abovecited provision, however, is also not applicable here because, first, it was not established that Felomina stood as a substitute parent of Lucila; and second, even assuming that she did, the donation is still void because the transfer and acceptance was not embodied in a public instrument. We note that said provision merely raised a presumption that the conveyance was a gift but nothing therein exempts the parties from complying with the formalities of a donation. Dispensation of such solemnities would give rise to anomalous situations where the formalities of a donation and a will in donations inter vivos, and donations mortis causa, respectively, would be done away with when the transfer of the property is made in favor of a child or one to whom the donor stands in loco parentis. Such a scenario is clearly repugnant to the mandatory nature of the law on donation. While Felomina sought to recover the litigated lot on the ground of implied trust and not on the invalidity of donation, the Court is clothed with ample authority to address the latter issue in order to arrive at a 46 just decision that completely disposes of the controversy. Since rules of procedure are mere tools designed to facilitate the attainment of justice, they must be applied in a way that equitably and 47 completely resolve the rights and obligations of the parties. As to the trial courts award of attorneys fees and litigation expenses, the same should be deleted for lack of basis. Aside from the allegations in the complaint, no evidence was presented in support of said claims. The trial court made these awards in the dispositive portion of its decision without stating any 48 justification therefor in theratio decidendi. Their deletion is therefore proper.
42

xxx

xxx

Q Did you not ask your adviser Rudolfo [Torreon] whether it was wise for you to place the property in the name of Lucila Ponce when you are the one who is the owner? A Because we have really the intention to give it to her.
33

Generally, contracts are obligatory in whatever form they may have been entered into, provided all the essential requisites for their validity are present. When, however, the law requires that a contract be in some form in order that it may be valid, that requirement is absolute and indispensable. Its non34 observance renders the contract void and of no effect. Thus, under Article 749 of the Civil Code Article 749. In order that the donation of an immovable property may be valid, it must be made in a public document, specifying therein the property donated and the value of the charges which the donee must satisfy. The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless it is done during the lifetime of the donor. If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall be noted in both instruments. In the instant case, what transpired between Felomina and Lucila was a donation of an immovable property which was not embodied in a public instrument as required by the foregoing article. Being an 35 oral donation, the transaction was void. Moreover, even if Felomina enjoyed the fruits of the land with the intention of giving effect to the donation after her demise, the conveyance is still a void 36 donation mortis causa, for non-compliance with the formalities of a will. No valid title passed regardless of the intention of Felomina to donate the property to Lucila, because the naked intent to convey without the required solemnities does not suffice for gratuitous alienations, even as between the 37 parties inter se. At any rate, Felomina now seeks to recover title over the property because of the alleged ingratitude of the respondent spouses.

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Finally, in deciding in favor of Felomina, the trial court ordered respondent spouses to execute a deed of sale over the subject lot in favor of Felomina in order to effect the transfer of title to the latter. The proper remedy, however, is provided under Section 10 (a), Rule 39 of the Revised Rules of Civil Procedure which provides that "x x x [i]f real or personal property is situated within the Philippines, the court in lieu of directing a conveyance thereof may by an order divest the title of any party and vest it in others, which shall have the force and effect of a conveyance executed in due form of law." WHEREFORE, in view of all the foregoing, the petition is GRANTED and the June 16, 2003 decision of the Court of Appeals in CA-G.R. CV No. 69213 is REVERSED and SET ASIDE. The August 28, 2000 decision of the Regional Trial Court of Butuan City, Branch 2, in Civil Case No. 4270, is REINSTATED with the followingMODIFICATIONS: (1) Declaring petitioner Felomina Abellana as the absolute owner of Lot 3, Pcs-10-000198; (2) Ordering the Register of Deeds of Butuan City to cancel TCT No. T-2874 in the name of respondent Lucila Ponce and to issue a new one in the name of petitioner Felomina Abellana; and (3) Deleting the awards of attorneys fees and litigation expenses for lack of basis. No pronouncement as to costs. SO ORDERED.

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G.R. No. L-21616

December 11, 1967 ET AL., plaintiffs-appellants,

GERTRUDES F. CUAYCONG, vs. LUIS D. CUAYCONG, ET AL., defendants-appellees.

6. That their demands had been refused and in 1960 during the estate proceedings of Praxedes Escalon, deceased wife of Luis D. Cuaycong, the latter fraudulently made it appear that the plaintiffs had nothing to do with the land; that Luis Cuaycong had possessed the lands since June 21, 1936 from which time he should be made to account for the plaintiffs' share; and that P1,500 attorney's fees should be paid in their favor. Luis D. Cuaycong on October 20, 1961 moved to dismiss the complaint on the grounds of unenforceability of the claim under the statute of frauds, no cause of action (Rule 8, Sec. 1 [f] of the Rules of Court), and bar of causes of action by the statute of limitations (Rule 8, Sec. 1[e]). Subsequently, opposition thereto, answer and reply were filed; the plaintiffs also sought to have Benjamin Cuaycong declared in default for his failure to answer. On December 16, 1961, the Court of First Instance ruled that the trust alleged, particularly in paragraph 8 of the complaint, refers to an immovable which under Article 1443 of the Civil Code may not be proved by parole evidence. Plaintiffs were given 10 days to file an amended complaint mentioning or alleging therein the written evidence of the alleged trust, otherwise the case would be dismissed. Later, on December 23, 1961, the court decreed that since there was no amended complaint filed, thus, no enforceable claim, it was useless to declare Benjamin Cuaycong in default. Plaintiff thereafter manifested that the claim is based on an implied trust as shown by paragraph 8 of the complaint. They added that there being no written instrument of trust, they could not amend the complaint to include such instrument. On January 13, 1962, the court dismissed the case for failure to amend the complaint; it further refused to reconsider its order denying the motion to declare Benjamin Cuaycong in default, stating that such a default declaration would be of no purpose. Failing in their efforts to have the dismissal reconsidered, plaintiffs appealed to Us. The resolution of the appeal hinges on whether the trust is express or implied. Paragraph 8 of the complaint state: That as the said two haciendas were then the subject of certain transactions between the spouses Eduardo Cuaycong and Clotilde de Leon on one hand, and Justo and Luis D. Cuaycong on the other, Eduardo Cuaycong told his brother Justo and his nephew, defendant Luis D. Cuaycong, to hold in trust what might belong to his brothers and sister as a result of the arrangements and to deliver to them their shares when the proper time comes, to which Justo and Luis D. Cuaycong agreed. The plaintiffs claim that an inplied trust is referred to in the complaint which, under Article 1457 of the Civil Code, may be proved by parole evidence. Our Civil Code defines an express trust as one created by the intention of the trustor or of the parties, 2 and an implied trust as one that comes into being by operation of law. Express trusts are those created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. On the other hand, implied trusts are those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, in dependently

Eduardo Cuaycong, married to Clotilde de Leon, died on June 21, 1936 without issue but with three brothers and a sister surviving him: Lino, Justo, Meliton and Basilisa. Upon his death, his properties were distributed to his heirs as he willed except two haciendas in Victorias, Negros Occidental, devoted to sugar and other crops the Haciendas Sta. Cruz and Pusod both known as Hacienda Bacayan. Hacienda Bacayan is comprised of eight (8) lots No. 28, covered by T.C.T. No. T-22130; Nos. 8, 17, 18 & 135, covered by T.C.T. No. T-22131; Nos. 21, 22, 23, covered by T.C.T. No. 22132 all of which are titled in the name of Luis D. Cuaycong, son of Justo Cuaycong. Lino Cuaycong died on May 4, 1937 and was survived by his children Paz, Carolina, Gertrudes, Carmen, Virgilio, Benjamin, Praxedes and Anastacio. Praxedes Cuaycong, married to Jose Betia, is already deceased and is survived by her children Jose Jr., Jesus, Mildred, Nenita and Nilo, all surnamed Betia. Anastacio Cuaycong, also deceased, is survived by his children Ester, Armando, Lourdes, Luis T., Eva and Aida, all surnamed Cuaycong. Meliton and Basilisa died without any issue. On October 3, 1961, the surviving children of Lino Cuaycong: Gertrudes, Carmen, Paz, Carolina, Virgilio; the surviving children of Anastacio: Ester, Armando, Lourdes, Luis T., Eva and Aida; as well as Jose, Jr., Jesus, Mildred, Nenita, Nilo, all surnamed Betia, children of deceased Praxedes Cuaycong 1 Betia, filed as pauper litigants, a suit against Justo, Luis and Benjamin Cuaycong for conveyance of inheritance and accounting, before the Court of First Instance of Negros Occidental (Civil Case No. 6314), alleging among others that: 1. Eduardo Cuaycong had on several occasions, made known to his brothers and sisters that he and his wife Clotilde de Leon (died in 1940) had an understanding and made arrangements with Luis Cuaycong and his father Justo Cuaycong, that it was their desire to divide Haciendas Sta. Cruz and Pusod among his brothers and sister and his wife Clotilde. 2. With the consent of his wife, Eduardo had asked his brothers and sister to pay his wife P75,000 (the haciendas were worth P150,000) and then divide equally the remaining one-half share of Eduardo. 3. The brothers and sister failed to pay the 1/2 share of Clotilde over the two haciendas which were later acquired by Luis Cuaycong thru clever strategy, fraud, misrepresentation and in disregard of Eduardo's wishes by causing the issuance in his name of certificates of title covering said properties. 4. As the two haciendas were the subject of transactions between the spouses and Justo and Luis Cuaycong, Eduardo told Justo and Luis, and the two agreed, to hold in trust what might belong to his brothers and sister as a result of the arrangements and deliver to them their share when the proper time comes. 5. That as far back as 1936 Lino demanded from Justo and Luis his share and especially after Eduardo's and Clotilde's death, the plaintiffs demanded their shares.

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of the particular intention of the parties. Thus, if the intention to establish a trust is clear, the trust is express; if the intent to establish a trust is to be taken from circumstances or other matters indicative of such intent, then the trust is implied. From these and from the provisions of paragraph 8 of the complaint itself, We find it clear that the plaintiffs alleged an express trust over an immovable, especially since it is alleged that the trustor expressly told the defendants of his intention to establish the trust.lawphil Such a situation definitely falls under Article 1443 of the Civil Code. Appellants point out that not only paragraph 8 should be considered but the whole complaint, in which case they argue that an implied trust should be construed to exist. Article 1453, one of the cases of implied trust, is also cited: "When property is conveyed to a person in reliance upon his declared intentions to hold it for or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated." Said arguments are untenable, even considering the whole complaint. The intention of the trustor to establish the alleged trust may be seen in paragraphs 5 and 4 6. Article 1453 would apply if the person conveying the property did not expressly state that he was establishing the trust, unlike the case at bar where he was alleged to have expressed such intent. Consequently, the lower court did not err in dismissing the complaint. Besides, even assuming the alleged trust to be an implied one, the right alleged by plaintiffs Would have already prescribed since starting in 1936 When the trustor died, plaintiffs had already been allegedly refused by the aforesaid defendants in their demands over the land, and the complaint was filed only in 1961 more than the 10-year period of prescription for the enforcement of such rights under the trust.lawphil It is settled that the right to enforce an implied trust in one's favor prescribes in ten (10) years.5 And even under the Code of Civil Procedure, action to recover real property such as lands prescribes in ten years (Sec. 40, Act 190). And for the above reasons, We agree that it was pointless to declare Benjamin Cuaycong in default, considering that without a written instrument as evidence of the alleged trust, the case for the plaintiffs must be dismissed. WHEREFORE, the order of dismissal of the lower court appealed from is hereby affirmed, without costs. So ordered.

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G.R. No. L-27294 June 28, 1983 ALFREDO ROA, JR., LETICIA ROA DE BORJA, RUBEN ROA, CORNELIO ROA and ELSIE ROACACNIO (as heirs of the late Alfredo Roa, Sr.). petitioners, vs. HON. COURT OF APPEALS and the spouses JOAQUIN CASIO and CUSTODIA VALDEHUESA, respondents. Appeal by way of certiorari from the Decision of the Court of Appeals in CA-G.R. No. 34746-R entitled "Alfredo Roa, Plaintiff-Appellant, versus Joaquin Casio et al., Defendants-Appellees," and from the 2 Resolution of the said Court denying plaintiff-appellant's motion for reconsideration of the said Decision. On September 1, 1955, an action for recovery of possession of a parcel of land was filed before the Court of First Instance of Misamis Oriental by Alfredo Roa, Sr. (now deceased and subsequently substituted by his heirs, the herein petitioners) against respondent spouses, Joaquin Casio and Custodia Valdehuesa (real name appears to be Teodosia Valdehuesa), successors-in- interest of one Pablo Valdehuesa, now deceased. In his complaint, Alfredo Roa, Sr. alleged that the said land is agricultural; that it is situated in Bugo, formerly within the municipality of Tagoloan, Misamis Oriental, now comprised within the limits of the City of Cagayan de Oro; that it is registered in his name under Original Certificate of Title No. T-21D; that he found the private respondents occupying said land. He prayed that possession of the same be returned to him and that he be awarded actual and moral damages in the sum of P10,000.00. In answer to the complaint, respondent spouses alleged that the land in question formerly belonged to one Pablo Valdehuesa, father of respondent Custodia (Teodosia) Valdehuesa and now deceased; that it was however titled in the name of Alfredo Roa, Sr., Trinidad Reyes Roa, Esperanza Roa de Ongpin, Concepcion Roa and her husband Zosimo Roa in Land Registration Case No. 12, G.R.L.O. Record No. 10003 of the Court of First Instance of Misamis Oriental by virtue of an agreement entered into between the Roas and said Pablo Valdehuesa; that the conditions of the said compromise agreement were never complied with by the Roas notwithstanding the death of Pablo Valdehuesa in 1928 and despite repeated demands for compliance thereof; that the heirs of said Pablo Valdehuesa sold the land in question to them on April 30, 1930, after rescinding the aforementioned compromise agreement; and that they now enjoy the privileges of absolute ownership over said land by reason of their continuous and adverse possession thereof since time immemorial. By way of counterclaim, the respondents prayed for the reconveyance of the said parcel of land contending that the compromise agreement created an implied trust between the parties to it, and for damages in the amount of P10,000.00. In answer to private respondent's counterclaim, Alfredo Roa, Sr. maintained that the heirs of Pablo Valdehuesa cannot rescind the compromise agreement by their own act alone or without going to court; and that the alleged sale of the said heirs to private respondents was null and void, in view of the fact that respondent spouses knew that the land was then titled in the name of the Roas under Act 496. On December 22, 1959, the parties submitted to the Court a quo an agreed Stipulation of Facts, to wit: STIPULATION OF FACTS
1

That parties herein, assisted by their respective attorneys, have agreed on the following facts: 1. That the plaintiff and the defendants are all of age and with capacity to sue and be sued. 2. That the plaintiff and his brothers and sisters Trinidad Reyes Roa, Esperanza Roa de Ongpin, Concepcion Roa and Zosimo Roa, husband of the latter, were the owners pro-indiviso of a parcel of land located in Tagoloan, Misamis Oriental, containing an area of several hundred hectares, and sometime in 1925, and for the purpose of registering their title to said parcel of land, the said co- owners filed an application with the Court of First Instance of Misamis Oriental, and said application was docketed in said Court as Expediente No. 12, G.L.R.O. Record No. 10003. 3. That in the application as well as in the plans accompanying said application in Expediente No. 12, G.L.R.O. No. 10003, was included a parcel of land which is now the portion in litigation in this case. 4. That one Pablo Valdehuesa filed an opposition in said Expediente No. 12, G.L.R.O. Record No. 10003. claiming absolute and exclusive ownership over a portion which is now the property under litigation. 5. That sometime during the year 1925, the co-owners, said Concepcion Roa, Esperanza Roa de Ongpin and Trinidad Reyes Roa and Zosimo Roa entered into an agreement with the said Pablo Valdehuesa, and the terms of their agreement are contained in the document hereto attached, made a part hereof, and marked as Exhibit "1". 6. That in compliance with his obligation under and by virtue of said Exhibit " 1" the said Pablo Valdehuesa withdrew the opposition filed by him in said case Expediente No. 12, G.L.R.O. Record No. 10003, and as the result of said withdrawal, the plaintiff and his co-owners succeeded in registering their title to their property, including the portion owned by Pablo Valdehuesa as claimed in his opposition. 7. That the said Pablo Valdehuesa died in May of 1928, and upon his death his estate passed to the ownership of his widow and legitimate children including all his rights under said Exhibit " 1 " to the property in question. 8. That since then the property in question has been in the possession of the defendants, and their possession together with the possession of their predecessors in said property has been open, continuous and uninterrupted to this date. 9. That sometime after the issuance of title in favor of the plaintiff (Transfer Certificate of Title No. 21-A) and his aforementioned brothers and sisters covering the parcel of land subject matter of the application filed by them in Expediente No. 12, G.L.R.O. Record No. 10003, the said plaintiff and his brothers and sisters partitioned among themselves said property, and plaintiff was adjudicated a share in said property, of which the parcel of land covered by the opposition of Pablo Valdehuesa withdrawn

