Rule 98_Full Texts 1 of 29
EN BANC
G.R. No. L-17809 December 29, 1962
RESURRECCION DE LEON, ET AL., plaintiffs-appellees,
vs.
EMILIANA MOLO-PECKSON, ET AL., respondents-appellants.
Cornelio R. Magsarili for plaintiffs-appellees.
Sycip, Salazar, Luna and Associates for respondents-appellants.
BAUTISTA ANGELO, J.:
Resurreccion De Leon, et al. filed on November 13, 1958 before
the Court of First Instance of Rizal a complaint seeking to compel
Emiliana Molo-Peckson, et al. to convey to the former ten parcel
of land located in Pasay City with an area of 1,749 sq. m. upon
payment of P1.00 per parcel upon the plea that said lots were
willed or donated in 1948 to the latter by their foster parents
Mariano Molo y Legaspi and Juana Juan with the understanding
that they should sell them to the plaintiffs under the terms above-
stated.
Defendants, in their answer, disclaimed any legal obligation on
their part to sell the above properties to the plaintiffs for the
nominal consideration of P1.00 per lot alleging that if they
executed the document on which the complaint is predicated it
was on the mistaken assumption that their foster parents had
requested them that they executed on August 9, 1956 a document
revoking said donation which was acknowledged before Notary
Public Leoncio C. Jimenez.
No testimonial evidence was presented by either party. Instead,
both agreed to submit the case upon the presentation of their
respective exhibits which were all admitted by the trial court.
After trial on the merits, the court a quo rendered on September
21, 1960 a decision wherein it held that, under the facts
established by the evidence, trust has been constituted by the late
spouses Mariano Molo and Juana Juan over the ten parcels of land
in question in favor plaintiffs as beneficiaries and, as a
consequence concluded:
Considering all the foregoing, the Court orders:
1. The defendants, jointly and severally to free the said
ten (10) parcels of land from the mortgage lien in favor
of the Rehabilitation Finance Corporation (now
Development Bank of the Philippines) and Claro Cortez,
and thereafter to sign and execute in favor of the
plaintiffs a deed of absolute sale of the said properties
for and in consideration of TEN (P10.00) PESOS already
deposited in Court after all conditions imposed in
Exhibit A have been complied with;
2. That in the event the defendants shall refuse to
execute and perform the above, they are ordered, jointly
and severally, to pay the plaintiffs the value of said ten
(10) parcels of land in question, the amount to be
assessed by the City of Pasay City as the fair market
value of the same, upon orders of the Court to assess
said value;
3. The defendants jointly and severally to pay the
plaintiffs' Attorney's fees in the amount of P3,000.00, as
defendants acted in gross and evident bad faith in
refusing to satisfy the plaintiffs' plainly valid, just and
demandable claim, under Article 2208 sub-paragraph 5
of the New Civil Code;
4. The defendants to render an accounting of the fruits
of said ten (10) parcels of land from the time plaintiffs
demanded the conveyance of said parcels of land on
August 11, 1956 as per Exhibits B and C, in accordance
with the provisions of Article 1164, New Civil Code
which provides that the creditor has a right to the fruit
of the thing from the time the obligation to deliver it
arises; and
5. The defendants to pay the costs.
Defendants took the present appeal.
On January 24, 1941, Mariano Molo y Legaspi died leaving a will
wherein he bequeathed his entire estate to his wife, Juana Juan.
This will was probated in the Court of First Instance of Pasay City,
Rizal, which was affirmed by the Supreme Court on November
26, 1956 (G.R. No. L-8774). On May 11, 1948, Juana Juan in turn
executed a will naming therein many devisees and legatees, one
of whom is Guillermo San Rafael, mother of the plaintiffs and
defendant Pilar Perez Nable. On June 7, 1948, however, Juana
Juan executed a donation inter vivos in favor of Emiliana Molo-
Peckson and Pilar Perez Nable of almost all of her entire property
leaving only about P16,000.00 worth of property for the devisees
mentioned in the will. Among the properties conveyed to the
donees are the ten parcels of land subject of the present action.
Juana Juan died on May 28, 1950.
On December 5, 1950, Emiliana Molo-Peckson and Pilar Perez
Nable executed a document which they called "MUTUAL
AGREEMENT" the pertinent provisions of which are:
That the above named parties hereby mutually agree by
these presents . . . that the following lots should be sold
at ONE (1) PESO each to the following persons and
organization:
xxx xxx xxx
TO — JUSTA DE LEON and RESURRECCION DE LEON,
several parcels of land located at Calle Tolentino (South
of Tenorio and Kapitan Magtibay), Pasay City, share and
share alike or half and half of TEN (10) LOTS described
in:
Transfer Certificate of Title No. 28157 — and allocated
as follows:
(a) To JUSTA DE LEON Five (5) Lots.
(b) To RESURRECCION DE LEON, the remaining Five (5)
Lots.
That this agreement is made in conformity with the
verbal wish of the late Don Mariano Molo y Legaspi and
the late Dona Juana Francisco Juan y Molo. These

obligations were repeatedly told to Emiliana Molo
Peckson, before their death and that same should be
fulfilled after their death.
On August 9, 1956, however, the same defendants, assisted by
their husbands, executed another document in which they
revoked the so-called mutual agreement mentioned above, and
another relating to the same subject matter, stating therein that
the parties, "after matured and thorough study, realized that the
above-mentioned public instruments . . . do not represent their
true and correct interpretation of the verbal wishes of the late
spouses Don Mariano Molo y Legaspi and Dona Juana Francisco
Juan y Molo." But after the execution of this document, that is, on
August 11, 1956, the beneficiary Resurreccion de Leon and Justa
de Leon, thru their counsel demanded the conveyance to them of
the ten parcels of land for the consideration of P1.00 per parcel
as stated in the document of December 5, 1950. And having the
defendants refused to do so, said beneficiaries consigned on July
8, 1957 the amount of P10.00 as the consideration of the ten
parcels of land.lawphil.net
In this appeal, appellants assign the following errors:
I mandat of their conscience to comply with "the obligations
THE LOWER COURT ERRED IN HOLDING THAT THE
SPOUSES, MARIANO MOLO AND JUANA JUAN,
CONSTITUTED A TRUST OVER THE PROPERTIES IN
QUESTION PETITION WITH PLAINTIFFS-APPELLEES
AS BENEFICIARIES.
II
THE LOWER COURT ERRED IN APPLYING ARTICLE
1440, 1441, 1449, 1453 AND 1457 OF THE NEW CIVIL
CODE TO THE CASE AT BAR.
III
THE LOWER COURT ERRED IN HOLDING PLAINTIFFS-
APPELLEES' EXHIBIT "A" TO BE A DECLARATION
AGAINST INTEREST AND AN ADMISSION BY
DEFENDANTS-APPELLANTS.
IV
THE LOWER COURT ERRED IN HOLDING THAT
DEFENDANTS-APPELLANTS HAD NO RIGHT TO
REVOKE EXHIBIT "A".
V of the lands to appellants with the duty to hold them intrust for
THE LOWER COURT ERRED, IN ORDERING
APPELLANTS TO RENDER AN ACCOUNTING OF THE
FRUIT OF THE PROPERTIES IN QUESTION.
VI
THE LOWER COURT ERRED IN ORDERING
APPELLANTS TO FREE THE PROPERTIES FROM THE
MORTGAGE LIENS IN FAVOR OF THE DEVELOPMENT
BANK OF THE PHILIPPINES AND CLARO CORTEZ.
Rule 98_Full Texts 2 of 29
VII
THE LOWER COURT ERRED IN AWARDING
ATTORNEY'S FEES TO THE APPELLEES.
VIII
THE LOWER COURT ERRED IN NOT DISMISSING THE
COMPLAINT.
There is no merit in the claim that the document executed on
December 5, 1950 does not represent the true and correct
interpretation by appellants of the verbal wish of their foster
parents relative to the conveyance for a nominal consideration to
appellees of the ten parcels of land in question considering the
circumstances obtaining in the present case. To begin with, this
document was executed by appellants on December 5, 1950, or
about two years and six months from the time they acquired title
to the lands by virtue of the donation inter vivos executed in their
favor by their foster mother Juana Juan and six months after the
death of the donor. There is nobody who could cajole them to
execute it, nor is there any force that could corce them to make
the declaration therein expressed, except the constraining
repeatedly told to Emiliana Molo Peckson," one of appellants,
before their death, epitomized inthe "verbal wish of the late Don
Mariano Molo y Legaspi and the late Doña Juana Francisco Juan y
Molo" to convey after their death said ten parcelsof land at P1.00
a parcel to appellees. In fact, the acknowledgement appended to
the document they subscribed states that it was "their own free
act andvoluntary deed."1awphi1.net
Indeed, it is to be supposed that appellants understood and
comprehended the legal import of said documents when they
executed it more so when bothof them had studied in reputable
centers of learning, one being a pharmacist and the other a
member of the bar. Moreover, they have more than ample time —
the six months intervening betwen the death of the donor and the
execution of the document — to ponder not only wish of their
predecessors-in-interest but also on the propriety of putting in
writing the mandate they have received. It is, therefore,
reasonable to presume that that document represents the real
wish of appellants' predecessors-in-interest and that the only
thing to be determinedis its real import and legal implications.
That the document represents a recognition of pre-existing trust
or a declaration of an express trust impressed on the ten parcels
of land in question is evident. A declaration of trust has been
defined as an act by which a person acknowledges that the
property, title to which he holds, is held by him for the use of
another (Griffith v. Maxfield, 51 S.W. 832, 66Ark. 513, 521). This
is precisely the nature of the will of the donor: to convey the titles
the appellees. Appellants oblingly complied with this duty
byexecuting the document under consideration.
True it is that to establish a trust the proof must be clear,
satisfactory and convincing. It cannot rest on vague, uncertain
evidence, or on a loose,equivocal or indefinite declaration (In
re Tuttle's Estate, 200 A. 921, 132 Pa. Super 356); but here the
document in question clearly and unequivocallydeclares the
existence of the trust even if the same was executed subsequent
to the death of the trustor, Juana Juan, for it has been held that
the right creating or declaring a trust need not be
contemporaneous or inter-parties (Stephenson v. Stephenson,
 Rule 98_Full Texts 3 of 29

171 S.W. 2d 265, 351 Mo. 8; In re Corbin's Trust Orhp., 57 York
Leg. Rec. 201). It was even held that an express trust maybe
declared by a writing made after the legal estate has been vested
in the trustee (Kurtz v. Robinson, Tex. Civ. App. 256 S.W. 2d
1003). The contention, therefore, of appellants that the will and
the donation executed by their predecessors-in-interest were
absolute for it did not contain a hint that the lots in question will
be held in trust by them does not merit weight because the fact
that an express trust was created by a deed which was absolute
on its face may be shown by a writing separate from the deed
itself (Mugan v. Wheeler, 145 S.W. 462, 241 Mo. 376).
The fact that the beneficiaries were not notified of the existence
of the trust or that the latter have not been given an opportunity
to accept it isof no importance, for it is not essential to the
existence of a valid trustand to the right of the beneficiaries to
enforce the same that they had knowledge thereof the time of its
creation (Stoehr v. Miller, 296 F. 414).Neither is it necessary that
the beneficiary should consent to the creation of the trust
(Wockwire-Spencer Steel Corporation v. United Spring Mfg.
Co.,142 N.E. 758, 247 Mass. 565). In fact it has been held that in
case of a voluntary trust the assent of the beneficiary is not
necessary to render itvalid because as a general rule acceptance
by the beneficiary is presumed (Article 1446, new Civil Code;
Cristobal v. Gomez, 50 Phil. 810).
It is true, as appellants contend, that the alleged declaration of
trust was revoked, and having been revoked it cannot be
accepted, but the attempted revocation did not have any legal
effect. The rule is that in the absence of any reservation of the
power to revoke a voluntary trust is irrevocable without the
consent of the beneficiary (Allen v. Safe Deposit and Trust Co.of
Baltimore, 7 A. 2d 180, 177 Md. 26). It cannot be revoked by the
creatoralone, nor by the trustee (Fricke v. Weber, C.C.A. Ohio, 145
F. 2d 737;Hughes v. C.I.R., C.C.A. 9, 104 F. 2d 144; Ewing v.
Shannahan, 20 S.W. 1065,113 Mo. 188). Here, there is no such
reservation.
just and equitable under the premises."What is important is to
know from what what date the accounting should bemade. The
trial court ordered that the accounting be made from the time
appellees demanded the conveyance of the ten parcels of land on
August 11, 1956, in accordance with Article 1164 of the new Civil
Code which provides that the creditor has a right to the fruit of
the thing from thetime the obligation to deliver it arises. But this
cannot be done without first submitting proof that the conditions
stated in the mutual agreement hadbeen complied with. And this
only happened when the decision of the Supreme Court in G.R.
No. L-8774 became final and executory. The ruling of the
trialcourt in this respect should therefore be modified in the
sense that the accounting should be made from the date of the
finality of the said decision.
We find no error in the directive of the trial court that appellants
shouldfree the lands in question from the encumbrance that was
created thereon by them in favor of the Development Bank of the
Philippines and one Claro cortez, for as trustees it is their duty to
deliver the properties to the cestui que trust free from all liens
and encumbrances.
To recapitulate, we hold: (1) that the document executed on
December 5, 1950 creates an express trust in favor of appellees;
(2) that appellants had no right to revoke it without the consent
of the cestui que trust; (3) that appellants must render an
accounting of the fruits of the lands from the datethe judgement
rendered in G.R. No. L-8774 became final and executory; and
(4)that appellants should free said lands from all liens and
encumbrances.
WHEREFORE, with the modification as above indicated with
regard to accounting,we hereby affirm the decision appealed
from, without pronouncement as to costs.

Appellants contend that the lower court erred in applying the

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

But the Civil Code of 1889 contains no specific provisions on trust

as doesthe new Civil Code. Neither does the Code of Civil
Procedure of 1901 for thesame merely provides for the
proceeding to be followed relative to trustsand trustees (Chapter
XVIII). This silence, however, does not mean that thejuridical
institution of trust was then unknown in this jurisdiction, for
theprinciples relied upon by the Supreme Court before the
effectivity of thenew Civil Code were those embodied in Anglo-
American jurisprudence as derivedfrom the Roman and Civil Law
principles (Government v. Abadilla, 46 Phil. 42).And these are the
same principles on which we predicate our ruling
heretoforestated and on which we now rely for the validity of
trust in question.

The trial court ordered appellants to render an accounting of the

fruits of the properties in question even if appellees did not
expressly ask for it intheir prayer for relief. We, however, believe
that this is covered by the general prayer "for such other relief

EN BANC
G.R. Nos. L-16185-86 May 31, 1962
TRUSTEESHIP OF THE MINORS BENIGNO, ANGELA and
ANTONIO, all surnamed PEREZ Y TUASON,
PHILIPPINE NATIONAL BANK, Judicial Guardian, J. ANTONIO
ARANETA, trustee-appellee,
vs.
ANTONIO M. PEREZ, judicial guardian-appellant.
Araneta and Araneta for trustee-appellee.
Alfonso Felix, Jr. for judicial guardian-appellant.
CONCEPCION, J.:
These are two (2) incidents of the trusteeship of the minors
Benigno, Angela and Antonio, all surnamed Perez Y Tuason. The
issue in G.R. No. L-16185 is whether or not the trustee, J. Antonio
Araneta — hereinafter referred to as the appellee — may be
allowed to pay a sum of money to the law firm, Araneta &
Araneta, of which he is a member, for services rendered to him, in
his aforementioned capacity as such trustee, in several judicial
proceedings, whereas G.R. No. L-16186 concerns the question
whether the purchase of certain shares of stock nude by the
appellee for the benefit of the trusteeship merits judicial
approval. Both questions were decided by the Court of First
Instance of Rizal (Quezon City Branch) in the affirmative. Hence,
this appeal by Antonio M. Perez — hereinafter referred to as the
appellant — as guardian of the person of said minors.
With respect to G.R. No. L-16185, it appears that the law firm
Araneta & Araneta, through its assistant, Atty. Francisco T. Papa,
had rendered services, as counsel for the appellee, in connection
with the following:
1. The approval of his accounts for January to March,
1956, which were objected to by the appellant. Said
objection was, on October 19, 1956, overruled by the
lower court, the action of which was affirmed by this
Court in G.R. No. L-11788, on May 16, 1958, on appeal
taken by appellant.
2. The appellee's accounts for April to June, 1957; which
were approved by the lower court on July 13, 1957,
despite appellant's objection thereto. Although
appellant appealed to the Supreme Court, he,
subsequently, withdrew the appeal.
3. In 1958, appellant instituted CA-G.R. No. 22810-R of
the Court of Appeals for a writ
of certiorari and mandamus against the appellee and the
lower court, the latter having sustained the action of the
appellee in withholding certain sums from the shares of
the minors aforementioned in the net income of the
trust estate for July to September, 1957, in view of the
appellant's refusal to reimburse to said estate identical
sums received in the form of allowances for the period
from April to June, 1957, in excess of the shares of said
minors in the net income for that period. After
appropriate proceedings, the Court of Appeals rendered
a decision on June 25, 1958, dismissing said petition.
Rule 98_Full Texts 4 of 29
The lower court authorized the payment of P5,500.00 for the
services thus rendered by Araneta & Araneta, which appellant
assails upon the ground that, pursuant to Section 7 of Rule 86 of
the Rules of Court:
When the executor or administrator is an attorney he
shall not charge against the estate any professional fees
for legal services rendered by him.
that the services above referred to inured to the benefit, not of
the trust estate, but of the trustee; that the amount of the award
is excessive; and that the lower court should have required the
introduction of evidence on the extent of the services rendered
by the aforementioned law firm before making said award.
Appellant's pretense is untenable. Said Section 7 of Rule 86 refers
only to "executors or administrators" of the estate of deceased
persons, and does not necessarily apply to trustees. It is true that
some functions of the former bear a close analogy with those of
the latter. Moreover, a trustee, like, an executor or administrator,
holds an office of trust, particularly when, as in the case of
appellee herein, the trustee acts as such under judicial authority.
Hence, generally, the policy set forth in said Section 7 of Rule 86
— basically sound and wise as it is — should be applicable to
trustees. The duties of executors or administrators are, however,
fixed and/or limited by law, whereas those of trustee of an
express trust — like that which we have under consideration —
are, usually, governed by the intention of the trustor or of the
parties, if established by contract (Art. 1441, Civil Code of the
Philippines). Besides, the duties of trustees may cover a much
wider range than those of executors or administrators of the
estate of deceased persons. Again the application of Section 7 of
Rule 86 to all trusteeships without distinction may dissuade
deserving persons from accepting the position of trustee and
consequently have a deterrent effect upon the establishment of
trusts, at a time when a sizeable part of the burden to undertake
important and even essential activities in advanced and/or
developing communities or states, particularly in the field of
education, science and social welfare, is borne by foundations or
other similar organizations based upon the principles of trust.
We believe it, therefore, to be the better policy to acknowledge
the authority of courts of justice to exercise a sound judgment in
determining, in the light of the peculiar circumstances obtaining
in each case, whether or not a trustee shall be allowed to pay
attorney's fees and charge the same against the trust estate,
independently of his compensation as a trustee.
In the case at bar, considering that the appellee was merely
defending himself in the proceedings that required the services of
counsel; that in each case the stand taken by the appellee was
upheld by the court; that the will creating the trust and
designating the appellee as trustee explicitly grants him the right
to collect for his services such reasonable fees; that, in view of the
nature of the relations between the trustor and the trustee, on
the one hand, and the trustor and appellant on the other, there
can be little doubt but that the trustor would have sanctioned the
payment of the attorney's fees involved in this incident; and that
it may have been more costly for the trust estate to engage the
services of a law firm other than that of Araneta & Araneta, we
are not prepared to hold that the lower court has erred in
authorizing the payment of said attorney's fees by herein
appellee.
For the rest, it is well settled that "a trustee may be indemnified
out of the trust estate for his expenses in rendering and proving
his accounts and for costs and counsel fees" in connection
 Rule 98_Full Texts 5 of 29

therewith (54 Am. Jur. 415-416), apart from the fact that the
nature of the professional services in question appeared in the
records before the lower court and that the amount of P5,500
fixed by the same as compensation for such services is not
excessive.

