RULE 98 – CASE DIGEST |1
RULE 98: TRUSTEES
1. G.R. No. L-17809 December 29, 1962
RESURRECCION DE LEON, ET AL., plaintiffs-appellees, vs.
EMILIANA MOLO-PECKSON, ET AL., respondents-
appellants.
Note: Gi rearrange nako ang facts based sa dates
FACTS: On January 24, 1941, Mariano Molo died leaving a will
wherein he bequeathed his entire estate to his wife, Juana. This
will was probated in the CFI Rizal. On May 11, 1948, Juana in
turn executed a will naming therein many devisees and
legatees, one of whom is Guillermo San Rafael, mother of the
plaintiffs Resurreccion De Leon et al. and defendant Pilar Perez
Nable.
On June 7, 1948, however, Juana 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 died on May 28, 1950.
On December 5, 1950, Emiliana and Pilar executed a document
which they called "MUTUAL AGREEMENT" the pertinent
provisions of which are:
1. That the 10 lots located in Pasay City be sold at P1.00
to Justa De Leon (5 lots) and Resurreccion De Leon (5
lots)
2. That the agreement is made in conformity with the
verbal wish of the late Don Mariano and the late Dona
Juana. These obligations were repeatedly told to
Emiliana before their death and that same should be
fulfilled after their death.
On August 9, 1956, however, the same defendants executed
two documents in which they revoked the so-called mutual
agreement, 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 Mariano
and Juana." 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.
Resurreccion, et al. filed on November 13, 1958 before the CFI
of Rizal a complaint seeking to compel Emiliana et al. to convey
to the former ten parcels of land located in Pasay City with an
area of 1,749 sq. m. upon payment of P1.00 per parcel, and
upon the plea that said lots were willed or donated in 1948 to
Emiliana by their foster parents Mariano and Juana with the
understanding that they should sell them to the plaintiffs under
the terms above-stated.
Emiliana et al., in their answer, disclaimed any legal obligation
on their part to sell the above properties to the plaintiffs 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 Jimenez.
On September 21, 1960, the CFI held that a trust has been
constituted by the late spouses Mariano and Juana over the ten
parcels of land in question in favor Resurreccion et al. as
beneficiaries.
ISSUE: Whether or not the late Spouses Mariano and Juana
constituted a trust over the properties in question with
Resurreccion and Justa as beneficiaries.
RULING: Yes. There is no merit in the claim that the “Mutual
Agreement” does not represent the true and correct
interpretation of the verbal wish of their foster parents relative to
the conveyance for a nominal consideration to Resurreccion and
Justa of the 10 parcels of land in question.
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 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
coerce them to make the declaration therein expressed, except
the constraining mandate of their conscience to comply with "the
obligations repeatedly told to Emiliana Molo Peckson," one of
appellants, before their death, epitomized in the "verbal wish of
the late Mariano and Juana" to convey after their death said ten
parcels of 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 and voluntary deed."
Indeed, it is to be supposed that appellants understood and
comprehended the legal import of said documents as both of
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
between 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
determined is 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. This is precisely the nature of the will of the donor: to
convey the titles of the lands to appellants with the duty to hold
them intrust for the appellees. Appellants complied with this duty
by executing the document under consideration.
True it is that to establish a trust the proof must be clear,
satisfactory and convincing. Here the document in question
clearly and unequivocally declares the existence of the trust
even if the same was executed subsequent to the death of the
trustor, Juana, for it has been held that the right creating or
declaring a trust need not be contemporaneous. 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.
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 is of no importance, for it is not essential to the
existence of a valid trust and to the right of the beneficiaries to
enforce the same that they had knowledge thereof the time of
its creation. Neither is it necessary that the beneficiary should
consent to the creation of the trust. In fact it has been held that
in case of a voluntary trust the assent of the beneficiary is not
necessary to render it valid because as a general rule
acceptance by the beneficiary is presumed.
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. It cannot be revoked by the creator
alone, nor by the trustee. Here, there is no such reservation.
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 date the 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.
2. 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
FACTS:
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 made
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.
ISSUE:
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.
RULING:
YES.
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.
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).
3. 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.
FACTS:
RULE 98 – CASE DIGEST |2
Thomas Hanley died, leaving a will and a considerable amount
of real and personal properties. Proceedings for the probate of
his will and the settlement and distribution of his estate were
begun in the CFI of Zamboanga.
The will was admitted to probate.
The CFI considered it proper for the best interests of the estate
to appoint a trustee to administer the real properties which,
under the will, were to pass to nephew Matthew ten years after
the two executors named in the will was appointed trustee.