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under the terms of Exhibit " 1" is a part or portion of said charge, and covered by T21-D (copy attached as Exh. "A"). 10. That the portion in litigation as correctly described in paragraph 3 of the complaint is covered by the certificate of title referred to above. 11. That in 1955 the plaintiff had a surveyor relocate the corners and boundaries of his land as described in his title and that the portion of about 2 hectares on the eastern end of the land is in the possession and is actually occupied by the defendant. This is the portion in litigation described in par. 3 of the complaint . 12. That Expediente No. 12, G.L.R.O. Record No. 10003 have been totally destroyed during the last World War, and the parties reserve the right to present additional evidence during the hearing of this case. Cagayan de Oro City, December 22, 1959.

menos, y que sea acceptable para el Sr. Pablo Valdehuesa, como canje or permuta con la parcela que el ocupa; en la inteligencia de que el valor de compra no exceda de P400.00 en su defecto, si no se encuentra un terreno que sea satisfactorio para el Sr. Pablo Valdehuesa, se le compensara el reintegro arriba citado en la mencionada cantidad de P400.00. 4. Por su parte, el Sr. Pablo Valdehuesa, acepta todo lo establecido en este documento, obligandose a respetarlo y acatarlo. En testimonio de todo lo cual, firmamos el presente documento en Cagayan de Misamis, hoy, 11 de Mayo de 1927. (Sgd.) Trinidad Roa de Reyes (Sgd.) Esperanza Roa de Ongpin (Sgd.) Concepcion Roa (Sgd.) Zosimo Roa __________________________

(Sgd.) ALFREDO ROA Plaintiff(Sgd.) HERNANDO PINEDA (Attorney for Plaintiff)(Sgd.) JOAQUIN CASIO(Sgd.) CUSTODIA VALDEHUESA (Defendants)(Sgd.) MANUEL C. FERNANDEZ(Sgd.) CONCORDIO C. DIEL (Attorney for defendants") The aforesaid compromise agreement mentioned in paragraph 5 of the agreed Stipulation of Facts was thereafter ratified on May 11, 1927 as shown in Exhibit " 1" as follows: SEPAN TODOS LOS QUE LA PRESENTE VIEREN : Que nosotros, los abajo firmantes, mayores de edad hacemos constar: 1. Que somos los dueos mancomunados de la propiedad conocida por Terrenos de Bugu, en el municipio de Tagoloan, provincia de Misamis. 2. Que en la tramitacion del Exp. No.12,G.L.R.O.,Record No. 10003, para el registro de dicha propiedad, el Sr. Pablo Valdehuesa del municipio de Tagoloan, que era uno de los opositores, consintio en retirar su oposicion contra nuestra citada solicitud de registro a condicion de que le reconozcamos su dominio y propiedad sobre una parcela de terreno dentro de la comprension de Bugu que el ocupaba, o se le compre, y de otro modo se le compense al reintegrarnos dicha parcela en tiempo oportuno. La descripcion del terreno referido cuya extension es de una hectares, cuarenta y nueve areas y cincuenta y nueve centiareas, aparece en el escrito de oposicion que obra en el referido Exp. 12, y que luego fue retirado por convenio de partes. 3. Por tanto, en complimiento de dicho convenio y como consecuencia del mismo, ratificamos lo que tenemos prometido, para lo cual autorizamos al Sr. Zosimo Roa a que busque y adquiera otro pedazo de terreno fuera de la comprension de Bugu, de una hectarea, cuarenta y nueve areas y cincuenta y nueve centiareas, poco mas o

Alfredo Roa ___________________________ Pablo Valdehuesa Pursuant to said Exhibit "1", Concepcion, Esperanza, Trinidad and Zosimo, all surnamed Roa, agreed to replace the land of Pablo Valdehuesa with another parcel of land with an area of 1.4959 hectares to be given to Pablo Valdehuesa in exchange for the land occupied by him, or if said land was not acceptable to him, to pay him the amount of P400.00. Neither of these undertakings was complied with by the Roas and Pablo Valdehuesa continued in possession of the land occupied by him until the same was sold by the heirs of Pablo Valdehuesa to the respondent spouses on April 30, 1930. On March 6, 1964, the lower court rendered the decision ordering the plaintiff Alfredo Roa to reconvey the land in dispute to the defendants, now the respondent spouses, on the ground that same could not have been registered in the name of the plaintiff and his brother and sisters if not for the compromise agreement aforestated and further to pay said defendants the amount of P1,000.00 as attorney's fees plus costs. On appeal taken by Alfredo Roa, the appellate court affirmed the decision of the lower court and declared that (a) the compromise agreement created an express trust between the Roa brothers and sisters, including Alfredo, Sr., (b) that the respondent spouses' action for reconveyance was imprescriptible on the authority of Mirabiles, et al. v. Quito, et al., L- 14008, October 18, 1956; and (c) that Alfredo Roa cannot invoke the indefeasibility and imprescriptibility of the Torrens title issued in his name for the land in dispute since the said title was secured by him in breach of an express trust, and thus, the Court ordered the reconveyance of the property within fifteen (15) days from the finality of the decision.

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Alfredo Roa, now substituted by his heirs, the herein petitioners Alfredo Roa, Jr., Leticia Roa de Borja, Ruben Roa, Cornelio Roa and Elsie Roa-Cacnio, moved to reconsider the adverse decision. Acting on this motion for reconsideration, the Court of Appeals in a majority resolution denied the said motion, and while conceding that "the creation of an express trust leaves room for doubt," the said Court ruled that the compromise agreement, at the least gave rise to an implied trust under Art. 1456 of the New Civil Code. Hence, petitioners filed this present petition on the following assignment of errors: I. The respondent Court of Appeals erred when it ruled that Alfredo Roa, the petitioners' predecessor-in-interest, was bound by the compromise agreement (Exh. "I") in the execution of which, according to the Stipulation of Facts, said Alfredo Roa neither participated nor signed. II. On the assumption that the aforementioned compromise agreement was binding upon Alfredo Roa, the respondent Court of Appeals erred when it held the said agreement, which stipulated the conveyance of the property in dispute for a consideration, as having established a trust relationship between the parties to it. III. The respondent Court of Appeals erred when it held that the ruling in the case of Gerona, et al. va. De Guzman, G.R. No. L-19060, May 29, 1964, is inapplicable to the case at bar. On the first assigned error, We reject the contention of the petitioners that Alfredo Roa, Sr. was not bound by the compromise agreement for not being a participant or signatory thereto. It may be true that Alfredo Roa, Sr. did not sign the compromise agreement, Exh. " 1 ", for he was then in Manila working as a newspaperman but he certainly benefited from the effects of the compromise agreement which obliged Pablo Valdehuesa to withdraw, as he did withdraw his opposition to the registration of the Roa property under the Torrens system. The Roa property was subsequently registered without opposition and title was issued thereto in the name of Alfredo Roa, his brother Zosimo and his sisters Trinidad, Esperanza and Concepcion, all surnamed Roa as co-owners thereof. Certainly, the Roas may not escape compliance from their obligation under the compromise agreement by partitioning the property and assigning the property in dispute as part of the share of the petitioners. Moreover, it will be a pure and simple case of unjust enrichment for petitioners to acquire and own the property of Pablo Valdehuesa, without paying the value thereof or exchanging the land with another with an equal area as originally agreed. With respect to the second assignment of error, We do not agree with the holding of the respondent appellate court that an express trust was created between the parties by reason of the compromise agreement entered into between them. Express trusts are created by the intention of the trustor or one of the parties (Article 1441, New Civil Code). While no particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended (Article 1444, New Civil Code), in the case at bar, We find no direct and positive intent to create a trust relationship between the parties to the compromise agreement under which Pablo Valdehuesa agreed to withdraw his opposition to the application for registration upon the commitment of the Roas to give Valdehuesa another piece of land of equal area or pay its price of P 400.00. It seems clear to Us that the Roas under the compromise agreement did not commit themselves to hold the lot claimed by Pablo Valdehuesa for Pablo Valdehuesa and in Pablo Valdehuesa's name. If the compromise agreement did not result to an express trust relationship, did it, however, give rise to an implied trust? Private respondents claim that under the terms of the compromise agreement, the land claimed by Pablo Valdehuesa should be deemed held in trust by the Roas when the latter failed to

relocate him or pay the price therefor. The respondent appellate court took private respondents' 3 position, and opined, thus It could thus be gleaned that had it not been for the promise of the Roas contained in Exhibit 1, Valdehuesa would not have been induced to withdraw his opposition in the land registration case. When, therefore, the Roas turned their back to a solemn agreement entered in a court proceedings, they were guilty of fraud. Fraud is every kind of deception, whether in the form of insidious machinations, manipulations, concealments or misrepresentations, for the purpose of leading another party into error and then execute a particular act. It must have a determining influence on the consent of the victim." (4 Tolentino, Civil Code, p. 462) It results from the foregoing that although the creation of an express trust leaves room for doubt, by operation of law, an implied trust is created, Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. (N.C.C)". We cannot sustain the holding of the respondent appellate court in its Resolution denying petitioners' motion for reconsideration that by operation of law an implied trust was created under the terms of the compromise agreement in the light of Article 1456 of the New Civil Code cited above. We rule that Art. 1456 is not applicable because it is quite clear that the property of Pablo Valdehuesa was acquired by the Roas not through mistake or fraud but by reason of the voluntary agreement of Valdehuesa to withdraw his opposition to the registration of the land under the Torrens system. There is incontrovertible evidence that the Roas intended to abide by the compromise agreement at the time of the execution of the same. The private respondents themselves introduced additional evidence which showed that on May 11, 1927, Trinidad Roa, Esperanza Roa de Ongpin, Concepcion Roa and Zosimo Roa confirmed in writing the terms and conditions of the agreement they had entered into with Pablo Valdehuesa in the land registration proceedings. Even the respondent appellate court expressly determined the aforesaid failure of the Roas to comply with the terms of the compromise agreement to be an afterthought; thus, The change of mind of the plaintiff-appellant later is of no moment in the case at bar.
4

While it is Our ruling that the compromise agreement between the parties did not create an express trust nor an implied trust under Art. 1456 of the New Civil Code, We may, however, make recourse to the principles of the general law of trusts, insofar as they are not in conflict with the New Civil Code, Code of Commerce, the Rules of Court and special laws which under Art. 1442 of the New Civil Code are adopted. While Articles 1448 to 1456 of the New Civil Code enumerates cases of implied trust, Art. 1447 specifically stipulates that the enumeration of the cases of implied trust does not exclude others established by the general law of trusts, but the limitations laid down in Art 1442 shag be applicable. In American law and jurisprudence, We find the following general principles:

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A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son tort, an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy. It is raised by equity to satisfy the demands of justice. However, a constructive trust does not arise on every moral wrong in acquiring or holding property or on every abuse of confidence in business or other affairs; ordinarily such a trust arises and will be declared only on wrongful acquisitions or retentions of property of which equity, in accordance with its fundamental principles and the traditional exercise of its jurisdiction or in accordance with statutory provision, takes cognizance. It has been broadly ruled that a breach of confidence, although in business or social relations, rendering an acquisition or retention of property by one person unconscionable against another, raises a constructive trust. (76 Am. Jur. 2d, Sec. 221, pp. 446-447). And specifically applicable to the case at bar is the doctrine that "A constructive trust is substantially an appropriate remedy against unjust enrichment. It is raised by equity in respect of property, which has been acquired by fraud, or where, although acquired originally without fraud , it is against equity that it should be retained by the person holding it." (76 Am. Jur. 2d, Sec. 222, p. 447). The above principle is not in conflict with the New Civil Code, Code of Commerce, Rules of Court and special laws. And since We are a court of law and of equity, the case at bar must be resolved on the general principles of law on constructive trust which basically rest on equitable considerations in order to satisfy the demands of justice, morality, conscience and fair dealing and thus protect the innocent against fraud. As the respondent court said, "It behooves upon the courts to shield fiduciary relations against every manner of chickanery or detestable design cloaked by legal technicalities." The next point to resolve is whether the counterclaim of private respondents for the reconveyance of the property in dispute has already prescribed in the light of established jurisprudence that the right to enforce an implied trust prescribes in ten years. Admittedly, Pablo Valdehuesa and his heirs remained in possession of the property in question in 1925 when by reason of the compromise agreement Valdehuesa withdrew his opposition to the registration applied for by the Roas for which reason the latter were able to obtain a Torrens title to the property in their name. However, Valdehuesa and his heirs continued their possession of the land until he sold the property in question to private respondents herein on April 30, 1930 and the latter remained in possession and were never disturbed in their occupancy until the filing of the original complaint for recovery of possession on Sept. 1, 1955 after demand was made upon them when a relocation survey initiated by petitioners established that private respondents were actually occupying about 2 hectares on the eastern end of the property. Upon these facts, the prescriptive period may only be counted from the time petitioners repudiated the trust relation in 1955 upon the filing of the complaint for recovery of possession against private respondents so that the counterclaim of the private respondents contained in their amended answer of June 12, 1956 wherein they asserted absolute ownership of the disputed realty by reason of their continuous and adverse possession of the same is well within the ten-year prescriptive period. Finally, the case at bar is quite similar to the case of Dolores Pacheco vs. Santiago Arro, 85 Phil. 505, wherein the claim to the lots in the cadastral case was withdrawn by the respondents relying upon the

assurance and promise made in open court by Dr. M. Y. in behalf of J. Y. y R., the predecessor-ininterest of the petitioners and the Court held that a trust or a fiduciary relation between them arose, or resulted therefrom, or was created thereby and the trustee cannot invoke the statute of limitations to bar the action and defeat the right of the cestuis que trustent. (Cited in Tolentino, Civil Code of the Philippines, Vol. IV, p. 627). WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby AFFIRMED. SO ORDERED.