Referring now to G.R. No. L-16186, it appears that from July to

September, 1958, the appellee had bought for the trust estate,
through a broker (Pedro Nolasco da Silva & Co.), a total of 118
common shares of stock of the Philippine-American Drug Co. at
P100 each, and that, upon submission of appellee's accounts for
said period, appellant objected to the items of expenses relative
to the acquisition of said common shares, upon the ground that
the investment therein is "unwise in that (the operation of) said
company has not, to our knowledge, proved profitable and
unlawful in that it is actually an act of self-dealing between the
trustee and the beneficiaries of the trust", because the former
(appellee) is, also, a stockholder of said company. After the
introduction of the evidence of both parties, the lower court
overruled the objection and approved said accounts.

It is not disputed that appellee holds, in his individual capacity,

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

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

Appellant's allegation to the effect that shares of stock of the San

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

WHEREFORE, the orders appealed from are hereby affirmed,

with costs against the appellant. It is so ordered.

EN BANC
G.R. No. L-43082 June 18, 1937
PABLO LORENZO, as trustee of the estate of Thomas Hanley,
deceased, plaintiff-appellant,
vs.
JUAN POSADAS, JR., Collector of Internal Revenue, defendant-
appellant.
Pablo Lorenzo and Delfin Joven for plaintiff-appellant.
Office of the Solicitor-General Hilado for defendant-appellant.
LAUREL, J.:
On October 4, 1932, the plaintiff Pablo Lorenzo, in his capacity as
trustee of the estate of Thomas Hanley, deceased, brought this
action in the Court of First Instance of Zamboanga against the
defendant, Juan Posadas, Jr., then the Collector of Internal
Revenue, for the refund of the amount of P2,052.74, paid by the
plaintiff as inheritance tax on the estate of the deceased, and for
the collection of interst thereon at the rate of 6 per cent per
annum, computed from September 15, 1932, the date when the
aforesaid tax was [paid under protest. The defendant set up a
counterclaim for P1,191.27 alleged to be interest due on the tax
in question and which was not included in the original
assessment. From the decision of the Court of First Instance of
Zamboanga dismissing both the plaintiff's complaint and the
defendant's counterclaim, both parties appealed to this court.
It appears that on May 27, 1922, one Thomas Hanley died in
Zamboanga, Zamboanga, leaving a will (Exhibit 5) and
considerable amount of real and personal properties. On june 14,
1922, proceedings for the probate of his will and the settlement
and distribution of his estate were begun in the Court of First
Instance of Zamboanga. The will was admitted to probate. Said
will provides, among other things, as follows:
4. I direct that any money left by me be given to my
nephew Matthew Hanley.
5. I direct that all real estate owned by me at the time of
my death be not sold or otherwise disposed of for a
period of ten (10) years after my death, and that the
same be handled and managed by the executors, and
proceeds thereof to be given to my nephew, Matthew
Hanley, at Castlemore, Ballaghaderine, County of
Rosecommon, Ireland, and that he be directed that the
same be used only for the education of my brother's
children and their descendants.
6. I direct that ten (10) years after my death my
property be given to the above mentioned Matthew
Hanley to be disposed of in the way he thinks most
advantageous.
xxx xxx xxx
8. I state at this time I have one brother living, named
Malachi Hanley, and that my nephew, Matthew Hanley,
is a son of my said brother, Malachi Hanley.
Rule 98_Full Texts 6 of 29
The Court of First Instance of Zamboanga considered it proper
for the best interests of ther estate to appoint a trustee to
administer the real properties which, under the will, were to pass
to Matthew Hanley ten years after the two executors named in
the will, was, on March 8, 1924, appointed trustee. Moore took
his oath of office and gave bond on March 10, 1924. He acted as
trustee until February 29, 1932, when he resigned and the
plaintiff herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant
Collector of Internal Revenue, alleging that the estate left by the
deceased at the time of his death consisted of realty valued at
P27,920 and personalty valued at P1,465, and allowing a
deduction of P480.81, assessed against the estate an inheritance
tax in the amount of P1,434.24 which, together with the penalties
for deliquency in payment consisting of a 1 per cent monthly
interest from July 1, 1931 to the date of payment and a surcharge
of 25 per cent on the tax, amounted to P2,052.74. On March 15,
1932, the defendant filed a motion in the testamentary
proceedings pending before the Court of First Instance of
Zamboanga (Special proceedings No. 302) praying that the
trustee, plaintiff herein, be ordered to pay to the Government the
said sum of P2,052.74. The motion was granted. On September
15, 1932, the plaintiff paid said amount under protest, notifying
the defendant at the same time that unless the amount was
promptly refunded suit would be brought for its recovery. The
defendant overruled the plaintiff's protest and refused to refund
the said amount hausted, plaintiff went to court with the result
herein above indicated.
In his appeal, plaintiff contends that the lower court erred:
I. In holding that the real property of Thomas Hanley,
deceased, passed to his instituted heir, Matthew Hanley,
from the moment of the death of the former, and that
from the time, the latter became the owner thereof.
II. In holding, in effect, that there was deliquency in the
payment of inheritance tax due on the estate of said
deceased.
III. In holding that the inheritance tax in question be
based upon the value of the estate upon the death of the
testator, and not, as it should have been held, upon the
value thereof at the expiration of the period of ten years
after which, according to the testator's will, the
property could be and was to be delivered to the
instituted heir.
IV. In not allowing as lawful deductions, in the
determination of the net amount of the estate subject to
said tax, the amounts allowed by the court as
compensation to the "trustees" and paid to them from
the decedent's estate.
V. In not rendering judgment in favor of the plaintiff and
in denying his motion for new trial.
The defendant-appellant contradicts the theories of the plaintiff
and assigns the following error besides:
The lower court erred in not ordering the plaintiff to
pay to the defendant the sum of P1,191.27, representing
part of the interest at the rate of 1 per cent per month

from April 10, 1924, to June 30, 1931, which the
plaintiff had failed to pay on the inheritance tax
assessed by the defendant against the estate of Thomas
Hanley.
The following are the principal questions to be decided by this
court in this appeal: (a) When does the inheritance tax accrue
and when must it be satisfied? (b) Should the inheritance tax be
computed on the basis of the value of the estate at the time of the
testator's death, or on its value ten years later? (c) In determining
the net value of the estate subject to tax, is it proper to deduct the
compensation due to trustees? (d) What law governs the case at
bar? Should the provisions of Act No. 3606 favorable to the tax-
payer be given retroactive effect? (e) Has there been deliquency
in the payment of the inheritance tax? If so, should the additional
interest claimed by the defendant in his appeal be paid by the
estate? Other points of incidental importance, raised by the
parties in their briefs, will be touched upon in the course of this
opinion.
(a) The accrual of the inheritance tax is distinct from the
obligation to pay the same. Section 1536 as amended, of the
Administrative Code, imposes the tax upon "every transmission
by virtue of inheritance, devise, bequest, gift mortis causa, or
advance in anticipation of inheritance,devise, or bequest." The tax
therefore is upon transmission or the transfer or devolution of
property of a decedent, made effective by his death. (61 C. J., p.
1592.) It is in reality an excise or privilege tax imposed on the
right to succeed to, receive, or take property by or under a will or
the intestacy law, or deed, grant, or gift to become operative at or
after death. Acording to article 657 of the Civil Code, "the rights
to the succession of a person are transmitted from the moment of
his death." "In other words", said Arellano, C. J., ". . . the heirs
succeed immediately to all of the property of the deceased
ancestor. The property belongs to the heirs at the moment of the
death of the ancestor as completely as if the ancestor had
executed and delivered to them a deed for the same before his
death." (Bondad vs. Bondad, 34 Phil., 232. See also, Mijares vs.
Nery, 3 Phil., 195; Suilong & Co., vs. Chio-Taysan, 12 Phil., 13;
Lubrico vs. Arbado, 12 Phil., 391; Innocencio vs. Gat-Pandan, 14
Phil., 491; Aliasas vs.Alcantara, 16 Phil., 489; Ilustre vs. Alaras
Frondosa, 17 Phil., 321; Malahacan vs. Ignacio, 19 Phil., 434;
Bowa vs. Briones, 38 Phil., 27; Osario vs. Osario & Yuchausti
Steamship Co., 41 Phil., 531; Fule vs. Fule, 46 Phil., 317; Dais vs.
Court of First Instance of Capiz, 51 Phil., 396; Baun vs. Heirs of
Baun, 53 Phil., 654.) Plaintiff, however, asserts that while article
657 of the Civil Code is applicable to testate as well as intestate
succession, it operates only in so far as forced heirs are
concerned. But the language of article 657 of the Civil Code is
broad and makes no distinction between different classes of
heirs. That article does not speak of forced heirs; it does not even
use the word "heir". It speaks of the rights of succession and the
transmission thereof from the moment of death. The provision of
section 625 of the Code of Civil Procedure regarding the
authentication and probate of a will as a necessary condition to
effect transmission of property does not affect the general rule
laid down in article 657 of the Civil Code. The authentication of a
will implies its due execution but once probated and allowed the
transmission is effective as of the death of the testator in
accordance with article 657 of the Civil Code. Whatever may be
the time when actual transmission of the inheritance takes place,
succession takes place in any event at the moment of the
decedent's death. The time when the heirs legally succeed to the
inheritance may differ from the time when the heirs actually
receive such inheritance. "Poco importa", says Manresa
commenting on article 657 of the Civil Code, "que desde el
falleimiento del causante, hasta que el heredero o legatario entre
Rule 98_Full Texts 7 of 29
en posesion de los bienes de la herencia o del legado, transcurra
mucho o poco tiempo, pues la adquisicion ha de retrotraerse al
momento de la muerte, y asi lo ordena el articulo 989, que debe
considerarse como complemento del presente." (5 Manresa,
305; see also, art. 440, par. 1, Civil Code.) Thomas Hanley having
died on May 27, 1922, the inheritance tax accrued as of the date.
From the fact, however, that Thomas Hanley died on May 27,
1922, it does not follow that the obligation to pay the tax arose as
of the date. The time for the payment on inheritance tax is clearly
fixed by section 1544 of the Revised Administrative Code as
amended by Act No. 3031, in relation to section 1543 of the same
Code. The two sections follow:
SEC. 1543. Exemption of certain acquisitions and
transmissions. — The following shall not be taxed:
(a) The merger of the usufruct in the owner of
the naked title.
(b) The transmission or delivery of the
inheritance or legacy by the fiduciary heir or
legatee to the trustees.
(c) The transmission from the first heir,
legatee, or donee in favor of another
beneficiary, in accordance with the desire of
the predecessor.
In the last two cases, if the scale of taxation appropriate
to the new beneficiary is greater than that paid by the
first, the former must pay the difference.
SEC. 1544. When tax to be paid. — The tax fixed in this
article shall be paid:
(a) In the second and third cases of the next
preceding section, before entrance into
possession of the property.
(b) In other cases, within the six months
subsequent to the death of the predecessor;
but if judicial testamentary or intestate
proceedings shall be instituted prior to the
expiration of said period, the payment shall be
made by the executor or administrator before
delivering to each beneficiary his share.
If the tax is not paid within the time hereinbefore
prescribed, interest at the rate of twelve per centum per
annum shall be added as part of the tax; and to the tax
and interest due and unpaid within ten days after the
date of notice and demand thereof by the collector,
there shall be further added a surcharge of twenty-five
per centum.
A certified of all letters testamentary or of admisitration
shall be furnished the Collector of Internal Revenue by
the Clerk of Court within thirty days after their issuance.
It should be observed in passing that the word "trustee",
appearing in subsection (b) of section 1543, should read

"fideicommissary" or "cestui que trust". There was an obvious
mistake in translation from the Spanish to the English version.
The instant case does fall under subsection (a), but under
subsection (b), of section 1544 above-quoted, as there is here no
fiduciary heirs, first heirs, legatee or donee. Under the subsection,
the tax should have been paid before the delivery of the
properties in question to P. J. M. Moore as trustee on March 10,
1924.
(b) The plaintiff contends that the estate of Thomas Hanley, in so
far as the real properties are concerned, did not and could not
legally pass to the instituted heir, Matthew Hanley, until after the
expiration of ten years from the death of the testator on May 27,
1922 and, that the inheritance tax should be based on the value of
the estate in 1932, or ten years after the testator's death. The
plaintiff introduced evidence tending to show that in 1932 the
real properties in question had a reasonable value of only P5,787.
This amount added to the value of the personal property left by
the deceased, which the plaintiff admits is P1,465, would
generate an inheritance tax which, excluding deductions, interest
and surcharge, would amount only to about P169.52.
If death is the generating source from which the power of the
estate to impose inheritance taxes takes its being and if, upon the
death of the decedent, succession takes place and the right of the
estate to tax vests instantly, the tax should be measured by the
vlaue of the estate as it stood at the time of the decedent's death,
regardless of any subsequent contingency value of any
subsequent increase or decrease in value. (61 C. J., pp. 1692,
1693; 26 R. C. L., p. 232; Blakemore and Bancroft, Inheritance
Taxes, p. 137. See also Knowlton vs. Moore, 178 U.S., 41; 20 Sup.
Ct. Rep., 747; 44 Law. ed., 969.) "The right of the state to an
inheritance tax accrues at the moment of death, and hence is
ordinarily measured as to any beneficiary by the value at that
time of such property as passes to him. Subsequent appreciation
or depriciation is immaterial." (Ross, Inheritance Taxation, p. 72.)
Our attention is directed to the statement of the rule in
Cyclopedia of Law of and Procedure (vol. 37, pp. 1574, 1575)
that, in the case of contingent remainders, taxation is postponed
until the estate vests in possession or the contingency is settled.
This rule was formerly followed in New York and has been
adopted in Illinois, Minnesota, Massachusetts, Ohio, Pennsylvania
and Wisconsin. This rule, horever, is by no means entirely
satisfactory either to the estate or to those interested in the
property (26 R. C. L., p. 231.). Realizing, perhaps, the defects of its
anterior system, we find upon examination of cases and
authorities that New York has varied and now requires the
immediate appraisal of the postponed estate at its clear market
value and the payment forthwith of the tax on its out of
the corpus of the estate transferred. (In re Vanderbilt, 172 N. Y.,
69; 69 N. E., 782; In re Huber, 86 N. Y. App. Div., 458; 83 N. Y.
Supp., 769; Estate of Tracy, 179 N. Y., 501; 72 N. Y., 519; Estate of
Brez, 172 N. Y., 609; 64 N. E., 958; Estate of Post, 85 App. Div.,
611; 82 N. Y. Supp., 1079. Vide also, Saltoun vs. Lord Advocate, 1
Peter. Sc. App., 970; 3 Macq. H. L., 659; 23 Eng. Rul. Cas., 888.)
California adheres to this new rule (Stats. 1905, sec. 5, p. 343).
But whatever may be the rule in other jurisdictions, we hold that
a transmission by inheritance is taxable at the time of the
predecessor's death, notwithstanding the postponement of the
actual possession or enjoyment of the estate by the beneficiary,
and the tax measured by the value of the property transmitted at
that time regardless of its appreciation or depreciation.
Rule 98_Full Texts 8 of 29
(c) Certain items are required by law to be deducted from the
appraised gross in arriving at the net value of the estate on which
the inheritance tax is to be computed (sec. 1539, Revised
Administrative Code). In the case at bar, the defendant and the
trial court allowed a deduction of only P480.81. This sum
represents the expenses and disbursements of the executors until
March 10, 1924, among which were their fees and the proven
debts of the deceased. The plaintiff contends that the
compensation and fees of the trustees, which aggregate
P1,187.28 (Exhibits C, AA, EE, PP, HH, JJ, LL, NN, OO), should also
be deducted under section 1539 of the Revised Administrative
Code which provides, in part, as follows: "In order to determine
the net sum which must bear the tax, when an inheritance is
concerned, there shall be deducted, in case of a resident, . . . the
judicial expenses of the testamentary or intestate proceedings, . . .
."
A trustee, no doubt, is entitled to receive a fair compensation for
his services (Barney vs. Saunders, 16 How., 535; 14 Law. ed.,
1047). But from this it does not follow that the compensation due
him may lawfully be deducted in arriving at the net value of the
estate subject to tax. There is no statute in the Philippines which
requires trustees' commissions to be deducted in determining
the net value of the estate subject to inheritance tax (61 C. J., p.
1705). Furthermore, though a testamentary trust has been
created, it does not appear that the testator intended that the
duties of his executors and trustees should be separated. (Ibid.; In
re Vanneck's Estate, 161 N. Y. Supp., 893; 175 App. Div., 363; In
re Collard's Estate, 161 N. Y. Supp., 455.) On the contrary, in
paragraph 5 of his will, the testator expressed the desire that his
real estate be handled and managed by his executors until the
expiration of the period of ten years therein provided. Judicial
expenses are expenses of administration (61 C. J., p. 1705) but, in
State vs. Hennepin County Probate Court (112 N. W., 878; 101
Minn., 485), it was said: ". . . The compensation of a trustee,
earned, not in the administration of the estate, but in the
management thereof for the benefit of the legatees or devises,
does not come properly within the class or reason for exempting
administration expenses. . . . Service rendered in that behalf have
no reference to closing the estate for the purpose of a distribution
thereof to those entitled to it, and are not required or essential to
the perfection of the rights of the heirs or legatees. . . . Trusts . . .
of the character of that here before the court, are created for the
the benefit of those to whom the property ultimately passes, are
of voluntary creation, and intended for the preservation of the
estate. No sound reason is given to support the contention that
such expenses should be taken into consideration in fixing the
value of the estate for the purpose of this tax."
(d) The defendant levied and assessed the inheritance tax due
from the estate of Thomas Hanley under the provisions of section
1544 of the Revised Administrative Code, as amended by section
3 of Act No. 3606. But Act No. 3606 went into effect on January 1,
1930. It, therefore, was not the law in force when the testator
died on May 27, 1922. The law at the time was section 1544
above-mentioned, as amended by Act No. 3031, which took effect
on March 9, 1922.
It is well-settled that inheritance taxation is governed by the
statute in force at the time of the death of the decedent (26 R. C.
L., p. 206; 4 Cooley on Taxation, 4th ed., p. 3461). The taxpayer
can not foresee and ought not to be required to guess the
outcome of pending measures. Of course, a tax statute may be
made retroactive in its operation. Liability for taxes under
retroactive legislation has been "one of the incidents of social
life." (Seattle vs. Kelleher, 195 U. S., 360; 49 Law. ed., 232 Sup. Ct.