Moore acted as trustee until he resigned and the plaintiff
Lorenzo herein was appointed in his stead.
During the incumbency of the plaintiff as trustee, the defendant
Collector of Internal Revenue (Posadas) assessed against the
estate an inheritance tax, together with the penalties for
deliquency in payment. Lorenzo paid said amount under protest,
notifying Posadas at the same time that unless the amount was
promptly refunded suit would be brought for its recovery.
Posadas overruled Lorenzo’s protest and refused to refund the
said amount.
Plaintiff went to court. The CFI dismissed Lorenzo’s complaint
and Posadas’ counterclaim. Both parties appealed to this court.
ISSUE: (c) In determining the net value of the estate subject
to tax, is it proper to deduct the compensation due to
trustees?
RULING:
A trustee, no doubt, is entitled to receive a fair compensation for
his services. 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
OTHER ISSUES:
(a) When does the inheritance tax accrue and when must it
be satisfied?
The accrual of the inheritance tax is distinct from the obligation
to pay the same.
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.”
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. ” 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. Xx
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.
The instant case does[not] 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 Moore as trustee.
(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?
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 value 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
(c) In determining the net value of the estate subject to tax,
is it proper to deduct the compensation due to trustees?
A trustee, no doubt, is entitled to receive a fair compensation for
his services. 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
(d) What law governs the case at bar? Should the
provisions of Act No. 3606 favorable to the tax-payer be
given retroactive effect?
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,” Act No. 3606 itself contains no
provisions indicating legislative intent to give it retroactive effect.
No such effect can be given the statute by this court.
(e) Has there been delinquency in the payment of the
inheritance tax?
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
cestuique trust, the beneficiary 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. A trustee is but an instrument or agent for the cestui
que trust.
The appointment of Moore as trustee was made by the trial court
in conformity with the wishes of the testator as expressed in his
will. It is true that the word “trust” is not mentioned or used in the
will but the intention to create one is clear. No particular or
technical words are required to create a testamentary trust. 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. ” To constitute a valid
testamentary trust there must be a concurrence of three
circumstances:
RULE 98 – CASE DIGEST |3
(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.”
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 appointing
a trustee to carry into effect the provisions of the will
As the existence of the trust was already proven, 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. On that date trust estate
vested in him. The interest due should be computed from that
date.
4. 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
FACTS:
Philippine Sugar Estate Development Company, Ltd., sold a
parcel of land, Lot No. 5, Block No. 10 with the Deed of Absolute
Sale naming Emilia O'Laco as vendee. 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.
Respondent-spouses Valentin Co Cho Chit and O Lay Kia sued
petitioner-spouses Emilia O'Laco and Hugo Luna to recover the
purchase price of the land before the then Court of First Instance
of Rizal, respondent-spouses asserting that petitioner Emilia
O'Laco knew that they were the real vendees of the Oroquieta
property sold in 1943 by Philippine Sugar Estate Development
Company, Ltd., and that the legal title thereto was merely placed
in her name. They contend that Emilia O'Laco breached the trust
when she sold the land to the Roman Catholic Archbishop of
Manila. Meanwhile, they asked the trial court to garnish all the
amounts still due and payable to petitioner-spouses arising from
the sale, which was granted.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.
Finding no trust relation between the parties, the trial court
dismissed the complaint together with the counterclaim.
Petitioners and respondents appealed.
The Court of Appeals set aside the decision of the trial court
ISSUE:
Whether a resulting trust was intended by them in the acquisition
of the property
RULING:
YES. . By definition, trust relations between parties may either
be express or implied. Express trusts are those which are
created by the direct and positive acts of the parties, by some
writing or deed, or will, or by words evincing an intention to
create a trust. Implied trusts are those which, without being

express, are deducible from the nature of the transaction as
matters of intent, or which are superinduced on the transaction
by operation of law as matters of equity, independently of the
particular intention of the parties. 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.
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.
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.
RULE 98 – CASE DIGEST |4
5. 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.
FACTS:
The issue is over a parcel of land inherited by the Torbela
siblings from their parents.
They executed a deed of absolute quitclaim over the property in
favor of Dr. Rosario. Four days after, a TCT was issued in Dr.
Rosario’s name covering the property.
Another deed of absolute quitclaim was subsequently executed
twelve days after by Dr. Rosario acknowledging that he only
borrowed the lot from the Torbela siblings and was already
returning the same. This deed was notarized but not
immediately annotated.
Dr. Rosario used the land as mortgage for a loan he obtain
through DBP for P70,000.00. He used the proceeds of the loan
to build a 4 storey building which was initially used as a hospital
but later converted into a commercial space. Part was leased to
PT&T and the rest to Rosario ’s sister who operated the Rose
Inn Hotel and Restaurant.
