1

In July 1990, Roberto sold the 4,512 sq. m. property in Baccuit to the spouses Mario and Julia Campos for
THIRD DIVISION

P23,000.00. 9 Then in August 1992, he sold the 1,986 sq. m. and 3,454 sq. m. lots in Paringao,
respectively, to Marilou for P100,000.00 and to Pedro for P40,000.00. 10 Allegedly, these sales were not
known to Margarita and her other children. 11 EHTIcD

[G.R. No. 175073. August 15, 2011.]

It was only in August 1995, at Roberto's wake, that Margarita came to know of the sales as told by Pedro
ESTATE OF MARGARITA D. CABACUNGAN, represented by LUZ LAIGOALI, petitioner, vs. MARILOU LAIGO, PEDRO ROY LAIGO, STELLA BALAGOT and
SPOUSES MARIO B. CAMPOS AND JULIA S. CAMPOS, respondents.

himself. 12 In February 1996, Margarita, represented by her daughter, Luz, instituted the instant
complaint for the annulment of said sales and for the recovery of ownership and possession of the
subject properties as well as for the cancellation of Ricardo's tax declarations. Margarita admitted having
accommodated Roberto's request for the transfer of the properties to his name, but pointed out that the
arrangement was only for the specific purpose of supporting his U.S. visa application. She emphasized
that she never intended to divest herself of ownership over the subject lands and, hence, Roberto had

DECISION

no right to sell them to respondents and the Spouses Campos. She likewise alleged that the sales, which
were fictitious and simulated considering the gross inadequacy of the stipulated price, were fraudulently
entered into by Roberto. She imputed bad faith to Pedro, Marilou and the Spouses Campos as buyers of

PERALTA, J p:
This Petition for Review under Rule 45 of the Rules of Court assails the October 13, 2006 Decision 1 of
the Court of Appeals in CA-G.R. CV No. 72371. The assailed decision affirmed the July 2, 2001

the lots, as they supposedly knew all along that Roberto was not the rightful owner of the
properties. 13 Hence, she principally prayed that the sales be annulled; that Roberto's tax declarations
be cancelled; and that the subject properties be reconveyed to her. 14

judgment 2 rendered by the Regional Trial Court of La Union, Branch 33 in Civil Case No. 1031-BG a

The Spouses Campos advanced that they were innocent purchasers for value and in good faith, and had

complaint for annulment of sale of real property, recovery of ownership and possession, cancellation of

merely relied on Roberto's representation that he had the right to sell the property; and that, hence,

tax declarations and damages filed by Margarita Cabacungan, 3 represented by her daughter, Luz Laigo-

they were not bound by whatever agreement entered by Margarita with her son. They posited that the

Ali against Marilou Laigo and Pedro Roy Laigo, respondents herein, and against Estella Balagot, 4and the

alleged gross inadequacy of the price would not invalidate the sale absent a vitiation of consent or proof

spouses Mario and Julia Campos.

of any other agreement. Further, they noted that Margarita's claim was already barred by prescription

The facts follow.

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

and laches owing to her long inaction in recovering the subject properties. Finally, they believed that
inasmuch as Roberto had already passed away, Margarita must have, instead, directed her claim against
his estate. 15
In much the same way, Marilou and Pedro, 16 who likewise professed themselves to be buyers in good
faith and for value, believed that Margarita's cause of action had already been barred by laches, and that
even assuming the contrary, the cause of action was nevertheless barred by prescription as the same
had accrued way back in 1968 upon the execution of the affidavit of transfer by virtue of which an
implied trust had been created. In this regard, they emphasized that the law allowed only a period of ten
(10) years within which an action to recover ownership of real property or to enforce an implied trust
thereon may be brought, but Margarita merely let it pass. 17

On February 3, 1999, prior to pre-trial, Margarita and the Spouses Campos amicably entered into a

Margarita because her cause of action had accrued way back in 1968; and that while laches and

settlement whereby they waived their respective claims against each other. 18 Margarita died two days

prescription as defenses could have availed against Roberto, the same would be unavailing against Pedro

later and was forthwith substituted by her estate. 19 On February 8, 1999, the trial court rendered a

and Marilou because the latter were supposedly buyers in good faith and for value. 27 It disposed of the

Partial Decision 20 approving the compromise agreement and dismissing the complaint against the

appeal, thus: CcTIDH

Spouses Campos. Forthwith, trial on the merits ensued with respect to Pedro and Marilou.
On July 2, 2001, the trial court rendered judgment dismissing the complaint as follows: TaCEHA
WHEREFORE, in view of the foregoing considerations, the complaint is
DISMISSED. 21

WHEREFORE, the Appeal is hereby DENIED. The assailed Decision dated 2 July
2001 of the Regional Trial Court of Bauang, La Union, Branch 33 is AFFIRMED.
SO ORDERED. 28
Hence, the instant recourse imputing error to the Court of Appeals in holding: (a) that the complaint is

The trial court ruled that the 1968 Affidavit of Transfer operated as a simple transfer of the subject

barred by laches and prescription; (b) that the rule on innocent purchaser for value applies in this case of

properties from Margarita to Roberto. It found no express trust created between Roberto and Margarita

sale of unregistered land; and (c) that there is no evidence to support the finding that there is an implied

by virtue merely of the said document as there was no evidence of another document showing Roberto's

trust created between Margarita and her son Roberto. 29

undertaking to return the subject properties. Interestingly, it concluded that, instead, an "implied or
constructive trust" was created between the parties, as if affirming that there was indeed an agreement
albeit unwritten to have the properties returned to Margarita in due time. 22

Petitioner posits that the Court of Appeals should not have haphazardly applied the doctrine of laches
and failed to see that the parties in this case are bound by familial ties. They assert that laches must not
be applied when an injustice would result from it. Petitioner believes that the existence of such

Moreover, the trial court surmised how Margarita could have failed to recover the subject properties

confidential relationship precludes a finding of unreasonable delay on Margarita's part in enforcing her

from Roberto at any time between 1968, following the execution of the Affidavit of Transfer, and

claim, especially in the face of Luz's testimony that she and Margarita had placed trust and confidence in

Roberto's return from the United States shortly thereafter. Finding Margarita guilty of laches by such

Roberto. Petitioner also refutes the Court of Appeals' finding that there was a donation of the properties

inaction, the trial court barred recovery from respondents who were found to have acquired the

to Roberto when the truth is that the subject properties were all that Margarita possessed and that she

properties supposedly in good faith and for value. 23 It also pointed out that recovery could no longer be

could not have failed to provide for her other children nor for means by which to support herself. It

pursued in this case because Margarita had likewise exhausted the ten-year prescriptive period for

reiterates that the transfer to Roberto was only an accommodation so that he could submit proof to

reconveyance based on an implied trust which had commenced to run in 1968 upon the execution of the

support his U.S. visa application.

Affidavit of Transfer. 24 Finally, it emphasized that mere inadequacy of the price as alleged would not be
a sufficient ground to annul the sales in favor of Pedro and Marilou absent any defect in consent. 25

On the issue of prescription, petitioner advances that it runs from the time Roberto, as trustee, has
repudiated the trust by selling the properties to respondents in August 15, 1992; that hence, the filing of

Aggrieved, petitioner appealed to the Court of Appeals which, on October 13, 2006, affirmed the trial

the instant complaint in 1996 was well within the prescriptive period. Finally, petitioner states that

court's disposition. The appellate court dismissed petitioner's claim that Roberto was merely a trustee of

whether a buyer is in good or bad faith is a matter that attains relevance in sales of registered land, as

the subject properties as there was no evidence on record supportive of the allegation that Roberto

corollary to the rule that a purchaser of unregistered land uninformed of the seller's defective title

merely borrowed the properties from Margarita upon his promise to return the same on his arrival from

acquires no better right than such seller.

the United States. Further, it hypothesized that granting the existence of an implied trust, still
Margarita's action thereunder had already been circumscribed by laches. 26

Respondents stand by the ruling of the Court of Appeals. In their Comment, they theorize that if indeed
Margarita and Roberto had agreed to have the subject properties returned following the execution of

Curiously, while the appellate court had found no implied trust relation in the transaction between

the Affidavit of Transfer, then there should have been a written agreement evincing such intention of the

Margarita and Roberto, nevertheless, it held that the ten-year prescriptive period under Article 1144 of

parties. They note that petitioner's reliance on the Affidavit of Transfer as well as on the alleged

the Civil Code, in relation to an implied trust created under Article 1456, had already been exhausted by

unwritten agreement for the return of the properties must fail, simply because they are not even parties

to it. Be that as it may, the said document had effectively transferred the properties to Roberto who, in

demands of justice 38 and to defeat or prevent the wrongful act of one of the parties. 39 Constructive

turn, had acquired the full capacity to sell them, especially since these properties could well be

trusts are illustrated in Articles 1450, 1454, 1455 and 1456. 40

considered as Roberto's inheritance from Margarita who, on the contrary, did have other existing
properties in her name. Moreover, they believe that the liberal application of the rule on laches between
family members does not apply in the instant case because there is no fiduciary relationship and privity
between them and Margarita. TAacIE
There is merit in the petition.
To begin with, the rule is that the latitude of judicial review under Rule 45 generally excludes factual and
evidentiary reevaluation, and the Court ordinarily abides by the uniform conclusions of the trial court
and the appellate court. Yet, in the case at bar, while the courts below have both arrived at the dismissal

On the other hand, resulting trusts arise from the nature or circumstances of the consideration involved
in a transaction whereby one person becomes invested with legal title but is obligated in equity to hold
his title for the benefit of another. This is based on the equitable doctrine that valuable consideration
and not legal title is determinative of equitable title or interest and is always presumed to have been
contemplated by the parties. 41 Such intent is presumed as it is not expressed in the instrument or deed
of conveyance and is to be found in the nature of their transaction. 42 Implied trusts of this nature are
hence describable as "intention-enforcing trusts." 43 Specific examples of resulting trusts may be found
in the Civil Code, particularly Articles 1448, 1449, 1451, 1452 and 1453. 44 EHACcT

of petitioner's complaint, there still remains unsettled the ostensible incongruence in their respective

Articles 1448 to 1456 of the Civil Code enumerate cases of implied trust, but the list according to Article

factual findings. It thus behooves us to be thorough both in reviewing the records and in appraising the

1447 is not exclusive of others which may be established by the general law on trusts so long as the

evidence, especially since an opposite conclusion is warranted and, as will be shown, justified.

limitations laid down in Article 1442 are observed, 45 that is, that they be not in conflict with the New

A trust is the legal relationship between one person having an equitable ownership of property and