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G.R. No. L-49807 May 18, 1981 AUGUSTO D. APO, PRESCILLANO S. AGUINALDO, ROMEO B. IGLESIA, CEFERINO RIVERA & THE HON. NELLY L. ROMERO VALDELLON, JUDGE, CFI OF RIZAL, BRANCH XXII, petitioners, vs. THE HONORABLE COURT OF APPEALS & TERENCIO C. RAON respondents. This Petition for Review on certiorari of the Decision of the Court of Appeals stems from the following facts: Petitioners and private respondent were the incorporators of Apollo Surveying Company, Inc., a corpoRaon primarily engaged in the business of land survey, formed sometime in May 1971. Private respondent, a Geodetic Engineer, was the President and General Manager, while petitioner Augusta D. Apo was the Treasurer. Private respondent alleges that except for himself, the other incorporators, petitioners herein, had not actually paid for their shares of stock. On July 15, 1974, private respondent encashed Treasury Warrant No. B-03,840,352 dated July 11, 1974 in the amount of P23,257.80, drawn by the Department of Agrarian Reform in favor of the said corpoRaon as part payment of the contract price of the subdivision survey conducted by the company. The warrant appeared to have been endorsed by Terencio C. Raon and Augusta D. Apo, as the authorized officers of the corpoRaon. Petitioner Apo, however, denied the signature purporting to be his and disclaimed knowledge of the encashment. A complaint for Estafa thru Falsification of Public/Official Document was filed against private respondent with the Complaints and Action Branch of the Department of National Defense. Petitioners, in a proper Board resolution also ousted private respondent as President and General Manager. Private respondent countered with an action for damages against petitioners in the Court of First Instance of Rizal, Branch XXII, docketed as Civil Case No. 19866. After the issues were joined, the case was set for pre-trial. Petitioners and their counsel failed to appear, and private respondent was allowed to present evidence ex-parte. On January 15, 1976, the Court, presided by Judge Onofre A. Villaluz, rendered a Decision ordering petitioners to pay private respondent actual, moral and exemplary damages, as well as attorney's fees, all in the total amount of P41,500.00, for having entered into an "illegal conspiracy of maliciously filing the Estafa case" against respondent just to harrass him, which charge was subsequently dropped for lack of merit. After the judgment became final, private respondent moved for the issuance of a writ of Execution on May 13, 1976. The Court, presided by respondent Judge Nelly L. Romero Valdellon, granted the motion. The property of petitioner Augusta D. Apo, covered TCT No. 163354, with an area of 3,000 square meters, situated at Tandang Sora Avenue, Quezon City, was attached and sold at public auction. On July 7. 1976, a Certificate of Sale was issued in favor of private respondent as the highest bidder. Meanwhile, re-investigation of the Estafa case was conducted. Asst. Fiscal Ruben T. Reyes recommended the filing of the Information for the said offense. Criminal Case No. 28362 for Estafa thru Falsification of a Public and/or Official Document was subsequently instituted in the Court of First instance of Manila against private respondent.
1

On March 11, 1977, petitioners moved to set aside the Decision in the Damages Case and to recall the Writ of Execution issued on the ground that petitioner Precillano S. Aguinaldo was not notified of the pre-trial on January 7, 1976. "For want of due process and in the interest of justice," Judge Valdellon, on October 10, 1977, set aside the Decision of January 15, 1976, recalled the Writ of Execution, and reset the case for pre-trial. Private respondent sought reconsideRaon. Petitioner Apo, for his part, requested for the cancellation of the entry or annotation of the public auction sale on TCT No. 163354. On January 30, 1978, the Court denied reconsideRaon and granted petitioner Apo's Motion for cancellation of entry. A Petition for certiorari and mandamus with Injunction assailing the lower Court's Orders of October 10, 1977 and January 30, 1978, and seeking to declare its Decision of January 15, 1976 final, was filed by private respondent with the Court of Appeals (CA-G.R. No. SP-07664). On October 18, 1978, the latter Court revoked the challenged Orders; declared the Decision of January 15, 1976 final and executory; and directed the respondent Court to issue an order to execute the necessary final bill of sale to consolidate the ownership of the property under TCT No. 163354 in favor of Terencio Raon. Petitioners' Motion for reconsideRaon of the said Decision was denied by the Appellate Court. Petitioners filed with this Court the present Petition seeking to set aside the Decision of the Court of Appeals, arguing that the rule on finality of judgment must yield to the right to a day in Court; that final judgment may be modified or altered if subsequent facts and circumstances would render its execution unjust; that final judgment may be annulled on the ground of fraud; that the rule of res judicata may be disregarded if its application would involve the sacrifice of justice to technicalities. Required to comment, private respondent asserts that petitioners were not deprived of their day in Court; that they never pursued their move for a new trial; and that there must be an end to every litigation. After petitioners replied to private respondent's comment this Court gave due course to the petition, and required the parties to present their respective memoranda. The parties complied. In the meantime, the records show that on March 20, 1978 a Decision was rendered by the Court of First Instance of Manila, then Judge Bernardo P. Fernandez, presiding, finding private respondent 2 Raon guilty of Estafa thru Falsification of a Public or Official document. Petitioners stressed this fact in their Memorandum as they prayed for a reversal of the judgment of respondent Appellate Court on the basis of supervening facts. Private respondent, on the other hand, emphasized his argument that the trial Court judgment had become final and could not have been set aside by respondent Judge after 434 days from the date of its finality. We deemed the case submitted for decision on August 13, 1979. On April 15, 1981, petitioner Augusto D. Apo and respondent Terencio C. Raon assisted by their respective counsels, "after a full and exhaustive consideration of all the issues involved" submitted a Compromise Agreement to this Court for approval. The Agreement reads: 1wph1.t After a full and exhaustive consideration of all the issues involved in the instant case, together with the related cases CA-G.R. No. SP-07664 and Civil Case No. 19866, Court of First Instance of Rizal, Branch XXII, the parties have finally come to an amicable settlement and agree on the following:

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1. For and in consideration of the sum of FIFTY THOUSAND PESOS (P50,000.00), Philippine Currency, receipt of which is hereby acknowledged and confessed, and in cash, by Terencio Raon is hereby reconveying and transferring, by way of redemption, the parcel of land covered by and embraced in Transfer Certificate of Title No. 163354, Registry of Deeds of Quezon City, to petitioner Augusta D. Apo, free from all other liens and encumbrances and for this purpose, said private respondent Terencio Raon authorizes, empowers and allows the Register of Deeds of Quezon City to cancel, lift and obliterate the annotation of the Certificate of Sale in his favor in Transfer Certificate of Title No. 163354 inscribed under Primary Entry T820 and on all titles derived therefrom such as Transfer Certificates of Title Nos. 237487, 237488, 237489, 237490, 237491, 237492, 237493, 237494 and 237531 inscribed under Primary Entry No. 5682; 2. That, likewise, private respondent Terencio Raon, by reason and on account of the redemption of the property embraced in Transfer Certificate of Title 163354, including ell subsequent and derivative titles therefrom, releases and discharges the said title and parcel of land from any and all liability arising out and in connection with Civil Case No. 19866, Court of First Instance of Rizal, Branch XXII, entitled Terencio Raon vs. Augusta D. Apo, et al.; 3. As a consequence of the redemption, as aforestated, the parties hereby mutually agree to discharge and release each other from any and all liability arising out of and in connection with Civil Case No. 19866, Court of First Instance of Rizal, Branch XXII and in G.R. No. SP-07664. WHEREFORE, it is most respectfully prayed of this honorable Tribunal that judgment be rendered approving the foregoing Compromise Agreement. Quezon City for Manila, April 3, 1981. (Sgd) TERENCIO RAON Private Respondent Petitioner Assisted by: 1wph1.t BERNARDO R. LAURETA AFREDO C.FLORES (Counsel for the Private Respondent) (Counsel for the Petitioner) Rm. 210 Bank of P. I. Building 2nd Floor, Castro Building Aurora Boulevard, 58 Timog Avenue Quezon City Of the four petitioners, only petitioner Augusta D. Apo signed the Compromise Agreement. However, the property attached and subsequently sold at public auction to private respondent covered by TCT No. 163354, belongs to Apo alone, and he appears to be the principal petitioner. lt is also to be noted that the Agreement correctly excludes any stipulation with respect to the criminal case for Estafa. WHEREFORE, judgment is hereby rendered approving that Compromise Agreement as hereinabove reproduced, and the parties are enjoined to abide by its terms and conditions. Sgd.) AUGUSTO D. APO

The instant Petition is hereby dismissed. Without costs. SO ORDERED.

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G.R. No. L-44546 January 29, 1988 RUSTICO ADILLE, petitioner, vs. THE HONORABLE COURT OF APPEALS, EMETERIA ASEJO, TEODORICA ASEJO, DOMINGO ASEJO, JOSEFA ASEJO and SANTIAGO ASEJO, respondents. In issue herein are property and property rights, a familiar subject of controversy and a wellspring of enormous conflict that has led not only to protracted legal entanglements but to even more bitter consequences, like strained relationships and even the forfeiture of lives. It is a question that likewise reflects a tragic commentary on prevailing social and cultural values and institutions, where, as one observer notes, wealth and its accumulation are the basis of self-fulfillment and where property is held as sacred as life itself. "It is in the defense of his property," says this modern thinker, that one "will mobilize his deepest protective devices, and anybody that threatens his possessions will arouse his 1 most passionate enmity." The task of this Court, however, is not to judge the wisdom of values; the burden of reconstructing the social order is shouldered by the political leadership-and the people themselves. The parties have come to this Court for relief and accordingly, our responsibility is to give them that relief pursuant to the decree of law. The antecedent facts are quoted from the decision appealed from: xxx xxx xxx ... [T]he land in question Lot 14694 of Cadastral Survey of Albay located in Legaspi City with an area of some 11,325 sq. m. originally belonged to one Felisa Alzul as her own private property; she married twice in her lifetime; the first, with one Bernabe Adille, with whom she had as an only child, herein defendant Rustico Adille; in her second marriage with one Procopio Asejo, her children were herein plaintiffs, now, sometime in 1939, said Felisa sold the property in pacto de retro to certain 3rd persons, period of repurchase being 3 years, but she died in 1942 without being able to redeem and after her death, but during the period of redemption, herein defendant repurchased, by himself alone, and after that, he executed a deed of extra-judicial partition representing himself to be the only heir and child of his mother Felisa with the consequence that he was able to secure title in his name alone also, so that OCT. No. 21137 in the name of his mother was transferred to his name, that was in 1955; that was why after some efforts of compromise had failed, his half-brothers and sisters, herein plaintiffs, filed present case for partition with accounting on the position that he was only a trustee on an implied trust when he redeemed,-and this is the evidence, but as it also turned out that one of plaintiffs, Emeteria Asejo was occupying a portion, defendant counterclaimed for her to vacate that, Well then, after hearing the evidence, trial Judge sustained defendant in his position that he was and became absolute owner, he was not a trustee, and therefore, dismissed case and also condemned plaintiff occupant, Emeteria to vacate; it is because of this that plaintiffs have come here and contend that trial court erred in: I. ... declaring the defendant absolute owner of the property;
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II. ... not ordering the partition of the property; and III. ... ordering one of the plaintiffs who is in possession of the portion of the property to vacate the land, p. 1 Appellant's brief. which can be reduced to simple question of whether or not on the basis of evidence and law, judgment 3 appealed from should be maintained. The respondent Court of appeals reversed the trial Court, and ruled for the plaintiffs-appellants, the private respondents herein. The petitioner now appeals, by way of certiorari, from the Court's decision. We required the private respondents to file a comment and thereafter, having given due course to the petition, directed the parties to file their briefs. Only the petitioner, however, filed a brief, and the private respondents having failed to file one, we declared the case submitted for decision. The petition raises a purely legal issue: May a co-owner acquire exclusive ownership over the property held in common? Essentially, it is the petitioner's contention that the property subject of dispute devolved upon him upon the failure of his co-heirs to join him in its redemption within the period required by law. He relies on the provisions of Article 1515 of the old Civil Article 1613 of the present Code, giving the vendee a retro the right to demand redemption of the entire property. There is no merit in this petition. The right of repurchase may be exercised by a co-owner with aspect to his share alone. While the records show that the petitioner redeemed the property in its entirety, shouldering the expenses therefor, that did not make him the owner of all of it. In other words, it did not put to end the existing state of co-ownership. Necessary expenses may be incurred by one co-owner, subject to his right to collect reimbursement 6 from the remaining co-owners. There is no doubt that redemption of property entails a necessary expense. Under the Civil Code: ART. 488. Each co-owner shall have a right to compel the other co-owners to contribute to the expenses of preservation of the thing or right owned in common and to the taxes. Any one of the latter may exempt himself from this obligation by renouncing so much of his undivided interest as may be equivalent to his share of the expenses and taxes. No such waiver shall be made if it is prejudicial to the coownership. The result is that the property remains to be in a condition of co-ownership. While a vendee a retro, under Article 1613 of the Code, "may not be compelled to consent to a partial redemption," the redemption by one co-heir or co-owner of the property in its totality does not vest in him ownership over it. Failure on the part of all the co-owners to redeem it entitles the vendee a retro to retain the property 7 and consolidate title thereto in his name. But the provision does not give to the redeeming co-owner the right to the entire property. It does not provide for a mode of terminating a co-ownership.
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Neither does the fact that the petitioner had succeeded in securing title over the parcel in his name terminate the existing co-ownership. While his half-brothers and sisters are, as we said, liable to him for reimbursement as and for their shares in redemption expenses, he cannot claim exclusive right to the property owned in common. Registration of property is not a means of acquiring ownership. It operates as a mere notice of existing title, that is, if there is one. The petitioner must then be said to be a trustee of the property on behalf of the private respondents. The Civil Code states: ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. We agree with the respondent Court of Appeals that fraud attended the registration of the property. The petitioner's pretension that he was the sole heir to the land in the affidavit of extrajudicial settlement he executed preliminary to the registration thereof betrays a clear effort on his part to defraud his brothers and sisters and to exercise sole dominion over the property. The aforequoted provision therefore applies. It is the view of the respondent Court that the petitioner, in taking over the property, did so either on behalf of his co-heirs, in which event, he had constituted himself a negotiorum gestor under Article 2144 of the Civil Code, or for his exclusive benefit, in which case, he is guilty of fraud, and must act as trustee, the private respondents being the beneficiaries, under the Article 1456. The evidence, of course, points to the second alternative the petitioner having asserted claims of exclusive ownership over the property and having acted in fraud of his co-heirs. He cannot therefore be said to have assume the mere management of the property abandoned by his co-heirs, the situation Article 2144 of the Code contemplates. In any case, as the respondent Court itself affirms, the result would be the same whether it is one or the other. The petitioner would remain liable to the Private respondents, his co-heirs. This Court is not unaware of the well-established principle that prescription bars any demand on property (owned in common) held by another (co-owner) following the required number of years. In that 8 event, the party in possession acquires title to the property and the state of co-ownership is ended . In the case at bar, the property was registered in 1955 by the petitioner, solely in his name, while the claim of the private respondents was presented in 1974. Has prescription then, set in? We hold in the negative. Prescription, as a mode of terminating a relation of co-ownership, must have been preceded by repudiation (of the co-ownership). The act of repudiation, in turn is subject to certain conditions: (1) a co-owner repudiates the co-ownership; (2) such an act of repudiation is clearly made known to the other co-owners; (3) the evidence thereon is clear and conclusive, and (4) he has been in possession through open, continuous, exclusive, and notorious possession of the property for the 9 period required by law. The instant case shows that the petitioner had not complied with these requisites. We are not convinced that he had repudiated the co-ownership; on the contrary, he had deliberately kept the private respondents in the dark by feigning sole heirship over the estate under dispute. He cannot therefore be said to have "made known" his efforts to deny the co-ownership. Moreover, one of the private respondents, Emeteria Asejo, is occupying a portion of the land up to the present, yet, the petitioner has not taken pains to eject her therefrom. As a matter of fact, he sought to recover possession of that portion Emeteria is occupying only as a counterclaim, and only after the private respondents had first sought judicial relief.

It is true that registration under the Torrens system is constructive notice of title, but it has likewise 11 been our holding that the Torrens title does not furnish a shield for fraud. It is therefore no argument to say that the act of registration is equivalent to notice of repudiation, assuming there was one, notwithstanding the long-standing rule that registration operates as a universal notice of title. For the same reason, we cannot dismiss the private respondents' claims commenced in 1974 over the estate registered in 1955. While actions to enforce a constructive trust prescribes in ten 12 13 years, reckoned from the date of the registration of the property, we, as we said, are not prepared to count the period from such a date in this case. We note the petitioner's sub rosa efforts to get hold of the property exclusively for himself beginning with his fraudulent misrepresentation in his unilateral affidavit of extrajudicial settlement that he is "the only heir and child of his mother Feliza with the 14 consequence that he was able to secure title in his name also." Accordingly, we hold that the right of the private respondents commenced from the time they actually discovered the petitioner's act of 15 defraudation. According to the respondent Court of Appeals, they "came to know [of it] apparently 16 only during the progress of the litigation." Hence, prescription is not a bar. Moreover, and as a rule, prescription is an affirmative defense that must be pleaded either in a motion 17 to dismiss or in the answer otherwise it is deemed waived, and here, the petitioner never raised that 18 defense. There are recognized exceptions to this rule, but the petitioner has not shown why they apply. WHEREFORE, there being no reversible error committed by the respondent Court of Appeals, the petition is DENIED. The Decision sought to be reviewed is hereby AFFIRMED in toto. No pronouncement as to costs.