Dr. Rosario fully paid the loan from DBP and the mortgage was
cancelled and ratified by a notary public. However, Dr. Rosario
took another loan from PNB. He later acquired a third loan from
Banco Filipino and bought out the loan from PNB cancelling the
mortgage with PNB. Rosario failed to pay their loan in Banco
Filipino and the property was extrajudicially foreclosed.
Meanwhile, back in 1965, the Torbela siblings sought to register
their ownership over the lot and to perfect their title but couldn’t
because the title was still with DBP. They showed as proof the
deed of absolute quitclaim presented executed by Rosario
himself. In 1986, they filed a civil case for recovery of ownership
and possession and damages. They tried to redeem the lot from
Banco Filipino but failed. TCT was issued to Banco FIilipino.
The Torbela’s claim they have right over the rents of the building
through accession because they are the land owners.
ISSUE:
Whether or not The Express Trust created herein was effectively
repudiated

RULING:
Yes.
There was an express trust between the Torbela siblings and
Dr. Rosario.
There is no dispute that the Torbela sibling inherited the title to
Lot No. 356-A from their parents, the Torbela spouses, who, in
turn, acquired the same from the first registered owner of Lot
No. 356-A, Valeriano. Indeed, the Torbela siblings executed a
Deed of Absolute Quitclaim on December 12, 1964 in which they
transferred and conveyed Lot No. 356-A to Dr. Rosario for the
consideration of P9.00.
However, the Torbela siblings explained that they only executed
the Deed as an accommodation so that Dr. Rosario could have
Lot No. 356-A registered in his name and use said property to
secure a loan from DBP, the proceeds of which would be used
for building a hospital on Lot No. 356-A – a claim supported by
testimonial and documentary evidence, and borne out by the
sequence of events immediately following the execution by the
Torbela siblings of said Deed.
On December 16, 1964, TCT No. 52751, covering Lot No. 356-
A, was already issued in Dr. Rosario’s name. On December 28,
1964, Dr. Rosario executed his own Deed of Absolute Quitclaim,
in which he expressly acknowledged that he “only borrowed” Lot
No. 356-A and was transferring and conveying the same back
to the Torbela siblings for the consideration of P1.00. On
February 21, 1965, Dr. Rosario’s loan in the amount of
P70,200.00, secured by a mortgage on Lot No. 356-A, was
approved by DBP. Soon thereafter, construction of a hospital
building started on Lot No. 356-A.
Express trusts are created by direct and positive acts of the
parties, by some writing or deed, or will, or by words either
expressly or impliedly evincing an intention to create a trust.
Under Article 1444 of the Civil Code, “[n]o particular words are
required for the creation of an express trust, it being sufficient
that a trust is clearly intended.”[62] It is possible to create a trust
without using the word “trust” or “trustee.” Conversely, the mere
fact that these words are used does not necessarily indicate an
intention to create a trust. The question in each case is whether
the trustor manifested an intention to create the kind of
relationship which to lawyers is known as trust. It is immaterial
whether or not he knows that the relationship which he intends
to create is called a trust, and whether or not he knows the
precise characteristics of the relationship which is called a trust.
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
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.
The Torbela siblings can only be charged with knowledge of the
mortgage of Lot No. 356-A to PNB on March 6, 1981 when the
amended loan and mortgage agreement was registered on TCT
No. 52751 as Entry No. 520099. Entry No. 520099 is
constructive notice to the whole world[74] that Lot No. 356-A
was mortgaged by Dr. Rosario to PNB as security for a loan, the
amount of which was increased to P450,000.00. Hence, Dr.
Rosario is deemed to have effectively repudiated the express
trust between him and the Torbela siblings on March 6, 1981,
on which day, the prescriptive period for the enforcement of the
express trust by the Torbela siblings began to run.
RULE 98 – CASE DIGEST |5
RULE 91: ESCHEATS
1. [G.R. No. 143483. January 31, 2002.]
REPUBLIC OF THE PHILIPPINES represented by the
REGISTER OF DEEDS OF PASAY CITY, Petitioner, v.
COURT OF APPEALS (SPECIAL FORMER 3RD DIVISION)
AND AMADA H. SOLANO, assisted by her husband ROMEO
SOLANO, Respondents.
FACTS:
In recognition of Amada Solano’s faithful and dedicated service
as her personal domestic helper, the late Ms. Hankins donated
two parcels of land to Solano.
The deeds of donation evidencing the above however were
alleged to be missing and nowhere to be found.
The Republic then initiated escheat proceedings concerning the
parcels of land in which Solano filed a motion to intervene. Said
motion was denied.