Civil Code, the Code of Commerce, the Rules of Court and special laws. 46

another person owning the legal title to such property, the equitable ownership of the former entitling

While resulting trusts generally arise on failure of an express trust or of the purpose thereof, or on a

him to the performance of certain duties and the exercise of certain powers by the latter. 30 Trusts are

conveyance to one person upon a consideration from another (sometimes referred to as a "purchase-

either express or implied. 31 Express or direct trusts are created by the direct and positive acts of the

money resulting trust"), they may also be imposed in other circumstances such that the court, shaping

parties, by some writing or deed, or will, or by oral declaration in words evincing an intention to create a

judgment in its most efficient form and preventing a failure of justice, must decree the existence of such

trust. 32 Implied trusts also called "trusts by operation of law," "indirect trusts" and "involuntary

a trust. 47 A resulting trust, for instance, arises where, there being no fraud or violation of the trust, the

trusts" arise by legal implication based on the presumed intention of the parties or on equitable

circumstances indicate intent of the parties that legal title in one be held for the benefit of another.48 It

principles independent of the particular intention of the parties. 33 They are those which, without being

also arises in some instances where the underlying transaction is without consideration, such as that

expressed, are deducible from the nature of the transaction as matters of intent or, independently of the

contemplated in Article 1449 49 of the Civil Code. Where property, for example, is gratuitously conveyed

particular intention of the parties, as being inferred from the transaction by operation of law basically by

for a particular purpose and that purpose is either fulfilled or frustrated, the court may affirm the

reason of equity. 34

resulting trust in favor of the grantor or transferor, 50 where the beneficial interest in property was not

Implied trusts are further classified into constructive trusts and resulting trusts. Constructive trusts, on

intended to vest in the grantee. 51

the one hand, come about in the main by operation of law and not by agreement or intention. They arise

Intention although only presumed, implied or supposed by law from the nature of the transaction or

not by any word or phrase, either expressly or impliedly, evincing a direct intention to create a trust, but

from the facts and circumstances accompanying the transaction, particularly the source of the

one which arises in order to satisfy the demands of justice. 35 Also known as trusts ex maleficio, trusts ex

consideration is always an element of a resulting trust 52 and may be inferred from the acts or

delicto and trusts de son tort, they are construed against one who by actual or constructive fraud,

conduct of the parties rather than from direct expression of conduct. 53 Certainly, intent as an

duress, abuse of confidence, commission of a wrong or any form of unconscionable conduct, artifice,

indispensable element, is a matter that necessarily lies in the evidence, that is, by evidence, even

concealment of questionable means, or who in any way against equity and good conscience has

circumstantial, of statements made by the parties at or before the time title passes. 54 Because an

obtained or holds the legal right to property which he ought not, in equity and good conscience, hold

implied trust is neither dependent upon an express agreement nor required to be evidenced by

and enjoy. 36 They are aptly characterized as "fraud-rectifying trust," 37 imposed by equity to satisfy the

writing, 55 Article 1457 56 of our Civil Code authorizes the admission of parole evidence to prove their

existence. Parole evidence that is required to establish the existence of an implied trust necessarily has

familiarity with the properties involved because one of them was actually sitting close to her own

to be trustworthy and it cannot rest on loose, equivocal or indefinite declarations. 57

property. 62

Thus, contrary to the Court of Appeals' finding that there was no evidence on record showing that an

While indeed at one point at the stand both of Luz's and Hilaria's presence at the execution of the

implied trust relation arose between Margarita and Roberto, we find that petitioner before the trial

affidavit had been put to test in subtle interjections by respondents' counsel to the effect that their

court, had actually adduced evidence to prove the intention of Margarita to transfer to Roberto only the

names and signatures did not appear in the Affidavit of Transfer as witnesses, this, to our mind, is of no

legal title to the properties in question, with attendant expectation that Roberto would return the same

moment inasmuch as they had not been called to testify on the fact of, or on the contents of, the

to her on accomplishment of that specific purpose for which the transaction was entered into. The

Affidavit of Transfer or its due execution. Rather, their testimony was offered to prove the circumstances

evidence of course is not documentary, but rather testimonial. TAECSD

surrounding its execution the circumstances from which could be derived the unwritten

We recall that the complaint before the trial court alleged that the 1968 Affidavit of Transfer was
executed merely to accommodate Roberto's request to have the properties in his name and thereby
produce proof of ownership of certain real properties in the Philippines to support his U.S. visa
application. The agreement, the complaint further stated, was for Margarita to transfer the tax

understanding between Roberto and Margarita that by their act, no absolute transfer of ownership
would be effected. Besides, it would be highly unlikely for Margarita to institute the instant complaint if
it were indeed her intention to vest in Roberto, by virtue of the Affidavit of Transfer, absolute ownership
over the covered properties.

declarations of the subject properties to Roberto for the said purpose and without the intention to divest

It is deducible from the foregoing that the inscription of Roberto's name in the Affidavit of Transfer as

her of the rights of ownership and dominion. 58 Margarita, however, died before trial on the merits

Margarita's transferee is not for the purpose of transferring ownership to him but only to enable him to

ensued; 59 yet the allegation was substantiated by the open-court statements of her daughter, Luz, and

hold the property in trust for Margarita. Indeed, in the face of the credible and straightforward

of her niece, Hilaria Costales (Hilaria), a disinterested witness.

testimony of the two witnesses, Luz and Hilaria, the probative value of the ownership record forms in

In her testimony, Luz, who affirmed under oath her own presence at the execution of the Affidavit of
Transfer, described the circumstances under which Margarita and Roberto entered into the agreement.
She narrated that Roberto had wanted to travel to the U.S and to show the embassy proof of his
financial capacity, he asked to "borrow" from Margarita the properties involved but upon the condition

the names of respondents, together with the testimony of their witness from the municipal assessor's
office who authenticated said forms, are utterly minimal to show Roberto's ownership. It suffices to say
that respondents did not bother to offer evidence that would directly refute the statements made by Luz
and Hilaria in open court on the circumstances underlying the 1968 Affidavit of Transfer. SAHEIc

that he would give them back to her upon his arrival from the United States. She admitted that Roberto's

As a trustee of a resulting trust, therefore, Roberto, like the trustee of an express passive trust, is merely

commitment to return the properties was not put in writing because they placed trust and confidence in

a depositary of legal title having no duties as to the management, control or disposition of the property

him, and that while she had spent most of her time in Mindanao since she married in 1956, she would

except to make a conveyance when called upon by the cestui que trust. 63 Hence, the sales he entered

sometimes come to La Union to see her mother but she never really knew whether at one point or

into with respondents are a wrongful conversion of the trust property and a breach of the trust. The

another her mother had demanded the return of the properties from Roberto. 60 She further asserted

question is: May respondents now be compelled to reconvey the subject properties to petitioner? We

that even after Roberto's arrival from the United States, it was Margarita who paid off the taxes on the

rule in the affirmative.

subject properties and that it was only when her health started to deteriorate that Roberto had taken up
those obligations. 61 Hilaria's testimony ran along the same line. Like Luz, she was admittedly present at
the execution of the Affidavit of Transfer which took place at the house she shared with Jacinto Costales,
the notarizing officer who was her own brother. She told that Roberto at the time had wanted to travel
to the U.S. but did not have properties in the Philippines which he could use to back up his visa
application; as accommodation, Margarita "lent" him the tax declarations covering the properties but
with the understanding that upon his return he would give them back to Margarita. She professed

Respondents posit that petitioner's claim may never be enforced against them as they had purchased
the properties from Roberto for value and in good faith. They also claim that, at any rate, petitioner's
cause of action has accrued way back in 1968 upon the execution of the Affidavit of Transfer and, hence,
with the 28 long years that since passed, petitioner's claim had long become stale not only on account of
laches, but also under the rules on extinctive prescription governing a resulting trust. We do not agree.
First, fundamental is the rule in land registration law that the issue of whether the buyer of realty is in
good or bad faith is relevant only where the subject of the sale is registered land and the purchase was

made from the registered owner whose title to the land is clean, in which case the purchaser who relies

Third, there is a fundamental principle in agency that where certain property entrusted to an agent and

on the clean title of the registered owner is protected if he is a purchaser in good faith and for

impressed by law with a trust in favor of the principal is wrongfully diverted, such trust follows the

value. 64 Since the properties in question are unregistered lands, respondents purchased the same at

property in the hands of a third person and the principal is ordinarily entitled to pursue and recover it so

their own peril. Their claim of having bought the properties in good faith, i.e., without notice that there is

long as the property can be traced and identified, and no superior equities have intervened. This

some other person with a right to or interest therein, would not protect them should it turn out, as it in

principle is actually one of trusts, since the wrongful conversion gives rise to a constructive trust which

fact did in this case, that their seller, Roberto, had no right to sell them.

pursues the property, its product or proceeds, and permits the beneficiary to recover the property or

Second, the invocation of the rules on limitation of actions relative to a resulting trust is not on point
because the resulting trust relation between Margarita and Roberto had been extinguished by the
latter's death. A trust, it is said, terminates upon the death of the trustee, particularly where the trust is

obtain damages for the wrongful conversion of the property. Aptly called the "trust pursuit rule," it
applies when a constructive or resulting trust has once affixed itself to property in a certain state or
form. 74

personal to him. 65 Besides, prescription and laches, in respect of this resulting trust relation, hardly can

Hence, a trust will follow the property through all changes in its state and form as long as such

impair petitioner's cause of action. On the one hand, in accordance with Article 1144 66 of the Civil

property, its products or its proceeds, are capable of identification, even into the hands of a transferee

Code, an action for reconveyance to enforce an implied trust in one's favor prescribes in ten (10) years

other than a bona fide purchaser for value, or restitution will be enforced at the election of the

from the time the right of action accrues, as it is based upon an obligation created by law. 67 It sets in

beneficiary through recourse against the trustee or the transferee personally. This is grounded on the

from the time the trustee performs unequivocal acts of repudiation amounting to an ouster of the cestui

principle in property law that ownership continues and can be asserted by the true owner against any

que trust which are made known to the latter. 68 In this case, it was the 1992 sale of the properties to

withholding of the object to which the ownership pertains, whether such object of the ownership is

respondents that comprised the act of repudiation which, however, was made known to Margarita only

found in the hands of an original owner or a transferee, or in a different form, as long as it can be

in 1995 but nevertheless impelled her to institute the action in 1996 still well within the prescriptive

identified. 75 Accordingly, the person to whom is made a transfer of trust property constituting a

period. Hardly can be considered as act of repudiation Roberto's open court declaration which he made

wrongful conversion of the trust property and a breach of the trust, when not protected as a bona

in the 1979 adoption proceedings involving respondents to the effect that he owned the subject

fide purchaser for value, is himself liable and accountable as a constructive trustee. The liability attaches

properties, 69 nor even the fact that he in 1977 had entered into a lease contract on one of the disputed

at the moment of the transfer of trust property and continues until there is full restoration to the

properties which contract had been subject of a 1996 decision of the Court of Appeals. 70 These do not

beneficiary. Thus, the transferee is charged with, and can be held to the performance of the trust,

suffice to constitute unequivocal acts in repudiation of the trust. THIAaD

equally with the original trustee, and he can be compelled to execute a reconveyance. 76

