1

Republic of the Philippines

SUPREME COURT
Manila

EN BANC

G.R. No. L-21906 August 29, 1969

INOCENCIA DELUAO and FELIPE DELUAO, plaintiffs-appellees,

vs.
NICANOR CASTEEL and JUAN DEPRA, defendants,
NICANOR CASTEEL, defendant-appellant.

Subject of this Resolution is the appellees' motion of February 8, 1969 for reconsideration of our
decision of December 24, 1968. It poses several propositions which we will now discuss in
seriatim.

I. The appellees initially argue that because the Fisheries Act (Act 4003) does not contain any
prohibition against the transfer or sub-letting of fishponds covered by permits or lease agreements,
Fisheries Administrative Order 14, sec. 7, which embodies said prohibition, is therefore a nullity
because it is inconsistent with the Fisheries Act. They cite sec. 63.

We disagree.

Sec. 63 of Act 4003 provides:

Permits or leases entitling the holders thereof, for a certain stated period of time not to
exceed twenty years, to enter upon definite tracts of a public forest land to be devoted
exclusively for fishponds purposes, or to take certain fishery products or to construct
fishponds within tidal, mangrove and other swamps, ponds and streams within public forest
lands or proclaimed timber lands or established forest reserves, may be issued or executed
by the Secretary of Agriculture and Natural Resources, subject to the restrictions and
limitations imposed by the forest laws and regulations, to such persons, associations or
corporations as are qualified to utilize or take forest products under Act Number Thirty-six
hundred and seventy-four. ... . (Emphasis supplied)

It is clear from the above-quoted section of the Fisheries Act that only holders of permits or leases
issued or executed by the Secretary of Agriculture and Natural Resources (hereinafter referred to
as DANR Secretary) can "enter upon definite tracts of public forest land to be devoted exclusively
for fishpond purposes, ... or to construct fishponds within tidal, mangrove and other swamps,
ponds and streams within public forest lands or established forest reserves ... ." Inferentially,
persons who do not have permits or leases properly issued or executed by the DANR Secretary
cannot do any of the acts mentioned in sec. 63. Certainly, a transferee or sub-lessee of a fishpond
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is not a holder of a permit or lease. He cannot, therefore, lawfully "enter upon definite tracts of a
public forest land to be devoted exclusively for fishpond purposes, ...or to construct fishponds
within tidal, mangrove and other swamps, ponds and streams within public forest lands or
proclaimed timber lands or established forest reserves ... ." No doubt, the intent of the legislature is
to grant the privilege of constructing, occupying and operating fishponds within public land only
to holders of permits and leases, and to no one else. Inclusio unius est exclusio alterius. And in
declaring null and void a sublease or transfer of the whole or part of a fishpond and/or its
improvements unless previously approved by the Director (Commissioner) of Fisheries, see. 37(a)
of Fisheries Administrative Order 14 does no more than carry into effect the will of the legislature
as expressed in the Fisheries Act. It is a valid administrative order issued under the authority
conferred by sec. 4 of the Fisheries Act on the DANR Secretary to "issue instructions, orders, rules
and regulations consistent with this Act, as may be necessary to carry into effect the provisions
thereof." It is a salutary rule because it is issued in fulfillment of the duty of the administrative
officials concerned to preserve and conserve the natural resources of the country by scrutinizing
the qualifications of those who apply permission to establish and operate fishponds of the public
domain. It is a necessary consequence of the executive and administrative powers of the DANR
Secretary with regard to the survey, classification lease, sale or any other form of concession or
disposition and management of lands of the public domain, and, more specially, with regard to the
grant or withholding of licenses, permits, leases and contracts over portions of the public domain
to be utilized as fishponds. The prohibition thus merely implements the Fisheries Act and surely
cannot be considered an act of legislation.

People v. Santos (63 Phil. 360) cited by the appellees has no application to the case at bar. In that
case, the Supreme Court declared null and void an administrative order issued by the DANR
Secretary prohibiting boats not subject to license from fishing within three kilometers of the shore
line of American military and naval reservations without a special permit from the DANR
Secretary upon recommendation of the military and naval authorities, because the Fisheries Act
really does not contain such a provision. Here, sec. 63 of the Fisheries Act, under the aforecited
well-ensconced principle of "Inclusion unius est exclusio alterius," prohibits persons without
permits or leases to operate fishponds of the public domain, because it allows only holders of
permits or leases to construct, occupy and enjoy such fishponds.

The appellees, however, insist that the prohibition in Fisheries Administrative Order 14, sec.
37(a), refers to fishponds covered by permits or leases, and since no permit or lease had as yet
been granted to Casteel, the prohibition does not apply. Stated elsewise, their theory is that it was
perfectly all right for Casteel to violate Fisheries Administrative Order 14, for, anyway, he had not
yet been issued a permit or lease.

The appellees advocate a dangerous theory which invites promiscuous violation of the said
administrative order. For all that a would-be permittee or lessee would do in order to escape the
consequences of an unauthorized sublease or transfer, is to effect such sublease or transfer before
the issuance of the lease or permit, and then argue that there is no violation because such sublease
or transfer was effected before a permit or lease was issued. To be sure, this theory espoused by
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the appellees would violate the intent of the legislature to grant the privilege of occupying,
possessing, developing and enjoying fishponds of the public domain only to bona fideholders of
permits or lease agreements properly issued or executed by the DANR Secretary.

The appellees assail as inaccurate the statement in our decision that "after the Secretary of
Agriculture and Natural Resources approved the appellant's application, he became to all intents
and purposes the legal permittee of the area with the corresponding right to possess, occupy and
enjoy the same," because the decisions of the Secretary allegedly did not approve the appellant's
fishpond application but merely reinstated and gave due course to the same. This is not correct.
The decisions of the DANR Secretary in DANR cases 353 and 353-B did not merely recognize the
occupancy rights of Casteel (and, necessarily, his rights to possess and enjoy the fishpond), as
admitted by the Deluaos (p. 13, motion for reconsideration), but approved his application as well.
Several orders, memoranda, letters and other official communications of the DANR Secretary and
other administrative officials of the DANR, found in the records of this case and in the records of
the DANR (of which this Court can take judicial notice), attest to this.

The decisions in cases 353 and 353-E were ordered executed way back on August 4, 1955. (rollo,
p. 179) Then in a 1st Indorsement dated July 1, 1961, the DANR ordered the Director of Fisheries
to execute the said decisions, "it appearing from the records of this Office that the same had long
become final and executory and that there is nothing in said records to show that this Office is
party-litigant in Civil Case No. 629, allegedly filed by Inocencia Deluao and Felipe Deluao
against Nicanor Casteel for "Specific Performance, etc." (rollo, p. 100) On October 26, 1961 the
Director of Fisheries issued a memorandum to the District Fishery Officer, Davao City, in
compliance with the aforementioned 1st Indorsement, instructing the latter "to take immediate
steps to execute the decisions of the Secretary of Agriculture and Natural Resource both dated
September 15, 1950 ... ."(rollo, p. 101) Next came a memorandum dated June 27, 1962 of the
Director of Fisheries to the Regional Director, Fishery Regional Office No. VIII, Davao City,
stating, "Your attention is again invited to the memorandum of this Office, dated October 26,
1961, wherein you were instructed to execute the decisions both dated September 15, 1950, in
connection with the above-entitled cases ... . In this connection, you are hereby directed to execute
the aforesaid decisions in the presence of the parties concerned, ..." The Director of Fisheries also
sent a telegram dated July 21, 1962 to the Fishery Officer, Davao City enjoining the latter to
"EXECUTE DECISIONS BY SECRETARY AS INSTRUCTED PLACE CASTEEL IN
POSSESSION AREAS OF ARADILLOS CARPIO AND CACAM DEPOSIT
REIMBURSEMENT FOR CACAM CLERK OF COURT RIGHT OF CASTEEL TO AREAS
SANCTIONED BY DECISIONS ISSUANCE PERMITS WILL FOLLOW LATER." (rollo, p.
102; emphasis supplied)

A notice of execution dated September 11, 1962 of the Regional Director of the Fishery Office of
Davao City was sent to the parties in this case, requiring them "to be present in the premises of the
area under Fp. A. No. 1711 of Nicanor Casteel situated in Barrio Palili, Padada (formerly covered
by the areas under F-299-C and F-539-C of Leoncio Aradillos and Alejandro Cacam, respectively,
and Fp. A. No. 763 of Victorio D. Carpio), on September 24, 1962 at 10 o'clock in the morning.
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This Office will place Nicanor Casteel in possession of the area pursuant to the instructions in the
telegrams of the Director of Fisheries, dated July 21, 1962, and September 7, 1962, in connection
with the decisions of the Honorable, the Secretary of Agriculture and Natural Resources in DANR
Cases Nos. 353 and 353-B, both dated September 15, 1950."

The appellees, however, filed on July 9, 1963 a new protest against the execution of the decisions
with the Commissioner of Fisheries. Said protest was dismissed by the Acting Commissioner of
Fisheries in a letter to Mrs. Inocencia Deluao dated June 1, 1964, which stated, inter alia:

This is in connection with your claim as embodied in the protest filed by you and your
husband, Felipe Deluao, over the area covered by Fishpond Application No. 1717 of
Nicanor Casteel, located in Malalag, Padada, Davao. Please be advised that the right over
the area in question was already adjudicated or awarded to Nicanor Casteel, in the Order
of the Secretary of Agriculture and Natural Resources, dated September 15, 1950 (DANR
Cases Nos. 353-B and No. 353), hence, this matter is a decided and closed case. The
aforestated Order has long become final and executory. In fact, it has been partially
executed. Nothing new has been raised in your instant protest which appears to be intended
mainly to delay the full execution of the order or Decision of the Secretary. Your protest,
therefore, lacks merit or basis.

It appearing, therefore, that there is nothing worth taking into consideration in your claim or
protest which has not moreover been officially docketed for failure to pay the protest fee, as
required by the rules and regulations, your instant protest is hereby DISMISSED; and, the
matter definitely considered CLOSED. (Emphasis supplied)

An appeal from the foregoing dismissal was taken by the appellees to the DANR Secretary who
dismissed the same in a letter dated September 12, 1967, thus:

In view of the finality of our decisions in the two aforementioned administrative cases
(DANR Cases Nos. 353 and 353-B), execution of the same had been ordered by this Office
as early as August 4, 1955, notwithstanding the injunction proceeding, because it appears
that neither the Secretary of Agriculture and Natural Resource nor the Director of Fisheries
was a party thereto. However, due to several incidental requirements necessary in the
implementation of said decisions, the execution thereof was delayed. In another directive of
this Office to the Director of Fisheries contained in a 1st Indorsement dated July 5, 1961,
the Office reiterated due execution of the said decisions. The Director of Fisheries, in turn,
relayed the directive to the Fisheries Regional Director in Davao City who gave notice to
Nicanor Casteel and Felipe Deluao to be present in the area in question on September 24,
1962 and that Casteel would be placed in possession thereof.

The due execution of the decisions suffered again another delay because you filed two
separate "URGENT OMNIBUS PETITIONS TO DECLARE RESPONDENTS (Nicanor
Casteel, Director of Fisheries and Regional Director Crispin Mondragon) IN CONTEMPT
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OF COURT AND TO DIRECT RESPONDENTS TO DESIST FROM PLACING

RESPONDENT NICANOR CASTEEL IN POSSESSION OF THE LITIGATED
PROPERTY." The first was filed before the Court of First Instance of Davao and the other,
before the Court of Appeals in Manila. However, in separate orders of the Court of Appeals
dated October 12, 1962 and of the Court of First Instance of Davao dated October 24, 1962,
the "Urgent Omnibus Petitions, etc." were both denied.

The denial by the Courts of the said urgent omnibus petitions to declare respondents in
contempt of court and to direct the respondents to desist from placing Nicanor Casteel in
possession of the litigated property, could be interpreted to mean that there is no legal
impediment, in the execution of the decisions of this Office which had long become final
and executory, and an implied approval by the Courts in the enforcement of said decisions.

Notwithstanding all the circumstances, however, you again filed on July 9, 1963, a new
protest against the execution of the aforementioned final decisions of this Office of
September 15, 1950 before the Commissioner of Fisheries. A close study of your protest
shows that there is no new matter raised in said protest which has not been disposed of in
previous resolutions either by this Office or by the Philippine Fisheries Commission. This
Office is even inclined to share the opinion of the Acting Commissioner of Fisheries that the
protest apparently is a move intended to delay further the due execution of the final
decisions.

IN VIEW OF ALL THE FOREGOING, and finding the notice of appeal to be

unmeritorious, the same, much to our regret, cannot be favorably entertained and the same
is hereby dismissed. The Commissioner of Fisheries is directed to immediately execute the
decisions of this Office in the aforementioned DANR Cases Nos. 353 and 353-B upon
receipt of this order, it appearing that said decisions had long become final and executory.
However, in implementing the said decisions, it is necessary that Nicanor Casteel first be
granted a permit, and once the corresponding permit is granted, to place him in possession
of the area in question. (rollo, pp. 179-180)

Pursuant to the direction made to the Commissioner of Fisheries in the above letter-decision, the
latter sent a memorandum dated May 31, 1968 to the Regional Director, Fisheries Regional Office
No. VIII, Davao City, quoted in part as follows:

For the early execution of the directive of the Secretary, you are hereby ordered to prepare
the sketch plan or plans of the area or areas with respective location and technical
description so that the necessary permit can be issued in favor of Mr. Casteel. This Office
will have to abide with the latest decision of the Secretary, hence, your letter-
recommendation of January 3, 1968, will have to be set aside. (Emphasis Supplied)
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Again, in a letter dated September 30, 1967, the appellees moved for reconsideration of the above
dismissal. This was likewise denied by the DANR Secretary in his reply to them dated December
16, 1968, holding that:

In connection with your letter dated September 30, 1967 requesting for a reconsideration of
a letter-decision of this Office dated September 12, 1967, and for the withholding of the
enforcement of the aforesaid decision, please be informed that we have already considered
the reasons you advanced and we see no cogent reason to modify or reverse our stand on the
matter.

xxx xxx xxx

In view of the foregoing, your request for reconsideration should be, as hereby it is, denied.
(see annex 1-B of appellant's answer to appellees' motion for reconsideration of decision
rendered on December 24, 1968.)

The overwhelming thrust of the above-cited orders, memoranda, and letter-decision, is that
Casteel's Fp. A. 1717 had been approved by the Secretary in DANR cases 353 and 353-B and that
the area covered by his application had been adjudicated and awarded to him. In fact, the said
decisions had already been partly executed because — contrary to the appellees' allegation —
Casteel had already complied with the order in DANR case 353-B that he reimburse to Leoncio
Aradillos and Alejandro Cacam the amount of the improvements introduced by them in the area
they formerly occupied (see annex A of the appellees' motion for issuance of temporary
restraining order and petition for contempt, rollo, pp. 173-180). And the only reason why the
issuance of a permit to Casteel was delayed was the numerous legal maneuvers of the appellees
which, in the words of both the Acting Commissioner of Fisheries and the DANR Secretary, were
"intended to delay" the execution of the aforestated decisions. The non-issuance of the permit due
to the deliberate attempts of the appellees to forestall the same cannot and should not be taken
against the herein appellant, because clear and unmistakable is the intention of the DANR
Secretary to place him in possession of the whole fishpond in question.

Pursuing further their buckshot arguments under the first proposition, the appellees insist that the
decisions in DANR cases 353 and 353-B are not binding on them because they were not parties to
the cases. They argue that even if their second motion for reconsideration dated January 9, 1969
— which they alleged was given due course — of the letter-decision of the DANR Secretary dated
September 12, 1967 were denied, the denial would merely foreclose the question of whether or not
they could still intervene in DANR cases 353 and 353-B after the same have become final, but
will not preclude them from asserting their interest in the fishpond through other means, such as
the filing of an application over the half portion occupied by them or a protest against the issuance
of a permit to Casteel over the said half.

Nothing could be farther from the truth. The records of this case and of the cases in the DANR
show the several protests, appeals, motion to intervene and motions for reconsideration of the
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appellees — all calculated to prevent the execution of the decisions in DANR cases 353 and 353-
B. In the face of all these legal maneuvers, all of which had been denied validity by the Fisheries
Commissioner and the DANR Secretary, how can they now assert that the said decisions do not
bind them? Contrary to their representations, they are certainly precluded from filing application
over the half portion occupied by them or a protest against the issuance of a permit to Casteel over
the said half. After all, the area involved in DANR cases 353 and 353-B is the total area of 178.86
hectares, more or less, covered by Casteel's Fp. A. 1717. This is clear not only from the above
discussion, but from appendix 13 of the appellees' motion for reconsideration itself which is the
certification of the Fisheries Commissioner stating that:

The records further show that the area under Fp. A. No 1717 is involved in administrative
cases to wit: DANR CASES 353 and 353-B, entitled "Nicanor Casteel vs. Victorio D.
Carpio" and "Nicanor Casteel vs. Alejandro Cacam, et al.," respectively, which has been
decided by the Secretary of Agriculture and Natural Resources in a letter dated September
12, 1967, in favor of Nicanor Casteel. ... .