Since it was established that there were no known heirs and
persons entitled to the properties of decedent Hankins, the lower
court escheated the estate of the decedent in favor of the
Republic of the Philippines.
Seven (7) years after the finality of the escheat proceedings,
Solano claimed that she accidentally found the deeds of
donation and, filed a petition before the CA for the annulment of
the lower court’s decision, alleging, among others, that:
 Having been donated to her, the properties in
dispute did not and could not form part of Ms.
Hankins estate. Hence, could not be validly
escheated
Republic, in its answer, invoked (a) lack of jurisdiction over the
nature of the action; and, that (b) the cause of action was barred
by the statute of limitations, being filed beyond the 5-yr limitation
provided under Sec. 4 Rule 91 ROC.
The CA ruled in favor of Solano ruling that she is not claiming
anything from the estate within the purview of Sec 91 Sec 4, but
rather she is claiming ownership over the disputed properties
and reconveyance thereof. As such, her claim was properly filed
within the 10-yr prescriptive period under the Civil Code, not
under the ROC. Hence, this appeal.
ISSUE: (1) Whether Solano is barred by prescription. YES!
In this jurisdiction, a claimant to an escheated property must file
his claim "within five (5) years from the date of such judgment,
such person shall have possession of and title to the same, or if
sold, the municipality or city shall be accountable to him for the
proceeds, after deducting the estate; but a claim not made
shall be barred forever." The 5-year period is not a device
capriciously conjured by the state to defraud any claimant; on
the contrary, it is decidedly prescribed to encourage would-be
claimants to be punctilious in asserting their claims, otherwise
they may lose them forever in a final judgment. xxx
In the instant petition, the escheat judgment was handed down
by the lower court as early as 27 June 1989 but it was only on
28 January 1997, more or less seven (7) years after, when
private respondent decided to contest the escheat judgment in
the guise of a petition for annulment of judgment before the
Court of Appeals. Obviously, private respondent’s belated
assertion of her right over the escheated properties militates
against recovery.chanrob1es virtua1 1aw 1ibrary
(2) Whether Solano is a claimant within Sec 91. YES!
(case of Municipal Council of San Pedro, Laguna v. Colegio de
San Jose, Inc)  Any person alleging to have a direct right
or interest in the property sought to be escheated is

likewise an interested party and may appear and oppose the
petition for escheat.
(3) Whether the allegedly donated properties may be validly
escheated in favor of the Republic YES!
In the mind of this Court the subject properties were owned by
the decedent during the time that the escheat proceedings were
being conducted and the lower court was not divested of its
jurisdiction to escheat them in favor of Pasay City
notwithstanding an allegation that they had been previously
donated. We recall that a motion for intervention was earlier
denied by the escheat court for failure to show "valid claim or
right to the properties in question." 9 Where a person comes into
an escheat proceeding as a claimant, the burden is on such
intervenor to establish his title to the property and his right to
intervene. A fortiori, the certificates of title covering the subject
properties were in the name of the decedent indicating that no
transfer of ownership involving the disputed properties was ever
made by the deceased during her lifetime. In the absence
therefore of any clear and convincing proof showing that the
subject lands had been conveyed by Hankins to private
respondent Solano, the same still remained, at least before the
escheat, part of the estate of the decedent and the lower court
was right not to assume otherwise. The Court of Appeals
therefore cannot perfunctorily presuppose that the subject
properties were no longer part of the decedent’s estate at the
time the lower court handed down its decision on the strength of
a belated allegation that the same had previously been disposed
of by the owner. It is settled that courts decide only after a close
scrutiny of every piece of evidence and analyze each case with
deliberate precision and unadulterated thoroughness, the
judgment not being diluted by speculations, conjectures and
unsubstantiated assertions.
2. G.R. No. L-44347 September 29, 1988
VICENTE TAN, petitioner, vs. CITY OF DAVAO, respondent.
FACTS: This case involves a valuable lot in the City of Davao
whose owner left for China with her family in 1923 and never
returned.
Spouses Cornelia Pizarro and Baltazar Garcia during their
lifetime were residents of Davao City. As they are childless, they
adopted a 3-year old girl whom they named Dominga Garcia and
brought up as their own.
At 19, Dominga married a Chinaman, Tan Seng alies Seng Yap,
with whom she had three children, named Vicenta, Mariano and
Luis. In 1923, Dominga and her children emigrated to Canton,
China. Eventually, Tan Seng followed.
According to Vicente Tan (herein petitioner), Dominga Garcia
died intestate in 1955. She left in the Philippines a 1, 966 sq
meter lot on Claveria St., Townsite of Davao, registered in her
name. Since her departure for China with her family, neither she,
nor her husband, nor any of their children, has returned to the
Philippines to claim the lot.