On the other hand, laches, being rooted in equity, is not always to be applied strictly in a way that would

This scenario is characteristic of a constructive trust imposed by Article 1456 77 of the Civil Code, which

obliterate an otherwise valid claim especially between blood relatives. The existence of a confidential

impresses upon a person obtaining property through mistake or fraud the status of an implied trustee

relationship based upon consanguinity is an important circumstance for consideration; hence, the

for the benefit of the person from whom the property comes. Petitioner, in laying claim against

doctrine is not to be applied mechanically as between near relatives. 71 Adaza v. Court of

respondents who are concededly transferees who professed having validly derived their ownership from

Appeals 72 held that the relationship between the parties therein, who were siblings, was sufficient to

Roberto, is in effect enforcing against respondents a constructive trust relation that arose by virtue of

explain and excuse what would otherwise have been a long delay in enforcing the claim and the delay in

the wrongful and fraudulent transfer to them of the subject properties by Roberto. SCDaET

such situation should not be as strictly construed as where the parties are complete strangers vis-avis each other; thus, reliance by one party upon his blood relationship with the other and the trust and
confidence normally connoted in our culture by that relationship should not be taken against him.

Aznar Brother Realty Co. v. Aying, 78 citing Buan Vda. de Esconde v. Court of Appeals, 79 explained this
form of implied trust as follows:

Too, Sotto v. Teves 73 ruled that the doctrine of laches is not strictly applied between near relatives, and

A deeper analysis of Article 1456 reveals that it is not a trust in the technical

the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise

sense for in a typical trust, confidence is reposed in one person who is named a

unreasonable delay.

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 thecestui que trust. A

affecting the same is inscribed in accordance with law, inasmuch as it is what binds the land and

constructive trust, unlike an express trust, does not emanate from, or generate

operates constructive notice to the world. 84 In the present case, however, the lands involved are

a fiduciary relation. While in an express trust, a beneficiary and a trustee are

concededly unregistered lands; hence, there is no way by which Margarita, during her lifetime, could be

linked by confidential or fiduciary relations, in a constructive trust, there is

notified of the furtive and fraudulent sales made in 1992 by Roberto in favor of respondents, except by

neither a promise nor any fiduciary relation to speak of and the so-called

actual notice from Pedro himself in August 1995. Hence, it is from that date that prescription began to

trustee neither accepts any trust nor intends holding the property for the

toll. The filing of the complaint in February 1996 is well within the prescriptive period. Finally, such delay

beneficiary.

of only six (6) months in instituting the present action hardly suffices to justify a finding of inexcusable
xxx xxx xxx

. . . [C]onstructive trusts are created by the construction of equity in order to

satisfy the demands of justice and prevent unjust enrichment. They arise
contrary to intention against one who, by fraud, duress or abuse of confidence,
obtains or holds the legal right to property which he ought not, in equity and
good conscience, to hold. 80
It is settled that an action for reconveyance based on a constructive implied trust prescribes in 10 years
likewise in accordance with Article 1144 of the Civil Code. Yet not like in the case of a resulting implied
trust and an express trust, prescription supervenes in a constructive implied trust even if the trustee
does not repudiate the relationship. In other words, repudiation of said trust is not a condition
precedent to the running of the prescriptive period.81
As to when the prescriptive period commences to run, Crisostomo v. Garcia 82 elucidated as follows:
When property is registered in another's name, an implied or constructive trust
is created by law in favor of the true owner. The action for reconveyance of the
title to the rightful owner prescribes in 10 years from the issuance of the title.
An action for reconveyance based on implied or constructive trust prescribes in
ten years from the alleged fraudulent registration or date of issuance of the
certificate of title over the property.
It is now well settled that the prescriptive period to recover property obtained
by fraud or mistake, giving rise to an implied trust under Art. 1456 of the Civil
Code, is 10 years pursuant to Art. 1144. This ten-year prescriptive period
begins to run from the date the adverse party repudiates the implied trust,
which repudiation takes place when the adverse party registers the land. 83
From the foregoing, it is clear that an action for reconveyance under a constructive implied trust in
accordance with Article 1456 does not prescribe unless and until the land is registered or the instrument

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

FIRST DIVISION

On December 27, 1989, the RTC, Branch 19, of Digos City, Davao del Sur, rendered a Decision 5 in Civil
Case No. 2514 (a case for Reconveyance and Damages), ordering the exclusion of 2.5002 hectares from

[G.R. No. 169901. August 3, 2011.]

Lot 13521. The trial court found that said 2.5002 hectares which is part of Lot 13521, a 13,752-square
meter parcel of land covered by Original Certificate of Title (OCT) No. P-4952 6 registered in the name of

PHILIPPINE NATIONAL BANK, petitioner, vs. CIRIACO JUMAMOY and HEIRS OF

ANTONIO GO PACE, represented by ROSALIA PACE, respondents.

Antonio Go Pace (Antonio) on July 19, 1971 actually pertains to Sesinando Jumamoy (Sesinando),
Ciriaco's predecessor-in-interest. The RTC found that said 2.5002-hectare lot was erroneously included in
Antonio's free patent application which became the basis for the issuance of his OCT. It then ordered the
heirs of Antonio (the Paces [represented by Rosalia Pace (Rosalia)]) to reconvey said portion to Ciriaco. In

DECISION

so ruling, the RTC acknowledged Ciriaco's actual and exclusive possession, cultivation, and claim of
ownership over the subject lot which he acquired from his father Sesinando, who occupied and
improved the lot way back in the early 1950s. 7

DEL CASTILLO, J p:

The December 27, 1989 RTC Decision became final and executory but the Deed of Conveyance 8 issued
in favor of Ciriaco could not be annotated on OCT No. P-4952 since said title was already cancelled.

A PARTY enters into an agreement or contract with an eye to reap benefits

Apparently, Antonio and his wife Rosalia mortgaged Lot 13521 to PNB as security for a series of loans

therefrom or be relieved of an oppressive economic condition. The other party

dated February 25, 1971, April 26, 1972, and May 11, 1973. 9 After Antonio and Rosalia failed to pay

likewise assumes that the agreement would be advantageous to him. But just

their obligation, PNB foreclosed the mortgage on July 14, 1986 10 and title to Lot 13521 was transferred

like in any other human undertaking, the end-result may not be as sweet as

to PNB under Transfer Certificate of Title (TCT) No. T-23063. Moreover, the Deed of Conveyance could

expected. DCcHIS

not be annotated at the back of OCT No. P-4952 because PNB was not impleaded as a defendant in Civil

The problem could not be resolved by any other means but to litigate.
Courts, however, are not defenders of bad bargains. At most, they only declare
the rights and obligations of the parties to the contract in order to preserve
sanctity of the same.
We are confronted in this case with this legal predicament. 1

Case No. 2514.

Thus, in February 1996, Ciriaco filed the instant complaint against PNB and the Paces for Declaration of
Nullity of Mortgage, Foreclosure Sale, Reconveyance and Damages, 11 docketed as Civil Case No. 3313
and raffled to Branch 18 of RTC, Digos City, Davao del Sur.
In his complaint, Ciriaco averred that Antonio could not validly mortgage the entire Lot 13521 to PNB as
a portion thereof consisting of 2.5002 hectares belongs to him (Ciriaco), as already held in Civil Case No.

This Petition for Review on Certiorari assails the February 28, 2005 Decision 2 of the Court of Appeals

2514. He claimed that PNB is not an innocent mortgagee/purchaser for value because prior to the

(CA) in CA-G.R. CV No. 73743 which dismissed petitioner Philippine National Bank's (PNB's) appeal from

execution and registration of PNB's deed of sale with the Register of Deeds, the bank had prior notice

the July 30, 2001 Decision 3 of the Regional Trial Court (RTC), Branch 18, Digos City, Davao del Sur. Said

that the disputed lot is subject of a litigation. It would appear that during the pendency of Civil Case No.

Decision of the RTC ordered PNB to reconvey to respondent Ciriaco Jumamoy (Ciriaco) a portion of the

2514, a notice of lis pendens was annotated at the back of OCT No. P-4952 as Entry No. 165547 12 on

parcel of land subject of this case.

November 28, 1988.

Likewise assailed in this petition is the September 28, 2005 Resolution 4 of the CA denying PNB's Motion

The Paces did not file any answer and were declared in default. 13 Meanwhile PNB filed its Amended

for Reconsideration.

Answer 14 denying for lack of knowledge and information Ciriaco's claim of ownership and reliance on

Factual Antecedents

the judgment in Civil Case No. 2514. It argued that it is a mortgagee and a buyer in good faith since at

the time of the mortgage, Antonio's certificate of title was 'clean' and 'devoid of any adverse
annotations.' PNB also filed a cross-claim against the Paces. ATHCac
Instead of having a full-blown trial, Ciriaco and PNB opted to submit the case for decision based on their
respective memoranda.
Ruling of the Regional Trial Court
In its July 30, 2001 Decision, 15 the RTC ordered the partial nullification of the mortgage and the
reconveyance of the subject lot claimed by Ciriaco. The RTC found that PNB was not a
mortgagee/purchaser in good faith because it failed to take the necessary steps to protect its interest
such as sending a field inspector to the area to determine the real owner, its occupants, its
improvements and its boundaries.
The dispositive portion of the RTC Decision reads:

PNB thus filed its appeal with the CA.

Ruling of the Court of Appeals
In its Decision of February 28, 2005, 20 the CA affirmed the RTC's ruling that PNB is not an innocent
mortgagee/purchaser. The CA reiterated that the business of a bank or a financial institution is imbued
with public interest thus it is obliged to exercise extraordinary prudence and care by looking beyond
what appears on the title. The CA pointed out that in this case, PNB failed to prove that it conducted an
investigation on the real condition of the mortgaged property. Had the bank done so, it could have
discovered that Ciriaco had possession of the disputed lot for quite some time. Moreover, the CA held
that PNB could not validly claim that it merely relied on the face of a "clean" Torrens title because when
the disputed lot was first mortgaged in 1971, the same was still an untitled and unregistered land. It
likewise ruled that Ciriaco's action for reconveyance is based on implied trust and is imprescriptible
because the land has always been in his possession.