It is extremely doubtful that their second motion for reconsideration allegedly filed on January 9,
1969 was really given due course by the DANR. Appendix E cited by them which is the DANR
Legal Department's reply dated February 4, 1969, merely mentions the reference of their motion to
the Department's "Action Committee" for deliberation and action. No favorable action has been
taken on it to date.

II. The appellees next argue that the contract of service, ex. A, is not by itself a transfer or sublease
but merely an agreement to divide or transfer, and that pursuant to its intended "ultimate
undertaking" of dividing the fishpond into two equal parts the appellant is under obligation,
conformably with the law on obligations and contracts, to execute a formal transfer and to secure
official approval of the same. They allege that actual division of the fishpond was predicated on a
favorable decision in the then pending DANR cases 353 and 353-B; that the pendency of the said
cases served to suspend implementation of the agreement to divide; and that after the DANR
Secretary ruled in Casteel's favor, the suspensive condition was fulfilled and the ultimate
undertaking to divide the fishpond became a demandable obligation.

The appellees seem to have failed to grasp the rationale of our decision. We discussed at length —
in the said decision and in the resolution of their first proposition above — that the contract of
partnership to divide the fishpond between them after such award became illegal because it is at
war with several prohibitory laws. As such, it cannot be made subject to any suspensive condition
the fulfillment of which could allegedly make the ultimate undertaking therein a demandable
obligation. It is an elementary rule in law that a partnership cannot be formed for an illegal
purpose or one contrary to public policy and that where the object of a partnership is the
prosecution of an illegal business or one which is contrary to public policy, the partnership is void.
And since the contract is null and void, the appellant is not bound to execute a formal transfer of
one-half of the fishpond and to secure official approval of the same.
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It must be recalled that the appellees have always vehemently insisted that the "contract of
service," exh. A, created a contract of co-ownership between the parties over the fishpond in
question. We, however, refused to go along with their theory in order not to be compelled to
declare the contract a complete nullity as being violative of the prohibitory laws, thus precluding
the appellees from obtaining any relief. It is precisely to enable us to grant relief to the appellees
that, in our decision, we assumed that the parties did not intend to violate the prohibitory laws
governing the grant and operation of fishery permits.

We cannot, however, require the appellant to divide the fishpond in question with the appellees, in
violation of the decisions of the DANR Secretary rendered in DANR cases 353 and 353-B way
back on September 15, 1950, because that would violate the principle that purely administrative
and discretionary functions may not be interfered with by the courts. We are loath to impose our
judgment on the DANR Secretary on purely administrative and discretionary functions in a case
where the latter is not even a party. At all events, we are persuaded that we have sufficiently
protected the interests of the appellees in our decision.

III. The appellees next contend that assuming that the prohibition by mere administrative
regulation against the transfer of fishpond rights without prior official approval is valid; that the
said prohibition was already operative notwithstanding that no permit had as yet been issued to
Casteel; and that the contract of service is already a "transfer" and not a mere agreement "to
divide," the contract of service, even without prior official approval, is not a nullity because under
the rulings of the Supreme Court and the DANR in analogous cases, the requisite approval may,
on equitable and/or other considerations, be obtained even after the transfer.

Zamboanga Transportation Co. vs. Public Utility Commission (50 Phil. 237), cited by the
appellees to buttress their stand, is not in point. In that case, this Court held that the approval of
the mortgage on the property of the public utility involved, instead of being prejudicial is
convenient and beneficial to the public interest. Thus, considerations of public interest moved this
Court to hold that the approval by the Public Utility Commission may be given before or after the
creation of the lien. On the other hand, no real considerations of public interest obtain in this case.
This is merely a controversy between two parties over a fishpond of the public domain. Besides,
the subject matter of the contract of sale or mortgage in the Zamboanga case is private property
capable of private ownership. Which explains why this Court held in that case that "The approval
of the Public Utility Commission required by law before the execution of a mortgage on the
property of a public utility or the sale thereof, has no more effect than an authorization to
mortgage or sell and does not affect the essential formalities of a contract, but its efficacy." In
other words, as long as the contract to sell or mortgage a public utility's properties is executed with
all the intrinsic and extrinsic formalities of a contract, it is valid irrespective of the presence or
absence of the approval by the Public Utility Commission. Only the efficacy of such a contract is
affected by the preserve or absence of the approval of the Public Utility Commission. In the case
at bar, the subject matter is a fishpond which is part of the public domain the ownership of which
cannot be privately acquired. Thus, without the prior approval of the DANR Secretary, any
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contract purporting to sublease or transfer the rights to and/or improvements of the fishpond, is
null and void.

Equally inapplicable to the case at bar is Evangelista vs. Montaño, et al. (93 Phil. 275). The
subject matter in that case is a homestead which is capable of private ownership, while involved
here is a fishpond of the public domain incapable of private ownership. The provision of law
involved in that case is sec. 118 of the Public Land Act (C.A. 141) which explicitly provides that
the approval of the DANR Secretary to any alienation, transfer or conveyance of a homestead shall
not be denied except on constitutional and legal grounds. There was no allegation in the said case
that "there were constitutional or legal impediments to the sales, and no pretense that if the sales
had been submitted to the Secretary concerned they would have been disapproved." Thus, there
this Court held that "approval was a ministerial duty, to be had as a matter of course and
demandable if refused." In this case, sec. 37 of Fisheries Administrative Order 14 very clearly
provides that without the approval of the DANR Secretary any sublease or transfer is null and
void. It does not state that approval may be withheld only on constitutional and legal grounds, so
that in the absence of said ground, approval of the sublease or transfer becomes ministerial.
InEvangelista this Court applied art. 1461 of the Civil Code of 1889, which provided that the
vendor was bound to deliver and warrant the subject matter of the sale, in relation to art. 1474
thereof, which held the vendor responsible to the vendee for the legal and peaceful possession of
the subject matter of the sale. It construed the foregoing provisions as contemplating the obligation
to deliver clear title, including the securing of the approval of the sales by the DANR Secretary,
and held that by force of this obligation, the plaintiff in that cage, who stepped into the shoes of
his grantor, cannot use the lack of approval to nullify the sales because a seller will not be allowed
to take advantage of his omission or wrong. Thus, under the maxim, "Equity regards that as done
which should have been done," this Court viewed the sales as though the obligations imposed
upon the parties had been met, and treated the purchasers as the owners of the subject matter of the
sales, notwithstanding the defects of the conveyances or of their execution. Certainly, the factual
situation in the case at bar does not warrant application of the above-quoted maxim. Here, a
transfer by Casteel to Deluao of one-half of the fishpond in question without the prior approval of
the DANR Secretary is legally objectionable, and no justifying reason exists for us to view the
requirement of prior approval as merely directory.

The appellees cite sec. 33, sub-sec. (4) of Fisheries Administrative Order 14, which
states,1äwphï1.ñët

If a permittee transfers his/her right to any area or land improvements he introduced

thereon, the transferee may secure a permit by filing the proper application and paying the
necessary fee, rental and bond deposit. The rental may be as provided in sections 16 and 20
hereof.

and argue that the said administrative order evinces in its other provisions an intention not to give
the prohibition in sec. 37 an absolute and inflexible effect, because no reference is made to the
prohibition in section 37 as qualificatory. This is typical of the appellees' clutching-at-straws
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reasoning. There is obviously no need to mention the prohibition in sec. 37 as qualificatory

because the prefatory sentence of sec. 33 provides that "Every permit or lease shall be governed by
the provisions of this Administrative Order," among which is sec. 37 thereof. Besides, if the
appellees should see any conflict between sec. 33, subsection (r) (4) and sec. 37(a) — although
there is clearly none to be found — then, following the rules of statutory construction, sec. 37(a),
the latter provision should prevail.

The appellees' argument that the prohibition itself is self-emasculating because while stipulating in
its first sentence that any unapproved transfer or sublease shall be null and void, it states in the
second sentence that "a transfer not previously approved or reported shall be considered sufficient
cause for the cancellation of the permit ...," thereby implying that a mere "report" of the transfer,
even without approval thereof, may suffice to preserve existing rights of the parties — is now
rendered academic by Revised Fisheries Administrative Order 60, effective June 29, 1960, which
repealed Fisheries Administrative Order 14 and its amendments. Thus, sec. 32 of Fisheries
Administrative Order No. 60 provides that:

A transfer or sublease of the rights to, and/or improvements in, the area covered by permit or lease
may be allowed, subject to the following conditions:

xxx xxx xxx

(d) That any transfer or sublease without the previous approval of the Secretary shall be
considered null and void and deemed sufficient cause for the cancellation of the permit or
lease, and the forfeiture of the improvements and the bond deposited in connection
therewith, in favor of the Government.

Note that there is no mention whatsoever of the word report and that it is the DANR Secretary's
approval which must be secured. A mere report, therefore, of the transfer is not sufficient. In fact,
although the Bureau of Fisheries was fully informed of the contract of partnership between the
parties to divide the fishpond, still, the said Bureau did not grant the reliefs prayed for by the
appellees in their numerous protests, motions for reconsideration and appeals. The
numerous reports made by the appellees to the Bureau of Fisheries were, therefore, disregarded.

Finally, the appellees cite the case of Amado Lacuesta vs. Roberto Doromal, etc. (DANR case
3270) in which the DANR Secretary has allegedly interpreted the prohibition found in sec. 37(a)
of Fisheries Administrative Order 14 as not absolute so that the approval required by yet legally be
obtained even after the transfer of a permit.

It would not serve the cause of interdepartmental courtesy were we to review or comment on the
decision of the DANR Secretary in the said case. But even at that, the factual situation
in Lacuesta shows that there was sufficient justification for the DANR Secretary to divide the
fishpond between the parties, which does not obtain in this case.
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In Lacuesta the verbal agreement to divide the fishpond was entered into even before the fishpond
application was filed. The parties there helped each other in securing the approval of the
application. The DANR Secretary found for a fact that the appellee in the said case would not have
succeeded in securing the approval of his fishpond application, coupled with the issuance of the
permit, were it not for the indispensable aid both material and otherwise extended by the appellant
spouses. Thus, the appellant spouses paid the filing fee for the application, the bond premiums and
the surveying fees. They asked the assistance of their congressman who facilitated the release of
the permit. They paid the rentals for the fishpond for several years. In fact, the permit was even
cancelled — although later reinstated — because of the appellee's failure to pay rentals. In the face
of the foregoing facts, the DANR Secretary could not simply ignore the equitable rights of the
appellants over one-half of the fishpond in question.

In this case, Casteel was the original occupant and applicant since before the last World War. He
wanted to preclude subsequent applicants from entering and spreading themselves within the area
applied for by him, by expanding his occupation thereof by the construction of dikes and the
cultivation of marketable fishes. Thus, he borrowed money from the Deluaos to finance needed
improvements for the fishpond, and was compelled by force of this circumstance to enter into the
contract of partnership to divide the fishpond after the award (see letter dated November 15, 1949
of Casteel to Felipe Deluao quoted inter alia on page 4 of our Decision). This, however, was all
that the appellee spouses did. The appellant single-handedly opposed rival applicants who
occupied portions of the fishpond area, and relentlessly pursued his claim to the said area up to the
Office of the DANR Secretary, until it was finally awarded to him. There is here neither allegation
nor proof that, without the financial aid given by the Deluaos in the amount of P27,000, the area
would not have been awarded nor adjudicated to Casteel. This explains, perhaps, why the DANR
Secretary did not find it equitable to award one-half of the fishpond to the appellee spouses despite
their many appeals and motions for reconsideration.

IV. The appellees submit as their fourth proposition that there being no prohibition against joint
applicants for a fishpond permit, the fact that Casteel and Deluao agreed to acquire the fishpond in
question in the name of Casteel alone resulted in a trust by operation of law (citing art. 1452, Civil
Code) in favor of the appellees as regards their one-half interest.

A trust is the right, enforceable in equity, to the beneficial enjoyment of property the legal title to
which is in another (Ulmer v. Fulton, 97 ALR 1170, 120 Ohio St. 323, 195 NE 557). However,
since we held as illegal the second part of the contract of partnership between the parties to divide
the fishpond between them after the award, a fortiori, no rights or obligations could have arisen
therefrom. Inescapably, no trust could have resulted because trust is founded on equity and can
never result from an act violative of the law. Art. 1452 of the Civil Code does not support the
appellees' stand because it contemplates an agreement between two or more persons to purchase
property — capable of private ownership — the legal title of which is to be taken in the name of
one of them for the benefit of all. In the case at bar, the parties did not agree to purchase the
fishpond, and even if they did, such is prohibited by law, a fishpond of the public domain not
being susceptible of private ownership. The foregoing is also one reason why Gauiran vs.
12

Sahagun (93 Phil. 227) is inapplicable to the case at bar. The subject matter in the said case is a
homestead which, unlike a fishpond of the public domain the title to which remains in the
Government, is capable of being privately owned. It is also noteworthy that in the said case, the
Bureau of Lands was not apprised of the joint tenancy between the parties and of their agreement
to divide the homestead between them, leading this Court to state the possibility of nullification of
said agreement if the Director of lands finds out that material facts set out in the application were
not true, such as the statement in the application that it "is made for the exclusive benefit of the
applicant and not, either directly or indirectly, for the benefit of any other person or persons,
corporations, associations or partnerships." In the case at bar, despite the presumed knowledge
acquired by DANR administrative officials of the partnership to divide the fishpond between the
parties, due largely to the reports made by the Deluaos, the latter's numerous appeals, motion for
intervention and motions for reconsideration of the DANR Secretary's decisions in DANR cases
353 and 353-B, were all disregarded and denied.

V. The appellees insist that the parties' intention "to divide" the fishpond remained unchanged;
that the change in intention referred solely to joint administration before the actual division of the
fishpond; and that what can be held as having been dissolved by the "will" of the parties is merely
the partnership to exploit the fishpond pending the award but not the partnership to divide the
fishpond after such award. In support of their argument, they cite Casteel's letters of December 27,
1950 and January 4, 1951 which allegedly merely signified the latter's desire to put an end to the
joint administration, but to which the Deluaos demurred.

Even admitting arguendo that Casteel's desire to terminate the contract of partnership — as
allegedly expressed in his aforecited letters — is equivocal in that it contemplated the termination
merely of the joint administration over the fishpond, the resolution of the Deluaos to terminate the
same partnership is unequivocal. Thus, in his letter of December 29, 1950 to Casteel, Felipe
Deluao expressed his disagreement to the division (not joint administration) of the fishpond,
because he stated inter alia that:

As regards your proposition to divide the fishpond into two among ourselves, I believe it
does not find any appropriate grounds by now. ... .

Be informed that the conflicts over the fishpond at Balasinon which you proposed to divide,
has not as yet been finally extinguished by the competent agency of the government which
shall have the last say on the matter. Pending the final resolution of the case over said
area, your proposition is out of order. (Emphasis supplied)

It must be observed that, despite the decisions of the DANR Secretary in DANR cases 353 and
353-B awarding the area to Casteel, and despite the latter's proposal that they divide the fishpond
between them, the Deluaos unequivocally expressed in their aforequoted letter their decision not to
share the fishpond with Casteel. This produced the dissolution of the entire contract of partnership
(to jointly administer and to divide the fishpond after the award) between the parties, not to
mention its automatic dissolution for being contrary to law.
13

VI. Since we have shown in the immediate preceding discussion that — even if we consider
Casteel's decision to terminate the contract of partnership to divide the fishpond as equivocal —
the determination of the Deluaos to terminate said partnership is unequivocal, then the appellees'
sixth proposition that Casteel is liable to the Deluaos for one-half of the fishpond or the actual
value thereof does not merit any consideration. The appellees, after all, also caused the dissolution
of the partnership.

Parenthetically, the appellees' statement that the beneficial right over the fishpond in question is
the "specific partnership property" contemplated by art. 1811 of the Civil Code is incorrect. A
reading of the said provision will show that what is meant is tangible property, such as a car, truck
or a piece of land, but not an intangible thing such as the beneficial right to a fishpond. If what the
appellees have in mind is the fishpond itself, they are grossly in error. A fishpond of the public
domain can never be considered a specific partnership property because only its use and
enjoyment — never its title or ownership — is granted to specific private persons.