On Sept. 1962, the City of Davao filed a petition in CFI Davao to
declare Dominga Garcia's land escheated in its favor. It alleged
that Dominga and her children are presumed to be dead since
Dominga left no heir or person by law entitled to inherit her
estate, hence, the property should be escheated pursuant to
then Rule 92 of the Rules of Court.
Ramon Pizarro, Cornelia Pizarro's nephew and Dominga's
adoptive parent, opposed the escheat petition on the ground
that courts are not authorized to declare that a person is
presumed to be dead and that Dominga Garcia's being in China
is not a sufficient ground to deprive her of her property by
escheat proceedings.
Ramon Pizarro presented several evidences which allegedly
prove that Dominga's daughter, Vicenta Tan is stil; alive: the
supposed pictures of the missing heir, extrajudicial settlement
and adjudication of Dominga's estate allegedly executed by
Dominga's daughter Vincenta in Hong Kong, an SPA
RULE 98 – CASE DIGEST |6
supposedly signed in favor of Pizarro.
Further, he alleged that the title of land was given to him when
Dominga and her husband returned to Davao before the war.
ISSUE:
Whether the City of Davao may escheat Dominga's property.
RULING:
YES. The applicable rule in this case was the then Rule 92 of
the Rules of Court which says that "when a person dies
intestate, seized of real or personal property in the Philippines,
leaving no heirs or person by law entitled to the same, the
municipality or city where the deceased last resided, if he
resided in the Philippines, or the municipality or city in which he
had estate if he resided out of the Philippines, may file a petition
in the court of first instance of the province setting forth the facts,
and praying that the estate of the deceased be declared
escheated."
Rule 91 of the Revised Rules of Court which provides that only
the Republic of the Philippines, through the Solicitor General
may commence escheat proceedings, did not take effect until
January 1, 1964.
The Court also noted that the CA should have dismissed the
appeal of Vicenta Tan and Ramon Pizarro earlier because the
records show that Vicenta was never a party in the escheat
proceedings, for she never submitted herself to the Court's
jurisdiction.
Every action must be prosecuted and defended in the name of
real party-in-interest. In this case, Ramon Pizarro, the alleged
administrator, was not a real party-in-interest. Hence, he has no
personality to oppose the escheat petition. The testimonies and
evidences presented by Pizarro were found out to be
inconsistent. Courts are not barred from declaring an absentee
presumptively dead as an incident of, or in an action or
proceeding for the settlement of the intestate estate of such
absentee.
3. GR 44658, Jan 24, 1936
DIVINO vs HILARIO
FACTS:
Tan Kui Sing began the intestate proceeding for the estate of
the deceased Tan Chay in the CFI of Davao, stating in the
petition that his properties are yet unknown and a special
administrator be appointed. After the special administrator has
been appointed, an inventory of the properties was filed wherein
it was stated that the deceased left Php 5000 in cash in favor of
the Philippine Foreign Trading & Company. The case was set
for trial but it was not shown that notice thereof was published in
a newspaper of general circulation. The case was heard and
judgment was renedered whereby it was declared that Tan
Chay had died intestate, that he left no legal heirs and decreed
the escheat of the sum of Php 5000 deposited in the Philippine
Foreign Trading & Company to the municipality of Guinga,
Province of Davao.
Tan Kui Sing filed a petition for certiorari to set aside and nullify
the order of the CFI of Davao which decreed the escheat of the
sum of Php 5000 from the estate of the deceased Tan Chay in
favor of the municipality of Guianga, Province of Davao.
ISSUE:
Whether the decision of the CFI of Davao which decreed the
escheat of the estate of Tan Chay in favor of the Municipality of
Guinga was valid? – NO
HELD:
Section 750 provides how the Court of First Instance may
acquire jurisdiction over the properties left by a deceased who
resided in the Philippine Islands and may decree its escheat to

the municipality where he resided. It provides that the municipal
president and the municipal council may file a petition to that
effect, whereupon the court shall set the same for hearing and
shall cause the latter to be published in a newspaper of general
circulation in the province where the deceased had resided, or
in default thereof, in some newspaper of general circulation in
the province in which he had estate, for a period of
six successive weeks,. the last of which publications shall be
at least six weeks before the time appointed for the
trial. Section 752 provides that any heir or legatee may
appear in the proceeding within 17 years, and after
establishing his hereditary right, it shall be the duty of the court
to order the municipality to which the estate was escheated to
return the same for adjudication to the former, and in case it had
been sold the municipality shall return its avails after deducting
charges for its care.