WHEREFORE, it is hereby ordered that defendant PNB shall reconvey, by the

Anent PNB's cross-claim against the Paces, the CA gave due course thereto and ordered the records

proper instrument of reconveyance, that portion of the land owned and

remanded to the RTC for further proceedings.

claimed by plaintiff CIRIACO JUMAMOY.

The claim for damages by all the parties are hereby DISMISSED for lack of
proper basis.
SO ORDERED. 16
PNB filed a Motion for Reconsideration. 17 It argued that the trial court erred in finding that it is not an
innocent mortgagee for value due to its alleged failure to send its field inspector to the area considering
that such matter was never alleged in Ciriaco's complaint. PNB claimed that Ciriaco merely stated in his
complaint that the bank is not an innocent mortgagee for value because it had already constructive
notice that the subject land is under litigation by virtue of the notice of lis pendens already annotated on
Antonio's title when PNB consolidated in its name the title for Lot 13521. PNB however argued that at
the time of the constitution and registration of the mortgage in 1971, Antonio's title was clean as the
notice of lis pendens was annotated only in 1988. And since there was no cause to arouse suspicion, it

The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, herein appeal is hereby DISMISSED and the
decision of the trial court is hereby AFFIRMED with MODIFICATION, giving due
course to the cross-claim of the defendant-appellant PNB against the Heirs of
ANTONIO GO PACE as represented by ROSALIA PACE. Accordingly, let the entire
records of this case be remanded to the lower court for further proceedings of
the said cross-claim.
SO ORDERED. 21
PNB moved for a reconsideration. 22 However, the CA sustained its ruling in a Resolution 23 dated
September 28, 2005.
Hence, this petition.

may rely on the face of the Torrens title. As for its cross-claim against the heirs of Antonio, PNB prayed

Issues

that a hearing be set.

PNB ascribed upon the CA the following errors:
Ciriaco filed an Opposition to the Motion for Reconsideration. 18 He insisted that PNB cannot validly
claim that it is an innocent mortgagee based on its reliance on Antonio's Torrens title because when it

A.THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT'S DECISION

first granted Antonio's loan application, the subject property was still untitled and unregistered.

IN DECLARING THAT PNB FAILED TO QUALIFY AS AN INNOCENT MORTGAGEE

FOR VALUE IN THE ABSENCE OF EVIDENCE TO ESTABLISH THIS FACT.

On January 7, 2002, the RTC denied PNB's motion for reconsideration. 19

B.THE COURT OF APPEALS ERRED IN ORDERING THE PARTIAL NULLIFICATION OF

interest in such property and pays the full price for the same, at the time of such purchase or before he

THE REAL ESTATE MORTGAGE EXECUTED IN FAVOR OF PNB IN DISREGARD OF

has notice of the claims or interest of some other person in the property." 25 An "innocent purchaser for

THE LAW AND ESTABLISHED JURISPRUDENCE ON THE MATTER.

value" includes an innocent lessee, mortgagee, or other encumbrancer for value. 26

C.THE COURT OF APPEALS ERRED IN ORDERING THE PARTIAL NULLIFICATION OF

Here, we agree with the disposition of the RTC and the CA that PNB is not an innocent purchaser for

PNB'S TITLE CONTRARY TO THE LAW AND ESTABLISHED JURISPRUDENCE ON

value. As we have already declared:

THE MATTER.

A banking institution is expected to exercise due diligence before entering into

D.THE COURT OF APPEALS ERRED IN DENYING PNB'S MOTION FOR

a mortgage contract. The ascertainment of the status or condition of a

RECONSIDERATION AND SUSTAINING RESPONDENT JUMAMOY'S INVOCATION

property offered to it as security for a loan must be a standard and

OF THE RULING OF THE SUPREME COURT IN SPOUSES FLORENTINO AND

indispensable part of its operations. 27 (Emphasis ours.)

FRANCISCA TOMAS VS. PNB (98 SCRA 280) INSTEAD OF THE LANDMARK CASE
OF LILIA Y. GONZALES VS. IAC AND RURAL BANK OF PAVIA, INC. (157 SCRA
587)WHICH IS THE ONE APPLICABLE TO THE INSTANT CASE.

PNB's contention that Ciriaco failed to allege in his complaint that PNB failed to take the necessary
precautions before accepting the mortgage is of no moment. It is undisputed that the 2.5002-hectare
portion of the mortgaged property has been adjudged in favor of Ciriaco's predecessor-in-interest in Civil

E.THE COURT OF APPEALS ERRED IN ORDERING PNB TO RECONVEY THE

Case No. 2514. Hence, PNB has the burden of evidence that it acted in good faith from the time the land

PORTION OF LAND CLAIMED BY RESPONDENT JUMAMOY NOTWITHSTANDING

was offered as collateral. However, PNB miserably failed to overcome this burden. There was no showing

THE FACT THAT IT IS APPARENT FROM THE COMPLAINT THAT RESPONDENT

at all that it conducted an investigation; that it observed due diligence and prudence by checking for

JUMAMOY'S

flaws in the title; that it verified the identity of the true owner and possessor of the land; and, that it

ACTION

FOR

RECONVEYANCE

IS

ALREADY

BARRED

BY

PRESCRIPTION. 24

visited subject premises to determine its actual condition before accepting the same as collateral.

In essence, PNB contends that the lower courts grievously erred in declaring that it is not an innocent

Both the CA and the trial court correctly observed that PNB could not validly raise the defense that it

mortgagee/purchaser for value. PNB also argues that Ciriaco's complaint is barred by prescription. TCT

relied on Antonio's clean title. The land, when it was first mortgaged, was then unregistered under our

No. T-23063 was issued on March 23, 1990, while Ciriaco filed his complaint only six years thereafter.

Torrens system. The first mortgage was on February 25, 1971 28 while OCT No. P-4952 was issued on

Thus, the one-year period to nullify PNB's certificate of title had lapsed, making PNB's title indefeasible.

July 19, 1971. Since the Paces offered as collateral an unregistered land, with more reason PNB should

Moreover, PNB claims that an action for reconveyance prescribes in four years if based on fraud, or, 10

have proven before the RTC that it had verified the status of the property by conducting an ocular

years if based on an implied trust, both to be counted from the issuance of OCT No. P-4952 in July 1971

inspection before granting Antonio his first loan. Good faith which is a question of fact could have been

which constitutes as a constructive notice to the whole world. Either way, Ciriaco's action had already

proven in the proceedings before the RTC, but PNB dispensed with the trial proper and let its

prescribed since it took him 17 years to file his first complaint for reconveyance in Civil Case No. 2514

opportunity to dispute factual allegations pass. Had PNB really taken the necessary precautions, it would

and around 23 years to file his second complaint in Civil Case No. 3313. aAEIHC

have discovered that a large portion of Lot 13521 is occupied by Ciriaco.

Our Ruling

Ciriaco's

We deny the petition.

PNB

is

action

for

reconveyance

is

inprescriptible.
not

an

innocent

purchaser/

mortgagee for value.

Undoubtedly, our land registration statute extends its protection to an innocent purchaser for value,
defined as "one who buys the property of another, without notice that some other person has a right or

Also, the incontrovertibility of a title does not preclude a rightful claimant to a property from seeking
other remedies because it was never the intention of the Torrens system to perpetuate fraud. As
explained in Vda. de Recinto v. Inciong: 29

10

The mere possession of a certificate of title under the Torrens system does not

In Ciriaco's case, as it has been judicially established that he is in actual possession of the property he

necessarily make the possessor a true owner of all the property described

claims as his and that he has a better right to the disputed portion, his suit for reconveyance is in effect

therein for he does not by virtue of said certificate alone become the owner of

an action for quieting of title. Hence, petitioner's defense of prescription against Ciriaco does not lie.

the land illegally included. It is evident from the records that the petitioner
owns the portion in question and therefore the area should be conveyed to
her. The remedy of the land owner whose property has been wrongfully or
erroneously registered in another's name is, after one year from the date of
the decree, not to set aside the decree, but, respecting the decree as
incontrovertible and no longer open to review, to bring an ordinary action in
the ordinary court of justice for reconveyance or, if the property has passed
into the hands of an innocent purchaser for value, for damages. (Emphasis
supplied.)
"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." 30 An action
for reconveyance based on implied trust prescribes in 10 years as it is an obligation created by law,31 to
be counted from the date of issuance of the Torrens title over the property. 32 This rule, however,
applies only when the plaintiff or the person enforcing the trust is not in possession of the
property. cADaIH
In Vda. de Cabrera v. Court of Appeals, 33 we said that there is no prescription when in an action for
reconveyance, the claimant is in actual possession of the property because this in effect is an action for
quieting of title:
[S]ince if a person claiming to be the owner thereof is in actual possession of
the property, as the defendants are in the instant case, the right to seek
reconveyance, which in effect seeks to quiet title to the property, does not
prescribe. The reason for this is that one who is in actual possession of a piece
of land claiming to be the owner thereof may wait until his possession is
disturbed or his title is attacked before taking steps to vindicate his right, the
reason for the rule being, that his undisturbed possession gives him a
continuing right to seek the aid of a court of equity to ascertain and determine
the nature of the adverse claim of a third party and its effect on his own title,
which right can be claimed only by one who is in possession. 34

WHEREFORE, the petition is DENIED. The February 28, 2005 Decision and September 28, 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 73743 are hereby AFFIRMED.

11

SECOND DIVISION

4. ID.; ID.; ID.; CANNOT BE REVOKED AT WILL. The agency that we hereby declare to be compatible
with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an

[G.R. Nos. L-41182-3. April 15, 1988.]

interest, the agency having been created for the mutual interest of the agent and the principal.
5. CIVIL LAW; DAMAGES; AWARD THEREOF PROPER IN BREACH OF CONTRACT. We rule that for its

DR. CARLOS L. SEVILLA and LINA O. SEVILLA, petitioners-appellants, vs. THE

unwarranted revocation of the contract of agency, the private respondent, Tourist World Service, Inc.,

COURT OF APPEALS, TOURIST WORLD SERVICE, INC., ELISEO S. CANILAO, and

should be sentenced to pay damages. Under the Civil Code, moral damages may be awarded for

SEGUNDINA NOGUERA, respondents-appellees.