Rep., 44.) But legislative intent that a tax statute should operate
retroactively should be perfectly clear. (Scwab vs. Doyle, 42 Sup.
Ct. Rep., 491; Smietanka vs. First Trust & Savings Bank, 257 U. S.,
602; Stockdale vs. Insurance Co., 20 Wall., 323; Lunch vs. Turrish,
247 U. S., 221.) "A statute should be considered as prospective in
its operation, whether it enacts, amends, or repeals an
inheritance tax, unless the language of the statute clearly
demands or expresses that it shall have a retroactive effect, . . . ."
(61 C. J., P. 1602.) Though the last paragraph of section 5 of
Regulations No. 65 of the Department of Finance makes section 3
of Act No. 3606, amending section 1544 of the Revised
Administrative Code, applicable to all estates the inheritance
taxes due from which have not been paid, Act No. 3606 itself
contains no provisions indicating legislative intent to give it
retroactive effect. No such effect can begiven the statute by this
court.
The defendant Collector of Internal Revenue maintains, however,
that certain provisions of Act No. 3606 are more favorable to the
taxpayer than those of Act No. 3031, that said provisions are
penal in nature and, therefore, should operate retroactively in
conformity with the provisions of article 22 of the Revised Penal
Code. This is the reason why he applied Act No. 3606 instead of
Act No. 3031. Indeed, under Act No. 3606, (1) the surcharge of 25
per cent is based on the tax only, instead of on both the tax and
the interest, as provided for in Act No. 3031, and (2) the taxpayer
is allowed twenty days from notice and demand by rthe Collector
of Internal Revenue within which to pay the tax, instead of ten
days only as required by the old law.
Properly speaking, a statute is penal when it imposes punishment
for an offense committed against the state which, under the
Constitution, the Executive has the power to pardon. In common
use, however, this sense has been enlarged to include within the
term "penal statutes" all status which command or prohibit
certain acts, and establish penalties for their violation, and even
those which, without expressly prohibiting certain acts, impose a
penalty upon their commission (59 C. J., p. 1110). Revenue laws,
generally, which impose taxes collected by the means ordinarily
resorted to for the collection of taxes are not classed as penal
laws, although there are authorities to the contrary.
(See Sutherland, Statutory Construction, 361; Twine Co. vs.
Worthington, 141 U. S., 468; 12 Sup. Ct., 55; Rice vs. U. S., 4 C. C.
A., 104; 53 Fed., 910; Com. vs. Standard Oil Co., 101 Pa. St., 150;
State vs. Wheeler, 44 P., 430; 25 Nev. 143.) Article 22 of the
Revised Penal Code is not applicable to the case at bar, and in the
absence of clear legislative intent, we cannot give Act No. 3606 a
retroactive effect.
(e) The plaintiff correctly states that the liability to pay a tax may
arise at a certain time and the tax may be paid within another
given time. As stated by this court, "the mere failure to pay one's
tax does not render one delinqent until and unless the entire
period has eplased within which the taxpayer is authorized by
law to make such payment without being subjected to the
payment of penalties for fasilure to pay his taxes within the
prescribed period." (U. S. vs. Labadan, 26 Phil., 239.)
The defendant maintains that it was the duty of the executor to
pay the inheritance tax before the delivery of the decedent's
property to the trustee. Stated otherwise, the defendant contends
that delivery to the trustee was delivery to the cestui que trust,
the beneficiery in this case, within the meaning of the first
paragraph of subsection (b) of section 1544 of the Revised
Administrative Code. This contention is well taken and is
sustained. The appointment of P. J. M. Moore as trustee was made
Rule 98_Full Texts 9 of 29
by the trial court in conformity with the wishes of the testator as
expressed in his will. It is true that the word "trust" is not
mentioned or used in the will but the intention to create one is
clear. No particular or technical words are required to create a
testamentary trust (69 C. J., p. 711). The words "trust" and
"trustee", though apt for the purpose, are not necessary. In fact,
the use of these two words is not conclusive on the question that
a trust is created (69 C. J., p. 714). "To create a trust by will the
testator must indicate in the will his intention so to do by using
language sufficient to separate the legal from the equitable estate,
and with sufficient certainty designate the beneficiaries, their
interest in the ttrust, the purpose or object of the trust, and the
property or subject matter thereof. Stated otherwise, to
constitute a valid testamentary trust there must be a concurrence
of three circumstances: (1) Sufficient words to raise a trust; (2) a
definite subject; (3) a certain or ascertain object; statutes in some
jurisdictions expressly or in effect so providing." (69 C. J., pp.
705,706.) There is no doubt that the testator intended to create a
trust. He ordered in his will that certain of his properties be kept
together undisposed during a fixed period, for a stated purpose.
The probate court certainly exercised sound judgment in
appointment a trustee to carry into effect the provisions of the
will (see sec. 582, Code of Civil Procedure).
P. J. M. Moore became trustee on March 10, 1924. On that date
trust estate vested in him (sec. 582 in relation to sec. 590, Code of
Civil Procedure). The mere fact that the estate of the deceased
was placed in trust did not remove it from the operation of our
inheritance tax laws or exempt it from the payment of the
inheritance tax. The corresponding inheritance tax should have
been paid on or before March 10, 1924, to escape the penalties of
the laws. This is so for the reason already stated that the delivery
of the estate to the trustee was in esse delivery of the same estate
to the cestui que trust, the beneficiary in this case. A trustee is but
an instrument or agent for the cestui que trust (Shelton vs. King,
299 U. S., 90; 33 Sup. Ct. Rep., 689; 57 Law. ed., 1086). When
Moore accepted the trust and took possesson of the trust estate
he thereby admitted that the estate belonged not to him but to
his cestui que trust (Tolentino vs. Vitug, 39 Phil.,126, cited in 65 C.
J., p. 692, n. 63). He did not acquire any beneficial interest in the
estate. He took such legal estate only as the proper execution of
the trust required (65 C. J., p. 528) and, his estate ceased upon the
fulfillment of the testator's wishes. The estate then vested
absolutely in the beneficiary (65 C. J., p. 542).
The highest considerations of public policy also justify the
conclusion we have reached. Were we to hold that the payment of
the tax could be postponed or delayed by the creation of a trust of
the type at hand, the result would be plainly disastrous. Testators
may provide, as Thomas Hanley has provided, that their estates
be not delivered to their beneficiaries until after the lapse of a
certain period of time. In the case at bar, the period is ten years.
In other cases, the trust may last for fifty years, or for a longer
period which does not offend the rule against petuities. The
collection of the tax would then be left to the will of a private
individual. The mere suggestion of this result is a sufficient
warning against the accpetance of the essential to the very
exeistence of government. (Dobbins vs. Erie Country, 16 Pet.,
435; 10 Law. ed., 1022; Kirkland vs. Hotchkiss, 100 U. S., 491; 25
Law. ed., 558; Lane County vs. Oregon, 7 Wall., 71; 19 Law. ed.,
101; Union Refrigerator Transit Co. vs. Kentucky, 199 U. S., 194;
26 Sup. Ct. Rep., 36; 50 Law. ed., 150; Charles River Bridge vs.
Warren Bridge, 11 Pet., 420; 9 Law. ed., 773.) The obligation to
pay taxes rests not upon the privileges enjoyed by, or the
protection afforded to, a citizen by the government but upon the
necessity of money for the support of the state (Dobbins vs. Erie
Country, supra). For this reason, no one is allowed to object to or

resist the payment of taxes solely because no personal benefit to
him can be pointed out. (Thomas vs. Gay, 169 U. S., 264; 18 Sup.
Ct. Rep., 340; 43 Law. ed., 740.) While courts will not enlarge, by
construction, the government's power of taxation (Bromley vs.
McCaughn, 280 U. S., 124; 74 Law. ed., 226; 50 Sup. Ct. Rep., 46)
they also will not place upon tax laws so loose a construction as
to permit evasions on merely fanciful and insubstantial
distictions. (U. S. vs. Watts, 1 Bond., 580; Fed. Cas. No. 16,653; U.
S. vs. Wigglesirth, 2 Story, 369; Fed. Cas. No. 16,690, followed in
Froelich & Kuttner vs. Collector of Customs, 18 Phil., 461, 481;
Castle Bros., Wolf & Sons vs. McCoy, 21 Phil., 300; Muñoz & Co. vs.
Hord, 12 Phil., 624; Hongkong & Shanghai Banking Corporation
vs. Rafferty, 39 Phil., 145; Luzon Stevedoring Co. vs. Trinidad, 43
Phil., 803.) When proper, a tax statute should be construed to
avoid the possibilities of tax evasion. Construed this way, the
statute, without resulting in injustice to the taxpayer, becomes
fair to the government.
That taxes must be collected promptly is a policy deeply
intrenched in our tax system. Thus, no court is allowed to grant
injunction to restrain the collection of any internal revenue tax (
sec. 1578, Revised Administrative Code; Sarasola vs. Trinidad, 40
Phil., 252). In the case of Lim Co Chui vs. Posadas (47 Phil., 461),
this court had occassion to demonstrate trenchment adherence
to this policy of the law. It held that "the fact that on account of
riots directed against the Chinese on October 18, 19, and 20,
1924, they were prevented from praying their internal revenue
taxes on time and by mutual agreement closed their homes and
stores and remained therein, does not authorize the Collector of
Internal Revenue to extend the time prescribed for the payment
of the taxes or to accept them without the additional penalty of
twenty five per cent." (Syllabus, No. 3.)
". . . It is of the utmost importance," said the Supreme Court of the
United States, ". . . that the modes adopted to enforce the taxes
levied should be interfered with as little as possible. Any delay in
the proceedings of the officers, upon whom the duty is developed
of collecting the taxes, may derange the operations of
government, and thereby, cause serious detriment to the public."
(Dows vs. Chicago, 11 Wall., 108; 20 Law. ed., 65, 66; Churchill
and Tait vs. Rafferty, 32 Phil., 580.)
It results that the estate which plaintiff represents has been
delinquent in the payment of inheritance tax and, therefore, liable
for the payment of interest and surcharge provided by law in
such cases.
The delinquency in payment occurred on March 10, 1924, the
date when Moore became trustee. The interest due should be
computed from that date and it is error on the part of the
defendant to compute it one month later. The provisions cases is
mandatory (see and cf. Lim Co Chui vs. Posadas, supra), and
neither the Collector of Internal Revenuen or this court may
remit or decrease such interest, no matter how heavily it may
burden the taxpayer.
To the tax and interest due and unpaid within ten days after the
date of notice and demand thereof by the Collector of Internal
Revenue, a surcharge of twenty-five per centum should be added
(sec. 1544, subsec. (b), par. 2, Revised Administrative Code).
Demand was made by the Deputy Collector of Internal Revenue
upon Moore in a communiction dated October 16, 1931 (Exhibit
29). The date fixed for the payment of the tax and interest was
November 30, 1931. November 30 being an official holiday, the
tenth day fell on December 1, 1931. As the tax and interest due
Rule 98_Full Texts 10 of 29
were not paid on that date, the estate became liable for the
payment of the surcharge.
In view of the foregoing, it becomes unnecessary for us to discuss
the fifth error assigned by the plaintiff in his brief.
We shall now compute the tax, together with the interest and
surcharge due from the estate of Thomas Hanley inaccordance
with the conclusions we have reached.
At the time of his death, the deceased left real properties valued
at P27,920 and personal properties worth P1,465, or a total of
P29,385. Deducting from this amount the sum of P480.81,
representing allowable deductions under secftion 1539 of the
Revised Administrative Code, we have P28,904.19 as the net
value of the estate subject to inheritance tax.
The primary tax, according to section 1536, subsection (c), of the
Revised Administrative Code, should be imposed at the rate of
one per centum upon the first ten thousand pesos and two per
centum upon the amount by which the share exceed thirty
thousand pesos, plus an additional two hundred per centum. One
per centum of ten thousand pesos is P100. Two per centum of
P18,904.19 is P378.08. Adding to these two sums an additional
two hundred per centum, or P965.16, we have as primary tax,
correctly computed by the defendant, the sum of P1,434.24.
To the primary tax thus computed should be added the sums
collectible under section 1544 of the Revised Administrative
Code. First should be added P1,465.31 which stands for interest
at the rate of twelve per centum per annum from March 10, 1924,
the date of delinquency, to September 15, 1932, the date of
payment under protest, a period covering 8 years, 6 months and
5 days. To the tax and interest thus computed should be added
the sum of P724.88, representing a surhcarge of 25 per cent on
both the tax and interest, and also P10, the compromise sum
fixed by the defendant (Exh. 29), giving a grand total of
P3,634.43.
As the plaintiff has already paid the sum of P2,052.74, only the
sums of P1,581.69 is legally due from the estate. This last sum is
P390.42 more than the amount demanded by the defendant in his
counterclaim. But, as we cannot give the defendant more than
what he claims, we must hold that the plaintiff is liable only in the
sum of P1,191.27 the amount stated in the counterclaim.
The judgment of the lower court is accordingly modified, with
costs against the plaintiff in both instances. So ordered.

FIRST DIVISION
G.R. No. 58010. March 31, 1993.
EMILIA O'LACO and HUCO LUNA, petitioners, vs. VALENTIN CO
CHO CHIT, O LAY KIA and COURT OF APPEALS, respondents.
Sergio L. Guadiz for petitioners.
Norberto J . Quisumbing & Associates for private respondents.
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; ACTIONS; CONDITION
PRECEDENT TO FILING OF SUIT BETWEEN MEMBERS OF THE
SAME FAMILY; EFFECT OF FAILURE TO COMPLY WITH
CONDITION. — Admittedly, the present action is between
members of the same family since petitioner Emilia O'Laco and
respondent O Lay Kia are half-sisters. Consequently, there should
be an averment in the compliant that earnest efforts toward a
compromise have been made, pursuant to Art. 222 of the New
Civil Code, or a motion to dismiss could have been filed under
Sec. 1, par. (j), Rule 16 of the Rules of Court. For, it is well-settled
that the attempt to compromise as well as the inability to succeed
is a condition precedent to the filing of a suit between members
of the same family. Hence, the defect in the complaint is
assailable at any stage of the proceedings, even on appeal, for
lack of cause of action.
2. ID.; ID.; AMENDMENT TO COMPLAINT; WHEN PROPER;
AMENDMENT TO CONFORM TO EVIDENCE. — Plaintiff may be
allowed to amend his complaint to correct the defect if the
amendment does not actually confer jurisdiction on the court in
which the action is filed, i.e., if the cause of action was originally
within that court's jurisdiction. In such case, the amendment is
only to cure the perceived defect in the complaint, thus may be
allowed. In the case before Us, while respondent-spouses did not
formally amend their complaint, they were nonetheless allowed
to introduce evidence purporting to show that earnest efforts
toward a compromise had been made, that is, respondent O Lay
Kia importuned Emilia O'Laco and pressed her for the transfer of
the title of the Oroquieta property in the name of spouses O Lay
Kia and Valentin Co Cho Chit, just before Emilia's marriage to
Hugo Luna. But, instead of transferring the title as requested,
Emilia sold the property to the Roman Catholic Archbishop of
Manila. This testimony was not objected to by petitioner-spouses.
Hence, the complaint was deemed accordingly amended to
conform to the evidence, pursuant to Sec. 5, Rule 10 of the Rules
of Court which reads — "Sec. 5. Amendment to conform to or
authorize presentation of evidence. — When issues not raised by
the pleadings are tried by express or implied consent of the
parties, they shall be treated in all respects, as if they had been
raised in the pleadings . . ." Indeed, if the defendant permits
evidence to be introduced without objection and which supplies
the necessary allegations of a defective complaint, then the
evidence is deemed to have the effect of curing the defects of the
complaint. The insufficiency of the allegations in the complaint is
deemed ipso facto rectified.
3. CIVIL LAW; OBLIGATIONS AND CONTRACTS; TRUSTS;
EXPRESS TRUST; DEFINED; IMPLIED TRUST; DEFINED. — By
definition, trust relations between parties may either be express
or implied. Express trusts are those which are created by the
direct and positive acts of the parties, by some writing or deed, or
will, or by words evincing an intention to create a trust. Implied
Rule 98_Full Texts 11 of 29
trusts are those which, without being express, are deducible from
the nature of the transaction as matters of intent, or which are
superinduced on the transaction by operation of law as matters
of equity, independently of the particular intention of the parties.
4. ID.; ID.; ID.; IMPLIED TRUSTS; RESULTING TRUST; BASIS
THEREOF; CONSTRUCTIVE TRUST; BASIS THEREOF. — Implied
trust may either be resulting or constructive trusts, both coming
into being by operation of law. Resulting trusts are based on the
equitable doctrine that valuable consideration and not legal title
determines the equitable title or interest and are presumed
always to have been contemplated by the parties. They arise from
the nature or circumstances of the consideration involved in a
transaction whereby one person thereby becomes invested with
legal title but is obligated in equity to hold his legal title for the
benefit of another. On the other hand, constructive trusts are
created by the construction of equity in order to satisfy the
demands of justice and prevent unjust enrichment. They arise
contrary to intention against one who, by fraud, duress or abuse
of confidence, obtains or holds the legal right to property which
he ought not, in equity and good conscience, to hold.
5. ID.; ID.; ID.; EXPRESS TRUSTS CONCERNING IMMOVABLES
NOT PROVED BY PAROL EVIDENCE; IMPLIED TRUST IN REAL
PROPERTY ESTABLISHED BY PAROL EVIDENCE; PROOF
REQUIRED; CASE AT BAR. — Unlike express trusts concerning
immovables or any interest therein which cannot be proved by
parol evidence, implied trusts may be established by oral
evidence. However, in order to establish an implied trust in real
property by parol evidence, the proof should be as fully
convincing as if the acts giving rise to the trust obligation were
proven by an authentic document. It cannot be established upon
vague and inconclusive proof. After a thorough review of the
evidence on record, We hold that a resulting trust was indeed
intended by the parties under Art. 1448 of the New Civil Code
which states — "Art. 1448. There is an implied trust when
property is sold, and the legal estate is granted to one party but
the price is paid by another for the purpose of having the
beneficial interest of the property. The former is the trustee,
while the latter is the beneficiary . . ." As stipulated by the parties,
the document of sale, the owner's duplicate copy of the certificate
of title, insurance policies, receipt of initial premium of insurance
coverage and real estate tax receipts were all in the possession of
respondent-spouses which they offered in evidence. As
emphatically asserted by respondent O Lay Kia, the reason why
these documents of ownership remained with her is that the land
in question belonged to her. Indeed, there can be no persuasive
rationalization for the possession of these documents of
ownership by respondent-spouses for seventeen (17) years after
the Oroquieta property was purchased in 1943 than that of
precluding its possible sale, alienation or conveyance by Emilia
O'Laco, absent any machination or fraud. This continued
possession of the documents, together with other corroborating
evidence spread on record, strongly suggests that Emilia O'Laco
merely held the Oroquieta property in trust for respondent-
spouses.
6. ID.; ID.; ID.; CONSTRUCTIVE TRUST SUBJECT TO
PRESCRIPTION; RESULTING TRUST IMPRESCRIPTIBLE;
RESULTING TRUST CONVERTED TO CONSTRUCTIVE TRUST BY
REPUDIATION; REQUISITES; PRESCRIPTIVE PERIOD FOR
ACTION FOR RECONVEYANCE BASED ON CONSTRUCTIVE
TRUST. — As differentiated from constructive trusts, where the
settled rule is that prescription may supervene, in resulting trust,
the rule of imprescriptibility may apply for as long as the trustee
has not repudiated the trust. Once the resulting trust is