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G.R. No. 78173 October 26, 1992 ANDRES SUMAOANG, petitioner, vs. HON. JUDGE, REGIONAL TRIAL COURT, BRANCH XXXI, GUIMBA, NUEVA ECIJA and ATTY. JORGE A. PASCUA, respondents. In the Petition presently before us, Andres Sumaoang seeks to annul the Decision dated 31 August 1982, rendered by the then Court of First Instance ("CFI") of Nueva Ecija in Civil Case No. 697-G, which awarded to private respondent Atty. Jorge A. Pascua the sum of P110,000.00 as attorney's fees. On 15 July 1933, the late Sebastian Sumaoang filed with the Bureau of Lands a homestead application over Lot No. 3098 of the Cadastral Survey of Santiago, Isabela, covering an area of 21.3445 hectares. He then took possession of and cultivated the lot. Due to illness and the dangerous conditions then prevailing in Santiago, Isabela immediately after the second World War, he transferred his residence to his native town of Sta. Ignacia, Tarlac where he died on 22 August 1952. Meanwhile, Florencio and Regino, both surnamed Domingo applied for a homestead patent over Lot No. 3098 during Sebastian Sumaoang's absence. On 11 may 1950, Florencio Domingo was granted a homestead patent (HP No. V-5218) over the land on the strength of which the Register of Deeds of Isabela issued Original Certificate of Title No. T-1202 to him. To protect their interests over the homestead, petitioner and his brothers, Vitaliano and Pedro Sumaoang, engaged the services of private respondent Atty. Jorge A. Pascua, promising him, in a letter 2 dated 17 December 1964 a contingent fee of "not less than one-half (1/2)" of the entire homestead, if recovered. As counsel for the Sumaoangs, Atty. Pascua filed a formal protest with the Bureau of Lands contesting the legality of the issuance of Homestead Patent No. V-5218 to Florencio Domingo. On 7 February 3 1962, the Bureau of Lands rendered a decision declaring Homestead Patent No. V-5218 inoperative and ordered that steps be taken towards the filing of a reversion case with the view to cancelling that homestead patent and its corresponding certificate of title, and disposing of the land to petitioner and his brothers as heirs of Sebastian Sumaoang should the facts so warrant. Pursuant to the above decision of the Bureau of Lands, the Solicitor General filed, on behalf of the Republic of the Philippines, a reversion case against Florencio and Regino Domingo for the cancellation of Homestead Patent No. V-5218 and Original Certificate of Title No. T-1201 before the CFI of Isabela. In that case, Atty. Pascua filed, on behalf of petitioner and his brothers, a complaint-in-intervention 4 claiming preferential rights to the land in favor of his clients. After trial, the lower court rendered a 5 decision dated 17 February 1971 declaring the homestead patent, as well as the certificate of title, null and void and ordered the reversion of the land to the State subject to the rights of petitioner and his brothers. In its dispositive portion, the decision stated that: WHEREFORE, judgment is rendered: (a) Declaring homestead patent No. V-5218 and the corresponding Original Certificate of Title No. T-1201 both in favor of the defendant Florencio Domingo and covering Lot No. 3098, Cad. 211, null and void and ordering the reversion of the said lot to the State subject to the rights of the intervenors as the facts may warrant;
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(b) Ordering defendant Florencio Domingo to surrender to the defendant Register of Deeds his owner's duplicate of said torrens title or Original Certificate of Title No. T1201 for cancellation and any other transfer certificates of title that might have been issued by the Register of Deeds emanating from Original Certificate of Title No. T1201; (c) Ordering the Register of Deeds of Isabela, upon his receipt of the owner's duplicate certificate of title to cancel homestead patent No. V-5218 and the original and duplicate of said Original Certificate of Title No. T-1201 in the name of Florencio Domingo and any other transfer certificates of title issued emanating from Original Certificate of Title No. T-1201; (d) Ordering the defendant Florencio Domingo to pay to the intervenors the sum of 160 2/3 cavanes of palay or the value of P1,928.00 computed from P12.00 per cavan, per agricultural year since 1953 until this judgment becomes final. This decision was affirmed by both the Court of Appeals and the Supreme Court.
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The decision became final and executory on 11 February 1973. In 1977, petitioner and his brothers took possession of Lot No. 3098 and subdivided it among themselves. Not having received compensation for his professional services as counsel, Atty. Pascua filed sometime in 1979 a complaint for collection of attorney's fees against his former clients, petitioner and his brothers, before the CFI of Guimba, Nueva Ecija. The trial court stated in its judgment dated 31 August 1982 that Atty. Pascua was entitled only to "the equivalent of one-half of the property in its peso valuation" and somehow ordered petitioner and his brothers to pay attorney's fees in the amount of P110,000.00. The dispositive portion of this decision reads as follows: WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of the plaintiff, Atty. Jorge A. Pascua, ordering the defendants Vitaliano, Andres, and Pedro all surnamed Sumaoang, to jointly and severally pay the sum of One Hundred Ten Pesos (P110,000.00) as attorney's fee; the sum of One Thousand Five Hundred Pesos (P1,500.00) as attorney's fee in the prosecution of the instant case, to pay the cost of the suit. The decision of 31 August 1982 of the CFI of Guimba became final and executory. On motion of Atty. Pascua, the trial court on 22 April 1983 ordered the issuance of a writ of execution. The corresponding 8 writ of execution was issued by the Branch Clerk of Court on 25 January 1985. The Deputy Provincial Sheriff then levied upon and sold at public auction the entire lot of 21.3445 hectares here involved to Atty. Pascua as the sole and hence the highest bidder, for and in consideration of P110,000.00 as 9 partial payment of the judgment obligation. Petitioner brought the present Petition asking for the nullification of the 31 August 1982 decision of the Guimba CFI, as well as the writ of execution, the notice of levy and auction sale and the certificate of sale issued in favor of Atty. Pascua. Petitioner's cause of action is anchored principally on the contention that the award of P110,000.00 as attorney's fees of Atty. Pascua was unconscionable. Petitioner argues that the Solicitor General, and not Atty. Pascua, had actively handled the reversion case and that Atty. Pascua's participation therein was limited to the filing of a complaint-in-intervention on behalf of his clients. In the complaint-in-intervention, Atty. Pascua asked for the same relief as that
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sought by the Solicitor General, although the former added the additional prayer that his clients be accorded preferential rights over the land reverted to the public domain. Petitioner further contended that the contract for legal services between petitioner and his brothers on the hand and Atty. Pascua on the other, provided only for attorney's fees of P5,000.00, as Atty. Pascua himself allegedly admitted in the complaint-in-intervention filed in the reversion case. Upon the other hand, Atty. Pascua's principal contentions are that award of attorney's fees by the Guimba CFI in its 31 August 1982 decision was not unconscionable and that decision had already become final and executory. The ordinary rule is that a judgment may be annulled only on certain defined grounds, lack of 11 jurisdiction, fraud, or illegality. In the case at bar, petitioner has not adduced any jurisdictional defects vitiating the judgment assailed; neither has petitioner shown that the judgment, as such, is in violation of a particular statute. Petitioner's allegation that there was improper venue would not suffice to nullify the decision already rendered and final. From the view we take of this case, however, the circumstances that the Decision of the Guimba CFI of 31 August 1982 became final and executory and that the jurisdiction of the trial court to render that Decision has not been successfully assailed, are not decisive. It is essential to note that the relationship between an attorney and his client is a fiduciary one. Canon 17 of the Code of Professional Responsibility stresses that "a lawyer owes fidelity to the cause of his client and he shall be mindful of the trust and confidence reposed in him." Canon 16 requires a lawyer 12 to "hold in trust all monies and properties of his client that may come into his possession. A lawyer it not merely the defender of his client's cause and a trustee of his client in respect of the client's cause of action and assets; he is also, and first and foremost, an officer of the court and participates in the fundamental function of administering justice in society. It follows that a lawyer's compensation for professional services rendered are subject to the supervision of the court, not just to guarantee that the fees he charges and receives remain reasonable and commensurate with the services rendered, but also to maintain the dignity and integrity of the legal profession to which he belongs. Upon taking his attorney's oath as an officer of the court, a lawyer submits himself to the 13 authority of the courts to regulate his right to charge professional fees. In the instant case, the Court considers that the fees which private respondent Atty. Pascua received from petitioner and his brothers became unreasonable and unconscionable in character, not because the original agreement between Atty. Pascua and his clients was itself unreasonable and unconscionable but rather as a result of the subsequent dispositions of the trial court. The Decision of the trial court shows that respondent Judge upheld the reasonableness and the lawfulness of the contingent fee contract between Atty. Pascua and the Sumaoang brothers. Instead, however, of simply awarding Atty. Pascua a one-half (1/2) portion of the property involved, respondent Judge would up awarding Atty. Pascua a peso amount. In other words, respondent Judge unilaterally and officiously converted the form or medium of compensation from the (1/2) portion of the land recovered by petitioner and his brothers through the efforts of Atty. Pascua, into a peso amount representing, in the mind of the Judge, the value of that one-half (1/2) portion. In his decision, respondent Judge said, among other things:

It is however noted by this Court that plaintiff should only be awarded the equivalent of one-half of the propertyas his lawful attorney's fee in its peso valuation. The land of the defendants commands a high price per hectare in Isabela because NIA had constructed an irrigation canal near it which supplies abundant water supply making it possible for defendants to harvest twice a year . Per hectare, the land owned by the 14 defendants now commands P10,000.00 minimum as price. (Emphasis supplied) Most charitably viewed, respondent Judge was apparently laboring under the impression that the land involved had greatly appreciated in value during the years of litigation. Without requiring or obtaining any third party appraisal of the actual or fair market value of the 21.3445 hectares involved, respondent Judge fixed the sum of P110,000.00 as the "equivalent of 1/2 of the property in its peso valuation." Thus, the respondent Judge in fact disregarded the contingent fee contract between attorney and client, after holding that contract lawful. Worse, the Judge turned out to be grossly uninformed about property valuations, especially the valuation of property sold at public sale in Guimba, Nueva Ecija, and his judgment allowed Atty. Pascua to acquire the entire parcel of land which had been the subject matter of the litigation and for the recovery of which, Atty. Pascua had been retained by the Sumaoang brothers. In brief, Atty. Pascua was able to acquire all the 21.3445 hectares of land although the respondent court had intended to award him only one-half (1/2) "the [assumed] value of such land." In Licudan vs. Court of Appeals,
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this Court said:

. . . There should never be an instance where a lawyer gets as attorney's fees the entire property involved in the litigation . It is unconscionable for the victor in litigation to lose everything he won to the fees of his own lawyer. xxx xxx xxx In resolving the issue of reasonableness of the attorney's fees, we uphold the timehonoured legal maxim that a lawyer shall at all times uphold the integrity and dignity of the legal profession so that his basic ideal becomes one of rendering service and securing justice, not money-making. For the worst scenario that can never happen to a client is to lose the litigated property to his lawyer in whom all trust and confidence were bestowed at the very inception of the legal controversy . . . . (Emphasis supplied) We believe and so hold that respondent Atty. Pascua, under the circumstances of this case, must be regarded as holding the title of the property acquired by him at public sale under an implied trust in favor of petitioner and his brothers, to the extent of one-half (1/2) of that property. Among the species of implied trusts recognized by our Civil Code is that set forth in Article 1456: If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. The "mistakes" or "fraud" that results in an implied trust being impressed upon the property involved, may be the mistake or fraud of a third person, and need not be a mistake or fraud committed directly by 16 the trustee himself under the implied trust. Accordingly, in the instant case, an implied trust was established upon the land acquired by Atty. Pascua even though the operative mistake was a mistake of respondent trial judge. Respondent Judge may be seen to have intended to convey only one-half (1/2) of the land involved as attorney's fees to Atty. Pascua. Atty. Pascua, however, took advantage of

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the Judge's mistake in order to acquire all the 21.3445 hectares for himself. Atty. Pascua obviously knew that under his contract with his clients, he was entitled to ask only for one-half (1/2) of the land. When he purchased the entire land at public auction for P110,000.00 (leaving his clients still owing him P1,500.00), the amount and character of his attorney's fees became unreasonable and unconscionable and constituted unjust enrichment at the expense of his clients. The conclusion we reach in this case rests not only on Article 1456 of the Civil Code but also on the principles of the general law of trusts which, through Article 1442 of the Civil Code, have been adopted or incorporated into our civil law, to the extent that such principles are not inconsistent with the Civil Code and other statutes and the Rules of Court. In Roa, Jr. v. Court of Appeals, where petitioner had retained property the beneficial ownership of which belonged to the private respondents, the Supreme Court affirmed the decision of the Court of Appeals directing petitioner to convey title to that property to private respondents. The Supreme Court rested its decision on the principles of the general law of trusts which, the Court held, included the following general principles embedded in American law and jurisprudence: A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son tort, an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment, or questionable means, or who in any way against equity and good conscience, either has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy. It is raised by equity to satisfy the demands of justice. However, a constructive trust does not arise on every moral wrong in acquiring or holding property or on every abuse of confidence in business or other affairs; ordinarily such a trust arises and will be declared only on wrongful acquisitions or retentions of property of which equity, in accordance with its fundamental principles and the traditional exercise of its jurisdiction or in accordance with statutory provision, takes cognizance. It has been broadly ruled that a breach of confidence, although in business or social relations, rendering an acquisition or retention of property by one person unconscionable against another, raises a constructive trust. And specifically applicable to the case at bar is the doctrine that "A constructive thrust is substantially an appropriate remedy against unjust enrichment. It is raised by equity in respect of property, which has been acquired by fraud, or where, although acquired originally without fraud, it is against equity that it should be retained by the person holding it." The above principle is not in conflict with the New Civil Code, Code of Commerce, Rules of Court and special laws. And since We are a court of law and of equity , the case at bar must be resolved on the general principles of law on constructive trust which basically rest on equitable considerations in order to satisfy the demands of justice, morality, conscience and fair dealing and thus protect the innocent against fraud. As the respondent court said, "It behooves upon the courts to shield fiduciary relations against every manner of chicanery or detestable design cloaked by legal 18 technicalities." (Citations omitted; Emphasis partly supplied and partly in the original)
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A constructive trust, in general usage in the United States, is not based on an expressed intent that it shall exist, or even on an implied or presumed intent. A constructive trust is created by a court of equity 20 as a means of affording relief. Constructive trusts constitute a remedial device "through which 21 preference of self is made subordinate to loyalty to others." In particular, fraud on the part of the person holding or detaining the property at stake is not essential in order that an implied trust may 22 spring into being. In other words of Judge Cardozo, inBeatty v. Guggenheim Exploration Co.: [w]hen property has been acquired in such circumstances that the holder of the legal title may not in good conscience retain the beneficial interest, equity converts him into a trustee. The consequences of an implied trust are, principally, that the implied trustee shall deliver the possession and reconvey title to the property to the beneficiary of the trust, and to pay to the latter the fruits and other net profit received from such property during the period of wrongful or unconscionable holding, and otherwise to adjust the equities between the trustee holding the legal title and the 23 beneficiaries of the trust. Applying the provisions of Article 1456 of the Civil Code and the foregoing principles of the general law of trusts, we treat the present so-called "Petition for Annulment of the Decision of the CFI, etc." as a "Petition for Reconveyance" and, accordingly, require private respondent Atty. Pascua to reconvey or cause the reconveyance of one-half (1/2) of the 21.3445 hectares of land here involved, plus one-half (1/2) of all profits (net of expenses and taxes) which Atty. Pascua may have derived from or in respect of such land during the time he has held the same, to petitioner and his brothers, Vitaliano and Pedro Sumaoang. WHEREFORE, for all the foregoing, and treating the present Petition as a Petition for Reconveyance of Land, the Court hereby GRANTS the same. Private respondent Atty. Jorge A. Pascua is hereby ORDERED to reconvey or cause the reconveyance of one-half (1/2) of the land here involved, plus onehalf (1/2) of the net profits derived from or in respect of such land during the time it has been held by private respondent Pascua, to petitioner and petitioner's brothers, Vitaliano and Pedro Sumaoang. No pronouncement as to costs. SO ORDERED.