In the case under consideration, the procedure fixed by section
750 has neither been followed nor complied with, wherefore,
we hold that the respondent judge and the Court of First
Instance of Davao did not acquire jurisdiction either to take
cognizance of the escheat case or to promulgate the order of
August 24, 1935, whereby the sum of P5,000 was escheated or
adjudicated to the municipality of Guianga. No petition was filed
either by the municipal president or by the municipal council,
nor was the required publication made which was the essential
step which should have conferred jurisdiction.
In view of the foregoing, the petition is granted, and the order of
August 24,1935 as well as the resolution of October 21 of the
same year are set aside.
4. Republic of the PH vs. CFI of Manila, GR # L-30381,
August 30, 1988
FACTS:
Pursuant to Unclaimed Balance Law (ACT No. 3936), private
respondent forwarded to the Treasurer of the Philippines
separate statements under oath by their respective managing
officers of all deposits and credits held by them in favor, or in the
names of such depositors or creditors known to be dead, or who
have not been heard from, or who have not made further
deposits or withdrawals during the preceding ten years or more.
Upon receipt of these sworn statements, the Treasurer of the
Philippines caused the same to be published in two newspapers
of general circulation. The Republic then instituted before the
CFI of Manila a complaint for escheat against private
respondent. The lower court decided in favor of respondent.
ISSUES:
(1) Whether or not Pres. Roxas Rural Bank is a real party in
interest in the escheat proceedings.
(2) Whether or not Section 2(b), Rule 4 of the Revised Rules of
Court on venue, likewise, governs escheat proceedings
instituted by the Republic in the Court of First Instance of Manila.
HELD: (1) YES (2) NO
The SC denied the petition and stated that Section 3 of Act No.
3936 provides that Whenever the Attorney General shall be
informed of such unclaimed balances, he shall commence an
action or actions in the name of the People of the Philippines in
the Court of First Instance of the province where the bank is
located, in which shall be joined as parties the bank and such
creditors or depositors. All or any member of such creditors or
depositors or banks, may be included in one action.
A "real party in interest" has been defined as the party who
would be benefitted or injured by the judgment of the suit or the
party entitled to avail of the suit. There can be no doubt that
private respondent bank falls under this definition for the
escheat of the dormant deposits in favor of the government
would necessarily deprive said bank of the use of such deposits.
It is in this sense that it stands to be "injured by the judgment of
the suit;" and it is for this reason that Section 3 of Act No. 3936
RULE 98 – CASE DIGEST |7
specifically provides that the bank shall be joined as a party in
the action for escheat.
As to the second issue, suffice it to say that Section 2(b) of Rule
4 of the Revised Rules of Court cannot govern escheat
proceedings principally because said section refers to personal
actions. Escheat proceedings are actions in rem which must be
brought in the province or city where the rem in this case the
dormant deposits, is located.
5.
When a petition for escheat is clearly groundless for the court to
proceed to the inquisition provided by law, an interested party
should not be disallowed from filing a motion to dismiss the
petition which is untenable from all standpoints. And when the
motion to dismiss is entertained upon this ground, the petition
may be dismissed unconditionally and the petitioner is not
entitled to be afforded an opportunity to amend his petition (Go
Poco Grocery v. Pacific Biscuit Co., GR L-43697 and L-442200,
Mar. 31, 1938, 65 Phil. 443).
5. 5.)
G.R. Nos. L-43697 and L-442200 March 31, 1938
In re Liquidation of the Mercantile Bank of China,
GOPOCO GROCERY (GOPOCO), ET AL., claimants-
appellants,
vs.
PACIFIC COAST BISCUIT CO., ET AL., oppositors-appellees.
On petition of the Bank Commissioner who alleged to have
found, after an investigation, that the Mercantile Bank of China
could not continue operating as such without running the risk of
suffering losses and prejudice its depositors and customers; and
that with the requisite approval of the corresponding authorities,
he had taken charge of all the assets thereof; the Court of First
Instance of Manila declared the said bank in liquidation;
approved all the acts theretofore executed by the commissioner;
prohibited the officers and agents of the bank from interfering
with said commissioner in the possession of the assets thereof,
its documents, deed, vouchers, books of account, papers,
memorandum, notes, bond, bonds and accounts, obligations or
securities and its real and personal properties; required its
creditors and all those who had any claim against it, to present
the same in writing before the commissioner within ninety days;
and ordered the publication, as was in fact done, of the order
containing all these provisions, for the two consecutive weeks in
two news-papers of general circulation in the City of Manila, at
the expenses of the aforesaid bank. After these publications,
and within the period of ninety days, the following creditors,
among others, presented their presented their claims:
Tiong Chui Gion, Gopoco Grocery, Tan Locko, Woo & Lo & Co.,
Sy Guan Huat and La Bella Tondeña.