"breaches of contract where the defendant acted . . . in bad faith." We likewise condemn Tourist World
Service, Inc. to pay further damages for the moral injury done to Lina Sevilla arising from its brazen
conduct subsequent to the cancellation of the power of attorney granted to her on the authority of

Roman P. Mosqueda for petitioners-appellants.

Article 21 of the Civil Code, in relation to Article 2219 (10) thereof. The Court considers the sums of
Felipe Magat for respondents-appellees.

P25,000.00 as and for moral damages, P10,000.00 as exemplary damages, and P5,000.00 as nominal
and/or temperate damages, to be just, fair, and reasonable under the circumstances.
SYLLABUS
DECISION

1. LABOR AND SOCIAL LEGISLATION; LABOR CODE; EMPLOYER-EMPLOYEE RELATIONSHIP; TEST TO

DETERMINE ITS EXISTENCE. In this jurisdiction, there has been no uniform test to determine the
existence of an employer-employee relation. In general, we have relied on the so-called right of control
test, "where the person for whom the services are performed reserves a right to control not only the
end to be achieved but also the means to be used in reaching such end." Subsequently, however, we
have considered, in addition to the standard of right-of-control, the existing economic conditions

SARMIENTO, J p:
The petitioners invoke the provisions on human relations of the Civil Code in this appeal by certiorari.
The facts are beyond dispute:

prevailing between the parties, like the inclusion of the employee in the payrolls, in determining the
existence of an employer-employee relationship.

xxx xxx xxx

2. CIVIL LAW; OBLIGATIONS AND CONTRACTS; AGENCY; CONSTRUED. When the petitioner, Lina

On the strength of a contract (Exhibit A for the appellants Exhibit 2 for the

Sevilla, agreed to (wo)man the private respondent, Tourist World Service, Inc.'s Ermita office, she must

appellees) entered into on Oct. 19, 1960 by and between Mrs. Segundina

have done so pursuant to a contract of agency. It is the essence of this contract that the agent renders

Noguera, party of the first part; the Tourist World Service, Inc., represented by

services "in representation or on behalf of another."

Mr. Eliseo Canilao as party of the second part, and hereinafter referred to as
appellants, the Tourist World Service, Inc. leased the premises belonging to the

3. ID.; ID.; ID.; CASE AT BAR. In the case at bar, Sevilla solicited airline fares, but she did so for and on
behalf of her principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in
the concept of commissions. And as we said, Sevilla herself, based on her letter of November 28, 1961,
presumed her principal's authority as owner of the business undertaking. We are convinced, considering
the circumstances and from the respondent Court's recital of facts, that the parties had contemplated a
principal-agent relationship, rather than a joint management or a partnership.

party of the first part at Mabini St., Manila for the former's use as a branch
office. In the said contract the party of the third part held herself solidarily liable
with the party of the second part for the prompt payment of the monthly rental
agreed on. When the branch office was opened, the same was run by the herein
appellant Lina O. Sevilla payable to Tourist World Service Inc. by any airline for
any fare brought in on the efforts of Mrs. Lina Sevilla, 4% was to go to Lina
Sevilla and 3% was to be withheld by the Tourist World Service, Inc. Cdpr

12

On or about November 24, 1961 (Exhibit 16) the Tourist World Service, Inc.

"II. THE LOWER COURT ERRED IN HOLDING THAT APPELLANT MRS. LINA O.

appears to have been informed that Lina Sevilla was connected with a rival firm,

SEVILLA'S ARRANGEMENT (WITH APPELLEE TOURIST WORLD SERVICE, INC.)

the Philippine Travel Bureau, and, since the branch office was anyhow losing,

WAS ONE MERELY OF EMPLOYER-EMPLOYEE RELATION AND IN FAILING TO

the Tourist World Service considered closing down its office. This was firmed up

HOLD THAT THE SAID ARRANGEMENT WAS ONE OF JOINT BUSINESS VENTURE.

by two resolutions of the board of directors of Tourist World Service, Inc. dated
Dec. 2, 1961 (Exhibits 12 and 13), the first abolishing the office of the manager
and vice-president of the Tourist World Service, Inc., Ermita Branch, and the
second, authorizing the corporate secretary to receive the properties of the
Tourist World Service then located at the said branch office. It further appears

"III. THE LOWER COURT ERRED IN RULING THAT PLAINTIFF-APPELLANT MRS.

LINA O. SEVILLA IS ESTOPPED FROM DENYING THAT SHE WAS A MERE
EMPLOYEE OF DEFENDANT-APPELLEE TOURIST WORLD SERVICE, INC. EVEN AS
AGAINST THE LATTER.

that on Jan. 3, 1962, the contract with the appellees for the use of the Branch

"IV. THE LOWER COURT ERRED IN NOT HOLDING THAT APPELLEES HAD NO

Office premises was terminated and while the effectivity thereof was Jan. 31,

RIGHT TO EVICT APPELLANT MRS. LINA O. SEVILLA FROM THE A. MABINI OFFICE

1962, the appellees no longer used it. As a matter of fact appellants used it

BY TAKING THE LAW INTO THEIR OWN HANDS.

since Nov. 1961. Because of this, and to comply with the mandate of the Tourist
World Service, the corporate secretary Gabino Canilao went over to the branch
office, and, finding the premises locked, and, being unable to contact Lina
Sevilla, he padlocked the premises on June 4, 1962 to protect the interests of

"V. THE LOWER COURT ERRED IN NOT CONSIDERING AT ALL APPELLEE

NOGUERA'S RESPONSIBILITY FOR APPELLANT MRS. LINA O. SEVILLA'S FORCIBLE
DISPOSSESSION OF THE A. MABINI PREMISES.

the Tourist World Service. When neither the appellant Lina Sevilla nor any of

"VI. THE LOWER COURT ERRED IN FINDING THAT APPELLANT MRS. LINA O.

her employees could enter the locked premises, a complaint was filed by the

SEVILLA SIGNED MERELY AS GUARANTOR FOR RENTALS."

herein appellants against the appellees with a prayer for the issuance of
mandatory

preliminary

injunction.

Both

appellees

answered

with

counterclaims. For apparent lack of interest of the parties therein, the trial
court ordered the dismissal of the case without prejudice.
The appellee Segundina Noguera sought reconsideration of the order dismissing

On the foregoing facts and in the light of the errors assigned the issues to be
resolved are:
1. Whether the appellee Tourist World Service unilaterally disconnected the
telephone line at the branch office on Ermita;

her counterclaim which the court a quo, in an order dated June 8, 1963, granted

2. Whether or not the padlocking of the office by the Tourist World Service was

permitting her to present evidence in support of her counterclaim.

actionable or not; and

On June 17, 1963, appellant Lina Sevilla refiled her case against the herein

3. Whether or not the lessee to the office premises belonging to the appellee

appellees and after the issues were joined, the reinstated counterclaim of

Noguera was appellee TWS or TWS and the appellant. cdll

Segundina Noguera and the new complaint of appellant Lina Sevilla were jointly
heard following which the court a quo ordered both cases dismissed for lack of
merit, on the basis of which was elevated the instant appeal on the following
assignment of errors:
"I. THE LOWER COURT ERRED EVEN IN APPRECIATING THE NATURE OF
PLAINTIFF-APPELLANT MRS. LINA O. SEVILLA'S COMPLAINT.

In this appeal, appellant Lina Sevilla claims that a joint business venture was
entered into by and between her and appellee TWS with offices at the Ermita
branch office and that she was not an employee of the TWS to the end that her
relationship with TWS was one of a joint business venture appellant made
declarations showing:

13

"1. Appellant Mrs. Lina O. Sevilla, a prominent social figure and wife of an

June 18, 1965 - testimony of appellee Eliseo Canilao; pp. 38-39 tsn. April 6, 1966

eminent eye, ear and nose specialist as well as a society columnist, had been in

- testimony of corporate secretary Gabino Canilao)." (pp. 2-5, Appellants' Reply

the travel business prior to the establishment of the joint business venture with

Brief)

appellee Tourist World Service, Inc. and appellee Eliseo Canilao, her compadre,

Upon the other hand, appellee TWS contend that the appellant was an

she being the godmother of one of his children, with her own clientele, coming

employee of the appellee Tourist World Service, Inc. and as such was

mostly from her own social circle (pp. 3-6 tsn. February 16, 1965).

designated manager." 1

"2. Appellant Mrs. Sevilla was signatory to a lease agreement dated 19 October

xxx xxx xxx

1960 (Exh. "A") covering the premises at A. Mabini St., she expressly warranting
and holding [sic] herself 'solidarily' liable with appellee Tourist World Service,

The trial court 2 held for the private respondents on the premise that the private respondent, Tourist

Inc. for the prompt payment of the monthly rentals thereof to other appellee

World Service, Inc., being the true lessee, it was within its prerogative to terminate the lease and padlock

Mrs. Noguera (pp. 14-15, tsn. Jan. 18, 1964).

the premises. 3 It likewise found the petitioner, Lina Sevilla, to be a mere employee of said Tourist World

"3. Appellant Mrs. Sevilla did not receive any salary from appellee Tourist World
Service, Inc., which had its own separate office located at the Trade &

Service, Inc. and as such, she was bound by the acts of her employer. 4 The respondent Court of
Appeals 5 rendered an affirmance. prLL

Commerce Building; nor was she an employee thereof, having no participation

The petitioners now claim that the respondent Court, in sustaining the lower court, erred. Specifically,

in nor connection with said business at the Trade & Commerce Building (pp. 16-

they state:

18 tsn. id.).
"4. Appellant Mrs. Sevilla earned commissions for her own passengers, her own
bookings, her own business (and not for any of the business of appellee Tourist
World Service, Inc.) obtained from the airline companies. She shared the 7%
commissions given by the airline companies, giving appellee Tourist World
Service, Inc. 3% thereof and retaining 4% for herself (pp. 18 tsn. id.)