repudiated, however, it is converted into a constructive trust and
is subject to prescription. A resulting trust is repudiated if the
following requisites concur: (a) the trustee has performed
unequivocal acts of repudiation amounting to an ouster of the
cestui qui trust; (b) such positive acts of repudiation have been
made known to the cestui qui trust; and, (c) the evidence thereon
is clear and convincing. In Tale v. Court of Appeals the Court
categorically ruled that an action for reconveyance based on an
implied or constructive trust must perforce prescribe in ten (10)
years, and not otherwise, thereby modifying previous decisions
holding that the prescriptive period was four (4) years. So long as
the trustee recognizes the trust, the beneficiary may rely upon
the recognition, and ordinarily will not be in fault for omitting to
bring an action to enforce his rights. There is no running of the
prescriptive period if the trustee expressly recognizes the
resulting trust. Since the complaint for breach of trust was filed
by respondent-spouses two (2) months after acquiring
knowledge of the sale, the action therefore has not yet
prescribed.
DECISION
BELLOSILLO, J p:
History is replete with cases of erstwhile close family relations
put asunder by property disputes. This is one of them. It involves
half-sisters each claiming ownership over a parcel of land. While
petitioner Emilia O'Laco asserts that she merely left the
certificate of title covering the property with private respondent
O Lay Kia for safekeeping, the latter who is the former's older
sister insists that the title was in her possession because she and
her husband bought the property from their conjugal funds. To
be resolved therefore is the issue of whether a resulting trust was
intended by them in the acquisition of the property. The trial
court declared that there was no trust relation of any sort
between the sisters. 1 The Court of Appeals ruled otherwise. 2
Hence, the instant petition for review on certiorari of the decision
of the appellate court together with its resolution denying
reconsideration. 3
It appears that on 31 May 1943, the Philippine Sugar Estate
Development Company, Ltd., sold a parcel of land, Lot No. 5,
Block No. 10, Plan Psu-10038, situated at Oroquieta St., Sta. Cruz,
Manila, with the Deed of Absolute Sale naming Emilia O'Laco as
vendee; thereafter, Transfer Certificate of Title No. 66456 was
issued in her name.
On 17 May 1960, private respondent-spouses Valentin Co Cho
Chit and O Lay Wa learned from the newspapers that Emilia
O'Laco sold the same property to the Roman Catholic Archbishop
of Manila for P230,000.00, with assumption of the real estate
mortgage constituted thereon. 4
On 22 June 1960, respondent-spouses Valentin Co Cho Chit and O
Lay Kia sued petitioner-spouses Emilia O'Laco and Hugo Luna to
recover the purchase price of the land before the then Court of
First Instance of Rizal, respondent-spouses asserting that
petitioner Emilia O'Laco knew that they were the real vendees of
the Oroquieta property sold in 1943 by Philippine Sugar Estate
Development Company, Ltd., and that the legal title thereto was
merely placed in her name. They contend that Emilia O'Laco
breached the trust when she sold the land to the Roman Catholic
Archbishop of Manila. Meanwhile, they asked the trial court to
garnish all the amounts still due and payable to petitioner-
Rule 98_Full Texts 12 of 29
spouses arising from the sale, which was granted on 30 June
1960. 5
Petitioner-spouses deny the existence of any form of trust
relation. They aver that Emilia O'Laco actually bought the
property with her own money; that she left the Deed of Absolute
Sale and the corresponding title with respondent-spouses merely
for safekeeping; that when she asked for the return of the
documents evidencing her ownership, respondent-spouses told
her that these were misplaced or lost; and, that in view of the
loss, she filed a petition for issuance of a new title, and on 18
August 1944 the then Court of First Instance of Manila granted
her petition.
On 20 September 1976, finding no trust relation between the
parties, the trial court dismissed the complaint together with the
counterclaim. Petitioners and respondents appealed.
On 9 April 1981, the Court of Appeals set aside the decision of the
trial court thus —
". . . We set aside the decision of the lower court dated September
20, 1976 and the order of January 5, 1977 and another one is
hereby entered ordering the defendants-appellees to pay
plaintiffs-appellants jointly and severally the sum of P230,000.00
representing the value of the property subject of the sale with
assumption of mortgage to the Roman Catholic Archbishop of
Manila with legal interest from the filing of the complaint until
fully paid, the sum of P10,000.00 as attorney's fees, plus costs."
On 7 August 1981, the Court of Appeals denied reconsideration of
its decision, prompting petitioners to come to this Court for relief.
Petitioners contend that the present action should have been
dismissed. They argue that the complaint fails to allege that
earnest efforts toward a compromise were exerted considering
that the suit is between members of the same family, and no trust
relation exists between them. Even assuming ex argumenti that
there is such a relation, petitioners further argue, respondents
are already barred by laches.
We are not persuaded. Admittedly, the present action is between
members of the same family since petitioner Emilia O'Laco and
respondent O Lay Kia are half-sisters. Consequently, there should
be an averment in the complaint that earnest efforts toward a
compromise have been made, pursuant to Art. 222 of the New
Civil Code, 6 or a motion to dismiss could have been filed under
Sec. 1, par. (j), Rule 16, of the Rules of Court. 7 For, it is well-
settled that the attempt to compromise as well as the inability to
succeed is a condition precedent to the filing of a suit between
members of the same family. 8 Hence, the defect in the complaint
is assailable at any stage of the proceedings, even on appeal, for
lack of cause of action. 9
But, plaintiff may be allowed to amend his complaint to correct
the defect if the amendment does not actually confer jurisdiction
on the court in which the action is filed, i.e., if the cause of action
was originally within that court's jurisdiction. 10 In such case, the
amendment is only to cure the perceived defect in the complaint,
thus may be allowed.
In the case before Us, while respondent-spouses did not formally
amend their complaint, they were nonetheless allowed to
introduce evidence purporting to show that earnest efforts

toward a compromise had been made, that is, respondent O Lay
Kia importuned Emilia O'Laco and pressed her for the transfer of
the title of the Oroquieta property in the name of spouses O Lay
Kia and Valentin Co Cho Chit, just before Emilia's marriage to
Hugo Luna. 11 But, instead of transferring the title as requested,
Emilia sold the property to the Roman Catholic Archbishop of
Manila. This testimony was not objected to by petitioner-spouses.
Hence, the complaint was deemed accordingly amended to
conform to the evidence, 12 pursuant to Sec. 5, Rule 10 of the
Rules of Court which reads —
"SECTION 5. Amendment to conform to or authorize presentation
of evidence. — When issues not raised by the pleadings are tried
by express or implied consent of the parties, they shall be treated
in all respects, as, if they had been raised in the pleadings . . ."
(emphasis supplied).
Indeed, if the defendant permits evidence to be introduced
without objection and which supplies the necessary allegations of
a defective complaint, then the evidence is deemed to have the
effect of curing the defects of the complaint. 13 The insufficiency
of the allegations in the complaint is deemed ipso facto rectified.
14
But the more crucial issue before Us is whether there is a trust
relation between the parties in contemplation of law.
We find that there is. By definition, trust relations between
parties may either be express or implied. 15 Express trusts are
those which are created by the direct and positive acts of the
parties, by some writing or deed, or will, or by words evincing an
intention to create a trust. 16 Implied trusts are those which,
without being express, are deducible from the nature of the
transaction as matters of intent, or which are superinduced on
the transaction by operation of law as matters of equity,
independently of the particular intention of the parties.17
Implied trusts may either be resulting or constructive trusts, both
coming into being by operation of law. 18
Resulting trusts are based on the equitable doctrine that valuable
consideration and not legal title determines the equitable title or
interest 19 and are presumed always to have been contemplated
by the parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person
thereby becomes invested with legal title but is obligated in
equity to hold his legal title for the benefit of another. 20 On the
other hand, constructive trusts are created by the construction of
equity in order to satisfy the demands of justice 21 and prevent
unjust enrichment. They arise contrary to intention against one
who, by fraud, duress or abuse of confidence, obtains or holds the
legal right to property which he ought not, in equity and good
conscience, to hold. 22
Specific examples of resulting trusts may be found in the Civil
Code, particularly Arts. 1448, 1449, 1451,1452 and 1453, 23
while constructive trusts are illustrated in Arts. 1450, 1454, 1455
and 1456. 24
Unlike express trusts concerning immovables or any interest
therein which cannot be proved by parol evidence, 25 implied
trusts may be established by oral evidence. 26 However, in order
to establish an implied trust in real property by parol evidence,
the proof should be as fully convincing as if the acts giving rise to
the trust obligation were proven by an authentic document. 27 It
cannot be established upon vague and inconclusive proof. 28
Rule 98_Full Texts 13 of 29
After a thorough review of the evidence on record, We hold that a
resulting trust was indeed intended by the parties under Art.
1448 of the New Civil Code which states —
"ARTICLE 1448. There is an implied trust when property is sold,
and the legal estate is granted to one party but the price is paid
by another for the purpose of having the beneficial interest of the
property. The former is the trustee, while the latter is the
beneficiary . . ." (emphasis supplied).
First. As stipulated by the parties, the document of sale, the
owner's duplicate copy of the certificate of title, insurance
policies, receipt of initial premium of insurance coverage and real
estate tax receipts ware all in the possession of respondent
spouses which they offered in evidence. As emphatically asserted
by respondent O Lay Kia, the reason why these documents of
ownership remained with her is that the land in question
belonged to her. 29
Indeed, there can be no persuasive rationalization for the
possession of these documents of ownership by respondent-
spouses for seventeen (17) years after the Oroquieta property
was purchased in 1943 than that of precluding its possible sale,
alienation or conveyance by Emilia O'Laco, absent any
machination or fraud. This continued possession of the
documents, together with other corroborating evidence spread
on record, strongly suggests that Emilia O'Laco merely held the
Oroquieta property in trust for respondent-spouses.
Second. It may be worth to mention that before buying the
Oroquieta property, respondent-spouses purchased another
property situated in Kusang-Loob, Sta. Cruz, Manila, where the
certificate of title was placed in the name of Ambrosio O'Laco,
older brother of Emilia, under similar or identical circumstances.
The testimony of former counsel for respondent-spouses, then
Associate Justice Antonio G. Lucero of the Court of Appeals, is
enlightening —
"Q In the same conversation he told you how he would buy the
property (referring to the Oroquieta property), he and his wife?
"A Yes, Sir, he did.
"Q What did he say?
xxx xxx xxx
"A He said he and his wife has (sic) already acquired by purchase
a certain property located at Kusang-Loob, Sta. Cruz, Manila. He
told me he would like to place the Oroquieta Maternity Hospital
in case the negotiation materialize(s) in the name of a sister of his
wife (O'Laco)" (emphasis supplied). 30
On the part of respondent-spouses, they explained that the
reason why they did not place these Oroquieta and Kusang-Loob
properties in their name was that being Chinese nationals at the
time of the purchase they did not want to execute the required
affidavit to the effect that they were allies of the Japanese. 31
Since O Lay Kia took care of Emilia who was still young when her
mother died, 32 respondent-spouses did not hesitate to place the
title of the Oroquieta property in Emilia's name.
Quite significantly, respondent-spouses also instituted an action
for reconveyance against Ambrosio O'Laco when the latter

claimed the Kusang-Loob property as his own. A similar
stipulation of facts was likewise entered, i.e., respondent-spouses
had in their possession documents showing ownership of the
Kusang-Loob property which they offered in evidence. In that
case, the decision of the trial court, now final and executory,
declared respondent-spouses as owners of the Kusang-Loob
property and ordered Ambrosio O'Laco to reconvey it to them. 33
Incidentally, Ambrosio O'Laco thus charged respondent spouses
Valentin Co Cho Cit and O Lay Kia before the Anti-Dummy Board,
docketed as Case No. 2424, for their acquisition of the Kusang-
Loob and Oroquieta properties. 34 He claimed that respondent-
spouses utilized his name in buying the Kusang-Loob property
while that of petitioner O'Laco was used in the purchase of the
Oroquieta property. In effect, there was an implied admission by
Ambrosio that his sister Emilia, like him, was merely used as a
dummy. However, the Anti-Dummy Board exonerated
respondent-spouses since the purchases were made in 1943, or
during World War II, when the Anti-Dummy Law was not
enforceable.
Third. The circumstances by which Emilia O'Laco obtained a new
title by reason of the alleged loss of the old title then in the
possession of respondent-spouses cast serious doubt on the
veracity of her ownership. The petitions respectively filed by
Emilia O'Laco and Ambrosio O'Laco for the Oroquieta and the
Kusang-Loob properties were both granted on the same day, 18
August 1944, by the then Court of First Instance of Manila. These
orders were recorded in the Primary Entry Book of the Register
of Deeds of Manila at the same time, 2:35 o'clock in the afternoon
of 1 September 1944, in consecutive entries, Entries Nos.
246117-18. 35 This coincidence lends credence to the position of
respondent-spouses that there was in fact a conspiracy between
the siblings Ambrosio and Emilia to defraud and deprive
respondents of their title to the Oroquieta and Kusang-Loob
properties.
Fourth. Until the sale of the Oroquieta property to the Roman
Catholic Archbishop of Manila, petitioner Emilia O'Laco actually
recognized the trust. Specifically, when respondent spouses
learned that Emilia was getting married to Hugo, O Lay Kia asked
her to have the title to the property already transferred to her
and her husband Valentin, and Emilia assured her that "would be
arranged (maaayos na)" after her wedding. 36 Her answer was
an express recognition of the trust, otherwise, she would have
refused the request outright. Petitioners never objected to this
evidence; nor did they attempt to controvert it.
Fifth. The trial court itself determined that "Valentin Co Cho Chit
and O Lay Kia had some money with which they could buy the
property." 37 In fact, Valentin was the Chief Mechanic of the
Paniqui Sugar Mills, was engaged in the buy and sell business,
operated a gasoline station, and owned an auto supply store as
well as a ten-door apartment in Caloocan City. 38 In contrast,
Emilia O'Laco failed to convince the Court that she was financially
capable of purchasing the Oroquieta property. In fact, she opened
a bank account only in 1946 and likewise began filing income tax
returns that same year, 39 while the property in question was
bought in 1943. Respondent-spouses even helped Emilia and her
brothers in their expenses and livelihood. Emilia could only give a
vague account on how she raised the money for the purchase of
the property. Her narration of the transaction of sale abounds
with "I don't know" and "I don't remember." 40
Having established a resulting trust between the parties, the next
question is whether prescription has set in.
Rule 98_Full Texts 14 of 29
As differentiated from constructive trusts, where the settled rule
is that prescription may supervene, in resulting trust, the rule of
imprescriptibility may apply for as long as the trustee has not
repudiated the trust. 41 Once the resulting trust is repudiated,
however, it is converted into a constructive trust and is subject to
prescription.
A resulting trust is repudiated if the following requisites concur:
(a) the trustee has performed unequivocal acts of repudiation
amounting to an ouster of the cestui qui trust; (b) such positive
acts of repudiation have been made known to the cestui qui trust;
and, (c) the evidence thereon is clear and convincing. 42
In Tale v. Court of Appeals 43 the Court categorically ruled that
an action for reconveyance based on an implied or constructive
trust must perforce prescribe in ten (10) years, and not
otherwise, thereby modifying previous decisions holding that the
prescriptive period was four (4) years.
Neither the registration of the Oroquieta property in the name of
petitioner Emilia O'Laco nor the issuance of a new Torrens title in
1944 in her name in lieu of the alleged loss of the original may be
made the basis for the commencement of the prescriptive period.
For, the issuance of the Torrens title in the name of Emilia O'Laco
could not be considered adverse, much less fraudulent. Precisely,
although the property was bought by respondent-spouses, the
legal title was placed in the name of Emilia O'Laco. The transfer of
the Torrens title in her name was only in consonance with the
deed of sale in her favor. Consequently, there was no cause for
any alarm on the part of respondent-spouses. As late as 1959, or
just before she got married, Emilia continued to recognize the
ownership of respondent-spouses over the Oroquieta property.
Thus, until that point, respondent-spouses were not aware of any
act of Emilia which would convey to them the idea that she was
repudiating the resulting trust. The second requisite is therefore
absent. Hence, prescription did not begin to run until the sale of
the Oroquieta property, which was clearly an act of repudiation.
But immediately after Emilia sold the Oroquieta property which
is obviously a disavowal of the resulting trust, respondent-
spouses instituted the present suit for breach of trust.
Correspondingly, laches cannot lie against them.
After all, so long as the trustee recognizes the trust, the
beneficiary may rely upon the recognition, and ordinarily will not
be in fault for omitting to bring an action to enforce his rights. 44
There is no running of the prescriptive period if the trustee
expressly recognizes the resulting trust. 45 Since the complaint
for breach of trust was filed by respondent-spouses two (2)
months after acquiring knowledge of the sale, the action
therefore has not yet prescribed.
WHEREFORE, the Petition for Review on Certiorari is DENIED.
The Decision of the Court of Appeals of 9 April 1981, which
reversed the trial court, is AFFIRMED. Costs against petitioners.
SO ORDERED.
Rule 98_Full Texts 15 of 29