VII. The appellees' final proposition that only by giving effect to the confirmed intention of the
parties may the cause of equity and justice be served, is sufficiently answered by our discussion
and resolution of their first six propositions. However, in answer to the focal issue they present,
we must state that since the contract of service, exh. A, is contrary to law and, therefore, null and
void, it is not and can never be considered as the law between the parties.

ACCORDINGLY, the appellees' February 8, 1969 motion for reconsideration is

denied.1äwphï1.ñët

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION

G.R. No. 183050 January 25, 2012

ADVENT CAPITAL AND FINANCE CORPORATION, Petitioner,

vs.
NICASIO I. ALCANTARA and EDITHA I. ALCANTARA, Respondents.

This case is about the validity of a rehabilitation court’s order that compelled a third party, in
possession of money allegedly belonging to the debtor of a company under rehabilitation, to
deliver such money to its court-appointed receiver over the debtor’s objection.

The Facts and the Case

14

On July 16, 2001 petitioner Advent Capital and Finance Corporation (Advent Capital) filed a
petition for rehabilitation1 with the Regional Trial Court (RTC) of Makati City.2 Subsequently, the
RTC named Atty. Danilo L. Concepcion as rehabilitation receiver.3 Upon audit of Advent
Capital’s books, Atty. Concepcion found that respondents Nicasio and Editha Alcantara
(collectively, the Alcantaras) owed Advent Capital P27,398,026.59, representing trust fees that it
supposedly earned for managing their several trust accounts.4

Prompted by this finding, Atty. Concepcion requested Belson Securities, Inc. (Belson) to deliver
to him, as Advent Capital’s rehabilitation receiver, the P7,635,597.50 in cash dividends that
Belson held under the Alcantaras’ Trust Account 95-013. Atty. Concepcion claimed that the
dividends, as trust fees, formed part of Advent Capital’s assets. Belson refused, however, citing
the Alcantaras’ objections as well as the absence of an appropriate order from the rehabilitation
court.5

Thus, Atty. Concepcion filed a motion before the rehabilitation court to direct Belson to release
the money to him. He said that, as rehabilitation receiver, he had the duty to take custody and
control of Advent Capital’s assets, such as the sum of money that Belson held on behalf of Advent
Capital’s Trust Department.6

The Alcantaras made a special appearance before the rehabilitation court 7 to oppose Atty.
Concepcion’s motion. They claimed that the money in the trust account belonged to them under
their Trust Agreement8 with Advent Capital. The latter, they said, could not claim any right or
interest in the dividends generated by their investments since Advent Capital merely held these in
trust for the Alcantaras, the trustors-beneficiaries. For this reason, Atty. Concepcion had no right
to compel the delivery of the dividends to him as receiver. The Alcantaras concluded that, under
the circumstances, the rehabilitation court had no jurisdiction over the subject dividends.

On February 5, 2007 the rehabilitation court granted Atty. Concepcion’s motion. 9 It held that,
under Rule 59, Section 6 of the Rules of Court, a receiver has the duty to immediately take
possession of all of the corporation’s assets and administer the same for the benefit of corporate
creditors. He has the duty to collect debts owing to the corporation, which debts form part of its
assets. Complying with the rehabilitation court’s order and Atty. Concepcion’s demand letter,
Belson turned over the subject dividends to him.

Meanwhile, the Alcantaras filed a special civil action of certiorari before the Court of Appeals
(CA), seeking to annul the rehabilitation court’s order. On January 30, 2008 the CA rendered a
decision,10 granting the petition and directing Atty. Concepcion to account for the dividends and
deliver them to the Alcantaras. The CA ruled that the Alcantaras owned those dividends. They did
not form part of Advent Capital’s assets as contemplated under the Interim Rules of Procedure on
Corporate Rehabilitation (Interim Rules).

The CA pointed out that the rehabilitation proceedings in this case referred only to the assets and
liabilities of the company proper, not to those of its Trust Department which held assets belonging
15

to other people. Moreover, even if the Trust Agreement provided that Advent Capital, as trustee,
shall have first lien on the Alcantara’s financial portfolio for the payment of its trust fees, the cash
dividends in Belson’s care cannot be summarily applied to the payment of such charges. To
enforce its lien, Advent Capital has to file a collection suit. The rehabilitation court cannot simply
enforce the latter’s claim by ordering Belson to deliver the money to it.11

The CA denied Atty. Concepcion and Advent Capital’s motion for reconsideration, 12 prompting
the filing of the present petition for review under Rule 45.

The Issue Presented

The sole issue in this case is whether or not the cash dividends held by Belson and claimed by
both the Alcantaras and Advent Capital constitute corporate assets of the latter that the
rehabilitation court may, upon motion, require to be conveyed to the rehabilitation receiver for his
disposition.

Ruling of the Court

Advent Capital asserts that the cash dividends in Belson’s possession formed part of its assets
based on paragraph 9 of its Trust Agreement with the Alcantaras, which states:

9. Trust Fee: Other Expenses – As compensation for its services hereunder, the TRUSTEE shall be
entitled to a trust or management fee of 1 (one) % per annum based on the quarterly average
market value of the Portfolio or a minimum annual fee of P5,000.00, whichever is higher. The said
trust or management fee shall automatically be deducted from the Portfolio at the end of each
calendar quarter. The TRUSTEE shall likewise be reimbursed for all reasonable and necessary
expenses incurred by it in the discharge of its powers and duties under this Agreement, and in all
cases, the TRUSTEE shall have a first lien on the Portfolio for the payment of the trust fees and
other reimbursable expenses.

According to Advent Capital, it could automatically deduct its management fees from the
Alcantaras’ portfolio that they entrusted to it. Paragraph 9 of the Trust Agreement provides that
Advent Capital could automatically deduct its trust fees from the Alcantaras’ portfolio, "at the end
of each calendar quarter," with the corresponding duty to submit to the Alcantaras a quarterly
accounting report within 20 days after.13

But the problem is that the trust fees that Advent Capital’s receiver was claiming were for past
quarters. Based on the stipulation, these should have been deducted as they became due. As it
happened, at the time Advent Capital made its move to collect its supposed management fees, it
neither had possession nor control of the money it wanted to apply to its claim. Belson, a third
party, held the money in the Alcantaras’ names. Whether it should deliver the same to Advent
Capital or to the Alcantaras is not clear. What is clear is that the issue as to who should get the
same has been seriously contested.
16

The practice in the case of banks is that they automatically collect their management fees from the
funds that their clients entrust to them for investment or lending to others. But the banks can freely
do this since it holds or has control of their clients’ money and since their trust agreement
authorized the automatic collection. If the depositor contests the deduction, his remedy is to bring
an action to recover the amount he claims to have been illegally deducted from his account.

Here, Advent Capital does not allege that Belson had already deducted the management fees
owing to it from the Alcantaras’ portfolio at the end of each calendar quarter. Had this been done,
it may be said that the money in Belson’s possession would technically be that of Advent Capital.
Belson would be holding such amount in trust for the latter. And it would be for the Alcantaras to
institute an action in the proper court against Advent Capital and Belson for misuse of its funds.

But the above did not happen. Advent Capital did not exercise its right to cause the automatic
deduction at the end of every quarter of its supposed management fee when it had full control of
the dividends. That was its fault. For their part, the Alcantaras had the right to presume that
Advent Capital had deducted its fees in the manner stated in the contract. The burden of proving
that the fees were not in fact collected lies with Advent Capital.

Further, Advent Capital or its rehabilitation receiver cannot unilaterally decide to apply the entire
amount of cash dividends retroactively to cover the accumulated trust fees. Advent Capital merely
managed in trust for the benefit of the Alcantaras the latter’s portfolio, which under Paragraph
214 of the Trust Agreement, includes not only the principal but also its income or proceeds. The
trust property is only fictitiously attributed by law to the trustee "to the extent that the rights and
powers vested in a nominal owner shall be used by him on behalf of the real owner." 15

The real owner of the trust property is the trustor-beneficiary. In this case, the trustors-
beneficiaries are the Alcantaras. Thus, Advent Capital could not dispose of the Alcantaras’
portfolio on its own. The income and principal of the portfolio could only be withdrawn upon the
Alcantaras’ written instruction or order to Advent Capital.16 The latter could not also assign or
encumber the portfolio or its income without the written consent of the Alcantaras.17 All these are
stipulated in the Trust Agreement.

Ultimately, the issue is what court has jurisdiction to hear and adjudicate the conflicting claims of
the parties over the dividends that Belson held in trust for their owners. Certainly, not the
rehabilitation court which has not been given the power to resolve ownership disputes between
Advent Capital and third parties. Neither Belson nor the Alcantaras are its debtors or creditors
with interest in the rehabilitation.

Advent Capital must file a separate action for collection to recover the trust fees that it allegedly
earned and, with the trial court’s authorization if warranted, put the money in escrow for payment
to whoever it rightly belongs. Having failed to collect the trust fees at the end of each calendar
quarter as stated in the contract, all it had against the Alcantaras was a claim for payment which is
a proper subject for an ordinary action for collection. It cannot enforce its money claim by simply
17

filing a motion in the rehabilitation case for delivery of money belonging to the Alcantaras but in
the possession of a third party.

Rehabilitation proceedings are summary and non-adversarial in nature, and do not contemplate
adjudication of claims that must be threshed out in ordinary court proceedings. Adversarial
proceedings similar to that in ordinary courts are inconsistent with the commercial nature of a
rehabilitation case. The latter must be resolved quickly and expeditiously for the sake of the
corporate debtor, its creditors and other interested parties. Thus, the Interim Rules "incorporate the
concept of prohibited pleadings, affidavit evidence in lieu of oral testimony, clarificatory hearings
instead of the traditional approach of receiving evidence, and the grant of authority to the court to
decide the case, or any incident, on the basis of affidavits and documentary evidence."18

Here, Advent Capital’s claim is disputed and requires a full trial on the merits.1âwphi1 It must be
resolved in a separate action where the Alcantaras’ claim and defenses may also be presented and
heard. Advent Capital cannot say that the filing of a separate action would defeat the purpose of
corporate rehabilitation. In the first place, the Interim Rules do not exempt a company under
rehabilitation from availing of proper legal procedure for collecting debt that may be due it.
Secondly, Court records show that Advent Capital had in fact sought to recover one of its assets
by filing a separate action for replevin involving a car that was registered in its name. 19

WHEREFORE, the petition is DENIED for lack of merit and the assailed decision and resolution
of the Court of Appeals in CA-G.R. SP 98692 are AFFIRMED, without prejudice to any action
that petitioner Advent Capital and Finance Corp. or its rehabilitation receiver might institute
regarding the trust fees subject of this case.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 179096 February 06, 2013

JOSEPH GOYANKO, JR., as administrator of the Estate of Joseph Goyanko,

Sr., Petitioner,
vs.
UNITED COCONUT PLANTERS BANK, MANGO AVENUE BRANCH, Respondent.

DECISION

BRION, J.:
18

We resolve the petition for review on certiorari1 filed by petitioner Joseph Goyanko, Jr.,
administrator of the Estate of Joseph Goyanko, Sr., to nullify the decision 2 dated February 20,
2007 and the resolution3 dated July 31, 2007 of the Court of Appeals (CA) in CA-G.R. CV. No.
00257 affirming the decision4 of the Regional Trial Court of Cebu City, Branch 16(RTC) in Civil
Case No. CEB-22277. The RTC dismissed the petitioner’s complaint for recovery of sum money
against United Coconut Planters Bank, Mango Avenue Branch (UCPB).

The Factual Antecedents

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

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

The RTC Ruling

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

The CA’s Ruling

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

The CA partially granted the petitioner’s appeal. It affirmed the August 27, 2003 decision of the
RTC, but deleted the award of attorney’s fees and litigation expenses. The CA held that no express
trust was created between the HEIRS and PALII. For a trust to be established, the law requires,
among others, a competent trustor and trustee and a clear intention to create a trust, which were
19

absent in this case. Quoting the RTC with approval, the CA noted that the contract of deposit was
only between PALII in its own capacity and UCPB, and the words "ITF HEIRS" were insufficient
to establish the existence of a trust. The CA concluded that as no trust existed, expressly or
impliedly, UCPB is not liable for the amount withdrawn.7

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

The Petition

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

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

The Case for UCPB

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

UCPB also argues that the petitioner changed the theory of his case. Before the CA, the petitioner
argued that the HEIRS are the trustors-beneficiaries, and PALII is the trustee. Here, the petitioner
maintains that PALII is the trustor, UCPB is the trustee, and the HEIRS are the beneficiaries.
Contrary to the petitioner’s assertion, the records failed to show that PALII and UCPB executed a
trust agreement, and PALII’s letters made it clear that PALII, on its own, intended to turn-over the
proceeds of the ACCOUNT to its rightful owners.
20

The Court’s Ruling

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

We rule in the negative.

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

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

No express trust exists; UCPB exercised the required diligence in handling the ACCOUNT;
petitioner has no cause of action against UCPB

A trust, either express or implied,26 is the fiduciary relationship "x x x between one person having
an equitable ownership of property and another person owning the legal title to such property, the
equitable ownership of the former entitling him to the performance of certain duties and the
exercise of certain powers by the latter."27Express or direct trusts are created by the direct and
positive acts of the trustor or of the parties.28 No written words are required to create an express
trust. This is clear from Article 1444 of the Civil Code,29 but, the creation of an express trust must
be firmly shown; it cannot be assumed from loose and vague declarations or circumstances
capable of other interpretations.30
21

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

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

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

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

UCPB’s records and the testimony of UCPB’s witness 34 likewise lead us to the same conclusion.
While the words "ITF HEIRS" may have created the impression that a trust account was created, a
closer scrutiny reveals that it is an ordinary savings account.35 We give credence to UCPB’s
explanation that the word "ITF" was merely used to distinguish the ACCOUNT from PALII’s
other accounts with UCPB. A trust can be created without using the word "trust" or "trustee," but
the mere use of these words does not automatically reveal an intention to create a trust. 36If at all,
these words showed a trustee-beneficiary relationship between PALII and the HEIRS.
22

Contrary to the petitioner’s position, UCPB did not become a trustee by the mere opening of the
ACCOUNT.1âwphi1While this may seem to be the case, by reason of the fiduciary nature of the
bank’s relationship with its depositors,37 this fiduciary relationship does not "convert the contract
between the bank and its depositors from a simple loan to a trust agreement, whether express or
implied."38 It simply means that the bank is obliged to observe "high standards of integrity and
performance" in complying with its obligations under the contract of simple loan.39 Per Article
1980 of the Civil Code,40 a creditor-debtor relationship exists between the bank and its
depositor.41 The savings deposit agreement is between the bank and the depositor; 42 by receiving
the deposit, the bank impliedly agrees to pay upon demand and only upon the depositor’s order. 43

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

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

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

SO ORDERED:

Republic of the Philippines

SUPREME COURT
Manila

THIRD DIVISION
23

G.R. No. 179597 February 3, 2014

IGLESIA FILIPINA INDEPENDIENTE, Petitioner,

vs.
HEIRS of BERNARDINO TAEZA, Respondents.

This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying
that the Decision1of the Court of Appeals (CA), promulgated on June 30, 2006, and the
Resolution2 dated August 23, 2007, denying petitioner's motion for reconsideration thereof, be
reversed and set aside.

The CA's narration of facts is accurate, to wit:

The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious
corporation, was the owner of a parcel of land described as Lot 3653, containing an area of 31,038
square meters, situated at Ruyu (now Leonarda), Tuguegarao, Cagayan, and covered by Original
Certificate of Title No. P-8698. The said lot is subdivided as follows: Lot Nos. 3653-A, 3653-B,
3653-C, and 3653-D.

Between 1973 and 1974, the plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga,
sold Lot 3653-D, with an area of 15,000 square meters, to one Bienvenido de Guzman.

On February 5, 1976, Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters,
were likewise sold by Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-
appellee, to the defendant Bernardino Taeza, for the amount of P100,000.00, through installment,
with mortgage to secure the payment of the balance. Subsequently, the defendant allegedly
completed the payments.

In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with Mortgage was
filed by the Parish Council of Tuguegarao, Cagayan, represented by Froilan Calagui and Dante
Santos, the President and the Secretary, respectively, of the Laymen's Committee, with the then
Court of First Instance of Tuguegarao, Cagayan, against their Supreme Bishop Macario Ga and
the defendant Bernardino Taeza.

The said complaint was, however, subsequently dismissed on the ground that the plaintiffs therein
lacked the personality to file the case.