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G.R. No. 125715 December 29, 1998 RICARDO F. MARQUEZ, AUREA M. CABEZAS, EXEQUIEL F. MARQUEZ, SALVADOR F. MARQUEZ, ANTONIO F. MARQUEZ, and RAFAEL F. MARQUEZ, JR., petitioners, vs. COURT OF APPEALS, ALFREDO F. MARQUEZ and BELEN F. MARQUEZ, respondents. In our society, tradition and law enshrine the family as a basic social institution. In prose, poetry and song, it is lyrically extolled. What a person becomes in adulthood, for good or ill, is attributed to the influence of the home and family during his formative years. In the family one imbibes desirable values and personality traits. No matter how far one roams, he invariably turns to his family for security, approbation and love. Against the whole world, members of the family stand solid as Gibraltar. It is thus heartrending to find members of the same family at odds with each other, each playing one against the other. The facts of the instant case illustrate the inglorious and unedifying spectacle of a "family feud." all because of a property dispute. During their lifetime, the spouses Rafael Marquez, Sr. and Felicidad Marquez begot twelve children, namely: (1) Natividad; (2) Aurea; (3) Herminigildo; (4) Filomena; (5) Exequel; (6) Salvador; (7) Guadencio; (8) Rafael, Jr., (9) Belen; (10) Alfredo; (11) Ricardo; and (12) Antonio. Sometime in 1945, the spouses acquired a parcel of land with a lot area of 161 square meters in San Juan Del Monte, 1 Rizal, more particularly described in TCT No. 47572, wherein the constructed their conjugal home. In 1952, Felicidad Marquez died intestate. Thirty years later or in 1982, Rafael Marquez, Sr. executed an "Affidavit of Adjudication" vesting unto himself sole ownership to the property described in TCT No. 2 47572. Consequently, TCT No. 47572 was cancelled and TCT No. 33350 was issued in his name on June 16, 1982. Thereafter, on December 29, 1983 Rafael Marquez, Sr. executed a "Deed of Donation Inter 3 Vivos" covering the land described in TCT No. 33350, as well as the house constructed thereon to three of this children, namely: (1) petitioner Rafael, Jr.; (2) Alfredo; and (3) Belen, both private respondents herein, to the exclusion of his other children, petitioners herein. As a result of the donation, TCT No. 33350 was cancelled and TCT No. 47572 was issued in private respondents' name. From 1983 to 1991, private respondents were in actual possession of the land. However, when petitioners learned about the existence of TCT No. 47572, they immediately demanded that since they are also children of Rafael Marquez, Sr., they are entitled to their respective shares over the land in question. Unfortunately, efforts to settle the dispute proved unavailing since private respondents ignored petitioners' demands. In view of the private respondents' indifference, petitioners, now joined by Rafael Jr., filed a complaint 4 on May 31, 1991 for "Reconveyance and Partition with Damages" before the trial court alleging that both the "Affidavit of Adjudication" and "Deed of Donation Inter Vivos" were fraudulent since the private respondents took advantage of the advanced age of their father in making him execute the said documents.

In their Answer, private respondents argued that petitioner's action was already barred by the statute of limitations since the same should have been filed within four years from the date of discovery of the 5 alleged fraud. After due proceedings, the trial court, on April 29, 1993, rendered its decision in favor of the petitioners, in this wise: Prescription cannot set in because an action to set aside a document which is void ab initio does not prescribe. Both the "Affidavit of Adjudication" and the "Donation Inter Vivos" did not produce any legal effect and did not confer any right whatsoever. Equally, Transfer Certificate of Title No. 33350 and 46461 issued pursuant thereto, are likewise null and void ab initio. Therefore, the inexistence of these documents and certificates of title is permanent and cannot be the subject of prescription. Private respondents, dissatisfied with the trial court's ruling, sought recourse before the Court of 7 Appeals. On April 29, 1996, the said court reversed the trial court's finding, thus: In line with the decision of the Supreme Court in Gerona v. de Guzman, 11 SCRA 143, 157, the action therefor may be filed within four (4) years from the discovery of the fraud. Such discovery is deemed to have taken place in the case at bar on June 16, 1982, when the affidavit of self-adjudication was filed with the Register of Deeds and new certificate of title (No. 33350) was issued in the name of Rafael Marquez, Sr. (Exhibits E and 5, page 16, record). Considering that the period from June 16, 1982, when TCT No. 33350 was issued in the name of Rafael Marquez Sr., to May 31, 1991, when appellees' complaint was filed in court, is eight (8) years, eleven (11) months and fifteen (15) days, appellants' action to annul the deed of self-adjudication is definitely barred by the statute of limitation. Petitioner's motion for reconsideration proved unavailing. Hence, they are now before this Court to raise the issue of whether their action for reconveyance had prescribed. Petitioners, in contending that the action had not yet prescribed, assert that by virtue of the fraudulent "Affidavit of Adjudication" and "Deed of Donation" wherein they were allegedly deprived of their just 9 share over the parcel of land, a constructive trust was created. Forthwith, they maintain that an action for reconveyance based on implied or constructive trust prescribes in ten (10) years. It must be noted that Felicidad Marquez died in 1952; thus, succession to her estate is governed by the present Civil Code. Under Article 887 thereof, her compulsory heirs are her legitimate children, petitioners and private respondent therein, and her spouse, Rafael Marquez, Sr. Now, in 1982, Rafael Marquez, Sr. decided to adjudicate the entire property by executing an "Affidavit of Adjudication" 10 claiming that he is the sole surviving heir of his deceased wife Felicidad F. Marquez. As such, when Rafael Marquez Sr., for one reason or another, misrepresented in his unilateral affidavit that he was the only heir of his wife when in fact their children were still alive, and managed to secure a transfer of certificate of title under his name, a constructive trust under Article 1456 was 11 established. Constructive trusts are created in equity in order to prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds 12 the legal, right to property which he ought not, in equity and good conscience, to hold. Prescinding
8 6

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from the foregoing discussion, did the action for reconveyance filed by the petitioners prescribe, as held by the Court of Appeals? In this regard, it is settled that an action for reconveyance based on an implied or constructive trust 13 prescribes in ten years from the isuance of the Torrens title over the property. For the purpose of this case, the prescriptive period shall start to run when TCT No. 33350 was issued, which was on June 16, 1982. Thus, considering that the action for reconveyance was filed on May 31, 1991, or approximately nine years later, it is evident that prescription had not yet barred the action. To bolster the foregoing position, the Court of Appeal's reliance on Gerona v. de Guzman, is 15 misplaced. InAmerol v. Bagumbaran, we ruled that the doctrine laid down in the earlier Gerona case 16 was based on the old Code of Civil Procedure which provided that an action based on fraud prescribes within four years from the date of discovery. However, with the effectivity of the present Civil Code on August 30, 1950, the provisions on prescriptive periods are now governed by Articles 1139 to 1155. Since implied or constructive trusts are obligations created by law then the prescriptive period to 17 enforce the same prescribes in ten years. Cognizant of the fact that the disputed land was conjugal property of the spouses Rafael, Sr. and Felicidad, ownership of the same is to be equally divided between both of them. Prescinding therefrom, can Rafael Marquez Sr., as trustee of his wife's share, validly donate this portion to the respondents? Obviously, he cannot, as expressly provided in Art. 736 of the Civil Code, thus: Art. 736. Guardians and trustees cannot donate the property entrusted to them. Moreover, 18 him. nobody can dispose of that which does not belong to
14

Be that as it may, the next question is whether he can validly donate the other half of the property which he owns? Again, the query need not detain us at length for the Civil Code itself recognizes that one of 19 the inherent rights of an owner is the right to dispose of his property. Whether this donation was inofficious or not is another matter which is not within the province of this Court to determine inasmuch as it necessitates the production of evidence not before it. Finally, while we rule in favor of petitioners, we cannot grant their plea for moral damages and attorney's 20 fees since they have not satisfactorily shown that they have suffered "mental anguish" as provided in Article 2219 and Article 2290 of the Civil Code. Similarly, the plea for attorney's fees must likewise be denied because no premium should be placed on 21 the right to litigate. WHEREFORE, in view of the foregoing, the decision of the Court of Appeals in CA-G.R. CV No. 41214 is REVERSED and SET ASIDE. Except as to the award of attorney's fees which is hereby DELETED, the judgment of the trial court in Civil Case No. 60887 is REINSTATED. No costs. SO ORDERED.

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G.R. No. L-34228 February 21, 1980 SOTERO ARMAMENTO, plaintiff-appellant, vs. CIPRIANO GUERRERO, defendant-appellee. A case certified by the Court of Appeals pursuant to section 31 of the Judiciary Act, as amended, on the ground that it raises purely questions of law. Plaintiff brought this action against defendant in the Court of First Instance of Cotabato (General Santos City) on January 27, 1967, seeking the reconveyance of a parcel of land, or for the declaration of an implied trust thereon, and for damages. The disputed property is Lot No. 974, PLS-247-D, situated in Klinan 6, Polomolok, South Cotabato, with an area of approximately 11 hectares. The property is covered by Original Certificate of Title No. V-16135 issued by the Register of Deeds of Cotabato pursuant to Free Patent No V-19129 granted by the Director of Lands on July 20, 1961 in favor of defendant, but which plaintiff claims was acquired by defendant through fraud and misrepresentation. Defendant raised the following affirmative defenses in his Answer: that plaintiff has no cause of action; that the trial Court has no jurisdiction over the subject matter; that the action has prescribed; and that it has not been brought in the name of the real party in interest. The trial Court, in an Order dated February 14, 1968, sustained defendant's affirmative defenses and dismissed the Complaint holding that plaintiff has no cause of action against defendant; that if the action is to be based on fraud, the action has prescribed; and that if the action is for cancellation of title, plaintiff has no personality to bring the action, the proper party to institute the same being the Republic of the Philippines. From this Order, plaintiff appealed to the Court of Appeals assigning the following errors: ITHE TRIAL COURT ERRED IN NOT EXERCISING ITS EQUITY JURISDICTION AS ENUNCIATED BY JURISPRUDENCE ON THE MATTER; IITHE TRIAL, COURT ERRED IN IGNORING THE PLAINTIFF- APPELLANT'S CLAIM OF POSSESSION AND OF OWNERSHIP OVER THE LAND IN QUESTION; IIITHE TRIAL COURT ERRED IN HOLDING THAT PLAINTIFF-APPELLANT HAS NO CAUSE OF ACTION; IVTHE TRIAL COURT' ERRED IN HOLDING THAT PLAINTIFF- APPELLANT'S ACTION FOR RECONVEYANCE ND DECLARATION OF AN IMPLIED TRUST, AND DAMAGES HAS PRESCRIBED. In a Resolution dated July 24, 1971, and as previously stated the Court of Appeals certified the case to this Court because the appeal involves only legal issues. The Complaint alleges that plaintiff is the possessor-actual occupant of, and the homestead applicant, over Lot No. 974, having continuously possessed and cultivated the same since 1955 and having filed

his Homestead Application No. 37-31, therefore on July 7, 1979; that the aforesaid application was approved bY the Bureau of Lands on July 7, 1959 the (correct date is January 6, 1964); that when he was following up his homestead Application, he was shocked to discover that defendant, through fraud and misrepresentation, succeeded in obtaining Free Patent No. V-19129 and OCT No. V-16135 by falsely stating in his Free Patent Application that he had continuously possessed the lot in question since July 4, 1945 or prior thereto, when, in truth and in fact, defendant was never in possession thereof. He then prayed that the Court order defendant to reconvey the disputed lot to him, or if reconveyance is improper that the lot be declared in trust for the benefit of the Republic of the Philippines, and for him, who is clearly entitled thereto. Defendant, in his Answer, denied that he was not in possession, alleging that he had been in occupation of said lot and had even authorized Macario Caangay to administer the same while he was temporarily away for missionary work in Cagayan de Oro that he had filed his application on August 1, 1958 prior to plaintiff's application filed on July 7, 1959, and that title was issued in his favor on July 20, 1961. Defendant also attached to his Answer a Certification dated April 1, 1967, issued by the Acting District Land Officer, District Land Office VIII-4 General Santos, Cotabato, to the effect that the parties' 1 conflicting claims are under investigation in D.L.O. Conflict No. 15 (N). It will thus be seen that the disputed land was the subject of two Patent Applications. Defendant filed his Free Patent Application on August 1, 1958. Plaintiff filed his Homestead Patent Application approximately one year later or on July 7, 1959. Defendant was issued Free Patent No. V-19129 on July 20, 1961 and Original Certificate of Title No. V-16135 on February 23, 1962. Plaintiff's Homestead Application was approved on January 6, 1964. The present suit was instituted on January 27, 1967. It is to be noted that the trial Court dismissed the case after a hearing on the affirmative defenses. No trial on the merits was held. That dismissal was based on the following grounds: that plaintiff has no personality to file the action for reconveyance, the proper party being the Republic of the Philippines; that plaintiff has no cause of action in the absence of privity of contract between the parties; that defendant's title, issued in 1962, has become indefeasible, consequently, the Court is powerless to cancel the same; and that even if the suit were based on fraud, the action has prescribed. It is true that the basic rule is that after the lapse of one year, a decree of registration is no longer open 2 to review or attack, although its issuance is attended with fraud. This does not mean, however, that the aggrieved party is without remedy at law. If the property has not as yet passed to an innocent 3 purchaser for value, an action for reconveyance is still available. The sole remedy of the land owner whose property has been wrongfully or erroneously registered in another's name is, after one year from the date of the decree, not to set aside the decree, ... but, respecting the decree as incontrovertible and no longer open to review, to bring an ordinary action in the ordinary court of justice for reconveyance or, if the property has passed into the hands of an innocent 4 purchaser for value, for damages. This is exactly what plaintiff has done. He has instituted this action for reconveyance alleging that defendant had succeeded in obtaining title through fraud and misrepresentation by falsely stating in his free patent application that he had continuously possessed the land since July 4, 1945 when, in truth and in fact, defendant had never been in possession. Plaintiff has been unable to prove his charges of fraud and misrepresentation because of the dismissal Order of the trial Court without benefit of a fulldress hearing.

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While plaintiff is not the "owner" of the land he is claiming so that, strictly speaking, he has no 5 personality to file this action, he pleads for equity and invokes the doctrine of implied trust enunciated in Article 1456 of the Civil Code as follows: Art. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. The particular circumstances obtaining herein impel us to exercise our equity jurisdiction to the end that substantial justice may be dispended to the party litigants. To affirm the trial Court's Order of dismissal would leave the present controversy unresolved and pending investigation at the administrative level. Aside from the length of time it would pr probably take for the case to reach the highest administrative authority, any final adjudication rendered by the latter may eventually be raised to the appellate Courts for judicial review. This circuitous and tedious process can be eliminated for the sake of the speedy administration of justice by remanding the case to the trial Court for determination on the merits of the issue of validity of the issuance of Free Patent No. V-19129 and of the title which followed as a matter of course. A court of equity which has taken jurisdiction and cognizance of a cause for any purpose will ordinarily retain jurisdiction for all purposes (Texas v. Florida, 306 US 298; Yarnell v. Hillsborough Packing Co., 92 ALR 1475; Erkskine v. Upham 132 P 2d 219, and other cases cited), decide all issues which are involved in the subject matter of the dispute between the litigants (Russel v. Clark, 3 L ed 271 and other cases cited), and award, relief which is complete and finally disposes of the litigation Katchen v. Landy 382 US 323 and other cases cited so as to accomplish full justice between the parties litigants, (Hepburn v. Dunlop [US] 4 L ed 65; Henderson v. Henderson, 46 SE 2d 10 and other cases cited), prevent future litigation (Sonnicksen v. Sonnicksen, 113 P 2d 495 and other cases cited), and make performance of the court's decree perfectly safe to those who may be compelled to obey it (Wright v. Scotton 121 A 69; Olsen v. National Memorial Gardens, Inc. 115 NW 2d 312) (cited in 27 Am Jur 2d Equity, sec. 108). Likewise to satisfy the demands of justice, the doctrine of implied trust may be made to operate in plaintiff's favor, assuming that he can prove his allegation that defendant had acquired legal title by fraud. ... a constructive trust is a trust 'raised by construction of law, or arising by operation of law. In a more restricted sense and as contra-distinguished from a resulting trust, a constructive trust is a trust not created by any words, either expressly or impliedly evincing a direct intention to create a trust, but by the construction of equity in order to satisfy the demands of justice. It does not arise by agreement or intention but by operation by law.' (89 C.J.S. 726- 727). "If a person obtains legal title to property by fraud or concealment, courts of equity will impress upon the title a so-called constructive trust in favor of the defrauded party." A constructive trust is not a trust in the technical sense (Gayondato vs. Treasurer of the Phil., 49 Phil. 244; see Art, 1456 6 of the Civil Code.) Plaintiff's action for reconveyance may not be said to have prescribed, for, basing the present action on 7 implied trust, the prescriptive period is ten years. Title was obtained by defen dant on February 23, 1962. Plaintiff commenced this suit for reconveyance on January 27, 1967. And if plaintiff's cause of

action is based on fraud, which should ordinarily be brought within four years from the discovery of the 8 fraud, deemed to have taken place when the certificate of title was issued, it need only be recalled that the conflicting rights of the parties were already pending investigation before District Land Office VIII-4 General Santos, Cotabato, even before plaintiff instituted the present suit for reconveyance. WHEREFORE, this case is hereby ordered remanded to the Court of First Instance of Cotabato, Branch II, at General Santos City, for hearing on the merits and rendition of the corresponding judgment. SO ORDERED.