I.
THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED
ITS DISCRETION IN HOLDING THAT "THE PADLOCKING OF THE PREMISES BY
TOURIST WORLD SERVICE INC. WITHOUT THE KNOWLEDGE AND CONSENT OF
THE APPELLANT LINA SEVILLA . . . WITHOUT NOTIFYING MRS. LINA O. SEVILLA
OR ANY OF HER EMPLOYEES AND WITHOUT INFORMING COUNSEL FOR THE
APPELLANT (SEVILLA), WHO IMMEDIATELY BEFORE THE PADLOCKING INCIDENT,

"5. Appellant Mrs. Sevilla likewise shared in the expenses of maintaining the A.
Mabini St. office, paying for the salary of an office secretary, Miss Obieta, and
other sundry expenses, aside from designing the office furniture and supplying
some office furnishings (pp. 15, 18 tsn. April 6, 1965), appellee Tourist World
Service, Inc. shouldering the rental and other expenses in consideration for the
3% split in the commissions procured by appellant Mrs. Sevilla (p. 35 tsn. Feb.
16, 1965).
"6. It was the understanding between them that appellant Mrs. Sevilla would be

WAS IN CONFERENCE WITH THE CORPORATE SECRETARY OF TOURIST WORLD

SERVICE (ADMITTEDLY THE PERSON WHO PADLOCKED THE SAID OFFICE), IN
THEIR ATTEMPT TO AMICABLY SETTLE THE CONTROVERSY BETWEEN THE
APPELLANT (SEVILLA) AND THE TOURIST WORLD SERVICE . . . (DID NOT) ENTITLE
THE LATTER TO THE RELIEF OF DAMAGES" (ANNEX "A" PP. 7, 8 AND ANNEX "B"
P. 2) - A DECISION AGAINST DUE PROCESS WHICH ADHERES TO THE RULE OF
LAW.
II.

given the title of branch manager for appearance's sake only (p. 31 tsn. id.),

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

appellee Eliseo Canilao admitting that it was just a title for dignity (p. 36 tsn

ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF BECAUSE SHE HAD

14

"OFFERED TO WITHDRAW HER COMPLAINT PROVIDED THAT ALL CLAIMS AND

exclusive domain of the Court of Industrial Relations, later, the Bureau of Labor Relations, pursuant to

COUNTERCLAIMS LODGED BY BOTH APPELLEES WERE WITHDRAWN." (ANNEX

statutes then in force. 9

"A" P. 8)

In this jurisdiction, there has been no uniform test to determine the existence of an employer-employee
III.

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

ITS DISCRETION IN DENYING - IN FACT NOT PASSING AND RESOLVING APPELLANT SEVILLA'S CAUSE OF ACTION FOUNDED ON ARTICLES 19, 20 AND 21
OF THE CIVIL CODE ON HUMAN RELATIONS.
IV.

relation. In general, we have relied on the so-called right of control test, "where the person for whom
the services are performed reserves a right to control not only the end to be achieved but also the
means to be used in reaching such end." 10 Subsequently, however, we have considered, in addition to
the standard of right-of-control, the existing economic conditions prevailing between the parties, like the
inclusion of the employee in the payrolls, in determining the existence of an employer-employee
relationship. 11
The records will show that the petitioner, Lina Sevilla, was not subject to control by the private

THE COURT OF APPEALS ERRED ON A QUESTION OF LAW AND GRAVELY ABUSED

respondent Tourist World Service, Inc., either as to the result of the enterprise or as to the means used

ITS DISCRETION IN DENYING APPELLANT SEVILLA RELIEF YET NOT RESOLVING

in connection therewith. In the first place, under the contract of lease covering the Tourist World's

HER CLAIM THAT SHE WAS IN JOINT VENTURE WITH TOURIST WORLD SERVICE

Ermita office, she had bound herself in solidum as and for rental payments, an arrangement that would

INC. OR AT LEAST ITS AGENT COUPLED WITH AN INTEREST WHICH COULD NOT

belie claims of a master-servant relationship. True, the respondent Court would later minimize her

BE TERMINATED OR REVOKED UNILATERALLY BY TOURIST WORLD SERVICE

participation in the lease as one of mere guaranty, 12 that does not make her an employee of Tourist

INC. 6

World, since in any case, a true employee cannot be made to part with his own money in pursuance of

As a preliminary inquiry, the Court is asked to declare the true nature of the relation between Lina Sevilla
and Tourist World Service, Inc. The respondent Court of Appeals did not see fit to rule on the question,

his employer's business, or otherwise, assume any liability thereof. In that event, the parties must be
bound by some other relation, but certainly not employment.

the crucial issue, in its opinion being "whether or not the padlocking of the premises by the Tourist

In the second place, and as found by the Appellate Court, "[w]hen the branch office was opened, the

World Service, Inc. without the knowledge and consent of the appellant Lina Sevilla entitled the latter to

same was run by the herein appellant Lina O. Sevilla payable to Tourist World Service, Inc. by any airline

the relief of damages prayed for and whether or not the evidence for the said appellant supports the

for any fare brought in on the effort of Mrs. Lina Sevilla." 13 Under these circumstances, it cannot be said

contention that the appellee Tourist World Service, Inc. unilaterally and without the consent of the

that Sevilla was under the control of Tourist World Service, Inc. "as to the means used." Sevilla in

appellant disconnected the telephone lines of the Ermita branch office of the appellee Tourist World

pursuing the business, obviously relied on her own gifts and capabilities.

Service, Inc." 7 Tourist World Service, Inc., insists, on the other hand, that Lina Sevilla was a mere
employee, being "branch manager" of its Ermita "branch" office and that inferentially, she had no say on
the lease executed with the private respondent, Segundina Noguera. The petitioners contend, however,
that relation between the parties was one of joint venture, but concede that "whatever might have been
the true relationship between Sevilla and Tourist World Service," the Rule of Law enjoined Tourist World

It is further admitted that Sevilla was not in the company's payroll. For her efforts, she retained 4% in
commissions from airline bookings, the remaining 3% going to Tourist World. Unlike an employee then,
who earns a fixed salary usually, she earned compensation in fluctuating amounts depending on her
booking successes.

Service and Canilao from taking the law into their own hands," 8 in reference to the padlocking now

The fact that Sevilla had been designated "branch manager" does not make her, ergo, Tourist World's

questioned. cdphil

employee. As we said, employment is determined by the right-of-control test and certain economic

The Court finds the resolution of the issue material, for if, as the private respondent, Tourist World

parameters. But titles are weak indicators.

Service, Inc., maintains, that the relation between the parties was in the character of employer and

In rejecting Tourist World Service, Inc.'s arguments however, we are not, as a consequence, accepting

employee, the courts would have been without jurisdiction to try the case, labor disputes being the

Lina Sevilla's own, that is, that the parties had embarked on a joint venture or otherwise, a partnership.

15

And apparently, Sevilla herself did not recognize the existence of such a relation. In her letter of

telephone lines at the branch office." 20 Yet, what cannot be denied is the fact that Tourist World

November 28, 1961, she expressly "concedes your [Tourist World Service, Inc.'s] right to stop the

Service, Inc. did not take pains to have them reconnected. Assuming, therefore, that it had no hand in

operation of your branch office," 14 in effect, accepting Tourist World Service, Inc.'s control over the

the disconnection now complained of, it had clearly condoned it, and as owner of the telephone lines, it

manner in which the business was run. A joint venture, including a partnership, presupposes generally a

must shoulder responsibility therefor.

parity of standing between the joint co-venturers or partners, in which each party has an equal
proprietary interest in the capital or property contributed 15and where each party exercises equal rights
in the conduct of the business. 16 Furthermore, the parties did not hold themselves out as partners, and
the building itself was embellished with the electric sign "Tourist World Service, Inc.," 17 in lieu of a
distinct partnership name.

The Court of Appeals must likewise be held to be in error with respect to the padlocking incident. For the
fact that Tourist World Service, Inc. was the lessee named in the lease contract did not accord it any
authority to terminate that contract without notice to its actual occupant, and to padlock the premises in
such blitzkrieg fashion. As this Court has ruled, the petitioner, Lina Sevilla, had acquired a personal stake
in the business itself, and necessarily, in the equipment pertaining thereto. Furthermore, Sevilla was not

It is the Court's considered opinion, that when the petitioner, Lina Sevilla, agreed to (wo)man the private

a stranger to that contract having been explicitly named therein as a third party in charge of rental

respondent, Tourist World Service, Inc.'s Ermita office, she must have done so pursuant to a contract of

payments (solidarily with Tourist World, Inc.). She could not be ousted from possession as summarily as

agency. It is the essence of this contract that the agent renders services "in representation or on behalf

one would eject an interloper.

of another." 18 In the case at bar, Sevilla solicited airline fares, but she did so for and on behalf of her
principal, Tourist World Service, Inc. As compensation, she received 4% of the proceeds in the concept of
commissions. And as we said, Sevilla herself, based on her letter of November 28, 1961, presumed her
principal's authority as owner of the business undertaking. We are convinced, considering the
circumstances and from the respondent Court's recital of facts, that the parties had contemplated a
principal-agent relationship, rather than a joint management or a partnership.

The Court is satisfied that from the chronicle of events, there was indeed some malevolent design to put
the petitioner, Lina Sevilla, in a bad light following disclosures that she had worked for a rival firm. To be
sure, the respondent court speaks of alleged business losses to justify the closure, 21 but there is no
clear showing that Tourist World Ermita Branch had in fact sustained such reverses, let alone, the fact
that Sevilla had moonlit for another company. What the evidence discloses, on the other hand, is that
following such an information (that Sevilla was working for another company), Tourist World's board of

But unlike simple grants of a power of attorney, the agency that we hereby declare to be compatible

directors adopted two resolutions abolishing the office of "manager" and authorizing the corporate

with the intent of the parties, cannot be revoked at will. The reason is that it is one coupled with an

secretary, the respondent Eliseo Canilao, to effect the takeover of its branch office properties. On

interest, the agency having been created for the mutual interest of the agent and the principal. 19 It

January 3, 1962, the private respondents ended the lease over the branch office premises, incidentally,

appears that Lina Sevilla is a bona fide travel agent herself, and as such, she had acquired an interest in

without notice to her.

the business entrusted to her. Moreover, she had assumed a personal obligation for the operation
thereof, holding herself solidarily liable for the payment of rentals. She continued the business, using her
own name, after Tourist World had stopped further operations. Her interest, obviously, is not limited to
the commissions she earned as a result of her business transactions, but one that extends to the very
subject matter of the power of management delegated to her. It is an agency that, as we said, cannot be
revoked at the pleasure of the principal. Accordingly, the revocation complained of should entitle the
petitioner, Lina Sevilla, to damages. cdll

It was only on June 4, 1962, and after office hours significantly, that the Ermita office was padlocked,
personally by the respondent Canilao, on the pretext that it was necessary "to protect the interests of
the Tourist World Service." 22 It is strange indeed that Tourist World Service, Inc. did not find such a
need when it cancelled the lease five months earlier. While Tourist World Service, Inc. would not
pretend that it sought to locate Sevilla to inform her of the closure, but surely, it was aware that after
office hours, she could not have been anywhere near the premises. Capping these series of "offensives,"
it cut the office's telephone lines, paralyzing completely its business operations, and in the process,
depriving Sevilla of her participation therein.