After the expiration of Rev. Macario Ga's term of office as Supreme Bishop of the IFI on May 8,
1981, Bishop Abdias dela Cruz was elected as the Supreme Bishop. Thereafter, an action for the
declaration of nullity of the elections was filed by Rev. Ga, with the Securities and Exchange
Commission (SEC).
24

In 1987, while the case with the SEC is (sic) still pending, the plaintiff-appellee IFI, represented
by Supreme Bishop Rev. Soliman F. Ganno, filed a complaint for annulment of the sale of the
subject parcels of land against Rev. Ga and the defendant Bernardino Taeza, which was docketed
as Civil Case No. 3747. The case was filed with the Regional Trial Court of Tuguegarao,
Cagayan, Branch III, which in its order dated December 10, 1987, dismissed the said case without
prejudice, for the reason that the issue as to whom of the Supreme Bishops could sue for the
church had not yet been resolved by the SEC.

On February 11, 1988, the Securities and Exchange Commission issued an order resolving the
leadership issue of the IFI against Rev. Macario Ga.

Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land. Consequently,
Transfer Certificate of Title Nos. T-77995 and T-77994 were issued in his name.

The defendant then occupied a portion of the land. The plaintiff-appellee allegedly demanded the
defendant to vacate the said land which he failed to do.

In January 1990, a complaint for annulment of sale was again filed by the plaintiff-appellee IFI,
this time through Supreme Bishop Most Rev. Tito Pasco, against the defendant-appellant, with the
Regional Trial Court of Tuguegarao City, Branch 3.

On November 6, 2001, the court a quo rendered judgment in favor of the plaintiff-
appellee.1âwphi1 It held that the deed of sale executed by and between Rev. Ga and the
defendant-appellant is null and void.3

The dispositive portion of the Decision of Regional Trial Court of Tuguegarao City (RTC) reads
as follows:

WHEREFORE, judgment is hereby rendered:

1) declaring plaintiff to be entitled to the claim in the Complaint;

2) declaring the Deed of Sale with Mortgage dated February 5, 1976 null and void;

3) declaring Transfer Certificates of Title Numbers T-77995 and T-77994 to be null and
void ab initio;

4) declaring the possession of defendant on that portion of land under question and
ownership thereof as unlawful;

5) ordering the defendant and his heirs and successors-in-interest to vacate the premises in
question and surrender the same to plaintiff; [and]
25

6) condemning defendant and his heirs pay (sic) plaintiff the amount of P100,000.00 as
actual/consequential damages and P20,000.00 as lawful attorney's fees and costs of the
amount (sic).4

Petitioner appealed the foregoing Decision to the CA. On June 30, 2006, the CA rendered its
Decision reversing and setting aside the RTC Decision, thereby dismissing the complaint. 5 The
CA ruled that petitioner, being a corporation sole, validly transferred ownership over the land in
question through its Supreme Bishop, who was at the time the administrator of all properties and
the official representative of the church. It further held that "[t]he authority of the then Supreme
Bishop Rev. Ga to enter into a contract and represent the plaintiff-appellee cannot be assailed, as
there are no provisions in its constitution and canons giving the said authority to any other person
or entity."6

Petitioner then elevated the matter to this Court via a petition for review on certiorari, wherein the
following issues are presented for resolution:

A.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE
FEBRUARY 5, 1976 DEED OF SALE WITH MORTGAGE AS NULL AND VOID;

B.) ASSUMING FOR THE SAKE OF ARGUMENT THAT IT IS NOT VOID,

WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE
FEBRUARY 5, 1976 DEED OF SALE WITH MORTGAGE AS UNENFORCEABLE,
[and]

C.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING

RESPONDENT TAEZA HEREIN AS BUYER IN BAD FAITH.7

The first two issues boil down to the question of whether then Supreme Bishop Rev. Ga is
authorized to enter into a contract of sale in behalf of petitioner.

Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga
had no authority to give such consent. It emphasized that Article IV (a) of their Canons provides
that "All real properties of the Church located or situated in such parish can be disposed of only
with the approval and conformity of the laymen's committee, the parish priest, the Diocesan
Bishop, with sanction of the Supreme Council, and finally with the approval of the Supreme
Bishop, as administrator of all the temporalities of the Church." It is alleged that the sale of the
property in question was done without the required approval and conformity of the entities
mentioned in the Canons; hence, petitioner argues that the sale was null and void.

In the alternative, petitioner contends that if the contract is not declared null and void, it should
nevertheless be found unenforceable, as the approval and conformity of the other entities in their
church was not obtained, as required by their Canons.
26

Section 113 of the Corporation Code of the Philippines provides that:

Sec. 113. Acquisition and alienation of property. - Any corporation sole may purchase and hold
real estate and personal property for its church, charitable, benevolent or educational purposes, and
may receive bequests or gifts for such purposes. Such corporation may mortgage or sell real
property held by it upon obtaining an order for that purpose from the Court of First Instance of the
province where the property is situated; x x x Provided, That in cases where the rules, regulations
and discipline of the religious denomination, sect or church, religious society or order concerned
represented by such corporation sole regulate the method of acquiring, holding, selling and
mortgaging real estate and personal property, such rules, regulations and discipline shall control,
and the intervention of the courts shall not be necessary.8

Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons of
the Philippine Independent Church,9 that "[a]ll real properties of the Church located or situated in
such parish can be disposed of only with the approval and conformity of the laymen's

committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and
finally with the approval of the Supreme Bishop, as administrator of all the temporalities of the
Church."

Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the
Supreme Bishop but also the concurrence of the laymen's committee, the parish priest, and the
Diocesan Bishop, as sanctioned by the Supreme Council. However, petitioner's Canons do not
specify in what form the conformity of the other church entities should be made known. Thus, as
petitioner's witness stated, in practice, such consent or approval may be assumed as a matter of
fact, unless some opposition is expressed.10

Here, the trial court found that the laymen's committee indeed made its objection to the sale
known to the Supreme Bishop.11 The CA, on the other hand, glossed over the fact of such
opposition from the laymen's committee, opining that the consent of the Supreme Bishop to the
sale was sufficient, especially since the parish priest and the Diocesan Bishop voiced no objection
to the sale.12

The Court finds it erroneous for the CA to ignore the fact that the laymen's committee objected to
the sale of the lot in question. The Canons require that ALL the church entities listed in Article IV
(a) thereof should give its approval to the transaction. Thus, when the Supreme Bishop executed
the contract of sale of petitioner's lot despite the opposition made by the laymen's committee, he
acted beyond his powers.

This case clearly falls under the category of unenforceable contracts mentioned in Article 1403,
paragraph (1) of the Civil Code, which provides, thus:

Art. 1403. The following contracts are unenforceable, unless they are ratified:
27

(1) Those 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;

In Mercado v. Allied Banking Corporation,13 the Court explained that:

x x x Unenforceable contracts are those which cannot be enforced by a proper action in court,
unless they are ratified, because either they are entered into without or in excess of authority or
they do not comply with the statute of frauds or both of the contracting parties do not possess the
required legal capacity. x x x.14

Closely analogous cases of unenforceable contracts are those where a person signs a deed of
extrajudicial partition in behalf of co-heirs without the latter's authority;15 where a mother as
judicial guardian of her minor children, executes a deed of extrajudicial partition wherein she
favors one child by giving him more than his share of the estate to the prejudice of her other
children;16 and where a person, holding a special power of attorney, sells a property of his
principal that is not included in said special power of attorney.17

In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had already
obtained a transfer certificate of title in his name over the property in question. Since the person
supposedly transferring ownership was not authorized to do so, the property had evidently been
acquired by mistake. In Vda. de Esconde v. Court of Appeals,18 the Court affirmed the trial court's
ruling that the applicable provision of law in such cases is Article 1456 of the Civil Code which
states that "[i]f 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, in Aznar Brothers Realty Company v. Aying,19 citing Vda. de Esconde,20 the Court
clarified the concept of trust involved in said provision, to wit:

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 so-called trustee neither accepts any trust nor intends holding the property for the
beneficiary.

The concept of constructive trusts was further elucidated in the same case, as follows:

. . . implied trusts are those which, without being expressed, are deducible from the nature of the
transaction as matters of intent or which are superinduced on the transaction by operation of law as
28

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 of 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. (Italics supplied)

A constructive trust having been constituted by law between respondents as trustees and petitioner
as beneficiary of the subject property, may respondents acquire ownership over the said property?
The Court held in the same case of Aznar,21 that unlike in express trusts and resulting implied
trusts where a trustee cannot acquire by prescription any property entrusted to him unless he
repudiates the trust, in constructive implied trusts, the trustee may acquire the property through
prescription even if he does not repudiate the relationship. It is then incumbent upon the
beneficiary to bring an action for reconveyance before prescription bars the same.

In Aznar,22 the Court explained the basis for the prescriptive period, to wit:

x x x under the present Civil Code, we find that just as an implied or constructive trust is an
offspring of the law (Art. 1456, Civil Code), so is the corresponding obligation to reconvey the
property and the title thereto in favor of the true owner. In this context, and vis-á-vis prescription,
Article 1144 of the Civil Code is applicable.

Article 1144. The following actions must be brought within ten years from the time the right of
action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

xxx xxx xxx

An action for reconveyance based on an implied or constructive trust must perforce prescribe in
ten years and not otherwise. A long line of decisions of this Court, and of very recent vintage at
that, illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based
29

on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title
over the property.

It has also been ruled that the ten-year prescriptive period begins to run from the date of
registration of the deed or the date of the issuance of the certificate of title over the property, x x
x.23

Here, the present action was filed on January 19, 1990, 24 while the transfer certificates of title over
the subject lots were issued to respondents' predecessor-in-interest, Bernardino Taeza, only on
February 7, 1990.25

Clearly, therefore, petitioner's complaint was filed well within the prescriptive period stated above,
and it is only just that the subject property be returned to its rightful owner.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30,
2006, and its Resolution dated August 23, 2007, are REVERSED and SET ASIDE. A new
judgment is hereby entered:

(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of

the lots covered by Transfer Certificates of Title Nos. T-77994 and T-77995;

(2) ORDERING respondents to execute a deed reconveying the aforementioned lots to

petitioner;

(3) ORDERING respondents and successors-in-interest to vacate the subject premises and
surrender the same to petitioner; and

(4) Respondents to PAY costs of suit.

SO ORDERED.

RICHARD B. LOPEZ, in his G.R. No. 157784

Capacity as Trustee of the Trust
Estate of the late Juliana Lopez-
Manzano, Present:
Petitioner,

QUISUMBING, J.,
Chairperson,
CARPIO MORALES,
- versus - TINGA,
VELASCO, JR., and
30

COURT OF APPEALS, BRION, JJ.

CORAZON LOPEZ, FERNANDO
LOPEZ, ROBERTO LOPEZ, represented
by LUZVIMINDA LOPEZ, MARIA Promulgated:
ROLINDA MANZANO, MARIA
ROSARIO MANZANO SANTOS,
JOSE MANZANO, JR., NARCISO
MANZANO (all represented by December 16, 2008
Attorney-in-fact, MODESTO RUBIO),
MARIA CRISTINA MANZANO RUBIO,
IRENE MONZON and ELENA MANZANO,
Respondents.

This is a petition for review on certiorari [1]under Rule 45 of the 1997 Rules of Civil Procedure,
assailing the Decision[2] and Resolution[3] of the Court of Appeals in CA-G.R. CV No. 34086. The
Court of Appeals decision affirmed the summary judgment of the Regional Trial Court (RTC),
Branch 10, Balayan, Batangas, dismissing petitioners action for reconveyance on the ground of
prescription.

The instant petition stemmed from an action for reconveyance instituted by petitioner
Richard B. Lopez in his capacity as trustee of the estate of the late Juliana
Lopez Manzano (Juliana) to recover from respondents several large tracts of lands allegedly
belonging to the trust estate of Juliana.

The decedent, Juliana, was married to Jose Lopez Manzano (Jose). Their union did not bear
any children. Juliana was the owner of several properties, among them, the properties subject of
this dispute. The disputed properties totaling more than 1,500 hectares consist of six parcels of
land, which are all located in Batangas. They were the exclusive paraphernal properties of Juliana
together with a parcel of land situated in Mindoro known as Abra de Ilog and a fractional interest
in a residential land on AntorchaSt., Balayan, Batangas.

On 23 March 1968, Juliana executed a notarial will,[4] whereby she expressed that she wished to
constitute a trust fund for herparaphernal properties, denominated as Fideicomiso de Juliana
Lopez Manzano (Fideicomiso), to be administered by her husband. If her husband were to die or
renounce the obligation, her nephew, Enrique Lopez, was to become administrator and executor of
theFideicomiso. Two-thirds (2/3) of the income from rentals over these properties were to answer
for the education of deserving but needy honor students, while one-third 1/3 was to shoulder the
31

expenses and fees of the administrator. As to her conjugal properties, Juliana bequeathed the
portion that she could legally dispose to her husband, and after his death, said properties were to
pass to herbiznietos or great grandchildren.

Juliana initiated the probate of her will five (5) days after its execution, but she died on 12 August
1968, before the petition for probate could be heard. The petition was pursued instead in Special
Proceedings (S.P.) No. 706 by her husband, Jose, who was the designated executor in the will. On
7 October 1968, the Court of First Instance, Branch 3, Balayan, Batangas, acting as probate court,
admitted the will to probate and issued the letters testamentary to Jose. Jose then submitted an
inventory of Julianas real and personal properties with their appraised values, which was approved
by the probate court.

Thereafter, Jose filed a Report dated 16 August 1969, which included a proposed project of
partition. In the report, Jose explained that as the only compulsory heir of Juliana, he was entitled
by operation of law to one-half (1/2) of Julianas paraphernal properties as his legitime, while the
other one-half (1/2) was to be constituted into the Fideicomiso. At the same time, Jose alleged that
he and Juliana had outstanding debts totaling P816,000.00 excluding interests, and that these debts
were secured by real estate mortgages. He noted that if these debts were liquidated, the residuary
estate available for distribution would, value-wise, be very small.

From these premises, Jose proceeded to offer a project of partition. The relevant portion pertaining
to the Fideicomiso stated, thus:

PROJECT OF PARTITION

14. Pursuant to the terms of the Will, one-half (1/2) of the following properties,
which are not burdened with any obligation, shall be constituted into the Fidei-
comiso de Juliana Lopez Manzano and delivered to Jose Lopez Manzano as trustee
thereof:

Location Title No. Area (Sq. M.) Improvements

Abra de Ilog, TCT - 540 2,940,000 pasture, etc.

Mindoro

Antorcha St. TCT 1217-A 13,040 residential

Balayan, Batangas (1/6 thereof)
32

and all those properties to be inherited by the decedent, by intestacy, from her
sister, Clemencia Lopez y Castelo.

15. The other half (1/2) of the aforesaid properties is adjudicated to Jose
Lopez Manzano as heir.

Then, Jose listed those properties which he alleged were registered in both his and Julianas names,
totaling 13 parcels in all. The disputed properties consisting of six (6) parcels, all located
in Balayan, Batangas, were included in said list. These properties, as described in the project of
partition, are as follows:
Location Title No. Area (Sq. M.) Improvements

Pantay, Calaca, 91,283 coconuts

Batangas

Mataywanak, OCT-29[6]94 485,486 sugar

Tuy, Batangas

Patugo, Balayan, OCT-2807 16,757,615 coconut,

Batangas sugar, citrus,
pasteur

Cagayan, Balayan, TCT-1220 411,331 sugar

Batangas

Pook, Baayan TCT-1281 135,922 sugar

Batangas

Bolbok, Balayan, TCT-18845 444,998 sugar

Batangas
Calzada, Balayan, TCT 1978 2,312 sugar
Batangas
Gumamela, Balayan, TCT-2575 829
Batangas
Bombon, Balayan, 4,532
Batangas
Paraaque, Rizal TCT-282340 800 residential
Paraaque, Rizal TCT-11577 800 residential
Modesto St., Manila TCT-52212 137.8 residential
33

and the existing sugar quota in the name of the deceased with the
Central Azucarera Don Pedro at Nasugbo.

16. The remaining shall likewise go to Jose Lopez Manzano, with the condition to be
annotated on the titles thereof, that upon his death, the same shall pass on to Corazon
Lopez, Ferdinand Lopez, and Roberto Lopez:

Location Title No. Area (Sq. M.) Improvements

Dalig, Balayan, TCT-10080 482,872 sugar

Batangas
San Juan, Rizal TCT-53690 523 residential

On 25 August 1969, the probate court issued an order approving the project of partition. As to the
properties to be constituted into the Fideicomiso, the probate court ordered that the certificates of
title thereto be cancelled, and, in lieu thereof, new certificates be issued in favor of Jose as trustee
of the Fideicomiso covering one-half (1/2) of the properties listed under paragraph 14 of the
project of partition; and regarding the other half, to be registered in the name of Jose as heir of
Juliana. The properties which Jose had alleged as registered in his and Julianas names, including
the disputed lots, were adjudicated to Jose as heir, subject to the condition that Jose would settle
the obligations charged on these properties. The probate court, thus, directed that new certificates
of title be issued in favor of Jose as the registered owner thereof in its Order dated 15 September
1969. On even date, the certificates of title of the disputed properties were issued in the name of
Jose.