FIRST DIVISION
G.R. No. 140528 December 7, 2011
MARIA TORBELA, represented by her heirs, namely:
EULOGIO TOSINO, husband and children: CLARO, MAXIMINO,
CORNELIO, OLIVIA and CALIXTA, all surnamed TOSINO,
APOLONIA TOSINO VDA. DE RAMIREZ and JULITA TOSINO
DEAN; PEDRO TORBELA, represented by his heirs, namely:
JOSE and DIONISIO, both surnamed TORBELA; EUFROSINA
TORBELA ROSARIO, represented by her heirs, namely:
ESTEBAN T. ROSARIO, MANUEL T. ROSARIO, ROMULO T.
ROSARIO and ANDREA ROSARIO-HADUCA; LEONILA
TORBELA TAMIN; FERNANDO TORBELA, represented by his
heirs, namely: SERGIO T. TORBELA, EUTROPIA T. VELASCO,
PILAR T. ZULUETA, CANDIDO T. TORBELA, FLORENTINA T.
TORBELA and PANTALEON T. TORBELA; DOLORES TORBELA
TABLADA; LEONORA TORBELA AGUSTIN, represented by her
heirs, namely: PATRICIO, SEGUNDO, CONSUELO and FELIX,
all surnamed AGUSTIN; and SEVERINA TORBELA
ILDEFONSO, Petitioners,
vs.
SPOUSES ANDRES T. ROSARIO and LENA DUQUE-ROSARIO
and BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 140553
LENA DUQUE-ROSARIO, Petitioner,
vs.
BANCO FILIPINO SAVINGS AND MORTGAGE
BANK, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Presently before the Court are two consolidated Petitions for
Review on Certiorari under Rule 45 of the Rules of Court, both
assailing the Decision1 dated June 29, 1999 and Resolution2 dated
October 22, 1999 of the Court of Appeals in CA-G.R. CV No. 39770.
The petitioners in G.R. No. 140528 are siblings Maria
Torbela,3 Pedro Torbela,4 Eufrosina Torbela Rosario,5 Leonila
Torbela Tamin, Fernando Torbela,6 Dolores Torbela Tablada,
Leonora Torbela Agustin,7 and Severina Torbela Ildefonso
(Torbela siblings).
The petitioner in G.R. No. 140553 is Lena Duque-Rosario (Duque-
Rosario), who was married to, but now legally separated from,
Dr. Andres T. Rosario (Dr. Rosario). Dr. Rosario is the son of
Eufrosina Torbela Rosario and the nephew of the other Torbela
siblings.
The controversy began with a parcel of land, with an area of 374
square meters, located in Urdaneta City, Pangasinan (Lot No.
356-A). It was originally part of a larger parcel of land, known as
Lot No. 356 of the Cadastral Survey of Urdaneta, measuring 749
square meters, and covered by Original Certificate of Title (OCT)
No. 16676,8 in the name of Valeriano Semilla (Valeriano), married
to Potenciana Acosta. Under unexplained circumstances,
Valeriano gave Lot No. 356-A to his sister Marta Semilla, married
Rule 98_Full Texts 16 of 29
to Eugenio Torbela (spouses Torbela). Upon the deaths of the
spouses Torbela, Lot No. 356-A was adjudicated in equal shares
among their children, the Torbela siblings, by virtue of a Deed of
Extrajudicial Partition9 dated December 3, 1962.
On December 12, 1964, the Torbela siblings executed a Deed of
Absolute Quitclaim10 over Lot No. 356-A in favor of Dr. Rosario.
According to the said Deed, the Torbela siblings "for and in
consideration of the sum of NINE PESOS (₱9.00) x x x
transfer[red] and convey[ed] x x x unto the said Andres T.
Rosario, that undivided portion of THREE HUNDRED SEVENTY-
FOUR square meters of that parcel of land embraced in Original
Certificate of Title No. 16676 of the land records of Pangasinan x
x x."11 Four days later, on December 16, 1964, OCT No. 16676 in
Valeriano’s name was partially cancelled as to Lot No. 356-A and
TCT No. 5275112 was issued in Dr. Rosario’s name covering the
said property.
Another Deed of Absolute Quitclaim13 was subsequently executed
on December 28, 1964, this time by Dr. Rosario, acknowledging
that he only borrowed Lot No. 356-A from the Torbela siblings
and was already returning the same to the latter for ₱1.00. The
Deed stated:
That for and in consideration of the sum of one peso (₱1.00),
Philippine Currency and the fact that I only borrowed the above
described parcel of land from MARIA TORBELA, married to
Eulogio Tosino, EUFROSINA TORBELA, married to Pedro Rosario,
PEDRO TORBELA, married to Petra Pagador, LEONILA TORBELA,
married to Fortunato Tamen, FERNANDO TORBELA, married to
Victoriana Tablada, DOLORES TORBELA, widow, LEONORA
TORBELA, married to Matias Agustin and SEVERINA TORBELA,
married to Jorge Ildefonso, x x x by these presents do hereby
cede, transfer and convey by way of this ABSOLUTE QUITCLAIM
unto the said Maria, Eufrosina, Pedro, Leonila, Fernando, Dolores,
Leonora and Severina, all surnamed Torbela the parcel of land
described above.14 (Emphasis ours.)
The aforequoted Deed was notarized, but was not immediately
annotated on TCT No. 52751.
Following the issuance of TCT No. 52751, Dr. Rosario obtained a
loan from the Development Bank of the Philippines (DBP) on
February 21, 1965 in the sum of ₱70,200.00, secured by a
mortgage constituted on Lot No. 356-A. The mortgage was
annotated on TCT No. 52751 on September 21, 1965 as Entry No.
243537.15 Dr. Rosario used the proceeds of the loan for the
construction of improvements on Lot No. 356-A.
On May 16, 1967, Cornelio T. Tosino (Cornelio) executed an
Affidavit of Adverse Claim,16 on behalf of the Torbela siblings.
Cornelio deposed in said Affidavit:
3. That ANDRES T. ROSARIO later quitclaimed his rights
in favor of the former owners by virtue of a Deed of
Absolute Quitclaim which he executed before Notary
Public Banaga, and entered in his Notarial Registry as
Dec. No. 43; Page No. 9; Book No. I; Series of 1964;
4. That it is the desire of the parties, my aforestated
kins, to register ownership over the above-described
property or to perfect their title over the same but their
Deed could not be registered because the registered
owner now, ANDRES T. ROSARIO mortgaged the
property with the DEVELOPMENT BANK OF THE

PHILIPPINES, on September 21, 1965, and for which
reason, the Title is still impounded and held by the said
bank;
5. That pending payment of the obligation with the
DEVELOPMENT BANK OF THE PHILIPPINES or
redemption of the Title from said bank, I, CORNELIO T.
TOSINO, in behalf of my mother MARIA TORBELA-
TOSINO, and my Aunts EUFROSINA TORBELA, LEONILA
TORBELA-TAMEN, DOLORES TORBELA, LEONORA
TORBELA-AGUSTIN, SEVERINA TORBELA-ILDEFONSO,
and my Uncles PEDRO TORBELA and FERNANDO, also
surnamed TORBELA, I request the Register of Deeds of
Pangasinan to annotate their adverse claim at the back
of Transfer Certificate of Title No. 52751, based on the
annexed document, Deed of Absolute Quitclaim by
ANDRES T. ROSARIO, dated December 28, 1964,
marked as Annex "A" and made a part of this Affidavit,
and it is also requested that the DEVELOPMENT BANK
OF THE PHILIPPINES be informed accordingly.17
The very next day, on May 17, 1967, the Torbela siblings had
Cornelio’s Affidavit of Adverse Claim dated May 16, 1967 and Dr.
Rosario’s Deed of Absolute Quitclaim dated December 28, 1964
annotated on TCT No. 52751 as Entry Nos. 27447118 and
274472,19 respectively.
The construction of a four-storey building on Lot No. 356-A was
eventually completed. The building was initially used as a
hospital, but was later converted to a commercial building. Part
of the building was leased to PT&T; and the rest to Mrs. Andrea
Rosario-Haduca, Dr. Rosario’s sister, who operated the Rose Inn
Hotel and Restaurant.
Dr. Rosario was able to fully pay his loan from DBP. Under Entry
No. 520197 on TCT No. 5275120 dated March 6, 1981, the
mortgage appearing under Entry No. 243537 was cancelled per
the Cancellation and Discharge of Mortgage executed by DBP in
favor of Dr. Rosario and ratified before a notary public on July 11,
1980.
In the meantime, Dr. Rosario acquired another loan from the
Philippine National Bank (PNB) sometime in 1979-1981. Records
do not reveal though the original amount of the loan from PNB,
but the loan agreement was amended on March 5, 1981 and the
loan amount was increased to ₱450,000.00. The loan was secured
by mortgages constituted on the following properties: (1) Lot No.
356-A, covered by TCT No. 52751 in Dr. Rosario’s name; (2) Lot
No. 4489, with an area of 1,862 square meters, located in
Dagupan City, Pangasinan, covered by TCT No. 24832; and (3) Lot
No. 5-F-8-C-2-B-2-A, with an area of 1,001 square meters, located
in Nancayasan, Urdaneta, Pangasinan, covered by TCT No.
104189.21 The amended loan agreement and mortgage on Lot No.
356-A was annotated on TCT No. 52751 on March 6, 1981 as
Entry No. 520099.22
Five days later, on March 11, 1981, another annotation, Entry No.
520469,23 was made on TCT No. 52751, canceling the adverse
claim on Lot No. 356-A under Entry Nos. 274471-274472, on the
basis of the Cancellation and Discharge of Mortgage executed by
Dr. Rosario on March 5, 1981. Entry No. 520469 consisted of both
stamped and handwritten portions, and exactly reads:
Entry No. 520469. Cancellation of Adverse Claim executed
by Andres Rosario in favor of same. The incumbrance/mortgage
Rule 98_Full Texts 17 of 29
appearing under Entry No. 274471-72 is now cancelled as per
Cancellation and Discharge of Mortgage Ratified before Notary
Public Mauro G. Meris on March 5, 1981: Doc. No. 215; Page
No. 44; Book No. 1; Series Of 1981.
Lingayen, Pangasinan, 3-11, 19981
[Signed: Pedro dela Cruz]
Register of Deeds 24
On December 8, 1981, Dr. Rosario and his wife, Duque-Rosario
(spouses Rosario), acquired a third loan in the amount of
₱1,200,000.00 from Banco Filipino Savings and Mortgage Bank
(Banco Filipino). To secure said loan, the spouses Rosario again
constituted mortgages on Lot No. 356-A, Lot No. 4489, and Lot
No. 5-F-8-C-2-B-2-A. The mortgage on Lot No. 356-A was
annotated on TCT No. 52751 as Entry No. 53328325 on December
18, 1981. Since the construction of a two-storey commercial
building on Lot No. 5-F-8-C-2-B-2-A was still incomplete, the loan
value thereof as collateral was deducted from the approved loan
amount. Thus, the spouses Rosario could only avail of the
maximum loan amount of ₱830,064.00 from Banco Filipino.
Because Banco Filipino paid the balance of Dr. Rosario’s loan
from PNB, the mortgage on Lot No. 356-A in favor of PNB was
cancelled per Entry No. 53347826 on TCT No. 52751 dated
December 23, 1981.
On February 13, 1986, the Torbela siblings filed before the
Regional Trial Court (RTC) of Urdaneta, Pangasinan, a Complaint
for recovery of ownership and possession of Lot No. 356-A, plus
damages, against the spouses Rosario, which was docketed as
Civil Case No. U-4359. On the same day, Entry Nos. 593493 and
593494 were made on TCT No. 52751 that read as follows:
Entry No. 593494 – Complaint – Civil Case No. U-4359 (For:
Recovery of Ownership and Possession and Damages. (Sup.
Paper).
Entry No. 593493 – Notice of Lis Pendens – The parcel of land
described in this title is subject to Lis Pendens executed by Liliosa
B. Rosario, CLAO, Trial Attorney dated February 13, 1986. Filed
to TCT No. 52751
February 13, 1986-1986 February 13 – 3:30 p.m.
(SGD.) PACIFICO M. BRAGANZA
Register of Deeds27
The spouses Rosario afterwards failed to pay their loan from
Banco Filipino. As of April 2, 1987, the spouses Rosario’s
outstanding principal obligation and penalty charges amounted
to ₱743,296.82 and ₱151,524.00, respectively.28
Banco Filipino extrajudicially foreclosed the mortgages on Lot
No. 356-A, Lot No. 4489, and Lot No. 5-F-8-C-2-B-2-A. During the
public auction on April 2, 1987, Banco Filipino was the lone
bidder for the three foreclosed properties for the price of
₱1,372,387.04. The Certificate of Sale29 dated April 2, 1987, in
favor of Banco Filipino, was annotated on TCT No. 52751 on April
14, 1987 as Entry No. 610623.30

On December 9, 1987, the Torbela siblings filed before the RTC
their Amended Complaint,31 impleading Banco Filipino as
additional defendant in Civil Case No. U-4359 and praying that
the spouses Rosario be ordered to redeem Lot No. 356-A from
Banco Filipino.
The spouses Rosario instituted before the RTC on March 4, 1988
a case for annulment of extrajudicial foreclosure and damages,
with prayer for a writ of preliminary injunction and temporary
restraining order, against Banco Filipino, the Provincial Ex Officio
Sheriff and his Deputy, and the Register of Deeds of Pangasinan.
The case was docketed as Civil Case No. U-4667. Another notice
of lis pendens was annotated on TCT No. 52751 on March 10,
1988 as Entry No. 627059, viz:
Entry No. 627059 – Lis Pendens – Dr. Andres T. Rosario and Lena
Duque Rosario, Plaintiff versus Banco Filipino, et. al. Civil Case
No. U-4667 or Annulment of ExtraJudicial Foreclosure of Real
Estate Mortgage – The parcel of land described in this title is
subject to Notice of Lis Pendens subscribed and sworn to before
Notary Public Mauro G. Meris, as Doc. No. 21; Page No. 5; Book
111; S-1988. March 7, 1988-1988 March 10, 1:00 p.m.
(SGD.) RUFINO M. MORENO, SR.
Register of Deeds32
The Torbela siblings intervened in Civil Case No. U-4667.
Eventually, on October 17, 1990, the RTC issued an
Order33 dismissing without prejudice Civil Case No. U-4667 due
to the spouses Rosario’s failure to prosecute.
Meanwhile, the Torbela siblings tried to redeem Lot No. 356-A
from Banco Filipino, but their efforts were unsuccessful. Upon the
expiration of the one-year redemption period in April 1988, the
Certificate of Final Sale34and Affidavit of Consolidation35 covering
all three foreclosed properties were executed on May 24, 1988
and May 25, 1988, respectively.
On June 7, 1988, new certificates of title were issued in the name
of Banco Filipino, particularly, TCT No. 165812 for Lot No. 5-F-8-
C-2-B-2-A and TCT No. 165813 for Lot No. 356-A .36
The Torbela siblings thereafter filed before the RTC on August 29,
1988 a Complaint37 for annulment of the Certificate of Final Sale
dated May 24, 1988, judicial cancelation of TCT No. 165813, and
damages, against Banco Filipino, the Ex Officio Provincial Sheriff,
and the Register of Deeds of Pangasinan, which was docketed as
Civil Case No. U-4733.
On June 19, 1991, Banco Filipino filed before the RTC of Urdaneta
City a Petition for the issuance of a writ of possession. In said
Petition, docketed as Pet. Case No. U-822, Banco Filipino prayed
that a writ of possession be issued in its favor over Lot No. 5-F-8-
C-2-B-2-A and Lot No. 356-A, plus the improvements thereon,
and the spouses Rosario and other persons presently in
possession of said properties be directed to abide by said writ.
The RTC jointly heard Civil Case Nos. U-4359 and U-4733 and Pet.
Case No. U-822. The Decision38 on these three cases was
promulgated on January 15, 1992, the dispositive portion of
which reads:
WHEREFORE, judgment is rendered:
Rule 98_Full Texts 18 of 29
1. Declaring the real estate mortgage over Lot 356-A
covered by TCT 52751 executed by Spouses Andres
Rosario in favor of Banco Filipino, legal and valid;
2. Declaring the sheriff’s sale dated April 2, 1987 over
Lot 356-A covered by TCT 52751 and subsequent final
Deed of Sale dated May 14, 1988 over Lot 356-A
covered by TCT No. 52751 legal and valid;
3. Declaring Banco Filipino the owner of Lot 356-A
covered by TCT No. 52751 (now TCT 165813);
4. Banco Filipino is entitled to a Writ of Possession over
Lot 356-A together with the improvements thereon
(Rose Inn Building). The Branch Clerk of Court is hereby
ordered to issue a writ of possession in favor of Banco
Filipino;
5. [The Torbela siblings] are hereby ordered to render
accounting to Banco Filipino the rental they received
from tenants of Rose Inn Building from May 14, 1988;
6. [The Torbela siblings] are hereby ordered to pay
Banco Filipino the sum of ₱20,000.00 as attorney’s fees;
7. Banco Filipino is hereby ordered to give [the Torbela
siblings] the right of first refusal over Lot 356-A. The
Register of Deeds is hereby ordered to annotate the
right of [the Torbela siblings] at the back of TCT No.
165813 after payment of the required fees;
8. Dr. Rosario and Lena Rosario are hereby ordered to
reimburse [the Torbela siblings] the market value of Lot
356-A as of December, 1964 minus payments made by
the former;
9. Dismissing the complaint of [the Torbela siblings]
against Banco Filipino, Pedro Habon and Rufino Moreno
in Civil Case No. U-4733; and against Banco Filipino in
Civil Case No. U-4359.39
The RTC released an Amended Decision40 dated January 29,
1992, adding the following paragraph to the dispositive:
Banco Filipino is entitled to a Writ of Possession over Lot-5-F-8-
C-2-[B]-2-A of the subdivision plan (LRC) Psd-122471, covered
by Transfer Certificate of Title 104189 of the Registry of Deeds of
Pangasinan[.]41
The Torbela siblings and Dr. Rosario appealed the foregoing RTC
judgment before the Court of Appeals. Their appeal was docketed
as CA-G.R. CV No. 39770.
In its Decision42 dated June 29, 1999, the Court of Appeals
decreed:
WHEREFORE, foregoing considered, the appealed decision is
hereby AFFIRMED with modification. Items No. 6 and 7 of the
appealed decision are DELETED. Item No. 8 is modified requiring
[Dr. Rosario] to pay [the Torbela siblings] actual damages, in the
amount of ₱1,200,000.00 with 6% per annum interest from
finality of this decision until fully paid. [Dr. Rosario] is further
ORDERED to pay [the Torbela siblings] the amount of

₱300,000.00 as moral damages; ₱200,000.00 as exemplary
damages and ₱100,000.00 as attorney’s fees.
Costs against [Dr. Rosario].43
The Court of Appeals, in a Resolution44 dated October 22, 1999,
denied the separate Motions for Reconsideration of the Torbela
siblings and Dr. Rosario.
The Torbela siblings come before this Court via the Petition for
Review in G.R. No. 140528, with the following assignment of
errors:
First Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN NOT FINDING THAT THE REGISTRATION OF
THE DEED OF ABSOLUTE QUITCLAIM EXECUTED BY
[DR. ANDRES T. ROSARIO] IN FAVOR OF THE
[TORBELA SIBLINGS] DATED DECEMBER 28, 1964 AND
THE REGISTRATION OF THE NOTICE OF ADVERSE
CLAIM EXECUTED BY THE [TORBELA SIBLINGS],
SERVE AS THE OPERATIVE ACT TO CONVEY OR
AFFECT THE LAND AND IMPROVEMENTS THEREOF IN
SO FAR AS THIRD PERSONS ARE CONCERNED.
Second Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT THE SUBJECT PROPERTY
COVERED BY T.C.T. NO. 52751 IS CLEAN AND FREE,
DESPITE OF THE ANNOTATION OF ENCUMBRANCES
OF THE NOTICE OF ADVERSE CLAIM AND THE DEED
OF ABSOLUTE QUITCLAIM APPEARING AT THE BACK
THEREOF AS ENTRY NOS. 274471 AND 274472,
RESPECTIVELY.
Third Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT THE NOTICE OF ADVERSE
CLAIM OF THE [TORBELA SIBLINGS] UNDER ENTRY
NO. 274471 WAS VALIDLY CANCELLED BY THE
REGISTER OF DEEDS, IN THE ABSENCE OF A PETITION
DULY FILED IN COURT FOR ITS CANCELLATION.
Fourth Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT RESPONDENT BANCO
FILIPINO SAVINGS AND MORTGAGE BANK IS A
MORTGAGEE IN GOOD FAITH.
Fifth Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN NOT FINDING THAT THE FILING OF A CIVIL
CASE NO. U-4359 ON DECEMBER 9, 1987, IMPLEADING
RESPONDENT BANCO FILIPINO AS ADDITIONAL
PARTY DEFENDANT, TOLL OR SUSPEND THE RUNNING
OF THE ONE YEAR PERIOD OF REDEMPTION.
Sixth Issue and Assignment of Error:
Rule 98_Full Texts 19 of 29
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN NOT FINDING THAT THE OWNERSHIP OVER
THE SUBJECT PROPERTY WAS PREMATURELY
CONSOLIDATED IN FAVOR OF RESPONDENT BANCO
FILIPINO SAVINGS AND MORTGAGE BANK.
Seventh Issue and Assignment of Error:
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN FINDING THAT THE SUBJECT PROPERTY IS
AT LEAST WORTH ₱1,200,000.00.45
The Torbela siblings ask of this Court:
WHEREFORE, in the light of the foregoing considerations, the
[Torbela siblings] most respectfully pray that the questioned
DECISION promulgated on June 29, 1999 (Annex "A", Petition)
and the RESOLUTION dated October 22, 1999 (Annex "B",
Petition) be REVERSED and SET ASIDE, and/or further
MODIFIED in favor of the [Torbela siblings], and another
DECISION issue ordering, among other reliefs, the respondent
Banco Filipino to reconvey back Lot No. 356-A, covered by T.C.T.
No. 52751, in favor of the [Torbela siblings] who are the actual
owners of the same.
The [Torbela siblings] likewise pray for such other reliefs and
further remedies as may be deemed just and equitable under the
premises.46
Duque-Rosario, now legally separated from Dr. Rosario, avers in
her Petition for Review in G.R. No. 140553 that Lot No. 4489 and
Lot No. 5-F-8-C-2-B-2-A were registered in her name, and she
was unlawfully deprived of ownership of said properties because
of the following errors of the Court of Appeals:
A
THE HON. COURT OF APPEALS PATENTLY ERRED IN
NOT FINDING THAT THE PERIOD TO REDEEM THE
PROPERTY HAS NOT COMMENCED, HENCE, THE
CERTIFICATE OF SALE, THE CONSOLIDATION OF
OWNERSHIP BY [BANCO FILIPINO], ARE NULL AND
VOID.
B
THE COURT OF APPEALS PATENTLY ERRED IN
REFUSING TO RULE THAT THE FILING OF THE
COMPLAINT BEFORE THE COURT A QUO BY THE
[TORBELA SIBLINGS] HAD ALREADY BEEN
PRESCRIBED.47
Duque-Rosario prays that the appealed decision of the Court of
Appeals be reversed and set aside, and that Lot No. 4489 and Lot
No. 5-F-8-C-2-B-2-A be freed from all obligations and
encumbrances and returned to her.
Review of findings of fact by the RTC and the Court of Appeals
warranted.
A disquisition of the issues raised and/or errors assigned in the
Petitions at bar unavoidably requires a re-evaluation of the facts
and evidence presented by the parties in the court a quo.