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G.R. No. L-31189 March 31, 1987 MUNICIPALITY OF VICTORIAS, petitioner, vs. THE COURT OF APPEALS, NORMA LEUENBERGER and FRANCISCO SOLIVA, respondents. This is a Petition for Review on certiorari of the decision * of respondent Court of Appeals promulgated on September 29, 1969 in CA-G.R. No. 35036-R (Rollo, p. 11) setting aside the decision ** of the Court of First Intance of Negros Occidental, Branch I, dated September 24, 1964 which dismissed the complaint for recovery of possession in Civil Case No. 181-S and declared the cemetery site on Lot No. 76 in Victorias as property of the municipality of Victorias (Record on Appeal, p. 9). The dispositive portion of the questioned decision reads as follows: IN VIEW OF THE FOREGOING, the judgment of the lower court is hereby set aside and another is hereby rendered: (1) Ordering the defendant municipality and/or thru its appropriate officials to return and deliver the possession of the portion of Lot 76 used as cemetery or burial site of the plaintiff-appellant. (2) Ordering defendant municipality to pay the plaintiff-appellant the sum of P400.00 a year from 1963 until the possession of said land is actually delivered. Lot No. 76 containing an area of 208,157 sq. meters forms a part of Cadastral Lot No. 140 (Rollo, p. 11), a 27.2460 ha. sugar land located in Bo. Madaniog, Victorias, Negros Occidental, in the name of the deceased Gonzalo Ditching under Tax Declaration No. 3429 of Negros Occidental for the year 1941 (Exh. "3," Folder of Exhibits, p. 22). He was survived by his widow Simeona Jingeo Vda. de Ditching and a daughter, Isabel, who died in 1928 (TSN, July 1, 1964, p. 7) leaving one off-spring, respondent Norma Leuenberger, who was then only six months old (TSN, July 1, 1964, p. 34). Respondent Norma Leuenberger, married to Francisco Soliva, inherited the whole of Lot No. 140 from her grandmother, Simeona J. Vda. de Ditching (not from her predeceased mother Isabel Ditching). In 1952, she donated a portion of Lot No. 140, about 3 ha., to the municipality for the ground of a certain high school and had 4 ha. converted into a subdivision. (TSN, July 1, 1964, p. 24). In 1963, she had the remaining 21 ha. or 208.157 sq. m. relocated by a surveyor upon request of lessee Ramon Jover who complained of being prohibited by municipal officials from cultivating the land. It was then that she discovered that the parcel of land, more or less 4 ha. or 33,747 sq.m. used by Petitioner Municipality of Victorias, as a cemetery from 1934, is within her property which is now Identified as Lot 76 and covered by TCT No. 34546 (TSN, July 1, 1964, pp. 7-9; Exh. "4," Folder of Exhibits, p. 23 and Exh. "A," Folder of Exhibits, p. 1). On May 20, 1963, Respondent wrote the Mayor of Victorias regarding her discovery, demanding payment of past rentals and requesting delivery of the area allegedly illegally occupied by Petitioner (Exh. "G, Folder of Exhibits, p. 15). When the Mayor replied that Petitioner bought the land she asked to be shown the papers concerning the sale but was referred by the Mayor to the municipal treasurer who refused to show the same (TSN, July 1, 1964, pp. 32-33).

On January 11, 1964, Respondents filed a complaint in the Court of First Instance of Negros Occidental, Branch 1, for recovery of possession of the parcel of land occupied by the municipal cemetery (Record on Appeal, p. 1). In its answer, petitioner Municipality, by way of special defense, alleged ownership of the lot, subject of the complaint, having bought it from Simeona Jingco Vda. de Ditching sometime in 1934 (Record on Appeal, p. 7). The lower court decided in favor of the Municipality. On appeal Respondent appellate Court set aside the decision of the lower court (Record on AppeaL p. 9); hence, this petition for review on certiorari. This petition was filed with the Court on November 6, 1969 (Rollo, p. 2), the Record on Appeal on December 19, 1969 (Rollo, p. 80). On January 5, 1970, the Court gave due course to the petition (Rollo, p. 84). The Brief for the Petitioner was filed on April 1, 1970 (Rollo, p. 88), the Brief for Respondents was filed on May 18, 1970 (Rollo, p. 92). On July 8, 1970, the Court resolved to consider the case submitted for decision without Petitioner's Reply Brief, Petitioner having failed to file the brief within the period which expired on June 10, 1970 (Rollo. p. 99). On motion of counsel for the Respondents (Rollo, p. 104), the Court resolved on June 30, 1972 to allow respondent Francisco Soliva to continue the appeal in behalf of the estate of respondent Norma Leuenberger who died on January 25, 1972, Respondent Francisco Soliva having been appointed special administrator in Special Proceedings No. 84-V of the Court of First Instance of Negros Occidental (Rollo, p. 110). In their brief, petitioner raised the following errors of respondent Court of Appeals: (Brief for the Petitioner, p. 1-3); I.The Honorable Court of Appeals erred in holding that respondents Norma Leuenberger and Francisco Soliva are the lawful owners of the land in litigation as they are estopped from questioning the possession and ownership of herein petitioner which dates back to more than 30 years. II.The Honorable Court of Appeals also erred in ordering the petition petitioner to deliver the possession of the land in question to the respondents Nomia Leuenberger and Francisco Soliva, by holding that non-annotation on the Torrens Certificate of Title could not affect the said land when the possession by the petitioner of the said land for over 30 years and using it as a public cemetery for that length of time are sufficient proof of purchase and transfer of title and non-annotation of the Certificate of Title did not render the sale ineffectual III. The Honorable Court of Appeals further erred in ordering the petitioner Municipality of Victories to pay the respondents the sum of P400.00 a year from 1963 until possession is actually delivered because under the law, an owner of a piece of land has no obligation to pay rentals as it owns and possesses the same. There is merit in the petition.

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It is undisputed that petitioner failed to present before the Court a Deed of Sale to prove its purchase of the land in question which is included in the Transfer Certificate of Title No. T-34546 in the name of private respondent Norma Leuenberger. The pivotal issue in this case is whether or not the secondary evidence presented by the petitioner municipality is sufficient to substantiate its claim that it acquired the disputed land by means of a Deed of Sale. Under the Best Evidence Rule when the original writing is lost or otherwise unavailable, the law in point provides: Sec. 4. Secondary evidence when original is lost or destroyed. When the original writing has been lost or destroyed, or cannot be produced in court, upon proof of its execution and loss or destruction or unavailability, its contents may be proved by a copy, or by a recital of its contents in some authentic document, or by the recollection of witnesses. (Rule 130, Rules of Court). In lieu of a Deed of Sale, petitioner presented a certificate issued by the Archives Division of the Bureau of Records Management in Manila, of a page of the 1934 Notarial Register of Vicente D. Aragon with the following entries: Nature of Instrument Compra venta 2 porciones Terrenos: Lotes Nos. 140-A y 140-B, Victorias, Neg. Occidental pago por esso despues aprobacion Jusgado la Instance, Neg. Occidental causa civil 5116 Vendedora: Simeona Jingco Vda. de Ditching . . . administradora Abint. G. Ditching Comprador: Municipio Victorias, Neg. Occidental . . . . por su Pres.Mpal Vicente B. Arnaes Valor: P750.00 ... Vease copia correspondiente. Names of-persons Executing/ Acknowledging: Simeona Vda. de Ditching Adm. Abint actuacion especial No. 5116 Jusgado la Instance Neg. Occidental Vendedora Vicente B. Arnaes Pres. Municipal. Victorias Comprador Witnesses to the Signatures: Esteban Jalandoni Gregorio Elizalde Date: Month 9 Julio 1934 Fees: P2.00 Cedulas: Exenta por susexo F1027880 Enero 26/34 Victories, Neg. Occidental Remarks.En Victorias, Neg. Occidental

Los annexes A. y B. estan unidos solamente en el original de la escritura. Respondent Court of Appeals was of the view (Rollo, p. 16) that a mere entry in the notarial register of a notary public of an alleged sale cannot prove that a particular piece of land was sold by one person to another, one of the important requirements being the indication of the area and the technical description of the land being sold. In the present case, since no deed of sale could be produced, there is no way of telling what particular portion of the property was sold to defendant municipality and how big was the sale of the land conveyed to the defendant municipality. It will be observed that the entries in the notarial register clearly show: (a) the nature of the instrument. a deed of sale; (b) the subject of the sale two parcels of land, Lot Nos. 140-A and 140-B; (c) the parties of the contract the vendor Simeona J. Vda. de Ditching in her capacity as Administrator in Civil Case No. 5116 of the Court of First Instance of Negros Occidental and the vendee, Vicente B. Ananosa, Municipal Mayor of Victorias; (d) the consideration P750.00; (e) the names of the witnesses Esteban Jalandoni and Gregoria Elizado; and the date of the sale on July 9, 1934. It is beyond question that the foregoing certificate is an authentic document clearly corroborated and supported by: (a) the testimony of the municipal councilor of Victorias, Ricardo Suarez, (Original TSN Hearing of September 14, 1964, pp. 1222) who negotiated the sale; (b) the testimony of Emilio Cuesta, (Original TSN Hearing of September 14, 1964, pp. 2238) the municipal treasurer of said municipality, since 1932 up to the date of trial on September 14, 1964, who personally paid the amount of P750.00 to Felipe Leuenberger as consideration of the Contract of Sale; (c) Certificate of Settlement (Original Exhibits, p. 20) "as evidence of said payment;" (d) Tax Declaration No. 429 ( Ibid., p. 22) which was cancelled and was substituted by Tax Declaration No. 3600 covering the portion of the property unsold (Decision, CFI, Neg. Occidental Orig. Record on Appeal, p. 6) and (e) Tax Declaration No. 3601 ( Ibid, p. 23) in the name of the Municipal Government of Victorias covering the portion occupied as cemetery. Tax Declaration No. 3601 shows on its face the boundaries as follows: North NE Lot No. 140-C of the Subdivision South SW Lot No. 140-C of the Subdivision West NW Lots Nos. 140-C & 140-B of the Subdivision. The area is 33,747 sq.m. At the back Exh. 4-A, the sale of a portion of the lot to the Municipality of Victorias was clearly explained as follows: Note: The whole Lot No. 140, belongs to Norma Leuenberger as evidenced by a Transfer of Cert. of Title No. 18672. Portion of this Lot, (30,000 sq.m. was sold to Municipality of Victories for Cemetery Site as evidenced by a Deed of Sale executed by Simeona Jingco Vda. de Ditching in favor of the aforesaid Municipality and ratified

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by Notary Public Mr. Vicente Aragon under Doc. No. 132; Page No. 2; Book No. 10, Series of 1934. At the lowest portion under Memoranda it was explained that The area under this declaration includes 3,746 sq. meters donated by Mrs. Simeona Jingco Vda. de Ditching and used as road leading to the cemetery. " (EXIL 4; Original Exhibits, p. 23). The above-mentioned testimonies and documentary evidence sufficiently Identify the land sold by the predecessors-in-interest of private respondent. To insist on the technical description of the land in dispute would be to sacrifice substance to form which would undoubtedly result in manifest injustice to the petitioner. Moreover, it is expressly provided by law that the thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. (Civil Code Art. 1497). Where there is no express provision that title shall not pass until payment of the price, and the thing gold has been delivered, title passes from the moment the thing sold is placed in the possession and control of the buyer. (Kuenzle & Streiff vs. Watson & Co., 13 PhiL 26 [1909]). Delivery produces its natural effects in law, the principal and most important of which being the conveyance of ownership, without prejudice to the right of the vendor to payment of the price. (Ocejo, Perez & Co. vs. International Banking Corp., 37 PhiL 631 [1918]). Similarly, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed, the contrary does not appear or cannot be clearly inferred. (Civil Code Art. 1498). The execution of the public instrument operates as a formal or symbolic delivery of the property sold and authorizes the buyer to use the document as proof of ownership. (Florendo v. Foz, 20 PhiL 388 [1911]). In the case at bar it is undisputed that petitioner had been in open, public, adverse and continuous possession of the land for a period of more than thirty years. In fact, according to the municipal treasurer there are over 1000 graves in the cemetery. (Decision, Court of Appeals, Rollo, pp. 11-22). As correctly observed by Justice Magno S. Gatmaitan in his dissenting opinion (Rollo, pp. 23-28) in the decision of this case by the Court of Appeals, the evidence establishes without debate that the property was originally registered in 1916. Plaintiff was born only in 1928 and cannot possibly be the registered owner of the original lot 140 at the time. Indeed, according to her own evidence, (Exhibit A; Original Record pp. 13) she became the registered owner only in 1963. Likewise, it is undisputed that in the intestate estate of Gonzalo Ditching, the grandfather of private respondent Norma Leunberger, it was her grandmother, Simeona, the surviving spouse of Gonzalo who was named judicial administratrix. According to Norma's own testimony, Isabel her mother, died in 1928 (TSN Aug. 12, 1964, p. 34) while Simeona the grandmother died in 1942. (Ibid.) Therefore, as of 1934 when a document of sale was executed by Simeona in favor of the municipality of Victories as indubitably shown in the notarial register (Exhibit 5.A) in question, Simeona was still the administratrix of the properties left by her husband, Gonzalo and of their conjugal partnership. Consequently, she is the only person who could legally dispose of by sale this particular four- hectare portion of Lot 140. And so it is, that in 1934, Simeona Ditching in her capacity as judicial administratrix made and executed the document described in the Report as Lots 140-A and 140-B, showing clearly that they are portions of the original big Lot 140. As this conveyance was executed by the judicial administratrix, unquestionably the party authorized to

dispose of the same, the presumption must be that she did so upon proper authority of the Court of First Instance. As to the description of the property sold, the fact that a notarial report shows that they are portions of Lot 140 and the property in question occupied by the public cemetery is admittedly a portion of said lot in the absence of evidence that there were other portions of Lot 140 ceded unto the petitioner municipality, the inevitable conclusion is that the sale executed in the Notarial Register refers to the disputed lot. Unfortunately, the purchaser Municipality of Victorias failed to register said Deed of Sale; hence, when Simeona Jingco Vda. de Ditching died, her grand-daughter, respondent Norma Leuenberger claimed to have inherited the land in dispute and succeeded in registering said land under the Torrens system. Said land is now covered by Transfer Certificate of Title No. T-34036 (Exhibit A, supra) issued by the Register of Deeds of -Negros Occidental on March 11, 1963 in the name of Norma Leuenberger, married to Francisco Soliva, containing an area of 208,157 square meters. As registered owner, she is unquestionably entitled to the protection afforded to a holder of a Torrens Title. Admittedly, it is well-settled that under the Torrens System "Every person receiving a certificate of title in pursuance of a decree of registration, . . . shall hold the same free of all encumbrance except those noted on said certificate ... " (Sec. 39, Act 496; now Sec. 43, PD 1529). In the instant case, however, respondent Norma Leuenberger admitted that she inherited the land covered by Transfer Certificate of Title No. T-34036 from her grandmother, who had already sold the land to the petitioner in 1934; hence, she merely stepped into the shoes of her grandmother and she cannot claim a better right than her predecessor-in-interest. When she applied for registration of the disputed land, she had no legal right to do so as she had no ownership of the land since land registration is not a mode of acquiring ownership but only of confirming ownership of the land. (Grande, et al. vs. Court of Appeals, et al., 115 Phil. 521.)"The Torrens System was not established as a means for the acquisition of title to private land, ..." It is intended merely to confirm and register the title which one may already have on the land. Where the applicant possesses no title or ownership over the parcel of land, he cannot acquire one under the Torrens system of Registration. (Torela, et al., vs. Torela, et al., L-27843, October 11, 1979). While an inherently defective Torrens title may not ordinarily be cancelled even after proof of its defect, the lawnevertheless safeguards the rightful party's interest in the titled land from fraud and improper use of technicalities by snowing such party, in appropriate cases, to judicially seek reconveyance to him of whatever he has been deprived of as long as the land has not been transferred or conveyed to a purchaser in good faith. (Pedro Pascua, et al., vs. Mariano Gopuyoc et al., L-23197, May 31, 1977.) The Civil Code provides: Art. 1456. If the property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. Thus, it has been held that where the land is decreed in the name of a person through fraud or mistake, such person is by operation of law considered a trustee of an implied trust for the benefit of the persons from whom the property comes. The beneficiary shag have the right t enforce the trust, notwithstanding the irrevocability of the Torrens title and the trustee and his successors-in-interest are

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bound to execute the deed of reconveyance. (Pacheco vs. Arro, 85 Phil. 505; Escobar vs. Locsin, 74 Phil. 86). As the land in dispute is held by private respondents in trust for the Municipality of Victorias, it is logical to conclude that the latter can neither be deprived of its possession nor be made to pay rentals thereof. Private respondent is in equity bound to reconvey the subject land to the cestui que trust the Municipality of Victorias. The Torrens system was never calculated to foment betrayal in the performance of a trust. (Escobar vs. Locsin, 74 Phil. 86). For a more expeditious disposition of the case at bar, Rule 39 of the Rules of Court provides: SEC. 10. Judgment for Specific acts; vesting title. ... If real or personal property is within the Philippines, the court in lieu of directing a conveyance thereof may enter judgment divesting the title of any party and vesting it in others and such judgment shall have the force and effect of a conveyance executed in due form of law. Finally, the conclusions and findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed unless for strong and cogent reasons because the trial court is in a better position to examine real evidence, as well as to observe the demeanor of the witnesses while testifying in the case. (Chase v. Buencamino, Sr., 136 SCRA 365 [1985]). PREMISES CONSIDERED, the judgment of the respondent appellate court is hereby SET ASIDE and the decision of the Court of First Instance of Negros Occidental, Branch I-Silay City in Civil Case No. 181-S declaring the cemetery site (Exh. E-2) on Lot No. 76 in Victories as the property of the municipality of Victorias, is hereby REINSTATED. Additionally, We hereby order (a) the petitioner to have the disputed land segregated by a licensed surveyor from the rest of Lot No. 76 described in Transfer Certificate of Title No. T-34036 and to have the corresponding subdivision plan, duly approved by the Land Registration Commission, submitted to the court of origin for approval; (b) the private respondents Norma Leuenberger and Francisco Soliva to be divested of their title to the disputed land under Rule 39, Sec. 10, Rules of Court; and (c) the Register of Deeds of Negros Occidental to cancel Transfer Certificate of Title No. 34036 and issue, in lieu thereof, one title in the name of the Municipality of Victories for the disputed land and another title in the names of the private respondents Norma Leuenberger and Francisco Soliva for the rest of Lot No. 76. Without costs. SO ORDERED.