I. The claim of Tiong Chui Gion is for the sum of
P10,285.27. He alleged that he deposited said sum
in the bank under liquidation on current account.
II. The claim of Gopoco Grocery (Gopoco) is for the
sum of P4,932.48 plus P460. It described its claim
as follows:
Balance
due on
open
P4,927.95
account
subject to
check
Interest on
4,53
c/a
 RULE 98 – CASE DIGEST |8

Interest on
checking 8.54
4,932.48 a/c

Surety
460.00
deposit
6,232.88
III. The claim of Tan Locko is for the sum of
P7,624.20, and he describes it in turn as follows: VI. The claim of La Bella Tondeña is for the sum of
P1,912.79, also described as follows:
Balance
due on Balance
open due on
account P7,610.44 open
P1910.59
subject to account
check L- subject to
759 check

Savings Interest on
2.20
account account
No. 156
(foreign)
with
Mercantile 1,912.79
Bank of
China L-
To better resolve not only these claims but also the many others
1611 Amoy
which were presented against the bank, the lower court, on July
$15,000,00
15, 1932, appointed Fulgencio Borromeo as commissioner and
Interest on
referee to receive the evidence which the interested parties may
said
desire to present; and the commissioner and referee thus
Savings
named, after qualifying for the office and receiving the evidence
Account
presented to him, resolved the aforesaid six claims by
No. 156 8.22
recommending that the same be considered as an ordinary
credit only, and not as a preferred credit as the interested parties
Interest on wanted, because they were at the same time debtors of the
checking 10.54 bank.
a/c
The evidence adduced and the very admissions of the said
interested parties in fact show that (a) the claimant Tiong Chui
Gion, while he was a creditor of the Mercantile Bank of China in
the sum of P10,285.27 which he deposited on current account,
7,624.20 was also a debtor not only in the sum of P633.76 but also in the
sum of P664.77, the amount of a draft which he accepted, plus
IV. The claim of Woo & Lo & Co. is for the sum of interest thereon and the protest fees paid therefor; (b) the
P6,972.88 and is set out in its written claim claimant Gopoco Grocery (Gopoco) had a current account in the
appearing in the record on appeal as follows: bank in the sum of P5,392.48, but it is indebted to it, in Turn, in
the sum of $2,334.80, the amount of certain drafts which it had
accepted; (c) the claimant Tan Locko had a deposit of
Balance P7,624.20, but he owed $1,378.90, the amount of a draft which
due on he also accepted; (d) the claimant Woo & Lo & Co. had a deposit
open of P6,972.88, but it was indebted in the sum of $3,464.84, the
P6,961.01
subject to amount also of certain drafts accepted by it; (e) the claimants Sy
check L- Guan Huat and Sy Kia had a deposit of P6,232.88, but they
845 owed the sum of $3,107.37, for two drafts accepted by them and
already due; and (f) the claimant La Bella Tondeña had, in turn,
Interest on a deposit of P1,912.79, but it was, in turn, indebted in the sum
checking 11.37 of $565.40 including interest and other expenses, the amount of
a/c two drafts drawn upon and accepted by it.

The lower court approved all the recommendations of The

6,972.83 commissioner and referee as to claims of the six appellants as
follows; (1) To approve the claim of Tiong Chui Gion
(P10,285.27) but only as an ordinary credit, minus the amount
V. The claim of Sy Guan Huat is for the sum of
of the draft for P664.77; (2) to approve the claim of Gopoco
P6,232.88 and the described it as follows:
Grocery (Gopoco) but also as an ordinary credit only (P5,387.95
according to the referee), minus its obligation amounting to
Balance $2,334.80 or P4,669.60; (3) to approve the claim of Tan Locko
due on but as an ordinary credit only (P7,610.44 according to the
open referee), deducting therefrom his obligation amounting to
account P6,224.34 $1,378.90 or P2,757.80; to approve the claim of Woo & Lo & Co.
subject to but only as an ordinary credit (P6,961.01 according to the
check L- referee). after deducting its obligation to the bank, amounting to
718 $3,464.84 or P6,929.68; (5) to approve the claim of Sy Guan
Huat but only as an ordinary credit (P6,224.34 according to the

referee), after deducting his obligation amounting to $3,107.37)
or P6,214.74; and, finally, (6) to approve the claim of la Bella
Tondeña but also as an ordinary credit only (1,917.50 according
to the referee), after deducting it obligation amounting to
$565.40 or P1,130.80; but he expressly refused to authorize the
payment of the interest by reason of impossibility upon the
ground set out in the decision. Not agreeable to the decision of
the lower court, each of the interested parties appealed
therefrom and thereafter filed their respective briefs.