The Fideicomiso was constituted in S.P No. 706 encompassing one-half (1/2) of
the Abra de Ilog lot on Mindoro, the 1/6 portion of the lot in Antorcha St.
in Balayan, Batangas and all other properties inherited ab intestato by Juliana from her
sister, Clemencia, in accordance with the order of the probate court in S.P. No. 706. The disputed
lands were excluded from the trust.

Jose died on 22 July 1980, leaving a holographic will disposing of the disputed properties to
respondents. The will was allowed probate on 20 December 1983 in S.P. No. 2675 before the RTC
of Pasay City. Pursuant to Joses will, the RTC ordered on20 December 1983 the transfer of the
disputed properties to the respondents as the heirs of Jose. Consequently, the certificates of title of
the disputed properties were cancelled and new ones issued in the names of respondents.
34

Petitioners father, Enrique Lopez, also assumed the trusteeship of Julianas estate. On 30
August 1984, the RTC of Batangas, Branch 9 appointed petitioner as trustee of Julianas estate in
S.P. No. 706. On 11 December 1984, petitioner instituted an action forreconveyance of parcels of
land with sum of money before the RTC of Balayan, Batangas against respondents. The
complaint[5]essentially alleged that Jose was able to register in his name the disputed properties,
which were the paraphernal properties of Juliana, either during their conjugal union or in the
course of the performance of his duties as executor of the testate estate of Juliana and that upon the
death of Jose, the disputed properties were included in the inventory as if they formed part of
Joses estate when in fact Jose was holding them only in trust for the trust estate of Juliana.

Respondents Maria Rolinda Manzano, Maria Rosario Santos, Jose Manzano,

Jr., Narciso Manzano, Maria Cristina ManzanoRubio and Irene Monzon filed a joint answer[6] with
counterclaim for damages. Respondents Corazon, Fernando and Roberto, all surnamed Lopez,
who were minors at that time and represented by their mother, filed a motion to dismiss, [7] the
resolution of which was deferred until trial on the merits. The RTC scheduled several pre-trial
conferences and ordered the parties to submit pre-trial briefs and copies of the exhibits.

On 10 September 1990, the RTC rendered a summary judgment,[8] dismissing the action on the
ground of prescription of action. The RTC also denied respondents motion to set date of hearing
on the counterclaim.

Both petitioner and respondents elevated the matter to the Court of Appeals. On 18 October 2002,
the Court of Appeals rendered the assailed decision denying the appeals filed by both petitioner
and respondents. The Court of Appeals also denied petitioners motion for reconsideration for lack
of merit in its Resolution dated 3 April 2003.
Hence, the instant petition attributing the following errors to the Court of Appeals:

I. THE COURT OF APPEALS CONCLUSION THAT PETITIONERS

ACTION FOR [RECONVEYANCE] HAS PRESCRIBED TAKING AS
BASIS SEPTEMBER 15, 1969 WHEN THE PROPERTIES IN DISPUTE WERE
TRANSFERRED TO THE NAME OF THE LATE JOSE LOPEZ MANZANO IN
RELATION TO DECEMBER 12, 1984 WHEN THE ACTION FOR
RECONVEYANCE WAS FILED IS ERRONEOUS.

II. THE RESPONDENT COURT OF APPEALS CONCLUSION IN

FINDING THAT THE FIDUCIARY RELATION ASSUMED BY THE LATE JOSE
LOPEZ MANZANO, AS TRUSTEE, PURSUANT TO THE LAST WILL AND
35

TESTAMENT OF JULIANA LOPEZ MANZANO WAS IMPLIED TRUST,

INSTEAD OF EXPRESS TRUST IS EQUALLY ERRONEOUS.

None of the respondents filed a comment on the petition. The counsel for respondents Corazon,
Fernando and Roberto, all surnamed Lopez, explained that he learned that respondents had
migrated to the United States only when the case was pending before the Court of
Appeals.[9] Counsel for the rest of the respondents likewise manifested that the failure by said
respondents to contact or communicate with him possibly signified their lack of interest in the
case.[10] In a Resolution dated 19 September 2005, the Court dispensed with the filing of a
comment and considered the case submitted for decision.[11]

The core issue of the instant petition hinges on whether petitioners action for reconveyance has
prescribed. The resolution of this issue calls for a determination of whether an implied trust was
constituted over the disputed properties when Jose, the trustee, registered them in his name.
Petitioner insists that an express trust was constituted over the disputed properties; thus the
registration of the disputed properties in the name of Jose as trustee cannot give rise to
prescription of action to prevent the recovery of the disputed properties by the beneficiary against
the trustee.

Evidently, Julianas testamentary intent was to constitute an express trust over

her paraphernal properties which was carried out when the Fideicomiso was established in S.P.
No. 706.[12] However, the disputed properties were expressly excluded from theFideicomiso. The
probate court adjudicated the disputed properties to Jose as the sole heir of Juliana. If a mistake
was made in excluding the disputed properties from the Fideicomiso and adjudicating the same to
Jose as sole heir, the mistake was not rectified as no party appeared to oppose or appeal the
exclusion of the disputed properties from the Fideicomiso. Moreover, the exclusion of the disputed
properties from the Fideicomiso bore the approval of the probate court. The issuance of the
probate courts order adjudicating the disputed properties to Jose as the sole heir of Juliana enjoys
the presumption of regularity.[13]

On the premise that the disputed properties were the paraphernal properties of Juliana which
should have been included in theFideicomiso, their registration in the name of Jose would be
36

erroneous and Joses possession would be that of a trustee in an implied trust. Implied trusts are
those which, without being expressed, are deducible from the nature of the transaction as matters
of intent or which are superinduced on the transaction by operation of law as matters of equity,
independently of the particular intention of the parties.[14]

The provision on implied trust governing the factual milieu of this case is provided in
Article 1456 of the Civil Code, which 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.

In Aznar Brothers Realty Company v. Aying,[15] the Court differentiated two kinds of
implied trusts, to wit:

x x x 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 of 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.[16]

A resulting trust is 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
itself.[17] Specific examples of resulting trusts may be found in the Civil Code, particularly Arts.
1448,[18] 1449,[19] 1451,[20] 1452[21] and 1453.[22]

A constructive trust is created, not by any word evincing a direct intention to create a trust,
but by operation of law in order to satisfy the demands of justice and to prevent unjust
enrichment.[23] 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
37

the person holding it.[24] Constructive trusts are illustrated in Arts. 1450,[25] 1454,[26] 1455[27] and
1456.[28]
The disputed properties were excluded from the Fideicomiso at the outset. Jose registered
the disputed properties in his name partly as his conjugal share and partly as his inheritance from
his wife Juliana, which is the complete reverse of the claim of the petitioner, as the new trustee,
that the properties are intended for the beneficiaries of the Fideicomiso. Furthermore, the
exclusion of the disputed properties from the Fideicomiso was approved by the probate court and,
subsequently, by the trial court having jurisdiction over the Fideicomiso. The registration of the
disputed properties in the name of Jose was actually pursuant to a court order. The apparent
mistake in the adjudication of the disputed properties to Jose created a mere implied trust of the
constructive variety in favor of the beneficiaries of the Fideicomiso.

Now that it is established that only a constructive trust was constituted over the disputed
properties, may prescription for the recovery of the properties supervene?

Petitioner asserts that, if at all, prescription should be reckoned only when respondents
caused the registration of the disputed properties in their names on 13 April 1984 and not on 15
September 1969, when Jose registered the same in his name pursuant to the probate courts order
adjudicating the disputed properties to him as the sole heir of Juliana. Petitioner adds, proceeding
on the premise that the prescriptive period should be counted from the repudiation of the trust,
Jose had not performed any act indicative of his repudiation of the trust or otherwise declared an
adverse claim over the disputed properties.

The argument is tenuous.

The right to seek reconveyance based on an implied or constructive trust is not absolute. It
is subject to extinctive prescription.[29] An action for reconveyance based on implied or
constructive trust prescribes in 10 years. This period is reckoned from the date of the issuance of
the original certificate of title or transfer certificate of title. Since such issuance operates as a
constructive notice to the whole world, the discovery of the fraud is deemed to have taken place at
that time.[30]

In the instant case, the ten-year prescriptive period to recover the disputed property must be
counted from its registration in the name of Jose on 15 September 1969, when petitioner was
charged with constructive notice that Jose adjudicated the disputed properties to himself as the
sole heir of Juana and not as trustee of the Fideicomiso.
38

It should be pointed out also that Jose had already indicated at the outset that the disputed
properties did not form part of theFideicomiso contrary to petitioners claim that no overt acts of
repudiation may be attributed to Jose. It may not be amiss to state that in the project of partition
submitted to the probate court, Jose had indicated that the disputed properties were conjugal in
nature and, thus, excluded from Julianas Fideicomiso. This act is clearly tantamount to repudiating
the trust, at which point the period for prescription is reckoned.
In any case, the rule that a trustee cannot acquire by prescription ownership over property
entrusted to him until and unless he repudiates the trust applies only to express trusts and resulting
implied trusts. However, in constructive implied trusts, prescription may supervene even if the
trustee does not repudiate the relationship. Necessarily, repudiation of said trust is not a condition
precedent to the running of the prescriptive period.[31] Thus, for the purpose of counting the ten-
year prescriptive period for the action to enforce the constructive trust, the reckoning point is
deemed to be on 15 September 1969 when Jose registered the disputed properties in his name.

WHEREFORE, the instant petition for review on certiorari is DENIED and the decision and
resolution of the Court of Appeals in CA-G.R. CV No. 34086 are AFFIRMED. Costs against
petitioner.

SO ORDERED.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 154486 December 1, 2010

FEDERICO JARANTILLA, JR., Petitioner,

vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by
CYNTHIA REMOTIGUE, DOROTEO JARANTILLA and TOMAS
JARANTILLA, Respondents.

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated
July 30, 2002 in CA-G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992
of the Regional Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.
39

The pertinent facts are as follows:

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin,
Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.

Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla,
his aunt, was the plaintiff therein. His co-respondents before he joined his aunt Antonieta in her
complaint, were his late aunt Conchita Jarantilla’s husband Buenaventura Remotigue, who died
during the pendency of the case, his cousin Cynthia Remotigue, the adopted daughter of Conchita
Jarantilla and Buenaventura Remotigue, and his brothers Doroteo and Tomas Jarantilla.6

In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of
their deceased parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the
heirs also agreed to allot the produce of the said real properties for the years 1947-1949 for the
studies of Rafael and Antonieta Jarantilla.8

In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement
with the spouses Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to
each other by way of financial support to any commercial and agricultural activity on a joint
business arrangement. This business relationship proved to be successful as they were able to
establish a manufacturing and trading business, acquire real properties, and construct buildings,
among other things.9 This partnership ended in 1973 when the parties, in an
"Agreement,"10 voluntarily agreed to completely dissolve their "joint business
relationship/arrangement."11

On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document
wherein they acknowledged that while registered only in Buenaventura Remotigue’s name, they
were not the only owners of the capital of the businesses Manila Athletic Supply (712 Raon Street,
Manila), Remotigue Trading (Calle Real, Iloilo City) and Remotigue Trading (Cotabato City). In
this same "Acknowledgement of Participating Capital," they stated the participating capital of
their co-owners as of the year 1952, with Antonieta Jarantilla’s stated as eight thousand pesos
(P8,000.00) and Federico Jarantilla, Jr.’s as five thousand pesos (P5,000.00).12

The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta
Jarantilla against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo
Jarantilla and Tomas Jarantilla, for the accounting of the assets and income of the co-ownership,
for its partition and the delivery of her share corresponding to eight percent (8%), and for
damages. Antonieta claimed that in 1946, she had entered into an agreement with Conchita and
Buenaventura Remotigue, Rafael Jarantilla, and Rosita and Vivencio Deocampo to engage in
business. Antonieta alleged that the initial contribution of property and money came from the
heirs’ inheritance, and her subsequent annual investment of seven thousand five hundred pesos
40

(P7,500.00) as additional capital came from the proceeds of her farm. Antonieta also alleged that
from 1946-1969, she had helped in the management of the business they co-owned without
receiving any salary. Her salary was supposedly rolled back into the business as additional
investments in her behalf. Antonieta further claimed co-ownership of certain properties14 (the
subject real properties) in the name of the defendants since the only way the defendants could have
purchased these properties were through the partnership as they had no other source of income.

The respondents, including petitioner herein, in their Answer,15 denied having formed a
partnership with Antonieta in 1946. They claimed that she was in no position to do so as she was
still in school at that time. In fact, the proceeds of the lands they partitioned were devoted to her
studies. They also averred that while she may have helped in the businesses that her older sister
Conchita had formed with Buenaventura Remotigue, she was paid her due salary. They did not
deny the existence and validity of the "Acknowledgement of Participating Capital" and in fact
used this as evidence to support their claim that Antonieta’s 8% share was limited to the
businesses enumerated therein. With regard to Antonieta’s claim in their other corporations and
businesses, the respondents said these should also be limited to the number of her shares as
specified in the respective articles of incorporation. The respondents denied using the
partnership’s income to purchase the subject real properties and said that the certificates of title
should be binding on her.16

During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the
original defendants, entered into a compromise agreement 17 with Antonieta Jarantilla wherein he
supported Antonieta’s claims and asserted that he too was entitled to six percent (6%) of the
supposed partnership in the same manner as Antonieta was. He prayed for a favorable judgment in
this wise:

Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for an accounting from the
other defendants, and the partition of the properties of the co-ownership and the delivery to the
plaintiff and to defendant Federico Jarantilla, Jr. of their rightful share of the assets and properties
in the co-ownership.181avvphi1

The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve
Compromise Agreement20and on December 18, 1992, decided in favor of Antonieta, to wit:

WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff
Antonieta Jarantilla and against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas
Jarantilla ordering the latter:

1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties
covered by TCT Nos. 35655, 338398, 338399 & 335395, all of the Registry of Deeds of
Quezon City; TCT Nos. (18303)23341, 142882 & 490007(4615), all of the Registry of
Deeds of Rizal; and TCT No. T-6309 of the Registry of Deeds of Cotabato based on their
present market value;
41

2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-
Industrial Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc. and
Buendia Recapping Corporation based on the shares of stocks present book value;

3. to account for the assets and income of the co-ownership and deliver to plaintiff her
rightful share thereof equivalent to 8%;

4. to pay plaintiff, jointly and severally, the sum of P50,000.00 as moral damages;

5. to pay, jointly and severally, the sum of P50,000.00 as attorney’s fees; and

6. to pay, jointly and severally, the costs of the suit.21

Both the petitioner and the respondents appealed this decision to the Court of Appeals. The
petitioner claimed that the RTC "erred in not rendering a complete judgment and ordering the
partition of the co-ownership and giving to [him] six per centum (6%) of the properties."22

While the Court of Appeals agreed to some of the RTC’s factual findings, it also established that
Antonieta Jarantilla was not part of the partnership formed in 1946, and that her 8% share was
limited to the businesses enumerated in the Acknowledgement of Participating Capital. On July
30, 2002, the Court of Appeals rendered the herein challenged decision setting aside the RTC’s
decision, as follows:

WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new
one is hereby entered ordering that:

(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and
profits of Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading
in Cotabato City;

(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets
and profits of the above-mentioned enterprises; and, holding that

(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent
stated in their Articles of Incorporation:

(a) Rural Bank of Barotac Nuevo, Inc.;

(b) MAS Rubber Products, Inc.;

(c) Manila Athletic Supply, Inc.; and

(d) B. Remotigue Agro-Industrial Development Corp.

42

(4) No costs.23

The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of
Appeals denied this in a Resolution24 dated March 21, 2003.

Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated
September 16, 2002, assailing the Court of Appeals’ decision on "similar grounds and similar
assignments of errors as this present case"26 but it was dismissed on November 20, 2002 for failure
to file the appeal within the reglementary period of fifteen (15) days in accordance with Section 2,
Rule 45 of the Rules of Court.27

Petitioner filed before us this petition for review on the sole ground that:

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT

PETITIONER FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%)
SHARE OF THE OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER
DEFENDANTS USING COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD
OWNED SUCH SHARE.28

Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses,
Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the Remotigue spouses executed in 1957. He contends
that from this partnership, several other corporations and businesses were established and several
real properties were acquired. In this petition, he is essentially asking for his 6% share in the
subject real properties. He is relying on the Acknowledgement of Participating Capital, on his own
testimony, and Antonieta Jarantilla’s testimony to support this contention.

The core issue is whether or not the partnership subject of the Acknowledgement of Participating
Capital funded the subject real properties. In other words, what is the petitioner’s right over these
real properties?