In Republic v. Heirs of Julia Ramos,48 the Court summed up the
rules governing the power of review of the Court:
Ordinarily, this Court will not review, much less reverse, the
factual findings of the Court of Appeals, especially where such
findings coincide with those of the trial
court.http://sc.judiciary.gov.ph/jurisprudence/2010/february20
10/169481.htm - _ftn The findings of facts of the Court of Appeals
are, as a general rule, conclusive and binding upon this Court,
since this Court is not a trier of facts and does not routinely
undertake the re-examination of the evidence presented by the
contending parties during the trial of the case.
The above rule, however, is subject to a number of exceptions,
such as (1) when the inference made is manifestly mistaken,
absurd or impossible; (2) when there is grave abuse of
discretion; (3) when the finding is grounded entirely on
speculations, surmises, or conjectures; (4) when the judgment of
the Court of Appeals is based on misapprehension of facts; (5)
when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the
case and the same is contrary to the admissions of both parties;
(7) when the findings of the Court of Appeals are contrary to
those of the trial court; (8) when the findings of fact are
conclusions without citation of specific evidence on which they
are based; (9) when the Court of Appeals manifestly overlooked
certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and
(10) when the findings of fact of the Court of Appeals are
premised on the absence of evidence and are contradicted by the
evidence on record.49
As the succeeding discussion will bear out, the first, fourth, and
ninth exceptions are extant in these case.
Barangay conciliation was not a pre-requisite to the institution of
Civil Case No. U-4359.
Dr. Rosario contends that Civil Case No. U-4359, the Complaint of
the Torbela siblings for recovery of ownership and possession of
Lot No. 356-A, plus damages, should have been dismissed by the
RTC because of the failure of the Torbela siblings to comply with
the prior requirement of submitting the dispute to barangay
conciliation.
The Torbela siblings instituted Civil Case No. U-4359 on February
13, 1986, when Presidential Decree No. 1508, Establishing a
System of Amicably Settling Disputes at the Barangay Level, was
still in effect.50 Pertinent provisions of said issuance read:
Section 2. Subject matters for amicable settlement. The Lupon of
each barangay shall have authority to bring together the parties
actually residing in the same city or municipality for amicable
settlement of all disputes except:
1. Where one party is the government, or any
subdivision or instrumentality thereof;
2. Where one party is a public officer or employee, and
the dispute relates to the performance of his official
functions;
3. Offenses punishable by imprisonment exceeding 30
days, or a fine exceeding ₱200.00;
Rule 98_Full Texts 20 of 29
4. Offenses where there is no private offended party;
5. Such other classes of disputes which the Prime
Minister may in the interest of justice determine upon
recommendation of the Minister of Justice and the
Minister of Local Government.
Section 3. Venue. Disputes between or among persons actually
residing in the same barangay shall be brought for amicable
settlement before the Lupon of said barangay. Those involving
actual residents of different barangays within the same city or
municipality shall be brought in the barangay where the
respondent or any of the respondents actually resides, at the
election of the complainant. However, all disputes which involved
real property or any interest therein shall be brought in the
barangay where the real property or any part thereof is situated.
The Lupon shall have no authority over disputes:
1. involving parties who actually reside in barangays of
different cities or municipalities, except where such
barangays adjoin each other; and
2. involving real property located in different
municipalities.
xxxx
Section 6. Conciliation, pre-condition to filing of complaint. – No
complaint, petition, action or proceeding involving any matter
within the authority of the Lupon as provided in Section 2 hereof
shall be filed or instituted in court or any other government office
for adjudication unless there has been a confrontation of the
parties before the Lupon Chairman or the Pangkat and no
conciliation or settlement has been reached as certified by the
Lupon Secretary or the Pangkat Secretary, attested by the Lupon
or Pangkat Chairman, or unless the settlement has been
repudiated. x x x. (Emphases supplied.)
The Court gave the following elucidation on the jurisdiction of the
Lupong Tagapayapa in Tavora v. Hon. Veloso51 :
The foregoing provisions are quite clear. Section 2 specifies the
conditions under which the Lupon of a barangay "shall have
authority" to bring together the disputants for amicable
settlement of their dispute: The parties must be "actually residing
in the same city or municipality." At the same time, Section 3 —
while reiterating that the disputants must be "actually residing in
the same barangay" or in "different barangays" within the same
city or municipality — unequivocably declares that the Lupon
shall have "no authority" over disputes "involving parties who
actually reside in barangays of different cities or municipalities,"
except where such barangays adjoin each other.
Thus, by express statutory inclusion and exclusion, the Lupon
shall have no jurisdiction over disputes where the parties are not
actual residents of the same city or municipality, except where
the barangays in which they actually reside adjoin each other.
It is true that immediately after specifying the barangay whose
Lupon shall take cognizance of a given dispute, Sec. 3 of PD 1508
adds:

"However, all disputes which involve real property or any
interest therein shall be brought in the barangay where the real
property or any part thereof is situated."
Actually, however, this added sentence is just an ordinary proviso
and should operate as such.
The operation of a proviso, as a rule, should be limited to its
normal function, which is to restrict or vary the operation of the
principal clause, rather than expand its scope, in the absence of a
clear indication to the contrary.
"The natural and appropriate office of a proviso is . . . to except
something from the enacting clause; to limit, restrict, or qualify
the statute in whole or in part; or to exclude from the scope of the
statute that which otherwise would be within its terms." (73 Am
Jur 2d 467.)
Therefore, the quoted proviso should simply be deemed to
restrict or vary the rule on venue prescribed in the principal
clauses of the first paragraph of Section 3, thus: Although venue
is generally determined by the residence of the parties, disputes
involving real property shall be brought in the barangay where
the real property or any part thereof is situated, notwithstanding
that the parties reside elsewhere within the same
city/municipality.52 (Emphases supplied.)
The original parties in Civil Case No. U-4359 (the Torbela siblings
and the spouses Rosario) do not reside in the same barangay, or
in different barangays within the same city or municipality, or in
different barangays of different cities or municipalities but are
adjoining each other. Some of them reside outside Pangasinan
and even outside of the country altogether. The Torbela siblings
reside separately in Barangay Macalong, Urdaneta, Pangasinan;
Barangay Consolacion, Urdaneta, Pangasinan; Pangil, Laguna;
Chicago, United States of America; and Canada. The spouses
Rosario are residents of Calle Garcia, Poblacion, Urdaneta,
Pangasinan. Resultantly, the Lupon had no jurisdiction over the
dispute and barangay conciliation was not a pre-condition for the
filing of Civil Case No. U-4359.
The Court now looks into the merits of Civil Case No. U-4359.
There was an express trust between the Torbela siblings and Dr.
Rosario.
There is no dispute that the Torbela sibling inherited the title to
Lot No. 356-A from their parents, the Torbela spouses, who, in
turn, acquired the same from the first registered owner of Lot No.
356-A, Valeriano.
Indeed, the Torbela siblings executed a Deed of Absolute
Quitclaim on December 12, 1964 in which they transferred and
conveyed Lot No. 356-A to Dr. Rosario for the consideration of
₱9.00. However, the Torbela siblings explained that they only
executed the Deed as an accommodation so that Dr. Rosario
could have Lot No. 356-A registered in his name and use said
property to secure a loan from DBP, the proceeds of which would
be used for building a hospital on Lot No. 356-A – a claim
supported by testimonial and documentary evidence, and borne
out by the sequence of events immediately following the
execution by the Torbela siblings of said Deed. On December 16,
1964, TCT No. 52751, covering Lot No. 356-A, was already issued
in Dr. Rosario’s name. On December 28, 1964, Dr. Rosario
Rule 98_Full Texts 21 of 29
executed his own Deed of Absolute Quitclaim, in which he
expressly acknowledged that he "only borrowed" Lot No. 356-A
and was transferring and conveying the same back to the Torbela
siblings for the consideration of ₱1.00. On February 21, 1965, Dr.
Rosario’s loan in the amount of ₱70,200.00, secured by a
mortgage on Lot No. 356-A, was approved by DBP. Soon
thereafter, construction of a hospital building started on Lot No.
356-A.
Among the notable evidence presented by the Torbela siblings is
the testimony of Atty. Lorenza Alcantara (Atty. Alcantara), who
had no apparent personal interest in the present case. Atty.
Alcantara, when she was still a boarder at the house of Eufrosina
Torbela Rosario (Dr. Rosario’s mother), was consulted by the
Torbela siblings as regards the extrajudicial partition of Lot No.
356-A. She also witnessed the execution of the two Deeds of
Absolute Quitclaim by the Torbela siblings and Dr. Rosario.
In contrast, Dr. Rosario presented TCT No. 52751, issued in his
name, to prove his purported title to Lot No. 356-A. In Lee Tek
Sheng v. Court of Appeals,53 the Court made a clear distinction
between title and the certificate of title:
The certificate referred to is that document issued by the Register
of Deeds known as the Transfer Certificate of Title (TCT). By title,
the law refers to ownership which is represented by that
document. Petitioner apparently confuses certificate with title.
Placing a parcel of land under the mantle of the Torrens system
does not mean that ownership thereof can no longer be disputed.
Ownership is different from a certificate of title. The TCT is only
the best proof of ownership of a piece of land. Besides, the
certificate cannot always be considered as conclusive evidence of
ownership. Mere issuance of the certificate of title in the name of
any person does not foreclose the possibility that the real
property may be under co-ownership with persons not named in
the certificate or that the registrant may only be a trustee or that
other parties may have acquired interest subsequent to the
issuance of the certificate of title. To repeat, registration is not
the equivalent of title, but is only the best evidence thereof. Title
as a concept of ownership should not be confused with the
certificate of title as evidence of such ownership although both
are interchangeably used. x x x.54 (Emphases supplied.)
Registration does not vest title; it is merely the evidence of such
title. Land registration laws do not give the holder any better title
than what he actually has.55 Consequently, Dr. Rosario must still
prove herein his acquisition of title to Lot No. 356-A, apart from
his submission of TCT No. 52751 in his name.
Dr. Rosario testified that he obtained Lot No. 356-A after paying
the Torbela siblings ₱25,000.00, pursuant to a verbal agreement
with the latter. The Court though observes that Dr. Rosario’s
testimony on the execution and existence of the verbal
agreement with the Torbela siblings lacks significant details
(such as the names of the parties present, dates, places, etc.) and
is not corroborated by independent evidence.
In addition, Dr. Rosario acknowledged the execution of the two
Deeds of Absolute Quitclaim dated December 12, 1964 and
December 28, 1964, even affirming his own signature on the
latter Deed. The Parol Evidence Rule provides that when the
terms of the agreement have been reduced into writing, it is
considered as containing all the terms agreed upon and there can
be, between the parties and their successors in interest, no
evidence of such terms other than the contents of the written

agreement.56 Dr. Rosario may not modify, explain, or add to the
terms in the two written Deeds of Absolute Quitclaim since he did
not put in issue in his pleadings (1) an intrinsic ambiguity,
mistake, or imperfection in the Deeds; (2) failure of the Deeds to
express the true intent and the agreement of the parties thereto;
(3) the validity of the Deeds; or (4) the existence of other terms
agreed to by the Torbela siblings and Dr. Rosario after the
execution of the Deeds.57
Even if the Court considers Dr. Rosario’s testimony on his alleged
verbal agreement with the Torbela siblings, the Court finds the
same unsatisfactory. Dr. Rosario averred that the two Deeds were
executed only because he was "planning to secure loan from the
Development Bank of the Philippines and Philippine National
Bank and the bank needed absolute quitclaim[.]"58 While Dr.
Rosario’s explanation makes sense for the first Deed of Absolute
Quitclaim dated December 12, 1964 executed by the Torbela
siblings (which transferred Lot No. 356-A to Dr. Rosario for
₱9.00.00), the same could not be said for the second Deed of
Absolute Quitclaim dated December 28, 1964 executed by Dr.
Rosario. In fact, Dr. Rosario’s Deed of Absolute Quitclaim (in
which he admitted that he only borrowed Lot No. 356-A and was
transferring the same to the Torbela siblings for ₱1.00.00) would
actually work against the approval of Dr. Rosario’s loan by the
banks. Since Dr. Rosario’s Deed of Absolute Quitclaim dated
December 28, 1964 is a declaration against his self-interest, it
must be taken as favoring the truthfulness of the contents of said
Deed.59
It can also be said that Dr. Rosario is estopped from claiming or
asserting ownership over Lot No. 356-A based on his Deed of
Absolute Quitclaim dated December 28, 1964. Dr. Rosario's
admission in the said Deed that he merely borrowed Lot No. 356-
A is deemed conclusive upon him. Under Article 1431 of the Civil
Code, "[t]hrough estoppel an admission or representation is
rendered conclusive upon the person making it, and cannot be
denied or disproved as against the person relying
thereon."60 That admission cannot now be denied by Dr. Rosario
as against the Torbela siblings, the latter having relied upon his
representation.
Considering the foregoing, the Court agrees with the RTC and the
Court of Appeals that Dr. Rosario only holds Lot No. 356-A in
trust for the Torbela siblings.
Trust is the right to the beneficial enjoyment of property, the
legal title to which is vested in another. It is a fiduciary
relationship that obliges the trustee to deal with the property for
the benefit of the beneficiary. Trust relations between parties
may either be express or implied. An express trust is created by
the intention of the trustor or of the parties, while an implied
trust comes into being by operation of law.61
Express trusts are created by direct and positive acts of the
parties, by some writing or deed, or will, or by words either
expressly or impliedly evincing an intention to create a trust.
Under Article 1444 of the Civil Code, "[n]o particular words are
required for the creation of an express trust, it being sufficient
that a trust is clearly intended."62It is possible to create a trust
without using the word "trust" or "trustee." Conversely, the mere
fact that these words are used does not necessarily indicate an
intention to create a trust. The question in each case is whether
the trustor manifested an intention to create the kind of
relationship which to lawyers is known as trust. It is immaterial
whether or not he knows that the relationship which he intends
to create is called a trust, and whether or not he knows the
Rule 98_Full Texts 22 of 29
precise characteristics of the relationship which is called a
trust.63
In Tamayo v. Callejo,64 the Court recognized that a trust may have
a constructive or implied nature in the beginning, but the
registered owner’s subsequent express acknowledgement in a
public document of a previous sale of the property to another
party, had the effect of imparting to the aforementioned trust the
nature of an express trust. The same situation exists in this case.
When Dr. Rosario was able to register Lot No. 356-A in his name
under TCT No. 52751 on December 16, 1964, an implied trust
was initially established between him and the Torbela siblings
under Article 1451 of the Civil Code, which provides:
ART. 1451. When land passes by succession to any person and he
causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit of the true
owner.
Dr. Rosario’s execution of the Deed of Absolute Quitclaim on
December 28, 1964, containing his express admission that he
only borrowed Lot No. 356-A from the Torbela siblings,
eventually transformed the nature of the trust to an express one.
The express trust continued despite Dr. Rosario stating in his
Deed of Absolute Quitclaim that he was already returning Lot No.
356-A to the Torbela siblings as Lot No. 356-A remained
registered in Dr. Rosario’s name under TCT No. 52751 and Dr.
Rosario kept possession of said property, together with the
improvements thereon.
The right of the Torbela siblings to recover Lot No. 356-A has not
yet prescribed.
The Court extensively discussed the prescriptive period for
express trusts in the Heirs of Maximo Labanon v. Heirs of
Constancio Labanon,65 to wit:
On the issue of prescription, we had the opportunity to rule in
Bueno v. Reyes that unrepudiated written express trusts are
imprescriptible:
"While there are some decisions which hold that an action upon a
trust is imprescriptible, without distinguishing between express
and implied trusts, the better rule, as laid down by this Court in
other decisions, is that prescription does supervene where the
trust is merely an implied one. The reason has been expressed by
Justice J.B.L. Reyes in J.M. Tuason and Co., Inc. vs. Magdangal, 4
SCRA 84, 88, as follows:
Under Section 40 of the old Code of Civil Procedure, all actions for
recovery of real property prescribed in 10 years, excepting only
actions based on continuing or subsisting trusts that were
considered by section 38 as imprescriptible. As held in the case of
Diaz v. Gorricho, L-11229, March 29, 1958, however, the
continuing or subsisting trusts contemplated in section 38 of the
Code of Civil Procedure referred only to express unrepudiated
trusts, and did not include constructive trusts (that are imposed
by law) where no fiduciary relation exists and the trustee does
not recognize the trust at all."
This principle was amplified in Escay v. Court of Appeals this
way: "Express trusts prescribe 10 years from the repudiation of
the trust (Manuel Diaz, et al. vs. Carmen Gorricho et al., 54 O.G. p.
8429, Sec. 40, Code of Civil Procedure)."