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G.R. No. L-26699 March 16, 1976 BENITA SALAO, assisted by her husband, GREGORIO MARCELO; ALMARIO ALCURIZA, ARTURO ALCURIZA, OSCAR ALCURIZA and ANITA ALCURIZA, the latter two being minors are represented by guardian ad litem, ARTURO ALCURIZA, plaintiffs-appellants, vs. JUAN S. SALAO, later substituted by PABLO P. SALAO, Administrator of the Intestate of JUAN S. SALAO; now MERCEDES P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO VDA. DE SANTOS, LUCIANA P. SALAO, ISABEL SALAO DE SANTOS, and PABLO P. SALAO, as successors-in-interest of the late JUAN S. SALAO, together with PABLO P. SALAO, Administrator, defendants-appellants. This litigation regarding a forty-seven-hectare fishpond located at Sitio Calunuran, Hermosa, Bataan involves the law of trusts and prescription. The facts are as follows: The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal begot four children named Patricio, Alejandra, Juan (Banli) and Ambrosia. Manuel Salao died in 1885. His eldest son, Patricio, died in 1886 survived by his only child. Valentin Salao. There is no documentary evidence as to what, properties formed part of Manuel Salao's estate, if any. His widow died on May 28, 1914. After her death, her estate was administered by her daughter Ambrosia. It was partitioned extrajudicially in a deed dated December 29, 1918 but notarized on May 22, 1919 (Exh. 21). The deed was signed by her four legal heirs, namely, her three children, Alejandra, Juan and Ambrosia, and her grandson, Valentin Salao, in representation of his deceased father, Patricio. The lands left by Valentina Ignacio, all located at Barrio Dampalit were as follows: Nature of LandArea insquare meters (1) One-half interest in a fishpond which she had inherited from her parents, Feliciano Ignacio and Damiana Mendoza, and the other half of which was owned by her co-owner, Josefa Sta. Ana . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,700 (2) Fishpond inherited from her parents . . . . . . . . . . . . 7,418 (3) Fishpond inherited from her parents . . . . . . . . . . . . . 6,989 (4) Fishpond with a bodega for salt . . . . . . . . . . . . . . . . 50,469 (5) Fishpond with an area of one hectare, 12 ares and 5 centares purchased from Bernabe and Honorata Ignacio by Valentina Ignacio on November 9, 1895 with a bodega for salt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,205 (6) Fishpond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,000

(7) One-half interest in a fishpond with a total area of 10,424 square meters, the other half was owned by A. Aguinaldo . . . . . . . . . . . . . . . . . . . . . . . 5,217 (8) Riceland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50,454 (9) Riceland purchased by Valentina Ignacio from Eduardo Salao on January 27, 1890 with a house and two camarins thereon . . . . . . . . . . . . . . . . . . 8,065 (10) Riceland in the name of Ambrosia Salao, with an area of 11,678 square meters, of which 2,173 square meters were sold to Justa Yongco . . . . . . . . . .9,505 TOTAL . . . . . . . . . . . . .. 179,022 squaremeters To each of the legal heirs of Valentina Ignacio was adjudicated a distributive share valued at P8,135.25. In satisfaction of his distributive share, Valentin Salao (who was then already forty-eight years old) was given the biggest fishpond with an area of 50,469 square meters, a smaller fishpond with an area of 6,989 square meters and the riceland with a net area of 9,905 square meters. Those parcels of land had an aggregate appraised value of P13,501 which exceeded Valentin's distributive share. So in the deed of partition he was directed to pay to his co-heirs the sum of P5,365.75. That arrangement, which was obviously intended to avoid the fragmentation of the lands, was beneficial to Valentin. In that deed of partition (Exh. 21) it was noted that "desde la muerte de Valentina Ignacio y Mendoza, ha venido administrando sus bienes la referida Ambrosia Salao" "cuya administracion lo ha sido a satisfaccion de todos los herederos y por designacion los mismos". It was expressly stipulated that Ambrosia Salao was not obligated to render any accounting of her administration "en consideracion al resultado satisfactorio de sus gestiones, mejoradas los bienes y pagodas por ella las contribusiones (pages 2 and 11, Exh. 21). By virtue of the partition the heirs became "dueos absolutos de sus respectivas propiedadas, y podran inmediatamente tomar posesion de sus bienes, en la forma como se han distribuido y llevado a cabo las adjudicaciones" (page 20, Exh. 21). The documentary evidence proves that in 1911 or prior to the death of Valentina Ignacio her two children, Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens title, OCT No. 185 of the Registry of Deeds of Pampanga, in their names for a forty-seven-hectare fishpond located at Sitio Calunuran, Lubao, Pampanga (Exh. 14). It is also known as Lot No. 540 of the Hermosa cadastre because that part of Lubao later became a part of Bataan. The Calunuran fishpond is the bone of contention in this case. Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had engaged in the fishpond business. Where they obtained the capital is not shown in any documentary evidence. Plaintiffs' version is that Valentin Salao and Alejandra Salao were included in that joint venture, that the funds used were the earnings of the properties supposedly inherited from Manuel Salao, and that those earnings were used in the acquisition of the Calunuran fishpond. There is no documentary evidence to support that theory.

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On the other hand, the defendants contend that the Calunuran fishpond consisted of lands purchased by Juan Y. Salao, Sr. and Ambrosia Salao in 1905, 1906, 1907 and 1908 as, shown in their Exhibits 8, 9, 10 and 13. But this point is disputed by the plaintiffs. However, there can be no controversy as to the fact that after Juan Y. Salao, Sr. and Ambrosia Salao secured a Torrens title for the Calunuran fishpond in 1911 they exercised dominical rights over it to the exclusion of their nephew, Valentin Salao. Thus, on December 1, 1911 Ambrosia Salao sold under pacto de retro for P800 the Calunuran fishpond to Vicente Villongco. The period of redemption was one year. In the deed of sale (Exh19) Ambrosia confirmed that she and her brother Juan were the dueos proindivisos of the said pesqueria. On December 7, 1911 Villongco, the vendee a retro, conveyed the same fishpond to Ambrosia by way of lease for an anual canon of P128 (Exh. 19-a). After the fishpond was redeemed from Villongco or on June 8, 1914 Ambrosia and Juan sold it under pacto de retro to Eligio Naval for the sum of P3,360. The period of redemption was also one year (Exh. 20). The fishpond was later redeemed and Naval reconveyed it to the vendors a retro in a document dated October 5, 1916 (Exh. 20-a). The 1930 survey shown in the computation sheets of the Bureau of Lands reveals that the Calunuran fishpond has an area of 479,205 square meters and that it was claimed by Juan Salao and Ambrosia Salao, while the Pinanganacan fishpond (subsequently acquired by Juan and Ambrosia) has an area of 975,952 square meters (Exh. 22). Likewise, there is no controversy as to the fact that on May 27, 1911 Ambrosia Salao bought for four thousand pesos from the heirs of Engracio Santiago a parcel of swampland planted to bacawan and nipa with an area of 96 hectares, 57 ares and 73 centares located at Sitio Lewa, Barrio Pinanganacan, Lubao, Pampanga (Exh. 17-d). The record of Civil Case No. 136, General Land Registration Office Record No. 12144, Court of First Instance of Pampanga shows that Ambrosia Salao and Juan Salao filed an application for the registration of that land in their names on January 15, 1916. They alleged in their petition that "han adquirido dicho terreno por partes iguales y por la compra a los herederos del finado, Don Engracio Santiago" (Exh. 17-a). At the hearing on October 26, 1916 before Judge Percy M. Moir, Ambrosia testified for the applicants. On that same day Judge Moir rendered a decision, stating, inter alia, that the heirs of Engracio Santiago had sold the land to Ambrosia Salao and Juan Salao. Judge Moir "ordena la adjudicacion y registro del terreno solicitado a nombre de Juan Salao, mayor de edad y de estado casado y de su esposa Diega Santiago y Ambrosia Salao, de estado soltera y mayor de edad, en participaciones iguales" (Exh. 17-e). On November 28, 1916 Judge Moir ordered the issuance of a decree for the said land. The decree was issued on February 21, 1917. On March 12, 1917 Original Certificate of Title No. 472 of the Registry of Deeds of Pampanga was issued in the names of Juan Salao and Ambrosia Salao. That Pinanganacan or Lewa fishpond later became Cadastral Lot No. 544 of the Hermosa cadastre (Exh. 23). It adjoins the Calunuran fishpond (See sketch, Exh. 1).

Juan Y. Salao, Sr. died on November 3, 1931 at the age of eighty years (Exh. C). His nephew, Valentin Salao, died on February 9, 1933 at the age of sixty years according to the death certificate (Exh. A. However, if according to Exhibit 21, he was forty-eight years old in 1918, he would be sixty-three years old in 1933). The intestate estate of Valentin Salao was partitioned extrajudicially on December 28, 1934 between his two daughters, Benita Salao-Marcelo and Victorina Salao-Alcuriza (Exh. 32). His estate consisted of the two fishponds which he had inherited in 1918 from his grandmother, Valentina Ignacio. If it were true that he had a one-third interest in the Calunuran and Lewa fishponds with a total area of 145 hectares registered in 1911 and 1917 in the names of his aunt and uncle, Ambrosia Salao and Juan Y. Salao, Sr., respectively, it is strange that no mention of such interest was made in the extrajudicial partition of his estate in 1934. It is relevant to mention that on April 8, 1940 Ambrosia Salao donated to her grandniece, plaintiff Benita Salao, three lots located at Barrio Dampalit with a total area of 5,832 square meters (Exit. L). As donee Benita Salao signed the deed of donation. On that occasion she could have asked Ambrosia Salao to deliver to her and to the children of her sister, Victorina, the Calunuran fishpond if it were true that it was held in trust by Ambrosia as the share of Benita's father in the alleged joint venture. But she did not make any such demand. It was only after Ambrosia Salao's death that she thought of filing an action for the reconveyance of the Calunuran fishpond which was allegedly held in trust and which had become the sole property of Juan Salao y Santiago (Juani). On September 30, 1944 or during the Japanese occupation and about a year before Ambrosia Salao's death on September 14, 1945 due to senility (she was allegedly eighty-five years old when she died), she donated her one-half proindiviso share in the two fishponds in question to her nephew, Juan S. Salao, Jr. (Juani) At that time she was living with Juani's family. He was already the owner of the the other half of the said fishponds, having inherited it from his father, Juan Y. Salao, Sr. (Banli) The deed of denotion included other pieces of real property owned by Ambrosia. She reserved for herself the usufruct over the said properties during her lifetime (Exh. 2 or M). The said deed of donation was registered only on April 5, 1950 (page 39, Defendants' Record on Appeal). The lawyer of Benita Salao and the Children of Victorina Salao in a letter dated January 26, 1951 informed Juan S. Salao, Jr. that his clients had a one-third share in the two fishponds and that when Juani took possession thereof in 1945, he refused to give Benita and Victorina's children their one-third share of the net fruits which allegedly amounted to P200,000 (Exh. K). Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated that Valentin Salao did not have any interest in the two fishponds and that the sole owners thereof his father Banli and his aunt Ambrosia, as shown in the Torrens titles issued in 1911 and 1917, and that he Juani was the donee of Ambrosia's one-half share (Exh. K-1).

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

Both parties appealed. The plaintiffs appealed because their action for reconveyance was dismissed. The defendants appealed because their counterclaim for damages was dismissed. The appeals, which deal with factual and legal issues, were made to the Court of Appeals. However, as the amounts involved exceed two hundred thousand pesos, the Court of Appeals elevated the case to this Court in its resolution of Octoter 3, 1966 (CA-G.R. No. 30014-R). Plaintiffs' appeal. An appellant's brief should contain "a subject index index of the matter in the brief with a digest of the argument and page references" to the contents of the brief (Sec. 16 [a], Rule 46, 1964 Rules of Court; Sec. 17, Rule 48, 1940 Rules of Court). The plaintiffs in their appellants' brief consisting of 302 pages did not comply with that requirement. Their statements of the case and the facts do not contain "page references to the record" as required in section 16[c] and [d] of Rule 46, formerly section 17, Rule 48 of the 1940 Rules of Court. Lawyers for appellants, when they prepare their briefs, would do well to read and re-read section 16 of Rule 46. If they comply strictly with the formal requirements prescribed in section 16, they might make a competent and luminous presentation of their clients' case and lighten the burden of the Court. What Justice Fisher said in 1918 is still true now: "The pressure of work upon this Court is so great that we cannot, in justice to other litigants, undertake to make an examination of the voluminous transcript of the testimony (1,553 pages in this case, twenty-one witnesses having testified), unless the attorneys who desire us to make such examination have themselves taken the trouble to read the record and brief it in accordance with our rules" (Palara vs. Baguisi 38 Phil. 177, 181). As noted in an old case, this Court decides hundreds of cases every year and in addition resolves in minute orders an exceptionally considerable number of petitions, motions and interlocutory matters (Alzua and Arnalot vs. Johnson, 21 Phil. 308, 395; See In re Almacen, L-27654, February 18, 1970, 31 SCRA 562, 573). Plaintiffs' first assignment of error raised a procedural issue. In paragraphs 1 to 14 of their first cause of action they made certain averments to establish their theory that Valentin Salao had a one-third interest in the two fishponds which were registrered in the names of Juan Y. Salao, Sr. (Banli) and Ambrosia Salao. Juan S. Salao, Jr. (Juani) in his answer "specifically" denied each and all the allegations" in paragraphs I to 10 and 12 of the first cause of action with the qualification that Original certificates of Title Nos. 185 and 472 were issued "more than 37 years ago" in the names of Juan (Banli) and Ambrosia under the circumstances set forth in Juan S. Salao, Jr.'s "positive defenses" and "not under the circumstances stated in the in the amended complaint". The plaintiffs contend that the answer of Juan S. Salao, Jr. was in effect tin admission of the allegations in their first cause of action that there was a co-ownership among Ambrosia, Juan, AIejandra and Valentin, all surnamed Salao, regarding the Dampalit property as early as 1904 or 1905; that the common funds were invested the acquisition of the two fishponds; that the 47-hectare Calunuran fishpond was verbally adjudicated to Valentin Salao in the l919 partition and that there was a verbal stipulation to to register "said lands in the name only of Juan Y. Salao". That contention is unfounded. Under section 6, Rule 9 of the 1940 of Rules of Court the answer should "contain either a specific dinial a statement of matters in accordance of the cause or causes of action asserted in the complaint". Section 7 of the same rule requires the defendant to "deal specificaly with