It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil
Procedure, only questions of law may be raised by the parties and passed upon by this Court.29

A question of law arises when there is doubt as to what the law is on a certain state of facts, while
there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a
question to be one of law, the same must not involve an examination of the probative value of the
evidence presented by the litigants or any of them. The resolution of the issue must rest solely on
what the law provides on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact. Thus, the test of whether a
question is one of law or of fact is not the appellation given to such question by the party raising
the same; rather, it is whether the appellate court can determine the issue raised without reviewing
43

or evaluating the evidence, in which case, it is a question of law; otherwise it is a question of

fact.30

Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in
resolving the questions of law that are now in issue, shall look into the facts only in so far as the
two courts a quo differed in their appreciation thereof.

The RTC found that an unregistered partnership existed since 1946 which was affirmed in the
1957 document, the "Acknowledgement of Participating Capital." The RTC used this as its basis
for giving Antonieta Jarantilla an 8% share in the three businesses listed therein and in the other
businesses and real properties of the respondents as they had supposedly acquired these through
funds from the partnership.31

The Court of Appeals, on the other hand, agreed with the RTC as to Antonieta’s 8% share in the
business enumerated in the Acknowledgement of Participating Capital, but not as to her share in
the other corporations and real properties. The Court of Appeals ruled that Antonieta’s claim of
8% is based on the "Acknowledgement of Participating Capital," a duly notarized document which
was specific as to the subject of its coverage. Hence, there was no reason to pattern her share in
the other corporations from her share in the partnership’s businesses. The Court of Appeals also
said that her claim in the respondents’ real properties was more "precarious" as these were all
covered by certificates of title which served as the best evidence as to all the matters contained
therein.32 Since petitioner’s claim was essentially the same as Antonieta’s, the Court of Appeals
also ruled that petitioner be given his 6% share in the same businesses listed in the
Acknowledgement of Participating Capital.

Factual findings of the trial court, when confirmed by the Court of Appeals, are final and
conclusive except in the following cases: (1) when the inference made is manifestly mistaken,
absurd or impossible; (2) when there is a grave abuse of discretion; (3) when the finding is
grounded entirely on speculations, surmises or conjectures; (4) when the judgment of the Court of
Appeals is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6)
when the Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they are based; (9) when the Court of
Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (10) when the findings of fact of the
Court of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.33

In this case, we find no error in the ruling of the Court of Appeals.

44

Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as
a co-ownership, but in the same breath, assert that a verbal partnership was formed in 1946 and
was affirmed in the 1957 Acknowledgement of Participating Capital.

There is a co-ownership when an undivided thing or right belongs to different persons. 34 It is a

partnership when two or more persons bind themselves to contribute money, property, or industry
to a common fund, with the intention of dividing the profits among themselves.35 The Court, in
Pascual v. The Commissioner of Internal Revenue,36 quoted the concurring opinion of Mr. Justice
Angelo Bautista in Evangelista v. The Collector of Internal Revenue37 to further elucidate on the
distinctions between a co-ownership and a partnership, to wit:

I wish however to make the following observation: Article 1769 of the new Civil Code lays down
the rule for determining when a transaction should be deemed a partnership or a co-ownership.
Said article paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-
owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which
the returns are derived;

From the above it appears that the fact that those who agree to form a co- ownership share or do
not share any profits made by the use of the property held in common does not convert their
venture into a partnership. Or the sharing of the gross returns does not of itself establish a
partnership whether or not the persons sharing therein have a joint or common right or interest in
the property. This only means that, aside from the circumstance of profit, the presence of other
elements constituting partnership is necessary, such as the clear intent to form a partnership, the
existence of a juridical personality different from that of the individual partners, and the freedom
to transfer or assign any interest in the property by one with the consent of the others.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy
certain real estate for profit in the absence of other circumstances showing a contrary intention
cannot be considered a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross
returns of that enterprise in proportion to their contribution, but who severally retain the title to
their respective contribution, are not thereby rendered partners. They have no common stock or
capital, and no community of interest as principal proprietors in the business itself which the
proceeds derived.
45

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does
an agreement to share the profits and losses on the sale of land create a partnership; the parties are
only tenants in common.

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty,
holding as tenants in common, and to divide the profits of disposing of it, the brother and the other
not being entitled to share in plaintiff’s commission, no partnership existed as between the three
parties, whatever their relation may have been as to third parties.

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b)
generally participating in both profits and losses; (c) and such a community of interest, as far as
third persons are concerned as enables each party to make contract, manage the business, and
dispose of the whole property. x x x.

The common ownership of property does not itself create a partnership between the owners,
though they may use it for the purpose of making gains; and they may, without becoming partners,
agree among themselves as to the management, and use of such property and the application of the
proceeds therefrom.38 (Citations omitted.)

Under Article 1767 of the Civil Code, there are two essential elements in a contract of
partnership: (a) an agreement to contribute money, property or industry to a common fund; and
(b) intent to divide the profits among the contracting parties. The first element is undoubtedly
present in the case at bar, for, admittedly, all the parties in this case have agreed to, and did,
contribute money and property to a common fund. Hence, the issue narrows down to their intent
in acting as they did.39 It is not denied that all the parties in this case have agreed to contribute
capital to a common fund to be able to later on share its profits. They have admitted this fact,
agreed to its veracity, and even submitted one common documentary evidence to prove such
partnership - the Acknowledgement of Participating Capital.

As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it
would be instructive to examine the pertinent portions of this document:

ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL

KNOW ALL MEN BY THESE PRESENTS:

That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of
legal age, Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:

That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo
City and the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and
46

equipments, and general merchandise are recorded in their respective books with Buenaventura
Remotigue as the registered owner and are being operated by them as such:

That they are not the only owners of the capital of the three establishments and their participation
in the capital of the three establishments together with the other co-owners as of the year 1952 are
stated as follows:

1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)P25,000.00

2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)… 25,000.00

3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00

4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00

5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00

6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00

7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00

8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00

That aside from the persons mentioned in the next preceding paragraph, no other person has any
interest in the above-mentioned three establishments.

IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of
April, 1957.

[Sgd.]
BUENAVENTURA REMOTIGUE

[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40

The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed

by Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner does not
dispute its contents and is actually relying on it to prove his participation in the partnership.
Article 1797 of the Civil Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the
share of each partner in the profits has been agreed upon, the share of each in the losses shall be in
the same proportion.
47

In the absence of stipulation, the share of each partner in the profits and losses shall be in
proportion to what he may have contributed, but the industrial partner shall not be liable for the
losses. As for the profits, the industrial partner shall receive such share as may be just and
equitable under the circumstances. If besides his services he has contributed capital, he shall also
receive a share in the profits in proportion to his capital. (Emphases supplied.)

It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the
absence of any such stipulations, then to his share in proportion to his contribution to the
partnership. The petitioner himself claims his share to be 6%, as stated in the Acknowledgement
of Participating Capital. However, petitioner fails to realize that this document specifically
enumerated the businesses covered by the partnership: Manila Athletic Supply, Remotigue
Trading in Iloilo City and Remotigue Trading in Cotabato City. Since there was a clear agreement
that the capital the partners contributed went to the three businesses, then there is no reason to
deviate from such agreement and go beyond the stipulations in the document. Therefore, the Court
of Appeals did not err in limiting petitioner’s share to the assets of the businesses enumerated in
the Acknowledgement of Participating Capital.

In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the
shares to be paid out to the partners is necessarily limited only to its total resources, to wit:

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the
partners, the amount to be refunded is necessarily limited to its total resources. In other words, it
can only pay out what it has in its coffers, which consists of all its assets. However, before the
partners can be paid their shares, the creditors of the partnership must first be compensated. After
all the creditors have been paid, whatever is left of the partnership assets becomes available for the
payment of the partners’ shares.42

There is no evidence that the subject real properties were assets of the partnership referred to in
the Acknowledgement of Participating Capital.

The petitioner further asserts that he is entitled to respondents’ properties based on the concept of
trust. He claims that since the subject real properties were purchased using funds of the
partnership, wherein he has a 6% share, then "law and equity mandates that he should be
considered as a co-owner of those properties in such proportion."43 In Pigao v. Rabanillo,44 this
Court explained the concept of trusts, to wit:

Express trusts are created by the intention of the trustor or of the parties, while implied trusts come
into being by operation of law, either through implication of an intention to create a trust as a
matter of law or through the imposition of the trust irrespective of, and even contrary to, any such
intention. In turn, implied trusts are either resulting or constructive trusts. 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
48

person thereby becomes invested with legal title but is obligated in equity to hold his legal title for
the benefit of another.45

On proving the existence of a trust, this Court held that:

Respondent has presented only bare assertions that a trust was created. Noting the need to prove
the existence of a trust, this Court has held thus:

"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and
such proof must be clear and satisfactorily show the existence of the trust and its elements. While
implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by
the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite
declarations. Trustworthy evidence is required because oral evidence can easily be fabricated." 46

The petitioner has failed to prove that there exists a trust over the subject real properties. Aside
from his bare allegations, he has failed to show that the respondents used the partnership’s money
to purchase the said properties. Even assuming arguendo that some partnership income was used
to acquire these properties, the petitioner should have successfully shown that these funds came
from his share in the partnership profits. After all, by his own admission, and as stated in the
Acknowledgement of Participating Capital, he owned a mere 6% equity in the partnership.

In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his
own self-serving testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has
not presented evidence, other than these unsubstantiated testimonies, to prove that the respondents
did not have the means to fund their other businesses and real properties without the partnership’s
income. On the other hand, the respondents have not only, by testimonial evidence, proven their
case against the petitioner, but have also presented sufficient documentary evidence to substantiate
their claims, allegations and defenses. They presented preponderant proof on how they acquired
and funded such properties in addition to tax receipts and tax declarations. 47 It has been held that
"while tax declarations and realty tax receipts do not conclusively prove ownership, they may
constitute strong evidence of ownership when accompanied by possession for a period sufficient
for prescription."48Moreover, it is a rule in this jurisdiction that testimonial evidence cannot
prevail over documentary evidence.49This Court had on several occasions, expressed our
disapproval on using mere self-serving testimonies to support one’s claim. In Ocampo v.
Ocampo,50 a case on partition of a co-ownership, we held that:

Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their
witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot
prevail over the array of documents presented by Belen. A claim of ownership cannot be based
simply on the testimonies of witnesses; much less on those of interested parties, self-serving as
they are.51
49

It is true that a certificate of title is merely an evidence of ownership or title over the particular
property described therein. Registration in the Torrens system does not create or vest title as
registration is not a mode of acquiring ownership; hence, this cannot deprive an aggrieved party of
a remedy in law.52 However, petitioner asserts ownership over portions of the subject real
properties on the strength of his own admissions and on the testimony of Antonieta
Jarantilla.1avvphi1 As held by this Court in Republic of the Philippines v. Orfinada, Sr.53:

Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to
therein, and a strong presumption exists that a Torrens title was regularly issued and valid. A
Torrens title is incontrovertible against anyinformacion possessoria, of other title existing prior to
the issuance thereof not annotated on the Torrens title. Moreover, persons dealing with property
covered by a Torrens certificate of title are not required to go beyond what appears on its face.54

As we have settled that this action never really was for partition of a co-ownership, to permit
petitioner’s claim on these properties is to allow a collateral, indirect attack on respondents’
admitted titles. In the words of the Court of Appeals, "such evidence cannot overpower the
conclusiveness of these certificates of title, more so since plaintiff’s [petitioner’s] claims amount
to a collateral attack, which is prohibited under Section 48 of Presidential Decree No. 1529, the
Property Registration Decree."55

SEC. 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to
collateral attack. It cannot be altered, modified, or cancelled except in a direct proceeding in
accordance with law.

This Court has deemed an action or proceeding to be "an attack on a title when its objective is to
nullify the title, thereby challenging the judgment pursuant to which the title was decreed." 56 In
Aguilar v. Alfaro,57 this Court further distinguished between a direct and an indirect or collateral
attack, as follows:

A collateral attack transpires when, in another action to obtain a different relief and as an incident
to the present action, an attack is made against the judgment granting the title. This manner of
attack is to be distinguished from a direct attack against a judgment granting the title, through an
action whose main objective is to annul, set aside, or enjoin the enforcement of such judgment if
not yet implemented, or to seek recovery if the property titled under the judgment had been
disposed of. x x x.

Petitioner’s only piece of documentary evidence is the Acknowledgement of Participating Capital,

which as discussed above, failed to prove that the real properties he is claiming co-ownership of
were acquired out of the proceeds of the businesses covered by such document. Therefore,
petitioner’s theory has no factual or legal leg to stand on.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-
G.R. CV No. 40887, dated July 30, 2002 is AFFIRMED.
50

SO ORDERED.

Republic of the Philippines

Supreme Court
Manila

FIRST DIVISION

MARIA TORBELA, represented G.R. No. 140528

by her heirs, namely: EULOGIO
TOSINO, husband and children:
CLARO, MAXIMINO,
CORNELIO, OLIVIA and
CALIXTA, all surnamed
TOSINO, APOLONIA TOSINO
VDA. DE RAMIREZ and JULITA
TOSINO DEAN; PEDRO
TORBELA, represented by his
heirs, namely: JOSE and
DIONISIO, both surnamed
TORBELA; EUFROSINA
TORBELA ROSARIO,
represented by her heirs, namely:
ESTEBAN T. ROSARIO,
MANUEL T. ROSARIO,
ROMULO T. ROSARIO and
ANDREA ROSARIO-HADUCA;
LEONILA TORBELA TAMIN;
FERNANDO TORBELA,
represented by his heirs, namely:
SERGIO T. TORBELA,
EUTROPIA T. VELASCO,
PILAR T. ZULUETA, CANDIDO
T. TORBELA, FLORENTINA T.
TORBELA and PANTALEON T.
TORBELA; DOLORES
TORBELA TABLADA;
LEONORA TORBELA
AGUSTIN, represented by her
heirs, namely: PATRICIO,
51

SEGUNDO, CONSUELO and

FELIX, all surnamed AGUSTIN;
and SEVERINA TORBELA
ILDEFONSO,
Petitioners,

- versus -

SPOUSES ANDRES
T. ROSARIOand LENA DUQUE-
ROSARIO and BANCO
FILIPINO SAVINGS AND
MORTGAGE BANK,
Respondents.
x-----------------------x G.R. No. 140553
LENA DUQUE-ROSARIO,
Petitioner, Present:

CORONA, C.J.,
Chairperson,
LEONARDO-DE CASTRO,
- versus - BERSAMIN,
DEL CASTILLO, and
VILLARAMA, JR., JJ.

Promulgated:
BANCO FILIPINO SAVINGS
AND MORTGAGE BANK, December 7, 2011
Respondent.

Presently before the Court are two consolidated Petitions for Review on Certiorari under Rule 45
of the Rules of Court, both assailing the Decision[1] dated June 29, 1999 and
Resolution[2] dated October 22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.

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

The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-Rosario), who was married to,
but now legally separated from, Dr. Andres T. Rosario (Dr. Rosario). Dr. Rosario is the son of
Eufrosina Torbela Rosario and the nephew of the other Torbela siblings.
52

The controversy began with a parcel of land, with an area of 374 square meters, located
in Urdaneta City, Pangasinan (Lot No. 356-A). It was originally part of a larger parcel of land,
known as Lot No. 356 of the Cadastral Survey of Urdaneta, measuring 749 square meters, and
covered by Original Certificate of Title (OCT) No. 16676,[8] in the name of Valeriano Semilla
(Valeriano), married to Potenciana Acosta. Under unexplained circumstances, Valeriano
gave Lot No. 356-A to his sister Marta Semilla, married to Eugenio Torbela (spouses
Torbela). Upon the deaths of the spouses Torbela, Lot No. 356-A was adjudicated in equal shares
among their children, the Torbela siblings, by virtue of a Deed of Extrajudicial
Partition[9] dated December 3, 1962.

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

Another Deed of Absolute Quitclaim[13] was subsequently executed on December 28, 1964, this
time by Dr. Rosario, acknowledging that he only borrowed Lot No. 356-A from the Torbela
siblings and was already returning the same to the latter forP1.00. The Deed stated:

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

The aforequoted Deed was notarized, but was not immediately annotated on TCT No. 52751.
53

Following the issuance of TCT No. 52751, Dr. Rosario obtained a loan from the Development
Bank of the Philippines (DBP) on February 21, 1965 in the sum of P70,200.00, secured by a
mortgage constituted on Lot No. 356-A. The mortgage was annotated on TCT No. 52751
on September 21, 1965 as Entry No. 243537.[15] Dr. Rosario used the proceeds of the loan for the
construction of improvements on Lot No. 356-A.