In the more recent case of Secuya v. De Selma, we again ruled that
the prescriptive period for the enforcement of an express trust of
ten (10) years starts upon the repudiation of the trust by the
trustee.66
To apply the 10-year prescriptive period, which would bar a
beneficiary’s action to recover in an express trust, the
repudiation of the trust must be proven by clear and convincing
evidence and made known to the beneficiary.67 The express trust
disables the trustee from acquiring for his own benefit the
property committed to his management or custody, at least while
he does not openly repudiate the trust, and makes such
repudiation known to the beneficiary or cestui que trust. For this
reason, the old Code of Civil Procedure (Act 190) declared that
the rules on adverse possession do not apply to "continuing and
subsisting" (i.e., unrepudiated) trusts. In an express trust, the
delay of the beneficiary is directly attributable to the trustee who
undertakes to hold the property for the former, or who is linked
to the beneficiary by confidential or fiduciary relations. The
trustee's possession is, therefore, not adverse to the beneficiary,
until and unless the latter is made aware that the trust has been
repudiated.68
Dr. Rosario argues that he is deemed to have repudiated the trust
on December 16, 1964, when he registered Lot No. 356-A in his
name under TCT No. 52751, so when on February 13, 1986, the
Torbela siblings instituted before the RTC Civil Case No. U-4359,
for the recovery of ownership and possession of Lot No. 356-A
from the spouses Rosario, over 21 years had passed. Civil Case
No. U-4359 was already barred by prescription, as well as laches.
The Court already rejected a similar argument in Ringor v.
Ringor69 for the following reasons:
A trustee who obtains a Torrens title over a property held in trust
for him by another cannot repudiate the trust by relying on the
registration. A Torrens Certificate of Title in Jose’s name did not
vest ownership of the land upon him. The Torrens system does
not create or vest title. It only confirms and records title already
existing and vested. It does not protect a usurper from the true
owner. The Torrens system was not intended to foment betrayal
in the performance of a trust. It does not permit one to enrich
himself at the expense of another. Where one does not have a
rightful claim to the property, the Torrens system of registration
can confirm or record nothing. Petitioners cannot rely on the
registration of the lands in Jose’s name nor in the name of the
Heirs of Jose M. Ringor, Inc., for the wrong result they seek. For
Jose could not repudiate a trust by relying on a Torrens title he
held in trust for his co-heirs. The beneficiaries are entitled to
enforce the trust, notwithstanding the irrevocability of the
Torrens title. The intended trust must be sustained.70 (Emphasis
supplied.)
In the more recent case of Heirs of Tranquilino Labiste v. Heirs of
Jose Labiste,71 the Court refused to apply prescription and laches
and reiterated that:
[P]rescription and laches will run only from the time the express
trust is repudiated. The Court has held that for acquisitive
prescription to bar the action of the beneficiary against the
trustee in an express trust for the recovery of the property held
in trust it must be shown that: (a) the trustee has performed
unequivocal acts of repudiation amounting to an ouster of the
cestui que trust; (b) such positive acts of repudiation have been
made known to the cestui que trust, and (c) the evidence thereon
Rule 98_Full Texts 23 of 29
is clear and conclusive. Respondents cannot rely on the fact that
the Torrens title was issued in the name of Epifanio and the other
heirs of Jose. It has been held that a trustee who obtains a
Torrens title over property held in trust by him for another
cannot repudiate the trust by relying on the registration. The rule
requires a clear repudiation of the trust duly communicated to
the beneficiary. The only act that can be construed as repudiation
was when respondents filed the petition for reconstitution in
October 1993. And since petitioners filed their complaint in
January 1995, their cause of action has not yet prescribed, laches
cannot be attributed to them.72 (Emphasis supplied.)
It is clear that under the foregoing jurisprudence, the registration
of Lot No. 356-A by Dr. Rosario in his name under TCT No. 52751
on December 16, 1964 is not the repudiation that would have
caused the 10-year prescriptive period for the enforcement of an
express trust to run.
The Court of Appeals held that Dr. Rosario repudiated the
express trust when he acquired another loan from PNB and
constituted a second mortgage on Lot No. 356-A sometime in
1979, which, unlike the first mortgage to DBP in 1965, was
without the knowledge and/or consent of the Torbela siblings.
The Court only concurs in part with the Court of Appeals on this
matter.
For repudiation of an express trust to be effective, the
unequivocal act of repudiation had to be made known to the
Torbela siblings as the cestuis que trust and must be proven by
clear and conclusive evidence. A scrutiny of TCT No. 52751
reveals the following inscription:
Entry No. 520099
Amendment of the mortgage in favor of PNB inscribed under
Entry No. 490658 in the sense that the consideration thereof has
been increased to PHILIPPINE PESOS Four Hundred Fifty
Thousand Pesos only (₱450,000.00) and to secure any and all
negotiations with PNB, whether contracted before, during or
after the date of this instrument, acknowledged before Notary
Public of Pangasinan Alejo M. Dato as Doc. No. 198, Page No. 41,
Book No. 11, Series of 1985.
Date of Instrument March 5, 1981
Date of Inscription March 6, 198173
Although according to Entry No. 520099, the original loan and
mortgage agreement of Lot No. 356-A between Dr. Rosario and
PNB was previously inscribed as Entry No. 490658, Entry No.
490658 does not actually appear on TCT No. 52751 and, thus, it
cannot be used as the reckoning date for the start of the
prescriptive period.
The Torbela siblings can only be charged with knowledge of the
mortgage of Lot No. 356-A to PNB on March 6, 1981 when the
amended loan and mortgage agreement was registered on TCT
No. 52751 as Entry No. 520099. Entry No. 520099 is constructive
notice to the whole world74 that Lot No. 356-A was mortgaged by
Dr. Rosario to PNB as security for a loan, the amount of which
was increased to ₱450,000.00. Hence, Dr. Rosario is deemed to
have effectively repudiated the express trust between him and
the Torbela siblings on March 6, 1981, on which day, the

prescriptive period for the enforcement of the express trust by
the Torbela siblings began to run.
From March 6, 1981, when the amended loan and mortgage
agreement was registered on TCT No. 52751, to February 13,
1986, when the Torbela siblings instituted before the RTC Civil
Case No. U-4359 against the spouses Rosario, only about five
years had passed. The Torbela siblings were able to institute Civil
Case No. U-4359 well before the lapse of the 10-year prescriptive
period for the enforcement of their express trust with Dr.
Rosario.
Civil Case No. U-4359 is likewise not barred by laches. Laches
means the failure or neglect, for an unreasonable and
unexplained length of time, to do that which by exercising due
diligence could or should have been done earlier. It is negligence
or omission to assert a right within a reasonable time, warranting
a presumption that the party entitled to assert it either has
abandoned it or declined to assert it. As the Court explained in
the preceding paragraphs, the Torbela siblings instituted Civil
Case No. U-4359 five years after Dr. Rosario’s repudiation of the
express trust, still within the 10-year prescriptive period for
enforcement of such trusts. This does not constitute an
unreasonable delay in asserting one's right. A delay within the
prescriptive period is sanctioned by law and is not considered to
be a delay that would bar relief. Laches apply only in the absence
of a statutory prescriptive period.75
Banco Filipino is not a mortgagee and buyer in good faith.
Having determined that the Torbela siblings are the true owners
and Dr. Rosario merely the trustee of Lot No. 356-A, the Court is
next faced with the issue of whether or not the Torbela siblings
may still recover Lot No. 356-A considering that Dr. Rosario had
already mortgaged Lot No. 356-A to Banco Filipino, and upon Dr.
Rosario’s default on his loan obligations, Banco Filipino
foreclosed the mortgage, acquired Lot No. 356-A as the highest
bidder at the foreclosure sale, and consolidated title in its name
under TCT No. 165813. The resolution of this issue depends on
the answer to the question of whether or not Banco Filipino was
a mortgagee in good faith.
Under Article 2085 of the Civil Code, one of the essential
requisites of the contract of mortgage is that the mortgagor
should be the absolute owner of the property to be mortgaged;
otherwise, the mortgage is considered null and void. However, an
exception to this rule is the doctrine of "mortgagee in good faith."
Under this doctrine, even if the mortgagor is not the owner of the
mortgaged property, the mortgage contract and any foreclosure
sale arising therefrom are given effect by reason of public policy.
This principle is based on the rule that all persons dealing with
property covered by a Torrens Certificate of Title, as buyers or
mortgagees, are not required to go beyond what appears on the
face of the title. This is the same rule that underlies the principle
of "innocent purchasers for value." The prevailing jurisprudence
is that a mortgagee has a right to rely in good faith on the
certificate of title of the mortgagor to the property given as
security and in the absence of any sign that might arouse
suspicion, has no obligation to undertake further investigation.
Hence, even if the mortgagor is not the rightful owner of, or does
not have a valid title to, the mortgaged property, the mortgagee
in good faith is, nonetheless, entitled to protection.76
On one hand, the Torbela siblings aver that Banco Filipino is not a
mortgagee in good faith because as early as May 17, 1967, they
Rule 98_Full Texts 24 of 29
had already annotated Cornelio’s Adverse Claim dated May 16,
1967 and Dr. Rosario’s Deed of Absolute Quitclaim dated
December 28, 1964 on TCT No. 52751 as Entry Nos. 274471-
274472, respectively.
On the other hand, Banco Filipino asseverates that it is a
mortgagee in good faith because per Section 70 of Presidential
Decree No. 1529, otherwise known as the Property Registration
Decree, the notice of adverse claim, registered on May 17, 1967
by the Torbela siblings under Entry Nos. 274471-274472 on TCT
No. 52751, already lapsed after 30 days or on June 16, 1967.
Additionally, there was an express cancellation of Entry Nos.
274471-274472 by Entry No. 520469 dated March 11, 1981. So
when Banco Filipino approved Dr. Rosario’s loan for
₱1,200,000.00 and constituted a mortgage on Lot No. 356-A
(together with two other properties) on December 8, 1981, the
only other encumbrance on TCT No. 52751 was Entry No.
520099 dated March 6, 1981, i.e., the amended loan and
mortgage agreement between Dr. Rosario and PNB (which was
eventually cancelled after it was paid off with part of the
proceeds from Dr. Rosario’s loan from Banco Filipino). Hence,
Banco Filipino was not aware that the Torbela siblings’ adverse
claim on Lot No. 356-A still subsisted.
The Court finds that Banco Filipino is not a mortgagee in good
faith. Entry Nos. 274471-274472 were not validly cancelled, and
the improper cancellation should have been apparent to Banco
Filipino and aroused suspicion in said bank of some defect in Dr.
Rosario’s title.
The purpose of annotating the adverse claim on the title of the
disputed land is to apprise third persons that there is a
controversy over the ownership of the land and to preserve and
protect the right of the adverse claimant during the pendency of
the controversy. It is a notice to third persons that any
transaction regarding the disputed land is subject to the outcome
of the dispute.77
Adverse claims were previously governed by Section 110 of Act
No. 496, otherwise known as the Land Registration Act, quoted in
full below:
ADVERSE CLAIM
SEC. 110. Whoever claims any part or interest in registered land
adverse to the registered owner, arising subsequent to the date of
the original registration, may, if no other provision is made in this
Act for registering the same, make a statement in writing setting
forth fully his alleged right or interest, and how or under whom
acquired, and a reference to the volume and page of the
certificate of title of the registered owner, and a description of the
land in which the right or interest is claimed.
The statement shall be signed and sworn to, and shall state the
adverse claimant’s residence, and designate a place at which all
notices may be served upon him. This statement shall be entitled
to registration as an adverse claim, and the court, upon a petition
of any party in interest, shall grant a speedy hearing upon the
question of the validity of such adverse claim and shall enter such
decree therein as justice and equity may require. If the claim is
adjudged to be invalid, the registration shall be cancelled. If in
any case the court after notice and hearing shall find that a claim
thus registered was frivolous or vexatious, it may tax the adverse
claimant double or treble costs in its discretion.

Construing the aforequoted provision, the Court stressed in Ty
Sin Tei v. Lee Dy Piao78 that "[t]he validity or efficaciousness of
the [adverse] claim x x x may only be determined by the Court
upon petition by an interested party, in which event, the Court
shall order the immediate hearing thereof and make the proper
adjudication as justice and equity may warrant. And it is ONLY
when such claim is found unmeritorious that the registration
thereof may be cancelled." The Court likewise pointed out in the
same case that while a notice of lis pendens may be cancelled in a
number of ways, "the same is not true in a registered adverse
claim, for it may be cancelled only in one instance, i.e., after the
claim is adjudged invalid or unmeritorious by the Court x x x;"
and "if any of the registrations should be considered unnecessary
or superfluous, it would be the notice of lis pendens and not the
annotation of the adverse claim which is more permanent and
cannot be cancelled without adequate hearing and proper
disposition of the claim."
With the enactment of the Property Registration Decree on June
11, 1978, Section 70 thereof now applies to adverse claims:
SEC. 70. Adverse claim. – Whoever claims any part or interest in
registered land adverse to the registered owner, arising
subsequent to the date of the original registrations, may, if no
other provision is made in this Decree for registering the same,
make a statement in writing setting forth fully his alleged right,
or interest, and how or under whom acquired, a reference to the
number of the certificate of title of the registered owner, the
name of the registered owner, and a description of the land in
which the right or interest is claimed.
The statement shall be signed and sworn to, and shall state the
adverse claimant’s residence, and a place at which all notices may
be served upon him. This statement shall be entitled to
registration as an adverse claim on the certificate of title. The
adverse claim shall be effective for a period of thirty days from
the date of registration. After the lapse of said period, the
annotation of adverse claim may be cancelled upon filing of a
verified petition therefor by the party in interest: Provided,
however, that after cancellation, no second adverse claim based
on the same ground shall be registered by the same claimant.
Before the lapse of thirty days aforesaid, any party in interest
may file a petition in the Court of First Instance where the land is
situated for the cancellation of the adverse claim, and the court
shall grant a speedy hearing upon the question of the validity of
such adverse claim, and shall render judgment as may be just and
equitable. If the adverse claim is adjudged to be invalid, the
registration thereof shall be ordered cancelled. If, in any case, the
court, after notice and hearing, shall find that the adverse claim
thus registered was frivolous, it may fine the claimant in an
amount not less than one thousand pesos nor more than five
thousand pesos, in its discretion. Before the lapse of thirty days,
the claimant may withdraw his adverse claim by filing with the
Register of Deeds a sworn petition to that effect. (Emphases
supplied.)
In Sajonas v. Court of Appeals,79 the Court squarely interpreted
Section 70 of the Property Registration Decree, particularly, the
new 30-day period not previously found in Section 110 of the
Land Registration Act, thus:
In construing the law aforesaid, care should be taken that every
part thereof be given effect and a construction that could render
a provision inoperative should be avoided, and inconsistent
Rule 98_Full Texts 25 of 29
provisions should be reconciled whenever possible as parts of a
harmonious whole. For taken in solitude, a word or phrase might
easily convey a meaning quite different from the one actually
intended and evident when a word or phrase is considered with
those with which it is associated. In ascertaining the period of
effectivity of an inscription of adverse claim, we must read the
law in its entirety. Sentence three, paragraph two of Section 70 of
P.D. 1529 provides:
"The adverse claim shall be effective for a period of thirty days
from the date of registration."
At first blush, the provision in question would seem to restrict
the effectivity of the adverse claim to thirty days. But the above
provision cannot and should not be treated separately, but
should be read in relation to the sentence following, which reads:
"After the lapse of said period, the annotation of adverse claim
may be cancelled upon filing of a verified petition therefor by the
party in interest."
If the rationale of the law was for the adverse claim to ipso facto
lose force and effect after the lapse of thirty days, then it would
not have been necessary to include the foregoing caveat to clarify
and complete the rule. For then, no adverse claim need be
cancelled. If it has been automatically terminated by mere lapse
of time, the law would not have required the party in interest to
do a useless act.
A statute's clauses and phrases must not be taken separately, but
in its relation to the statute's totality. Each statute must, in fact,
be construed as to harmonize it with the pre-existing body of
laws. Unless clearly repugnant, provisions of statutes must be
reconciled. The printed pages of the published Act, its history,
origin, and its purposes may be examined by the courts in their
construction. x x x.
xxxx
Construing the provision as a whole would reconcile the
apparent inconsistency between the portions of the law such that
the provision on cancellation of adverse claim by verified petition
would serve to qualify the provision on the effectivity period. The
law, taken together, simply means that the cancellation of the
adverse claim is still necessary to render it ineffective, otherwise,
the inscription will remain annotated and shall continue as a lien
upon the property. For if the adverse claim has already ceased to
be effective upon the lapse of said period, its cancellation is no
longer necessary and the process of cancellation would be a
useless ceremony.
It should be noted that the law employs the phrase "may be
cancelled," which obviously indicates, as inherent in its decision
making power, that the court may or may not order the
cancellation of an adverse claim, notwithstanding such provision
limiting the effectivity of an adverse claim for thirty days from
the date of registration. The court cannot be bound by such
period as it would be inconsistent with the very authority vested
in it. A fortiori, the limitation on the period of effectivity is
immaterial in determining the validity or invalidity of an adverse
claim which is the principal issue to be decided in the court
hearing. It will therefore depend upon the evidence at a proper
hearing for the court to determine whether it will order the
cancellation of the adverse claim or not.

To interpret the effectivity period of the adverse claim as
absolute and without qualification limited to thirty days defeats
the very purpose for which the statute provides for the remedy of
an inscription of adverse claim, as the annotation of an adverse
claim is a measure designed to protect the interest of a person
over a piece of real property where the registration of such
interest or right is not otherwise provided for by the Land
Registration Act or Act 496 (now P.D. 1529 or the Property
Registration Decree), and serves as a warning to third parties
dealing with said property that someone is claiming an interest
or the same or a better right than the registered owner thereof.
The reason why the law provides for a hearing where the validity
of the adverse claim is to be threshed out is to afford the adverse
claimant an opportunity to be heard, providing a venue where
the propriety of his claimed interest can be established or
revoked, all for the purpose of determining at last the existence of
any encumbrance on the title arising from such adverse claim.
This is in line with the provision immediately following:
"Provided, however, that after cancellation, no second adverse
claim shall be registered by the same claimant."
Should the adverse claimant fail to sustain his interest in the
property, the adverse claimant will be precluded from registering
a second adverse claim based on the same ground.
It was held that "validity or efficaciousness of the claim may only
be determined by the Court upon petition by an interested party,
in which event, the Court shall order the immediate hearing
thereof and make the proper adjudication as justice and equity
may warrant. And it is only when such claim is found
unmeritorious that the registration of the adverse claim may be
cancelled, thereby protecting the interest of the adverse claimant
and giving notice and warning to third parties."80 (Emphases
supplied.)
Whether under Section 110 of the Land Registration Act or
Section 70 of the Property Registration Decree, notice of adverse
claim can only be cancelled after a party in interest files a petition
for cancellation before the RTC wherein the property is located,
and the RTC conducts a hearing and determines the said claim to
be invalid or unmeritorious.
No petition for cancellation has been filed and no hearing has
been conducted herein to determine the validity or merit of the
adverse claim of the Torbela siblings. Entry No. 520469 cancelled
the adverse claim of the Torbela siblings, annotated as Entry Nos.
274471-774472, upon the presentation by Dr. Rosario of a mere
Cancellation and Discharge of Mortgage.
Regardless of whether or not the Register of Deeds should have
inscribed Entry No. 520469 on TCT No. 52751, Banco Filipino
could not invoke said inscription in support of its claim of good
faith. There were several things amiss in Entry No. 520469 which
should have already aroused suspicions in Banco Filipino, and
compelled the bank to look beyond TCT No. 52751 and inquire
into Dr. Rosario’s title. First, Entry No. 520469 does not mention
any court order as basis for the cancellation of the adverse claim.
Second, the adverse claim was not a mortgage which could be
cancelled with Dr. Rosario’s Cancellation and Discharge of
Mortgage. And third, the adverse claim was against Dr. Rosario,
yet it was cancelled based on a document also executed by Dr.
Rosario.
Rule 98_Full Texts 26 of 29
It is a well-settled rule that a purchaser or mortgagee cannot
close his eyes to facts which should put a reasonable man upon
his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor or
mortgagor. His mere refusal to believe that such defect exists, or
his willful closing of his eyes to the possibility of the existence of
a defect in the vendor's or mortgagor's title, will not make him an
innocent purchaser or mortgagee for value, if it afterwards
develops that the title was in fact defective, and it appears that he
had such notice of the defects as would have led to its discovery
had he acted with the measure of precaution which may be
required of a prudent man in a like situation.81
While the defective cancellation of Entry Nos. 274471-274472 by
Entry No. 520469 might not be evident to a private individual,
the same should have been apparent to Banco Filipino. Banco
Filipino is not an ordinary mortgagee, but is a mortgagee-bank,
whose business is impressed with public interest. In fact, in one
case, 82 the Court explicitly declared that the rule that persons
dealing with registered lands can rely solely on the certificate of
title does not apply to banks. In another case,83 the Court
adjudged that unlike private individuals, a bank is expected to
exercise greater care and prudence in its dealings, including
those involving registered lands. A banking institution is
expected to exercise due diligence before entering into a
mortgage contract. The ascertainment of the status or condition
of a property offered to it as security for a loan must be a
standard and indispensable part of its operations.
Banco Filipino cannot be deemed a mortgagee in good faith,
much less a purchaser in good faith at the foreclosure sale of Lot
No. 356-A. Hence, the right of the Torbela siblings over Lot No.
356-A is superior over that of Banco Filipino; and as the true
owners of Lot No. 356-A, the Torbela siblings are entitled to a
reconveyance of said property even from Banco Filipino.
Nonetheless, the failure of Banco Filipino to comply with the due
diligence requirement was not the result of a dishonest purpose,
some moral obliquity, or breach of a known duty for some
interest or ill will that partakes of fraud that would justify
damages.84
Given the reconveyance of Lot No. 356-A to the Torbela siblings,
there is no more need to address issues concerning redemption,
annulment of the foreclosure sale and certificate of sale (subject
matter of Civil Case No. U-4733), or issuance of a writ of
possession in favor of Banco Filipino (subject matter of Pet. Case
No. U-822) insofar as Lot No. 356-A is concerned. Such would
only be superfluous. Banco Filipino, however, is not left without
any recourse should the foreclosure and sale of the two other
mortgaged properties be insufficient to cover Dr. Rosario’s loan,
for the bank may still bring a proper suit against Dr. Rosario to
collect the unpaid balance.
The rules on accession shall govern the improvements on Lot No.
356-A and the rents thereof.
The accessory follows the principal. The right of accession is
recognized under Article 440 of the Civil Code which states that
"[t]he ownership of property gives the right by accession to
everything which is produced thereby, or which is incorporated
or attached thereto, either naturally or artificially."
There is no question that Dr. Rosario is the builder of the
improvements on Lot No. 356-A. The Torbela siblings themselves