As we have stated, the respondent Court avoided this issue, confining itself to the telephone

This conduct on the part of Tourist World Service, Inc. betrays a sinister effort to punish Sevilla for what

disconnection and padlocking incidents. Anent the disconnection issue, it is the holding of the Court of

it had perceived to be disloyalty on her part. It is offensive, in any event, to elementary norms of justice

Appeals that there is "no evidence showing that the Tourist World Service, Inc. disconnected the

and fair play.

16

We rule, therefore, that for its unwarranted revocation of the contract of agency, the private

FIRST DIVISION

respondent, Tourist World Service, Inc., should be sentenced to pay damages. Under the Civil Code,
moral damages may be awarded for "breaches of contract where the defendant acted . . . in bad

[G.R. No. 139540. June 29, 2005.]

faith." 23
We likewise condemn Tourist World Service, Inc. to pay further damages for the moral injury done to

WHEELERS CLUB INTERNATIONAL, INC., petitioner, vs. JOVITO BONIFACIO,

Lina Sevilla arising from its brazen conduct subsequent to the cancellation of the power of attorney

JR., respondent.

granted to her on the authority of Article 21 of the Civil Code, in relation to Article 2219 (10) thereof:
ART. 21. Any person who wilfully causes loss or injury to another in a manner

DECISION

that is contrary to morals, good customs or public policy shall compensate the
latter for the damage. prcd
ART. 2219. Moral damages may be recovered in the following and analogous

CARPIO, J p:

cases:
The Case
xxx xxx xxx
This petition for review 1 assails the Decision 2 of the Court of Appeals dated 30 July 1999 in CA-G.R. SP
(10) Acts and actions referred to in articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

No. 52068. The Court of Appeals dismissed the petition of Wheelers Club International, Inc. ("Wheelers")

The respondent, Eliseo Canilao, as a joint tortfeasor, is likewise hereby ordered to respond for the same

questioning the Decision 3 dated 11 March 1999 of the Regional Trial Court of Mandaluyong City, Branch

damages in a solidary capacity.

214 ("RTC"). The RTC Decision reversed on appeal the Decision 4 dated 5 June 1998 of the Metropolitan
Trial Court of Mandaluyong City, Branch 59 ("MTC"), which dismissed the complaint for unlawful

Insofar, however, as the private respondent, Segundina Noguera is concerned, no evidence has been

detainer of respondent Jovito Bonifacio, Jr. ("Jovito") against Wheelers.

shown that she had connived with Tourist World Service, Inc. in the disconnection and padlocking
The Antecedents

incidents. She cannot therefore be held liable as a co-tortfeasor.

The Court considers the sums of P25,000.00 as and for moral damages, 24 P10,000.00 as exemplary
damages, 25 and P5,000.00 as nominal 26 and/or temperate 27 damages, to be just, fair, and reasonable
under the circumstances.

Rosario, Romeo, Virgilio, Generoso, Andres, Jovito, Jose (all surnamed Bonifacio), Zenaida B. Lafiguera,
Corazon B. Calub, and Ma. Cristina B. De Guzman are the registered co-owners of a parcel of land with
improvement 5 situated at No. 83 EDSA, Mandaluyong City and covered by Transfer Certificate of Title
No. 5350 ("Property"). 6

WHEREFORE, the Decision promulgated on January 23, 1975 as well as the Resolution issued on July 31,
1975, by the respondent Court of Appeals is hereby REVERSED and SET ASIDE. The private respondent,
Tourist World Service, Inc., and Eliseo Canilao, are ORDERED jointly and severally to indemnify the

The co-owners comprised the Board of Directors of J & R Bonifacio Development Corporation
("JRBDC"). 7

petitioner, Lina Sevilla, the sum of P25,000.00 as and for moral damages, the sum of P10,000.00, as and

On 5 May 1994, Bonifacio Development Associates, Inc. ("BDAI"), represented by Jaime C. Bonifacio, Sr.

for exemplary damages, and the sum of P5,000.00, as and for nominal and/or temperate damages. llcd

("Jaime") as President and Chairman of its Board of Directors, entered into a Contract of Lease 8 with

Costs against said private respondents.

Wheelers for a term of five years from 1 June 1994 to 31 May 1999. Under the Contract of Lease,
Wheelers undertook to pay BDAI a monthly rental of P108,750 for the lease of the Property.

17

On 31 May 1994, JRBDC, represented by the co-owners as members of the Board of Directors and lessors

On 9 October 1997, Jovito and the other co-owners, through counsel, sent a letter to Wheelers

of the Property, entered into a Lease Development Agreement 9 with BDAI. Under the Lease

demanding payment of rentals in arrears from February to October 1997. The letter also demanded that

Development Agreement, BDAI was authorized to renovate, manage, develop, and sublease the

Wheelers vacate the Property within five days from receipt of the letter. 16

Property. The term of the agreement was also for five years from 31 May 1994 to 31 May 1999. The
monthly rental was based on the actual income derived from the lease, management and development
of the Property to be shared by the co-owners and BDAI. 10
On the same day, the co-owners executed a General Power of Attorney 11 ("power of attorney") in favor
of Jaime granting him the authority to administer the Property, renovate the building, introduce
improvements and lease the Property to any person.
On 16 June 1996, the co-owners demanded that BDAI submit accounting records of all income from the
Property.
BDAI, in turn, demanded that the co-owners furnish it with receipts and records of cash and check
advances made by BDAI to the co-owners.

On 21 October 1997, Jovito, as a co-owner of the Property, filed with the MTC a complaint for unlawful
detainer against Wheelers, docketed as Civil Case No. 15760. 17
Jovito claimed that Wheelers refused to pay him, as the new administrator of the Property, the rentals
due from February to October 1997.
In its Answer dated 19 November 1997, 18 Wheelers countered that it paid to BDAI the rentals from
February to September 1997. Wheelers, however, held in abeyance payment of the rental for October
1997 because of Jovito's demand letter and Wheelers plan to consign the rental in Court.
The MTC ruled that while JRBDC does not own the Property, the co-owners who comprised JRBDC's
Board of Directors signed the Lease Development Agreement signifying the co-owners' consent to the
act of JRBDC. The MTC found that since the signing of the Lease Development Agreement, none of the

On 18 August 1996, the co-owners, as directors of JRBDC, approved a Resolution 12 terminating the

co-owners questioned the execution of the agreement. The co-owners did not adduce any evidence to

authority of "Jaime C. Bonifacio" to manage and administer the Property for BDAI's failure to submit an

show the nullity of the Lease Development Agreement.

accounting of the income from the Property.

On 20 August 1996, Rosario Bonifacio ("Rosario"), as President and Chairman of the Board of JRBDC,
wrote Jaime, as President and Chairman of BDAI, a letter terminating the "agreement with JRBDC" for
non-payment of whatever was due to JRBDC under the agreement.
On 26 January 1997, the co-owners as members of the Board of Directors of JRBDC approved a
Resolution 13 appointing Jovito as the new administrator of the Property.
The following day, Rosario wrote a letter informing Wheelers about the appointment of Jovito as the
new administrator of the Property and the termination of Jaime's authority to manage the Property.
On 11 February 1997, BDAI, through Jaime, wrote a letter 14 to Rosario insisting that there was no valid

The MTC further ruled that one who is not a party to a contract has no personality to assail the validity of
such contract, following Jovito's claim that he did not consent to the Lease Development Agreement.
In its Joint Decision dated 5 June 1998, the MTC disposed of the cases as follows:
WHEREFORE, these two ejectment cases for forcible entry and unlawful
detainer against herein defendants are hereby dismissed for lack of cause of
action.
SO ORDERED. 19
Respondent appealed to the RTC which reversed the MTC decision.

reason for the termination of BDAI or Jaime's management of the Property. BDAI claimed that Rosario's

The RTC held that upon the termination of Jaime's management of the Property, Wheelers could not

failure to furnish receipts hindered its submission of complete accounting records.

simply rely on its lease contract with BDAI and deny Jovito and the other co-owners their right to collect

On 4 March 1997, Jovito wrote to Wheelers claiming that the co-owners did not authorize the Contract
of Lease between BDAI and Wheelers. Jovito gave Wheelers ten days to vacate the Property. 15
Meanwhile, Wheelers continued to pay BDAI the monthly rentals from February to September
1997. CaEATI

rentals. The RTC ruled that Wheelers paid the rentals at its own risk since it knew Jaime no longer had
authority to receive the rentals. Citing Araas v. Tutaan, 20 the RTC held that payment to one without
authority to receive the payment is void. HCTEDa
The dispositive portion of the RTC Joint Decision dated 11 March 1999 reads:

18

FOR ALL THE FOREGOING, judgment is rendered:

xxx xxx xxx
II. The assailed decision of Metropolitan Trial Court of Mandaluyong City,
Branch 59 in SCA MC 98-069 is hereby REVERSED and SET ASIDE, and
a new one entered:

The Court of Appeals' Ruling

The Court of Appeals found that Wheelers signed the Contract of Lease knowing that BDAI signed such
contract as administrator and developer and not for BDAI's own account. The Court of Appeals stated
that Wheelers knew who the owners of the Property were and BDAI was merely acting as administrator
and developer. The principals under the Contract of Lease were the co-owners of the Property and not
BDAI. Therefore, Wheelers is liable to Jovito and the other co-owners for its obligations under its

a. Ordering defendants-appellees Wheelers Club International, Inc.

and all persons claiming rights under them to:
1. vacate the ground and second floors of the premises
located at Bonifacio Sr. Building, No. 83 EDSA,
Mandaluyong City and to surrender possession
of the same to plaintiff-appellant;
2. pay plaintiff-appellant the amount of P103,312.50 a
month computed from February 1997 up to
the present plus the agreed yearly increment
until the premises shall have been finally
vacated;
3. pay plaintiff-appellant the amount of P10,000.00 as
and by way of attorney's fees;
4. pay the cost of suit;
5. [d]ismissing the counterclaims.

Contract of Lease with BDAI.

The Court of Appeals also held that "the co-owners had the power to revoke the authority of BDAI to
manage and administer the property." 25 The Court of Appeals declared:
. . . Even if the co-owners may have revoked the authority of BDAI in bad faith
or in contravention of the "Lease Development Agreement" or prematurely for
that matter, however, the only right of BDAI was to recover damages from the
co-owners and not insist on the authority to continue managing and
administering the property. 26
The Court of Appeals found that Wheelers' payments were made to BDAI whose authority the co-owners
and JRBDC had already revoked. Hence, Wheelers' payments did not bind the co-owners. In effect,
Wheelers failed to pay the rentals from February to October 1997 to Jovito as the rightful representative
of the co-owners. Therefore, Wheelers should be evicted from the Property for non-payment of
rentals. aSIATD
Moreover, Wheelers could no longer stay in the Property because its Contract of Lease with BDAI had
already expired on 31 May 1999 while the Lease Development Agreement between BDAI and JRBDC had
expired on 30 May 1999.