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each material allegation of fact the truth of wihich he does not admit and, whenever practicable shall set forth the substance of the matters which he will rely upon to support his denial". "Material averments in the complaint, other than those as to the amount damage, shall be deemed admitted when specifically denied" (Sec. 8). "The defendant may set forth set forth by answer as many affirmative defenses as he may have. All grounds of defenses as would raise issues of fact not arising upon the preceding pleading must be specifically pleaded" (Sec. 9). What defendant Juan S. Salao, Jr. did in his answer was to set forth in his "positive defenses" the matters in avoidance of plaintiffs' first cause of action which which supported his denials of paragraphs 4 to 10 and 12 of the first cause of action. Obviously, he did so because he found it impracticable to state pierceneal his own version as to the acquisition of the two fishponds or to make a tedious and repetitious recital of the ultimate facts contradicting allegations of the first cause of action. We hold that in doing so he substantially complied with Rule 9 of the 1940 Rules of Court. It may be noted that under the present Rules of Court a "negative defense is the specific denial of t the material fact or facts alleged in the complaint essential to plaintiff's cause of causes of action". On the other hand, "an affirmative defense is an allegation of new matter which, while admitting the material allegations of the complaint, expressly or impliedly, would nevertheless prevent or bar recovery by the plaintiff." Affirmative defenses include all matters set up "by of confession and avoidance". (Sec. 5, Rule 6, Rules of Court). The case of El Hogar Filipino vs. Santos Investments, 74 Phil. 79 and similar cases are distinguishable from the instant case. In the El Hogar case the defendant filed a laconic answer containing the statement that it denied "generally ans specifically each and every allegation contained in each and every paragraph of the complaint". It did not set forth in its answer any matters by way of confession and avoidance. It did not interpose any matters by way of confession and avoidance. It did not interpose any affirmative defenses. Under those circumstances, it was held that defendant's specific denial was really a general denial which was tantamount to an admission of the allegations of the complaint and which justified judgment on the pleadings. That is not the situation in this case. The other nine assignments of error of the plaintiffs may be reduced to the decisive issue of whether the Calunuran fishpond was held in trust for Valentin Salao by Juan Y. Salao, Sr. and Ambrosia Salao. That issue is tied up with the question of whether plaintiffs' action for reconveyance had already prescribed. The plaintiffs contend that their action is "to enforce a trust which defendant" Juan S. Salao, Jr. allegedly violated. The existence of a trust was not definitely alleged in plaintiffs' complaint. They mentioned trust for the first time on page 2 of their appelants' brief. To determine if the plaintiffs have a cause of action for the enforcement of a trust, it is necessary to maek some exegesis on the nature of trusts (fideicomosis). Trusts in Anglo-American jurisprudence were derived from thefideicommissa of the Roman law (Government of the Philippine Islands vs. Abadilla, 46 Phil. 642, 646). "In its technical legal sense, a trust is defined as the right, enforceable solely in equity, to the beneficial enjoyment of property, the legal title to which is vested in another, but the word 'trust' is frequently employed to indicate duties, relations, and responsibilities which are not strictly technical trusts" (89 C.J.S. 712).

A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary" (Art. 1440, Civil Code). There is a fiduciary relation between the trustee and thecestui que trust as regards certain property, real, personal, money or choses in action (Pacheco vs. Arro, 85 Phil. 505). "Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law" (Art. 1441, Civil Code). "No express trusts concerning an immovable or any interest therein may be proven by parol evidence. An implied trust may be proven by oral evidence" (Ibid, Arts. 1443 and 1457). "No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L19012, October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which are created by the direct and positive acts of the parties, by some writing or deed, or will, or by words either expressly or impliedly evincing an intention to create a trust" (89 C.J.S. 72). "Implied trusts are those which, without being expressed, are deducible from the nature of the transaction asmatters of intent, or which are superinduced on the transaction by operation of law as matter of equity,independently of the particular intention of the parties" (89 C.J.S. 724). They are ordinarily subdivided into resulting and constructive trusts (89 C.J.S. 722). "A resulting trust. is broadly defined as a trust which is raised or created by the act or construction of law, but in its more restricted sense it is a trust raised by implication of law and presumed to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction, but not expressed in the deed or instrument of conveyance (89 C.J.S. 725). Examples of resulting trusts are found in articles 1448 to 1455 of the Civil Code. (See Padilla vs. Court of Appeals, L-31569, September 28, 1973, 53 SCRA 168, 179; Martinez vs. Grao 42 Phil. 35). On the other hand, a constructive trust is -a trust "raised by construction of law, or arising by operation of law". In a more restricted sense and as contra-distinguished from a resulting trust, a constructive trust is "a trust not created by any words, either expressly or impliedly evincing a direct intension to create a trust, but by the construction of equity in order to satisfy the demands of justice." It does not arise "by agreement or intention, but by operation of law." (89 C.J.S. 726-727). Thus, "if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes" (Art. 1456, Civil Code). Or "if a person obtains legal title to property by fraud or concealment, courts of equity will impress upon the title a so-called constructive trust in favor of the defrauded party". Such a constructive trust is not a trust in the technical sense. (Gayondato vs. Treasurer of the P. I., 49 Phil. 244). Not a scintilla of documentary evidence was presented by the plaintiffs to prove that there was an express trust over the Calunuran fishpond in favor of Valentin Salao. Purely parol evidence was offered by them to prove the alleged trust. Their claim that in the oral partition in 1919 of the two fishponds the Calunuran fishpond was assigned to Valentin Salao is legally untenable.

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It is legally indefensible because the terms of article 1443 of the Civil Code (already in force when the action herein was instituted) are peremptory and unmistakable: parol evidence cannot be used to prove an express trust concerning realty. Is plaintiffs' massive oral evidence sufficient to prove an implied trust, resulting or constructive, regarding the two fishponds? Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust. The trial court's firm conclusion that there was no community of property during the lifetime of Valentina; Ignacio or before 1914 is substantiated by defendants' documentary evidence. The existence of the alleged co-ownership over the lands supposedly inherited from Manuel Salao in 1885 is the basis of plaintiffs' contention that the Calunuran fishpond was held in trust for Valentin Salao. But that co-ownership was not proven by any competent evidence. It is quite improbable because the alleged estate of Manuel Salao was likewise not satisfactorily proven. The plaintiffs alleged in their original complaint that there was a co-ownership over two hectares of land left by Manuel Salao. In their amended complaint, they alleged that the co-ownership was over seven hectares of fishponds located in Barrio Dampalit, Malabon, Rizal. In their brief they alleged that the fishponds, ricelands and saltbeds owned in common in Barrio Dampalit had an area of twenty-eight hectares, of which sixteen hectares pertained to Valentina Ignacio and eleven hectares represented Manuel Salao's estate. They theorized that the eleven hectares "were, and necessarily, the nucleus, nay the very root, of the property now in litigation (page 6, plaintiffs-appellants' brief). But the eleven hectares were not proven by any trustworthy evidence. Benita Salao's testimony that in 1918 or 1919 Juan, Ambrosia, Alejandra and Valentin partitioned twenty-eight hectares of lands located in Barrio Dampalit is not credible. As noted by the defendants, Manuel Salao was not even mentioned in plaintiffs' complaints. The 1919 partition of Valentina Ignacio's estate covered about seventeen hectares of fishponds and ricelands (Exh. 21). If at the time that partition was made there were eleven hectares of land in Barrio Dampalit belonging to Manuel Salao, who died in 1885, those eleven hectares would have been partitioned in writing as in the case of the seventeen hectares belonging to Valentina Ignacio's estate. It is incredible that the forty-seven-hectare Calunuran fishpond would be adjudicated to Valentin Salao mere by by word of mouth. Incredible because for the partition of the seventeen hectares of land left by Valentina Ignacio an elaborate "Escritura de Particion" consisting of twenty-two pages had to be executed by the four Salao heirs. Surely, for the partition of one hundred forty-five hectares of fishponds among three of the same Salao heirs an oral adjudication would not have sufficed. The improbability of the alleged oral partition becomes more evident when it is borne in mind that the two fishponds were registered land and "the act of registration" is "the operative act" that conveys and affects the land (Sec. 50, Act No. 496). That means that any transaction affecting the registered land should be evidenced by a registerable deed. The fact that Valentin Salao and his successors-in-interest, the plaintiffs, never bothered for a period of nearly forty years to procure any documentary evidence to establish his supposed interest ox participation in the two fishponds is very suggestive of the absence of such interest. The matter may be viewed from another angle. As already stated, the deed of partition for Valentina Ignacio's estate wag notarized in 1919 (Exh. 21). The plaintiffs assert that the two fishponds were

verbally partitioned also in 1919 and that the Calunuran fishpond was assigned to Valentin Salao as his share. Now in the partition of Valentina Ignacio's estate, Valentin was obligated to pay P3,355.25 to Ambrosia Salao. If, according to the plaintiffs, Ambrosia administered the two fishponds and was the custodian of its earnings, then it could have been easily stipulated in the deed partitioning Valentina Ignacio's estate that the amount due from Valentin would just be deducted by Ambrosia from his share of the earnings of the two fishponds. There was no such stipulation. Not a shred of documentary evidence shows Valentin's participation in the two fishponds. The plaintiffs utterly failed to measure up to the yardstick that a trust must be proven by clear, satisfactory and convincing evidence. It cannot rest on vague and uncertain evidence or on loose, equivocal or indefinite declarations (De Leon vs. Molo-Peckson, 116 Phil. 1267, 1273). Trust and trustee; establishment of trust by parol evidence; certainty of proof. Where a trust is to be established by oral proof, the testimony supporting it must be sufficiently strong to prove the right of the alleged beneficiary with as much certainty as if a document proving the trust were shown. A trust cannot be established, contrary to the recitals of a Torrens title, upon vague and inconclusive proof. (Syllabus, Suarez vs. Tirambulo, 59 Phil. 303). Trusts; evidence needed to establish trust on parol testimony. In order to establish a trust in real property by parol evidence, the proof should be as fully convincing as if the act giving rise to the trust obligation were proven by an authentic document. Such a trust cannot be established upon testimony consisting in large part of insecure surmises based on ancient hearsay. (Syllabus, Santa Juana vs. Del Rosario 50 Phil. 110). The foregoing rulings are good under article 1457 of the Civil Code which, as already noted, allows an implied trust to be proven by oral evidence. Trustworthy oral evidence is required to prove an implied trust because, oral evidence can be easily fabricated. On the other hand, a Torrens title is generally a conclusive of the ownership of the land referred to therein (Sec. 47, Act 496). A strong presumption exists. that Torrens titles were regularly issued and that they are valid. In order to maintain an action for reconveyance, proof as to the fiduciary relation of the parties must be clear and convincing (Yumul vs. Rivera and Dizon, 64 Phil. 13, 17-18). The real purpose of the Torrens system is, to quiet title to land. "Once a title is registered, the owner may rest secure, without the necessity of waiting in the portals of the court, or sitting in the mirador de su casa, to avoid the possibility of losing his land" (Legarda and Prieto vs. Saleeby, 31 Phil. 590, 593). There was no resulting trust in this case because there never was any intention on the part of Juan Y. Salao, Sr., Ambrosia Salao and Valentin Salao to create any trust. There was no constructive trust because the registration of the two fishponds in the names of Juan and Ambrosia was not vitiated by fraud or mistake. This is not a case where to satisfy the demands of justice it is necessary to consider the Calunuran fishpond " being held in trust by the heirs of Juan Y. Salao, Sr. for the heirs of Valentin Salao.

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And even assuming that there was an implied trust, plaintiffs' action is clearly barred by prescription or laches (Ramos vs. Ramos, L-19872, December 3, 1974, 61 SCRA 284; Quiniano vs. Court of Appeals, L-23024, May 31, 1971, 39 SCRA 221; Varsity Hills, Inc. vs. Navarro, 9, February 29, 1972, 43 SCRA 503; Alzona vs. Capunitan and Reyes, 114 Phil. 377). Under Act No. 190, whose statute of limitation would apply if there were an implied trust in this case, the longest period of extinctive prescription was only ten year (Sec. 40; Diaz vs. Gorricho and Aguado, 103 Phil. 261, 266). The Calunuran fishpond was registered in 1911. The written extrajudicial demand for its reconveyance was made by the plaintiffs in 1951. Their action was filed in 1952 or after the lapse of more than forty years from the date of registration. The plaintiffs and their predecessor-in-interest, Valentin Salao, slept on their rights if they had any rights at all. Vigilanti prospiciunt jura or the law protects him who is watchful of his rights (92 C.J.S. 1011, citing Esguerra vs. Tecson, 21 Phil. 518, 521). "Undue delay in the enforcement of a right is strongly persuasive of a lack of merit in the claim, since it is human nature for a person to assert his rights most strongly when they are threatened or invaded". "Laches or unreasonable delay on the part of a plaintiff in seeking to enforce a right is not only persuasive of a want of merit but may, according to the circumstances, be destructive of the right itself." (Buenaventura vs. David, 37 Phil. 435, 440-441). Having reached the conclusion that the plaintiffs are not entitled to the reconveyance of the Calunuran fishpond, it is no longer n to Pass upon the validity of the donation made by Ambrosia Salao to Juan S. Salao, Jr. of her one-half share in the two fishponds The plaintiffs have no right and personality to assil that donation. Even if the donation were declared void, the plaintiffs would not have any successional rights to Ambrosia's share. The sole legal heir of Ambrosia was her nephew, Juan, Jr., her nearest relative within the third degree. Valentin Salao, if living in 1945 when Ambrosia died, would have been also her legal heir, together with his first cousin, Juan, Jr. (Juani). Benita Salao, the daughter of Valentin, could not represent him in the succession to the estate of Ambrosia since in the collateral line, representation takes place only in favor of the children of brothers or sisters whether they be of the full or half blood is (Art 972, Civil Code). The nephew excludes a grandniece like Benita Salao or great-gandnephews like the plaintiffs Alcuriza (Pavia vs. Iturralde 5 Phil. 176). The trial court did not err in dismissing plaintiffs' complaint. Defendants' appeal. The defendants dispute the lower court's finding that the plaintiffs filed their action in good faith. The defendants contend that they are entitled to damages because the plaintiffs acted maliciously or in bad faith in suing them. They ask for P25,000 attorneys fees and litigation expenses and, in addition, moral damages. We hold that defemdamts' appeal is not meritorious. The record shows that the plaintiffs presented fifteen witnesses during the protracted trial of this case which lasted from 1954 to 1959. They fought tenaciously. They obviously incurred considerable expenses in prosecuting their case. Although their causes of action turned out to be unfounded, yet the pertinacity and vigor with which they pressed their claim indicate their sincerity and good faith.

There is the further consideration that the parties were descendants of common ancestors, the spouses Manuel Salao and Valentina Ignacio, and that plaintiffs' action was based on their honest supposition that the funds used in the acquisition of the lands in litigation were earnings of the properties allegedly inherited from Manuel Salao. Considering those circumstances, it cannot be concluded with certitude that plaintiffs' action was manifestly frivolous or was primarily intended to harass the defendants. An award for damages to the defendants does not appear to be just and proper. The worries and anxiety of a defendant in a litigation that was not maliciously instituted are not the moral damages contemplated in the law (Solis & Yarisantos vs. Salvador, L-17022, August 14, 1965, 14 SCRA 887; Ramos vs. Ramos, supra). The instant case is not among the cases mentioned in articles 2219 and 2220 of the Civil Code wherein moral damages may be recovered. Nor can it be regarded as analogous to any of the cases mentioned in those articles. The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously. (Barreto vs. Arevalo, 99 Phil. 771. 779). The defendants invoke article 2208 (4) (11) of the Civil Code which provides that attorney's fees may be recovered "in case of a clearly unfounded civil action or proceeding against the plaintiff" (defendant is a plaintiff in his counterclaim) or "in any other case where the court deems it just and equitable" that attorney's fees should he awarded. But once it is conceded that the plaintiffs acted in good faith in filing their action there would be no basis for adjudging them liable to the defendants for attorney's fees and litigation expenses (See Rizal Surety & Insurance Co., Inc. vs. Court of Appeals, L-23729, May 16, 1967, 20 SCRA 61). It is not sound public policy to set a premium on the right to litigate. An adverse decision does not ipso facto justify the award of attorney's fees to the winning party (Herrera vs. Luy Kim Guan, 110 Phil. 1020, 1028; Heirs of Justiva vs. Gustilo, 61 O. G. 6959). The trial court's judgment is affirmed. No pronouncement as to costs. SO ORDERED.

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