alleged that they allowed Dr. Rosario to register Lot No. 356-A in
his name so he could obtain a loan from DBP, using said parcel of
land as security; and with the proceeds of the loan, Dr. Rosario
had a building constructed on Lot No. 356-A, initially used as a
hospital, and then later for other commercial purposes. Dr.
Rosario supervised the construction of the building, which began
in 1965; fully liquidated the loan from DBP; and maintained and
administered the building, as well as collected the rental income
therefrom, until the Torbela siblings instituted Civil Case No. U-
4359 before the RTC on February 13, 1986.
When it comes to the improvements on Lot No. 356-A, both the
Torbela siblings (as landowners) and Dr. Rosario (as builder) are
deemed in bad faith. The Torbela siblings were aware of the
construction of a building by Dr. Rosario on Lot No. 356-A, while
Dr. Rosario proceeded with the said construction despite his
knowledge that Lot No. 356-A belonged to the Torbela siblings.
This is the case contemplated under Article 453 of the Civil Code,
which reads:
ART. 453. If there was bad faith, not only on the part of the
person who built, planted or sowed on the land of another, but
also on the part of the owner of such land, the rights of one and
the other shall be the same as though both had acted in good
faith.
It is understood that there is bad faith on the part of the
landowner whenever the act was done with his knowledge and
without opposition on his part. (Emphasis supplied.)
When both the landowner and the builder are in good faith, the
following rules govern:
ART. 448. The owner of the land on which anything has been
built, sown or planted in good faith, shall have the right to
appropriate as his own the works, sowing or planting, after
payment of the indemnity provided for in articles 546 and 548, or
to oblige the one who built or planted to pay the price of the land,
and the one who sowed, the proper rent. However, the builder or
planter cannot be obliged to buy the land if its value is
considerably more than that of the building or trees. In such case,
he shall pay reasonable rent, if the owner of the land does not
choose to appropriate the building or trees after proper
indemnity. The parties shall agree upon the terms of the lease
and in case of disagreement, the court shall fix the terms thereof.
ART. 546. Necessary expenses shall be refunded to every
possessor; but only the possessor in good faith may retain the
thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good
faith with the same right of retention, the person who has
defeated him in the possession having the option of refunding the
amount of the expenses or of paying the increase in value which
the thing may have acquired by reason thereof.
ART. 548. Expenses for pure luxury or mere pleasure shall not be
refunded to the possessor in good faith; but he may remove the
ornaments with which he has embellished the principal thing if it
suffers no injury thereby, and if his successor in the possession
does not prefer to refund the amount expended.
Whatever is built, planted, or sown on the land of another, and
the improvements or repairs made thereon, belong to the owner
Rule 98_Full Texts 27 of 29
of the land. Where, however, the planter, builder, or sower has
acted in good faith, a conflict of rights arises between the owners
and it becomes necessary to protect the owner of the
improvements without causing injustice to the owner of the land.
In view of the impracticability of creating what Manresa calls a
state of "forced co-ownership," the law has provided a just and
equitable solution by giving the owner of the land the option to
acquire the improvements after payment of the proper indemnity
or to oblige the builder or planter to pay for the land and the
sower to pay the proper rent. It is the owner of the land who is
allowed to exercise the option because his right is older and
because, by the principle of accession, he is entitled to the
ownership of the accessory thing.85
The landowner has to make a choice between appropriating the
building by paying the proper indemnity or obliging the builder
to pay the price of the land. But even as the option lies with the
landowner, the grant to him, nevertheless, is preclusive. He must
choose one. He cannot, for instance, compel the owner of the
building to remove the building from the land without first
exercising either option. It is only if the owner chooses to sell his
land, and the builder or planter fails to purchase it where its
value is not more than the value of the improvements, that the
owner may remove the improvements from the land. The owner
is entitled to such remotion only when, after having chosen to sell
his land, the other party fails to pay for the same.86
This case then must be remanded to the RTC for the
determination of matters necessary for the proper application of
Article 448, in relation to Article 546, of the Civil Code. Such
matters include the option that the Torbela siblings will choose;
the amount of indemnity that they will pay if they decide to
appropriate the improvements on Lot No. 356-A; the value of Lot
No. 356-A if they prefer to sell it to Dr. Rosario; or the reasonable
rent if they opt to sell Lot No. 356-A to Dr. Rosario but the value
of the land is considerably more than the improvements. The
determination made by the Court of Appeals in its Decision dated
June 29, 1999 that the current value of Lot No. 356-A is
₱1,200,000.00 is not supported by any evidence on record.
Should the Torbela siblings choose to appropriate the
improvements on Lot No. 356-A, the following ruling of the Court
in Pecson v. Court of Appeals87 is relevant in the determination of
the amount of indemnity under Article 546 of the Civil Code:
Article 546 does not specifically state how the value of the useful
improvements should be determined. The respondent court and
the private respondents espouse the belief that the cost of
construction of the apartment building in 1965, and not its
current market value, is sufficient reimbursement for necessary
and useful improvements made by the petitioner. This position is,
however, not in consonance with previous rulings of this Court in
similar cases. In Javier vs. Concepcion, Jr., this Court pegged the
value of the useful improvements consisting of various fruits,
bamboos, a house and camarin made of strong material based on
the market value of the said improvements. In Sarmiento vs.
Agana, despite the finding that the useful improvement, a
residential house, was built in 1967 at a cost of between eight
thousand pesos (₱8,000.00) to ten thousand pesos (₱10,000.00),
the landowner was ordered to reimburse the builder in the
amount of forty thousand pesos (₱40,000.00), the value of the
house at the time of the trial. In the same way, the landowner was
required to pay the "present value" of the house, a useful
improvement, in the case of De Guzman vs. De la Fuente, cited by
the petitioner.

The objective of Article 546 of the Civil Code is to administer
justice between the parties involved. In this regard, this Court
had long ago stated in Rivera vs. Roman Catholic Archbishop of
Manila that the said provision was formulated in trying to adjust
the rights of the owner and possessor in good faith of a piece of
land, to administer complete justice to both of them in such a way
as neither one nor the other may enrich himself of that which
does not belong to him. Guided by this precept, it is therefore the
current market value of the improvements which should be made
the basis of reimbursement. A contrary ruling would unjustly
enrich the private respondents who would otherwise be allowed
to acquire a highly valued income-yielding four-unit apartment
building for a measly amount. Consequently, the parties should
therefore be allowed to adduce evidence on the present market
value of the apartment building upon which the trial court should
base its finding as to the amount of reimbursement to be paid by
the landowner.88(Emphases supplied.)
Still following the rules of accession, civil fruits, such as rents,
belong to the owner of the building.89 Thus, Dr. Rosario has a
right to the rents of the improvements on Lot No. 356-A and is
under no obligation to render an accounting of the same to
anyone. In fact, it is the Torbela siblings who are required to
account for the rents they had collected from the lessees of the
commercial building and turn over any balance to Dr. Rosario. Dr.
Rosario’s right to the rents of the improvements on Lot No. 356-A
shall continue until the Torbela siblings have chosen their option
under Article 448 of the Civil Code. And in case the Torbela
siblings decide to appropriate the improvements, Dr. Rosario
shall have the right to retain said improvements, as well as the
rents thereof, until the indemnity for the same has been paid.90
Dr. Rosario is liable for damages to the Torbela siblings.
The Court of Appeals ordered Dr. Rosario to pay the Torbela
siblings ₱300,000.00 as moral damages; ₱200,000.00 as
exemplary damages; and ₱100,000.00 as attorney’s fees.
Indeed, Dr. Rosario’s deceit and bad faith is evident when, being
fully aware that he only held Lot No. 356-A in trust for the
Torbela siblings, he mortgaged said property to PNB and Banco
Filipino absent the consent of the Torbela siblings, and caused
the irregular cancellation of the Torbela siblings’ adverse claim
on TCT No. 52751. Irrefragably, Dr. Rosario’s betrayal had caused
the Torbela siblings (which included Dr. Rosario’s own mother,
Eufrosina Torbela Rosario) mental anguish, serious anxiety, and
wounded feelings. Resultantly, the award of moral damages is
justified, but the amount thereof is reduced to ₱200,000.00.
In addition to the moral damages, exemplary damages may also
be imposed given that Dr. Rosario’s wrongful acts were
accompanied by bad faith. However, judicial discretion granted to
the courts in the assessment of damages must always be
exercised with balanced restraint and measured objectivity. The
circumstances of the case call for a reduction of the award of
exemplary damages to ₱100,000.00.
As regards attorney's fees, they may be awarded when the
defendant's act or omission has compelled the plaintiff to litigate
with third persons or to incur expenses to protect his interest.
Because of Dr. Rosario’s acts, the Torbela siblings were
constrained to institute several cases against Dr. Rosario and his
spouse, Duque-Rosario, as well as Banco Filipino, which had
lasted for more than 25 years. Consequently, the Torbela siblings
Rule 98_Full Texts 28 of 29
are entitled to an award of attorney's fees and the amount of
₱100,000.00 may be considered rational, fair, and reasonable.
Banco Filipino is entitled to a writ of possession for Lot No. 5-F-8-
C-2-B-2-A.
The Court emphasizes that Pet. Case No. U-822, instituted by
Banco Filipino for the issuance of a writ of possession before the
RTC of Urdaneta, included only Lot No. 5-F-8-C-2-B-2-A and Lot
No. 356-A (Lot No. 4489, the third property mortgaged to secure
Dr. Rosario’s loan from Banco Filipino, is located in Dagupan City,
Pangasinan, and the petition for issuance of a writ of possession
for the same should be separately filed with the RTC of Dagupan
City). Since the Court has already granted herein the
reconveyance of Lot No. 356-A from Banco Filipino to the Torbela
siblings, the writ of possession now pertains only to Lot No. 5-F-
8-C-2-B-2-A.
To recall, the Court of Appeals affirmed the issuance by the RTC
of a writ of possession in favor of Banco Filipino. Dr. Rosario no
longer appealed from said judgment of the appellate court.
Already legally separated from Dr. Rosario, Duque-Rosario alone
challenges the writ of possession before this Court through her
Petition in G.R. No. 140553.
Duque-Rosario alleges in her Petition that Lot No. 5-F-8-C-2-B-2-
A had been registered in her name under TCT No. 104189. Yet,
without a copy of TCT No. 104189 on record, the Court cannot
give much credence to Duque-Rosario’s claim of sole ownership
of Lot No. 5-F-8-C-2-B-2-A. Also, the question of whether Lot No.
5-F-8-C-2-B-2-A was the paraphernal property of Duque-Rosario
or the conjugal property of the spouses Rosario would not alter
the outcome of Duque-Rosario’s Petition.
The following facts are undisputed: Banco Filipino extrajudicially
foreclosed the mortgage constituted on Lot No. 5-F-8-C-2-B-2-A
and the two other properties after Dr. Rosario defaulted on the
payment of his loan; Banco Filipino was the highest bidder for all
three properties at the foreclosure sale on April 2, 1987; the
Certificate of Sale dated April 2, 1987 was registered in April
1987; and based on the Certificate of Final Sale dated May 24,
1988 and Affidavit of Consolidation dated May 25, 1988, the
Register of Deeds cancelled TCT No. 104189 and issued TCT No.
165812 in the name of Banco Filipino for Lot No. 5-F-8-C-2-B-2-A
on June 7, 1988.
The Court has consistently ruled that the one-year redemption
period should be counted not from the date of foreclosure sale,
but from the time the certificate of sale is registered with the
Registry of Deeds.91 No copy of TCT No. 104189 can be found in
the records of this case, but the fact of annotation of the
Certificate of Sale thereon was admitted by the parties, only
differing on the date it was made: April 14, 1987 according to
Banco Filipino and April 15, 1987 as maintained by Duque-
Rosario. Even if the Court concedes that the Certificate of Sale
was annotated on TCT No. 104189 on the later date, April 15,
1987, the one-year redemption period already expired on April
14, 1988.92 The Certificate of Final Sale and Affidavit of
Consolidation were executed more than a month thereafter, on
May 24, 1988 and May 25, 1988, respectively, and were clearly
not premature.
It is true that the rule on redemption is liberally construed in
favor of the original owner of the property. The policy of the law
is to aid rather than to defeat him in the exercise of his right of

redemption.93 However, the liberal interpretation of the rule on
redemption is inapplicable herein as neither Duque-Rosario nor
Dr. Rosario had made any attempt to redeem Lot No. 5-F-8-C-2-B-
2-A. Duque-Rosario could only rely on the efforts of the Torbela
siblings at redemption, which were unsuccessful. While the
Torbela siblings made several offers to redeem Lot No. 356-A, as
well as the two other properties mortgaged by Dr. Rosario, they
did not make any valid tender of the redemption price to effect a
valid redemption. The general rule in redemption is that it is not
sufficient that a person offering to redeem manifests his desire to
do so. The statement of intention must be accompanied by an
actual and simultaneous tender of payment. The redemption
price should either be fully offered in legal tender or else validly
consigned in court. Only by such means can the auction winner
be assured that the offer to redeem is being made in good
faith.94 In case of disagreement over the redemption price, the
redemptioner may preserve his right of redemption through
judicial action, which in every case, must be filed within the one-
year period of redemption. The filing of the court action to
enforce redemption, being equivalent to a formal offer to redeem,
would have the effect of preserving his redemptive rights and
"freezing" the expiration of the one-year period.95 But no such
action was instituted by the Torbela siblings or either of the
spouses Rosario.
Duque-Rosario also cannot bar the issuance of the writ of
possession over Lot No. 5-F-8-C-2-B-2-A in favor of Banco
Filipino by invoking the pendency of Civil Case No. U-4359, the
Torbela siblings’ action for recovery of ownership and possession
and damages, which supposedly tolled the period for redemption
of the foreclosed properties. Without belaboring the issue of Civil
Case No. U-4359 suspending the redemption period, the Court
simply points out to Duque-Rosario that Civil Case No. U-4359
involved Lot No. 356-A only, and the legal consequences of the
institution, pendency, and resolution of Civil Case No. U-4359
apply to Lot No. 356-A alone.
Equally unpersuasive is Duque-Rosario’s argument that the writ
of possession over Lot No. 5-F-8-C-2-B-2-A should not be issued
given the defects in the conduct of the foreclosure sale (i.e., lack
of personal notice to Duque-Rosario) and consolidation of title
(i.e., failure to provide Duque-Rosario with copies of the
Certificate of Final Sale).
The right of the purchaser to the possession of the foreclosed
property becomes absolute upon the expiration of the
redemption period. The basis of this right to possession is the
purchaser's ownership of the property. After the consolidation of
title in the buyer's name for failure of the mortgagor to redeem,
the writ of possession becomes a matter of right and its issuance
to a purchaser in an extrajudicial foreclosure is merely a
ministerial function.961avvphi1
The judge with whom an application for a writ of possession is
filed need not look into the validity of the mortgage or the
manner of its foreclosure. Any question regarding the validity of
the mortgage or its foreclosure cannot be a legal ground for the
refusal to issue a writ of possession. Regardless of whether or not
there is a pending suit for the annulment of the mortgage or the
foreclosure itself, the purchaser is entitled to a writ of possession,
without prejudice, of course, to the eventual outcome of the
pending annulment case. The issuance of a writ of possession in
favor of the purchaser in a foreclosure sale is a ministerial act
and does not entail the exercise of discretion.97
Rule 98_Full Texts 29 of 29
WHEREFORE, in view of the foregoing, the Petition of the Torbela
siblings in G.R. No. 140528 is GRANTED, while the Petition of
Lena Duque-Rosario in G.R. No. 140553 is DENIED for lack of
merit. The Decision dated June 29, 1999 of the Court of Appeals
in CA-G.R. CV No. 39770, which affirmed with modification the
Amended Decision dated January 29, 1992 of the RTC in Civil
Case Nos. U-4359 and U-4733 and Pet. Case No. U-822, is
AFFIRMED WITH MODIFICATIONS, to now read as follows:
(1) Banco Filipino is ORDERED to reconvey Lot No. 356-
A to the Torbela siblings;
(2) The Register of Deeds of Pangasinan is ORDERED to
cancel TCT No. 165813 in the name of Banco Filipino
and to issue a new certificate of title in the name of the
Torbela siblings for Lot No. 356-A;
(3) The case is REMANDED to the RTC for further
proceedings to determine the facts essential to the
proper application of Articles 448 and 546 of the Civil
Code, particularly: (a) the present fair market value of
Lot No. 356-A; (b) the present fair market value of the
improvements thereon; (c) the option of the Torbela
siblings to appropriate the improvements on Lot No.
356-A or require Dr. Rosario to purchase Lot No. 356-A;
and (d) in the event that the Torbela siblings choose to
require Dr. Rosario to purchase Lot No. 356-A but the
value thereof is considerably more than the
improvements, then the reasonable rent of Lot No. 356-
A to be paid by Dr. Rosario to the Torbela siblings;
(4) The Torbela siblings are DIRECTED to submit an
accounting of the rents of the improvements on Lot No.
356-A which they had received and to turn over any
balance thereof to Dr. Rosario;
(5) Dr. Rosario is ORDERED to pay the Torbela siblings
₱200,000.00 as moral damages, ₱100,000.00 as
exemplary damages, and ₱100,000.00 as attorney’s
fees; and
(6) Banco Filipino is entitled to a writ of possession
over Lot-5-F-8-C-2-B-2-A, covered by TCT No. 165812.
The RTC Branch Clerk of Court is ORDERED to issue a
writ of possession for the said property in favor of
Banco Filipino.
SO ORDERED.