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

3. That ANDRES T. ROSARIO later quitclaimed his rights in favor of the

former owners by virtue of a Deed of Absolute Quitclaim which he executed before
Notary Public Banaga, and entered in his Notarial Registry as Dec. No. 43; Page No.
9; Book No. I; Series of 1964;

4. That it is the desire of the parties, my aforestated kins, to register ownership

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

5. That pending payment of the obligation with the DEVELOPMENT BANK OF

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

The very next day, on May 17, 1967, the Torbela siblings had Cornelios Affidavit of
Adverse Claim dated May 16, 1967 and Dr. Rosarios Deed of Absolute Quitclaim
dated December 28, 1964 annotated on TCT No. 52751 as Entry Nos.
[18] [19]
274471 and274472, respectively.
54

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

Dr. Rosario was able to fully pay his loan from DBP. Under Entry No. 520197 on TCT No.
52751[20] dated March 6, 1981, the mortgage appearing under Entry No. 243537 was cancelled per
the Cancellation and Discharge of Mortgage executed by DBP in favor of Dr. Rosario and ratified
before a notary public on July 11, 1980.

In the meantime, Dr. Rosario acquired another loan from the Philippine National Bank
(PNB) sometime in 1979-1981.Records do not reveal though the original amount of the loan from
PNB, but the loan agreement was amended on March 5, 1981and the loan amount was increased
to P450,000.00. The loan was secured by mortgages constituted on the following properties: (1)
Lot No. 356-A, covered by TCT No. 52751 in Dr. Rosarios name; (2) Lot No. 4489, with an area
of 1,862 square meters, located in Dagupan City, Pangasinan, covered by TCT No. 24832; and (3)
Lot No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters, located in Nancayasan, Urdaneta,
Pangasinan, covered by TCT No. 104189.[21] The amended loan agreement and mortgage
on LotNo. 356-A was annotated on TCT No. 52751 on March 6, 1981 as Entry No. 520099.[22]

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

Entry No. 520469. Cancellation of Adverse Claim executed by Andres Rosario in

favor of same. The incumbrance/mortgage appearing under Entry No. 274471-72 is
now cancelled as per Cancellation and Discharge of Mortgage Ratified before Notary
Public Mauro G. Merison March 5, 1981: Doc. No. 215; Page No. 44; Book No. 1;
Series Of 1981.
Lingayen, Pangasinan, 3-11, 19981

[Signed: Pedro dela Cruz]

Register of Deeds [24]

On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario (spouses Rosario),
acquired a third loan in the amount ofP1,200,000.00 from Banco Filipino Savings and Mortgage
55

Bank (Banco Filipino). To secure said loan, the spouses Rosario again constituted mortgages on
Lot No. 356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. The mortgage on Lot No. 356-A was
annotated on TCT No. 52751 as Entry No. 533283[25] on December 18, 1981. Since the
construction of a two-storey commercial building on Lot No. 5-F-8-C-2-B-2-A was still
incomplete, the loan value thereof as collateral was deducted from the approved loan
amount. Thus, the spouses Rosario could only avail of the maximum loan amount of P830,064.00
from Banco Filipino.

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

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

Entry No. 593494 Complaint Civil Case No. U-4359 (For: Recovery of Ownership
and Possession and Damages. (Sup. Paper).
Entry No. 593493 Notice of Lis Pendens The parcel of land described in this title is
subject to Lis Pendens executed by Liliosa B. Rosario, CLAO, Trial Attorney
dated February 13, 1986. Filed to TCT No. 52751
February 13, 1986-1986 February 13 3:30 p.m.

(SGD.) PACIFICO M. BRAGANZA

Register of Deeds[27]

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

Banco Filipino extrajudicially foreclosed the mortgages on Lot No. 356-A, Lot No. 4489,
and Lot No. 5-F-8-C-2-B-2-A.During the public auction on April 2, 1987, Banco Filipino was the
lone bidder for the three foreclosed properties for the price ofP1,372,387.04. The Certificate of
Sale[29] dated April 2, 1987, in favor of Banco Filipino, was annotated on TCT No. 52751 on April
14, 1987 as Entry No. 610623.[30]
56

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

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

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

(SGD.) RUFINO M. MORENO, SR.

Register of Deeds[32]

The Torbela siblings intervened in Civil Case No. U-4667. Eventually, on October 17, 1990, the
RTC issued an Order[33]dismissing without prejudice Civil Case No. U-4667 due to the spouses
Rosarios failure to prosecute.

Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A from Banco Filipino, but
their efforts were unsuccessful.Upon the expiration of the one-year redemption period in April
1988, the Certificate of Final Sale[34] and Affidavit of Consolidation[35] covering all three
foreclosed properties were executed on May 24, 1988 and May 25, 1988, respectively.

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

The Torbela siblings thereafter filed before the RTC on August 29, 1988 a Complaint [37] for
annulment of the Certificate of Final Sale dated May 24, 1988, judicial cancelation of TCT No.
57

165813, and damages, against Banco Filipino, the Ex OfficioProvincial Sheriff, and the Register of
Deeds of Pangasinan, which was docketed as Civil Case No. U-4733.

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

The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet. Case No. U-822. The
Decision[38] on these three cases was promulgated on January 15, 1992, the dispositive portion of
which reads:

WHEREFORE, judgment is rendered:

1. Declaring the real estate mortgage over Lot 356-A covered by

TCT 52751 executed by Spouses Andres Rosario in favor of Banco Filipino, legal
and valid;

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

3. Declaring Banco Filipino the owner of Lot 356-A covered by

TCT No. 52751 (now TCT 165813);

4. Banco Filipino is entitled to a Writ of Possession over Lot 356-A

together with the improvements thereon (Rose InnBuilding). The Branch Clerk of
Court is hereby ordered to issue a writ of possession in favor of Banco Filipino;

5. [The Torbela siblings] are hereby ordered to render accounting to

Banco Filipino the rental they received from tenants ofRose Inn Building from May
14, 1988;

6. [The Torbela siblings] are hereby ordered to pay Banco Filipino

the sum of P20,000.00 as attorneys fees;

7. Banco Filipino is hereby ordered to give [the Torbela siblings] the

right of first refusal over Lot 356-A. The Register of Deeds is hereby ordered to
annotate the right of [the Torbela siblings] at the back of TCT No. 165813 after
payment of the required fees;
58

8. Dr. Rosario and Lena Rosario are hereby ordered to reimburse

[the Torbela siblings] the market value of Lot 356-A as of December, 1964 minus
payments made by the former;

9. Dismissing the complaint of [the Torbela siblings] against Banco

Filipino, Pedro Habon and Rufino Moreno in Civil Case No. U-4733; and against
Banco Filipino in Civil Case No. U-4359.[39]

The RTC released an Amended Decision[40] dated January 29, 1992, adding the following
paragraph to the dispositive:

Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-C-2-[B]-2-A

of the subdivision plan (LRC) Psd-122471, covered by Transfer Certificate of Title
104189 of the Registry of Deeds of Pangasinan[.][41]

The Torbela siblings and Dr. Rosario appealed the foregoing RTC judgment before the
Court of Appeals. Their appeal was docketed as CA-G.R. CV No. 39770.

In its Decision[42] dated June 29, 1999, the Court of Appeals decreed:

WHEREFORE, foregoing considered, the appealed decision is

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

Costs against [Dr. Rosario].[43]

The Court of Appeals, in a Resolution[44] dated October 22, 1999, denied the separate
Motions for Reconsideration of the Torbela siblings and Dr. Rosario.

The Torbela siblings come before this Court via the Petition for Review in G.R. No.
140528, with the following assignment of errors:
59

First Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT

FINDING THAT THE REGISTRATION OF THE DEED OF ABSOLUTE
QUITCLAIM EXECUTED BY [DR. ANDRES T. ROSARIO] IN FAVOR OF
THE [TORBELA SIBLINGS] DATED DECEMBER 28, 1964 AND THE
REGISTRATION OF THE NOTICE OF ADVERSE CLAIM EXECUTED
BY THE [TORBELA SIBLINGS], SERVE AS THE OPERATIVE ACT TO
CONVEY OR AFFECT THE LAND AND IMPROVEMENTS THEREOF IN
SO FAR AS THIRD PERSONS ARE CONCERNED.

Second Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

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

Third Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

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

Fourth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

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

Fifth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT

FINDING THAT THE FILING OF A CIVIL CASE NO. U-4359 ON
DECEMBER 9, 1987, IMPLEADING RESPONDENT BANCO FILIPINO AS
ADDITIONAL PARTY DEFENDANT, TOLL OR SUSPEND THE
RUNNING OF THE ONE YEAR PERIOD OF REDEMPTION.
60

Sixth Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN NOT

FINDING THAT THE OWNERSHIP OVER THE SUBJECT PROPERTY
WAS PREMATURELY CONSOLIDATED IN FAVOR OF RESPONDENT
BANCO FILIPINO SAVINGS AND MORTGAGE BANK.

Seventh Issue and Assignment of Error:

THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN

FINDING THAT THE SUBJECT PROPERTY IS AT LEAST
WORTH P1,200,000.00.[45]

The Torbela siblings ask of this Court:

WHEREFORE, in the light of the foregoing considerations, the [Torbela

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

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

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

A
THE HON. COURT OF APPEALS PATENTLY ERRED IN NOT FINDING THAT
THE PERIOD TO REDEEM THE PROPERTY HAS NOT COMMENCED,
HENCE, THE CERTIFICATE OF SALE, THE CONSOLIDATION OF
OWNERSHIP BY [BANCO FILIPINO], ARE NULL AND VOID.
61

THE COURT OF APPEALS PATENTLY ERRED IN REFUSING TO RULE THAT

THE FILING OF THE COMPLAINT BEFORE THE COURT A QUO BY THE
[TORBELA SIBLINGS] HAD ALREADY BEEN PRESCRIBED.[47]

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

Review of findings of fact by the RTC and the Court of

Appeals warranted.

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

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

Ordinarily, this Court will not review, much less reverse, the factual findings of the
Court of Appeals, especially where such findings coincide with those of the trial court. The
findings of facts of the Court of Appeals are, as a general rule, conclusive and binding upon
this Court, since this Court is not a trier of facts and does not routinely undertake the re-
examination of the evidence presented by the contending parties during the trial of the case.

The above rule, however, is subject to a number of exceptions, such as (1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when there is grave abuse
of discretion; (3) when the finding is grounded entirely on speculations, surmises, or
conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of Appeals, in making
its findings, went beyond the issues of the case and the same is contrary to the admissions of
both parties; (7) when the findings of the Court of Appeals are contrary to those of the trial
court; (8) when the findings of fact are conclusions without citation of specific evidence on
which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant
facts not disputed by the parties and which, if properly considered, would justify a different
conclusion; and (10) when the findings of fact of the Court of Appeals are premised on the
absence of evidence and are contradicted by the evidence on record.[49]
62

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

Barangay conciliation was not a pre-requisite to the

institution of Civil Case No. U-4359.

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

The Torbela siblings instituted Civil Case No. U-4359 on February 13, 1986, when Presidential
Decree No. 1508, Establishing a System of Amicably Settling Disputes at the Barangay Level,
was still in effect.[50] Pertinent provisions of said issuance read:
Section 2. Subject matters for amicable settlement. The Lupon of each
barangay shall have authority to bring together the parties actually residing in the
same city or municipality for amicable settlement of all disputes except:
1. Where one party is the government, or any subdivision or instrumentality
thereof;
2. Where one party is a public officer or employee, and the dispute relates to
the performance of his official functions;
3. Offenses punishable by imprisonment exceeding 30 days, or a fine
exceeding P200.00;
4. Offenses where there is no private offended party;
5. Such other classes of disputes which the Prime Minister may in the interest
of justice determine upon recommendation of the Minister of Justice and
the Minister of Local Government.
Section 3. Venue. Disputes between or among persons actually residing in the
same barangay shall be brought for amicable settlement before the Lupon of said
barangay. Those involving actual residents of different barangays within the same
city or municipality shall be brought in the barangay where the respondent or any of
the respondents actually resides, at the election of the complainant. However, all
disputes which involved real property or any interest therein shall be brought in
the barangay where the real property or any part thereof is situated.
The Lupon shall have no authority over disputes:
1. involving parties who actually reside in barangays of different cities or
municipalities, except where such barangays adjoin each other; and
2. involving real property located in different municipalities.
xxxx
63

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

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

The Court gave the following elucidation on the jurisdiction of the Lupong Tagapayapa
in Tavora v. Hon. Veloso[51]:

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

Thus, by express statutory inclusion and exclusion, the Lupon shall have
no jurisdiction over disputes where the parties are not actual residents of the
same city or municipality, except where the barangays in which they actually
reside adjoin each other.
It is true that immediately after specifying the barangay whose Lupon shall
take cognizance of a given dispute, Sec. 3 of PD 1508 adds:

"However, all disputes which involve real property or any interest

therein shall be brought in the barangay where the real property or any
part thereof is situated."

Actually, however, this added sentence is just an ordinary proviso and should
operate as such.

The operation of a proviso, as a rule, should be limited to its normal function,

which is to restrict or vary the operation of the principal clause, rather than expand its
scope, in the absence of a clear indication to the contrary.
64

The natural and appropriate office of a proviso is . . . to except

something from the enacting clause; to limit, restrict, or qualify the
statute in whole or in part; or to exclude from the scope of the statute
that which otherwise would be within its terms. (73 Am Jur 2d 467.)

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

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

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

There was an express trust between the Torbela siblings

and Dr. Rosario.

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

Indeed, the Torbela siblings executed a Deed of Absolute Quitclaim on December 12,
1964 in which they transferred and conveyed Lot No. 356-A to Dr. Rosario for the consideration
of P9.00. However, the Torbela siblings explained that they only executed the Deed as an
accommodation so that Dr. Rosario could have Lot No. 356-A registered in his name and use said
property to secure a loan from DBP, the proceeds of which would be used for building a hospital
on Lot No. 356-A a claim supported by testimonial and documentary evidence, and borne out by
65

the sequence of events immediately following the execution by the Torbela siblings of said
Deed. On December 16, 1964, TCT No. 52751, covering Lot No. 356-A, was already issued in
Dr. Rosarios name.On December 28, 1964, Dr. Rosario executed his own Deed of Absolute
Quitclaim, in which he expressly acknowledged that he only borrowed Lot No. 356-A and was
transferring and conveying the same back to the Torbela siblings for the consideration
ofP1.00. On February 21, 1965, Dr. Rosarios loan in the amount of P70,200.00, secured by a
mortgage on Lot No. 356-A, was approved by DBP. Soon thereafter, construction of a hospital
building started on Lot No. 356-A.

Among the notable evidence presented by the Torbela siblings is the testimony of Atty.
Lorenza Alcantara (Atty. Alcantara), who had no apparent personal interest in the present
case. Atty. Alcantara, when she was still a boarder at the house of Eufrosina Torbela Rosario (Dr.
Rosarios mother), was consulted by the Torbela siblings as regards the extrajudicial partition of
Lot No. 356-A.She also witnessed the execution of the two Deeds of Absolute Quitclaim by the
Torbela siblings and Dr. Rosario.

In contrast, Dr. Rosario presented TCT No. 52751, issued in his name, to prove his
purported title to Lot No. 356-A. In Lee Tek Sheng v. Court of Appeals,[53] the Court made a clear
distinction between title and the certificate of title:

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

Registration does not vest title; it is merely the evidence of such title. Land registration laws
do not give the holder any better title than what he actually has.[55] Consequently, Dr. Rosario must
66

still prove herein his acquisition of title to Lot No. 356-A, apart from his submission of TCT No.
52751 in his name.