SO ORDERED. 21
Wheelers filed a petition for review with the Court of Appeals on 30 March 1999. The Court of Appeals

The Issue
The core issue in this case is:

dismissed the petition, thus:

WHETHER THE CO-OWNERS HAVE A CAUSE OF ACTION FOR UNLAWFUL
IN THE LIGHT OF ALL THE FOREGOING, the Petition is DENIED due course and is
hereby DISMISSED. With costs against the Petitioner.

DETAINER AGAINST WHEELERS FOR NON-PAYMENT OF RENTALS AND

EXPIRATION OF THE TERM OF THE LEASE AGREEMENT.

SO ORDERED. 22
Meanwhile, Jovito filed a motion for execution 23 of the RTC decision, which the RTC granted in its Order
dated 23 April 1999. 24
Hence, this petition.

The Court's Ruling

The petition has merit.

19

In unlawful detainer, the possession of the defendant is inceptively lawful but it becomes illegal because

to BDAI as lessee-sublessor. Wheelers was, therefore, under no obligation to pay Jovito or the co-owners

of the termination of his right to possess the property under his contract with the plaintiff. 27 Hence, by

the rentals.

instituting the unlawful detainer action, Jovito and the other co-owners admit that Wheelers' possession
of the Property was lawful at the beginning. In other words, Jovito and the other co-owners recognize
the legality of Wheelers' occupation of the Property beginning 1 June 1994 by virtue of the Contract of
Lease it had with BDAI. In the absence of any proof to the contrary, such recognition necessarily debunks
Jovito's claim that the co-owners did not authorize BDAI to lease the Property to Wheelers. This fact

Moreover, although Article 1652 of the Civil Code 31 permits the lessor to proceed against the sublessee
for rent due from the lessee, this is only on asubsidiary liability basis. 32 There must be a judgment
cancelling the lessee's principal lease contract or ousting the lessee from the premises before the sublessee becomes subsidiarily liable. As this Court explained in Duellome v. Gotico 33 :

likewise negates Jovito's contention that the Contract of Lease between BDAI and Wheelers is void and

In the case of Sipin, et al. vs. Court of First Instance of Manila, et al., 74 Phil.

inexistent. CacEID

649, We have explained that by virtue of the above provision, [Article 1652 of
the Civil Code], "the sublessee, therefore, can invoke no right superior to that of
his sublessor and the moment the latter is duly ousted from the premises the

The question now is, when did Wheelers' possession of the Property become without legal basis to

former has no leg to stand on. The sublessee's right if any, is to demand

justify the complaint for unlawful detainer?

reparation for damages from his sublessor, should the latter be at fault." And, in

In his complaint for unlawful detainer, Jovito claimed that Wheelers disregarded its obligation to pay
rentals to the co-owners from February to October 1997. However, Wheelers' obligation to pay the
rentals arose from its Contract of Lease with BDAI. Wheelers did not have a separate lease agreement
with Jovito or the other co-owners. Wheelers' continued possession of the Property was by virtue of the

another case, We interpreted the same article to mean that "the sublessees can
only assert such right of possession as could have been granted them by their
sublessors, their right of possession depending entirely upon that of the latter."
(Madrigal vs. Ang Sam To, et al., 46 O.G. 2173). (Emphasis supplied)

Contract of Lease it executed with BDAI. There is no privity of contract between Wheelers and Jovito or

The sub-lessee is not liable to the lessor under Article 1652 upon mere demand by the lessor on the sub-

the other co-owners. Since there was neither a written nor verbal lease agreement between the co-

lessee. The sub-lessee is primarily liable to his sub-lessor and only a court order can extinguish or modify

owners and Wheelers, Jovito is mistaken in claiming that the lease contract between the co-owners and

this primary liability if the sub-lessor contests the pre-termination of the principal lease by the lessor. In

Wheelers is on a month-to-month basis. 28

the present case, there is no judgment cancelling BDAI's Lease Development Contract or ousting BDAI

What is clear from the records is that the present case involves a sublease arrangement. In a sublease

from the Property.

arrangement, there are two distinct leases: the principal lease and the sublease. These two juridical

A sub-lessor is not an agent of the lessor. 34 Hence, BDAI is not an agent of the co-owners. Even

relationships co-exist and are intimately related to each other but nonetheless distinct from one

assuming that BDAI is an agent of the co-owners, BDAI would have an interest in such agency sufficient

another. The lessee's rights and obligations vis--vis the lessor are not passed on to the sublessee.

to deprive the co-owners the power to revoke the agency at will. Under the Lease Development

A careful review of the Lease Development Agreement between JRBDC and BDAI reveals that the coowners are the actual lessors of the Property, not JRBDC. 29 In addition, the co-owners are the
registered owners of Property. BDAI, in turn, subleased the Property to Wheelers. Therefore, the co-

Agreement, BDAI had the authority to construct, and BDAI did construct, improvements on the Property
at its expense. The Court of Appeals found that BDAI "was also the developer of the vacant space of the
parcel of land for the construction of permanent improvements thereon at the cost of BDAI." 35

owners, except only in the instances specified in the Civil Code, are strangers to the Contract of Lease

As developer of the permanent improvement on the Property, BDAI has an interest in the Property that

between BDAI and Wheelers. 30

is the subject matter of the agency, assuming such agency exists. An agency coupled with interest is not

Since the co-owners are strangers to the Contract of Lease between BDAI and Wheelers, Wheelers has
no right or authority to pay the sublease rentals to the co-owners as lessors since the rentals are payable

revocable at the will of the principal. In Sevilla v. Court of Appeals, 36 this Court held:
But unlike simple grants of a power of attorney, the agency that we hereby
declare to be compatible with the intent of the parties, cannot be revoked at

20

will. The reason is that it is one coupled with an interest, the agency having

that BDAI should pay the co-owners the rentals and fees due them. In case BDAI refuses to pay the

been created for the mutual interest of the agent and the principal. It appears

rentals and other fees due them, the co-owners' remedy is against BDAI and not against Wheelers, in the

that Lina Sevilla is a bona fide travel agent herself, and as such, she had

absence of a judgment cancelling the Lease Development Agreement or ousting BDAI from the

acquired an interest in the business entrusted to her. Moreover, she had

premises. ITSacC

assumed a personal obligation for the operation thereof, holding herself

solidarily liable for the payment of rentals. She continued the business, using
her own name, after Tourist World had stopped further operations. Her
interest, obviously, is not limited to the commissions she earned as a result of

In sum, the Lease Development Agreement between the co-owners and BDAI, and the Contract of Lease
between BDAI and Wheelers, remain valid, in the absence of any judicial declaration of their nullity.
Jovito and the other co-owners cannot merely assume and allege that these agreements are void.

her business transactions, but one that extends to the very subject matter of

The Contract of Lease between BDAI and Wheelers had a term running from 1 June 1994 to 31 May

the power of management delegated to her. It is an agency that, as we said,

1999. This term is within the five-year period of BDAI's Lease Development Agreement with the co-

cannot be revoked at the pleasure of the principal. . . . . 37 (Emphasis supplied)

owners. Jovito filed the unlawful detainer case against Wheelers on 21 October 1997. Clearly, the

Thus, the Court of Appeals erred in holding that the co-owners had the right to revoke at will their
Lease Development Agreement with BDAI.

Contract of Lease between BDAI and Wheelers was still valid and subsisting when Jovito filed the
unlawful detainer case. Thus, at the time of filing of the unlawful detainer complaint, Jovito and the
other co-owners did not have a cause of action to eject Wheelers from the Property.

On the other hand, whether Jaime in his personal capacity was an agent of the co-owners is immaterial
because Wheelers entered into the Contract of Lease with BDAI and not with Jaime. There is no showing
that BDAI and Jaime comprise a single entity. The parties in this case confused Jaime with BDAI and
erroneously considered Jaime's acts as those of BDAI's. Following well-settled principles in Corporation
Law, 38 Jaime and BDAI are distinct persons. Since Jaime acted as the President of BDAI when the latter
entered into the Contract of Lease with Wheelers, such contract is binding between BDAI and Wheelers.
Consequently, the revocation by the co-owners of Jaime's authority to administer the Property did not
automatically cancel or terminate the Contract of Lease between BDAI and Wheelers.
The Court rejects Jovito's argument that the Lease Development Agreement between the co-owners and
BDAI is void. Jovito maintains that a lease of the Property involves an act of alteration requiring the
unanimous consent of the co-owners pursuant to Article 491 of the Civil Code, which consent is allegedly
absent in this case. 39
A lease over the common property without the consent of all the co-owners is not void. Just as a sale of
the whole common property without the consent of the other co-owners affects only the share or
interest of the selling co-owner, 40 a lease of the entire property does not affect the interests of the
non-consenting co-owners. Therefore, a lease over the entire Property is valid insofar as the interests of
the consenting co-owners are concerned. 41
However, the Court is not denying the co-owners rentals due from the lease of the Property. As owners
of the Property, they are entitled to the fruits or income of the Property. 42 Considering that BDAI
undeniably received the monthly rentals paid by Wheelers, 43 the Court deems it proper and equitable

As things stand, BDAI is the sub-lessor of the Property. BDAI's sub-lease agreement with Wheelers is
within the five-year term of BDAI's principal lease with the co-owners. Until the expiration of the fiveyear term of BDAI's principal lease, the sub-lease agreement between BDAI and Wheeler remains valid,
unless the sub-lease agreement is judicially annulled in the proper case, 44 or unless there is a judgment
cancelling BDAI's principal lease with the co-owners or ousting BDAI from the Property. 45 Moreover, no
lease agreement exists between the co-owners and Wheelers. Therefore, Jovitos claim that the term of
the alleged lease agreement between the co-owners and Wheelers has expired has no legal basis.
WHEREFORE, we GRANT the instant petition. We REVERSE the Decision of the Court of Appeals dated 30
July 1999 in CA-G.R. SP No. 52068 and REINSTATE the Decision dated 5 June 1998 of the Metropolitan
Trial Court of Mandaluyong City, Branch 59, dismissing the complaint for unlawful detainer of
respondent Jovito Bonifacio, Jr. against petitioner Wheelers Club International, Inc. T