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

In addition, Dr. Rosario acknowledged the execution of the two Deeds of Absolute
Quitclaim dated December 12, 1964 andDecember 28, 1964, even affirming his own signature on
the latter Deed. The Parol Evidence Rule provides that when the terms of the agreement have been
reduced into writing, it is considered as containing all the terms agreed upon and there can be,
between the parties and their successors in interest, no evidence of such terms other than the
contents of the written agreement.[56] Dr. Rosario may not modify, explain, or add to the terms in
the two written Deeds of Absolute Quitclaim since he did not put in issue in his pleadings (1) an
intrinsic ambiguity, mistake, or imperfection in the Deeds; (2) failure of the Deeds to express the
true intent and the agreement of the parties thereto; (3) the validity of the Deeds; or (4) the
existence of other terms agreed to by the Torbela siblings and Dr. Rosario after the execution of
the Deeds.[57]
Even if the Court considers Dr. Rosarios testimony on his alleged verbal agreement with the
Torbela siblings, the Court finds the same unsatisfactory. Dr. Rosario averred that the two Deeds
were executed only because he was planning to secure loan from the Development Bank of the
Philippines and Philippine National Bank and the bank needed absolute quitclaim[.] [58] While Dr.
Rosarios explanation makes sense for the first Deed of Absolute Quitclaim dated December 12,
1964 executed by the Torbela siblings (which transferred Lot No. 356-A to Dr. Rosario
for P9.00.00), the same could not be said for the second Deed of Absolute Quitclaim dated
December 28, 1964 executed by Dr. Rosario. In fact, Dr. Rosarios Deed of Absolute Quitclaim (in
which he admitted that he only borrowed Lot No. 356-A and was transferring the same to the
Torbela siblings for P1.00.00) would actually work against the approval of Dr. Rosarios loan by
the banks. Since Dr. Rosarios Deed of Absolute Quitclaim dated December 28, 1964 is a
declaration against his self-interest, it must be taken as favoring the truthfulness of the contents of
said Deed.[59]

It can also be said that Dr. Rosario is estopped from claiming or asserting ownership over
Lot No. 356-A based on his Deed of Absolute Quitclaim dated December 28, 1964. Dr. Rosario's
admission in the said Deed that he merely borrowed Lot No. 356-A is deemed conclusive upon
him. Under Article 1431 of the Civil Code, [t]hrough estoppel an admission or representation is
67

rendered conclusive upon the person making it, and cannot be denied or disproved as against the
person relying thereon.[60] That admission cannot now be denied by Dr. Rosario as against the
Torbela siblings, the latter having relied upon his representation.

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

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

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

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

ART. 1451. When land passes by succession to any person and he causes the
legal title to be put in the name of another, a trust is established by implication of law
for the benefit of the true owner.
68

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

The right of the Torbela siblings to recover Lot No. 356-A

has not yet prescribed.
The Court extensively discussed the prescriptive period for express trusts in the Heirs of
Maximo Labanon v. Heirs of Constancio Labanon,[65] to wit:

On the issue of prescription, we had the opportunity to rule in Bueno v.

Reyes that unrepudiated written express trusts are imprescriptible:

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

Under Section 40 of the old Code of Civil Procedure,

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

This principle was amplified in Escay v. Court of Appeals this way: Express
trusts prescribe 10 years from the repudiation of the trust (Manuel Diaz, et al. vs.
Carmen Gorricho et al., 54 O.G. p. 8429, Sec. 40, Code of Civil Procedure).
69

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

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

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

The Court already rejected a similar argument in Ringor v. Ringor[69] for the following reasons:

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

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

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

It is clear that under the foregoing jurisprudence, the registration of Lot No. 356-A by Dr.
Rosario in his name under TCT No. 52751 on December 16, 1964 is not the repudiation that
would have caused the 10-year prescriptive period for the enforcement of an express trust to run.
The Court of Appeals held that Dr. Rosario repudiated the express trust when he acquired
another loan from PNB and constituted a second mortgage on Lot No. 356-A sometime in 1979,
which, unlike the first mortgage to DBP in 1965, was without the knowledge and/or consent of the
Torbela siblings.

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

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

Entry No. 520099

Amendment of the mortgage in favor of PNB inscribed under Entry No. 490658 in
the sense that the consideration thereof has been increased to PHILIPPINE
PESOS Four Hundred Fifty Thousand Pesos only (P450,000.00) and to secure any
71

and all negotiations with PNB, whether contracted before, during or after the date of
this instrument, acknowledged before Notary Public of Pangasinan Alejo M. Dato as
Doc. No. 198, Page No. 41, Book No. 11, Series of 1985.

Date of Instrument March 5, 1981

Date of Inscription March 6, 1981[73]

Although according to Entry No. 520099, the original loan and mortgage agreement of Lot
No. 356-A between Dr. Rosario and PNB was previously inscribed as Entry No. 490658, Entry
No. 490658 does not actually appear on TCT No. 52751 and, thus, it cannot be used as the
reckoning date for the start of the prescriptive period.

The Torbela siblings can only be charged with knowledge of the mortgage of Lot No. 356-
A to PNB on March 6, 1981 when the amended loan and mortgage agreement was registered on
TCT No. 52751 as Entry No. 520099. Entry No. 520099 is constructive notice to the whole
world[74] that Lot No. 356-A was mortgaged by Dr. Rosario to PNB as security for a loan, the
amount of which was increased to P450,000.00. Hence, Dr. Rosario is deemed to have effectively
repudiated the express trust between him and the Torbela siblings on March 6, 1981, on which
day, the prescriptive period for the enforcement of the express trust by the Torbela siblings began
to run.

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

Civil Case No. U-4359 is likewise not barred by laches. Laches means the failure or neglect,
for an unreasonable and unexplained length of time, to do that which by exercising due diligence
could or should have been done earlier. It is negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert it either has abandoned
it or declined to assert it. As the Court explained in the preceding paragraphs, the Torbela siblings
instituted Civil Case No. U-4359 five years after Dr. Rosarios repudiation of the express trust, still
within the 10-year prescriptive period for enforcement of such trusts. This does not constitute an
unreasonable delay in asserting one's right. A delay within the prescriptive period is sanctioned by
law and is not considered to be a delay that would bar relief. Laches apply only in the absence of a
statutory prescriptive period.[75]
72

Banco Filipino is not a mortgagee and buyer in good

faith.

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

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

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

On the other hand, Banco Filipino asseverates that it is a mortgagee in good faith because
per Section 70 of Presidential Decree No. 1529, otherwise known as the Property Registration
Decree, the notice of adverse claim, registered on May 17, 1967 by the Torbela siblings under
Entry Nos. 274471-274472 on TCT No. 52751, already lapsed after 30 days or on June 16,
1967.Additionally, there was an express cancellation of Entry Nos. 274471-274472 by Entry No.
73

520469 dated March 11, 1981. So when Banco Filipino approved Dr. Rosarios loan
for P1,200,000.00 and constituted a mortgage on Lot No. 356-A (together with two other
properties) on December 8, 1981, the only other encumbrance on TCT No. 52751 was Entry No.
520099 dated March 6, 1981, i.e., the amended loan and mortgage agreement between Dr. Rosario
and PNB (which was eventually cancelled after it was paid off with part of the proceeds from Dr.
Rosarios loan from Banco Filipino). Hence, Banco Filipino was not aware that the Torbela
siblings adverse claim on Lot No. 356-A still subsisted.

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

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

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

ADVERSE CLAIM

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

The statement shall be signed and sworn to, and shall state the adverse claimants
residence, and designate a place at which all notices may be served upon him. This
statement shall be entitled to registration as an adverse claim, and the court, upon a
petition of any party in interest, shall grant a speedy hearing upon the question of the
validity of such adverse claim and shall enter such decree therein as justice and equity
may require. If the claim is adjudged to be invalid, the registration shall be
cancelled. If in any case the court after notice and hearing shall find that a claim thus
registered was frivolous or vexatious, it may tax the adverse claimant double or treble
costs in its discretion.
74

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

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

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

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

Before the lapse of thirty days aforesaid, any party in interest may file a
petition in the Court of First Instance where the land is situated for the
cancellation of the adverse claim, and the court shall grant a speedy hearing
upon the question of the validity of such adverse claim, and shall render
judgment as may be just and equitable. If the adverse claim is adjudged to be
invalid, the registration thereof shall be ordered cancelled. If, in any case, the court,
after notice and hearing, shall find that the adverse claim thus registered was
75

frivolous, it may fine the claimant in an amount not less than one thousand pesos nor
more than five thousand pesos, in its discretion. Before the lapse of thirty days, the
claimant may withdraw his adverse claim by filing with the Register of Deeds a
sworn petition to that effect. (Emphases supplied.)

In Sajonas v. Court of Appeals,[79]the Court squarely interpreted Section 70 of the Property

Registration Decree, particularly, the new 30-day period not previously found in Section 110 of
the Land Registration Act, thus:

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

The adverse claim shall be effective for a period of thirty days

from the date of registration.

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

After the lapse of said period, the annotation of adverse claim may
be cancelled upon filing of a verified petition therefor by the party in
interest.

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

A statute's clauses and phrases must not be taken separately, but in its relation
to the statute's totality. Each statute must, in fact, be construed as to harmonize it with
the pre-existing body of laws. Unless clearly repugnant, provisions of statutes must
be reconciled. The printed pages of the published Act, its history, origin, and its
purposes may be examined by the courts in their construction. x x x.
76

xxxx

Construing the provision as a whole would reconcile the apparent

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

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

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

The reason why the law provides for a hearing where the validity of the
adverse claim is to be threshed out is to afford the adverse claimant an
opportunity to be heard, providing a venue where the propriety of his claimed
interest can be established or revoked, all for the purpose of determining at last
the existence of any encumbrance on the title arising from such adverse
claim.This is in line with the provision immediately following:
77

Provided, however, that after cancellation, no second adverse

claim shall be registered by the same claimant.

Should the adverse claimant fail to sustain his interest in the property, the
adverse claimant will be precluded from registering a second adverse claim based on
the same ground.

It was held that validity or efficaciousness of the claim may only be determined
by the Court upon petition by an interested party, in which event, the Court shall
order the immediate hearing thereof and make the proper adjudication as justice and
equity may warrant. And it is only when such claim is found unmeritorious that the
registration of the adverse claim may be cancelled, thereby protecting the interest of
the adverse claimant and giving notice and warning to third parties. [80] (Emphases
supplied.)

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

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

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

It is a well-settled rule that a purchaser or mortgagee cannot close his eyes to facts which
should put a reasonable man upon his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or mortgagor.His mere refusal to believe
78

that such defect exists, or his willful closing of his eyes to the possibility of the existence of a
defect in the vendor's or mortgagor's title, will not make him an innocent purchaser or mortgagee
for value, if it afterwards develops that the title was in fact defective, and it appears that he had
such notice of the defects as would have led to its discovery had he acted with the measure of
precaution which may be required of a prudent man in a like situation.[81]

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

Banco Filipino cannot be deemed a mortgagee in good faith, much less a purchaser in good
faith at the foreclosure sale of Lot No. 356-A. Hence, the right of the Torbela siblings over Lot
No. 356-A is superior over that of Banco Filipino; and as the true owners of Lot No. 356-A, the
Torbela siblings are entitled to a reconveyance of said property even from Banco Filipino.

Nonetheless, the failure of Banco Filipino to comply with the due diligence requirement
was not the result of a dishonest purpose, some moral obliquity, or breach of a known duty for
some interest or ill will that partakes of fraud that would justify damages.[84]

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

The rules on accession shall govern the improvements

on Lot No. 356-A and the rents thereof.
79

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

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

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

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

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

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

ART. 448. The owner of the land on which anything has been built, sown or
planted in good faith, shall have the right to appropriate as his own the works, sowing
or planting, after payment of the indemnity provided for in articles 546 and 548, or to
oblige the one who built or planted to pay the price of the land, and the one who
sowed, the proper rent. However, the builder or planter cannot be obliged to buy the
land if its value is considerably more than that of the building or trees. In such case,
he shall pay reasonable rent, if the owner of the land does not choose to appropriate
80

the building or trees after proper indemnity. The parties shall agree upon the terms of
the lease and in case of disagreement, the court shall fix the terms thereof.

ART. 546. Necessary expenses shall be refunded to every possessor; but only
the possessor in good faith may retain the thing until he has been reimbursed therefor.

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

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

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

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

This case then must be remanded to the RTC for the determination of matters necessary for
the proper application of Article 448, in relation to Article 546, of the Civil Code. Such matters
81

include the option that the Torbela siblings will choose; the amount of indemnity that they will
pay if they decide to appropriate the improvements on Lot No. 356-A; the value of Lot No. 356-A
if they prefer to sell it to Dr. Rosario; or the reasonable rent if they opt to sell Lot No. 356-A to Dr.
Rosario but the value of the land is considerably more than the improvements. The determination
made by the Court of Appeals in its Decision dated June 29, 1999 that the current value of Lot No.
356-A is P1,200,000.00 is not supported by any evidence on record.

Should the Torbela siblings choose to appropriate the improvements on Lot No. 356-A, the
following ruling of the Court in Pecson v. Court of Appeals[87] is relevant in the determination of
the amount of indemnity under Article 546 of the Civil Code:

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

The objective of Article 546 of the Civil Code is to administer justice between
the parties involved. In this regard, this Court had long ago stated in Rivera vs.
Roman Catholic Archbishop of Manila that the said provision was formulated in
trying to adjust the rights of the owner and possessor in good faith of a piece of land,
to administer complete justice to both of them in such a way as neither one nor the
other may enrich himself of that which does not belong to him. Guided by this
precept, it is therefore the current market value of the improvements which should
be made the basis of reimbursement. A contrary ruling would unjustly enrich the
private respondents who would otherwise be allowed to acquire a highly valued
income-yielding four-unit apartment building for a measly amount. Consequently, the
parties should therefore be allowed to adduce evidence on the present market
value of the apartment building upon which the trial court should base its finding as
to the amount of reimbursement to be paid by the landowner.[88] (Emphases supplied.)
82

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

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

The Court of Appeals ordered Dr. Rosario to pay the Torbela siblings P300,000.00 as moral
damages; P200,000.00 as exemplary damages; and P100,000.00 as attorneys fees.
Indeed, Dr. Rosarios deceit and bad faith is evident when, being fully aware that he only held Lot
No. 356-A in trust for the Torbela siblings, he mortgaged said property to PNB and Banco Filipino
absent the consent of the Torbela siblings, and caused the irregular cancellation of the Torbela
siblings adverse claim on TCT No. 52751. Irrefragably, Dr. Rosarios betrayal had caused the
Torbela siblings (which included Dr. Rosarios own mother, Eufrosina Torbela Rosario) mental
anguish, serious anxiety, and wounded feelings. Resultantly, the award of moral damages is
justified, but the amount thereof is reduced to P200,000.00.

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

As regards attorney's fees, they may be awarded when the defendant's act or omission has
compelled the plaintiff to litigate with third persons or to incur expenses to protect his
interest. Because of Dr. Rosarios acts, the Torbela siblings were constrained to institute several
cases against Dr. Rosario and his spouse, Duque-Rosario, as well as Banco Filipino, which had
lasted for more than 25 years. Consequently, the Torbela siblings are entitled to an award of
attorney's fees and the amount of P100,000.00 may beconsidered rational, fair, and reasonable.
Banco Filipino is entitled to a writ of possession for Lot
No. 5-F-8-C-2-B-2-A.
83

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

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

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

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

The Court has consistently ruled that the one-year redemption period should be counted not from
the date of foreclosure sale, but from the time the certificate of sale is registered with the Registry
of Deeds.[91] No copy of TCT No. 104189 can be found in the records of this case, but the fact of
annotation of the Certificate of Sale thereon was admitted by the parties, only differing on the date
it was made: April 14, 1987 according to Banco Filipino and April 15, 1987 as maintained by
Duque-Rosario. Even if the Court concedes that the Certificate of Sale was annotated on TCT No.
104189 on the later date, April 15, 1987, the one-year redemption period already expired on April
14, 1988.[92] The Certificate of Final Sale and Affidavit of Consolidation were executed more than
a month thereafter, on May 24, 1988 and May 25, 1988, respectively, and were clearly not
premature.
84

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

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

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

The right of the purchaser to the possession of the foreclosed property becomes absolute
upon the expiration of the redemption period. The basis of this right to possession is the
purchaser's ownership of the property. After the consolidation of title in the buyer's name for
failure of the mortgagor to redeem, the writ of possession becomes a matter of right and its
issuance to a purchaser in an extrajudicial foreclosure is merely a ministerial function.[96]
85

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

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

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

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

(3) The case is REMANDED to the RTC for further proceedings to determine the facts
essential to the proper application of Articles 448 and 546 of the Civil Code, particularly: (a) the
present fair market value of Lot No. 356-A; (b) the present fair market value of the improvements
thereon; (c) the option of the Torbela siblings to appropriate the improvements on Lot No. 356-A
or require Dr. Rosario to purchase Lot No. 356-A; and (d) in the event that the Torbela siblings
choose to require Dr. Rosario to purchase Lot No. 356-A but the value thereof is considerably
more than the improvements, then the reasonable rent of Lot No. 356-A to be paid by Dr. Rosario
to the Torbela siblings;

(4) The Torbela siblings are DIRECTED to submit an accounting of the rents of the
improvements on Lot No. 356-A which they had received and to turn over any balance thereof to
Dr. Rosario;

(5) Dr. Rosario is ORDERED to pay the Torbela siblings P200,000.00 as moral
damages, P100,000.00 as exemplary damages, and P100,000.00 as attorneys fees; and
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(6) Banco Filipino is entitled to a writ of possession over Lot-5-F-8-C-2-B-2-A, covered by

TCT No. 165812. The RTC Branch Clerk of Court is ORDERED to issue a writ of possession for
the said property in favor of Banco Filipino.

SO ORDERED.