Tiong Chui Gion argues in his brief filed in case in G. R. No.
442200, that the lower court erred:
1. In holding that his deposit of P10,285.27 in the Mercantile
Bank of China, constitutes an ordinary credit only and not a
preferred credit.
2. In holding as preferred credits the drafts and checks issued
by the bank under liquidation in payment of the drafts remitted
to it for collection from merchants residing in the country, by
foreign entities or banks; and in not holding that the deposits on
current account in said bank should enjoy preference over said
drafts and checks; and
3. In holding that the amount of P633.76 (which should be
understood as P664.77), which the claimant owes to the bank
under liquidation, be deducted from his current account deposit
therein, amounting to P10,285.27, upon the distribution of the
assets of the bank among its various creditors, instead of
holding that, after deducting the aforesaid sum of P633.76
(should be P664.77) from his aforesaid deposit, there be turned
over to him the balance together with the dividends or shares
then corresponding to him, on the basis of said amount.
The other five claimants, that is, Gopoco Grocery Tan Locko,
Woo & Lo & Co., Sy Guan Huat and La Bella Tondeña, in turn
argue in the brief they jointly filed in case G. R. No. 43697, that
the lower court erred:
1. In not first deducting from their respective deposits in the bank
under liquidation, whose payment they claim, their respective
obligation thereto.
2. In not holding that their claims constitute a preferred credit.
3. In holding that the drafts and checks issued by the bank under
liquidation in payment of the drafts remitted to it by foreign
entitles and banks for collection from the certain merchant
residing in the country, are preferred credits; and in not holding
that the deposits made by each of them enjoy preference over
said drafts and checks, and
4. In denying their motion for a new trial base on the proposition
that the appealed decision is not in accordance with law and is
contrary to the evidence adduced at the trial.
The questions raised by the appellant in case G. R. No. 44200
and by appellants in case G.R. 43697 being identical in nature,
we believe it practical and proper to resolve said questions
jointly in one decision. Before proceeding, however, it is
convenient to note that the commissioner and referee,
classifying the various claims presented against the bank,
placed under one group those partaking of the same nature, the
classification having resulted in six groups.
In the first group he included all the claims for current account,
savings and fixed deposits.
In the second group he included the claims for checks or drafts
sold by the bank under liquidation and not paid by the agents or
banks in whose favor they had been issued.
In the third group he included the claims checks or drafts issued
by the bank under liquidation in payment or reimbursement of
the drafts or goods remitted to it for collection, from resident
merchants and entitles, by foreign banks and entities.
In the fourth group he included the claims for drafts or securities
to be collected from resident merchants and entities to be
RULE 98 – CASE DIGEST |9
collected from resident merchants and entities which were
pending collection on the date payments were suspended.
In the fifth group he included the claims of certain depositors or
creditors of the bank who were at the same time debtors thereof;
and he considered of this class the claims of the appellants in
these two cases, and
In the sixth group he included the other claims different in nature
from the of the aforesaid five claims.
I. Now, then, should the appellants' deposits on current account
in the bank now under liquidation be considered preferred
credits, and not otherwise, or should they be considered
ordinary credits only? The appellants contend that they are
preferred credits only? The appellants contend that they are
preferred credits because they are deposits in contemplation of
law, and as such should be returned with the corresponding
interest thereon. In support thereof they cite Manresa (11
Manresa, Civil Code, page 663), and what has been insinuated
in the case of Rogers vs. Smith, Bell & Co. (10 Phil., 319), citing
the said commentator who maintains that, notwithstanding the
provisions of articles 1767 and 1768 and others of the aforesaid
Code, from which it is inferred that the so-called irregular
deposits no longer exist, the fact is that said deposits still exist.
And they contend and argue that what they had in the bank
should be considered as of this character. But it happens that
they themselves admit that the bank owes them interest which
should have been paid to them before it was declared in a state
of liquidation. This fact undoubtedly destroys the character
which they nullifies their contention that the same be considered
as irregular deposits, because the payment of interest only takes
place in the case of loans. On the other hand, as we stated with
respect to the claim of Tan Tiong Tick (In re Liquidation of
Mercantile Bank of China, G.R. No. 43682), the provisions of the
Code of Commerce, and not those of the Civil Code, are
applicable to cases of the nature of those at bar, which have to
do with parties who are both merchants. (Articles 303 and 309,
Code of Commerce.) We there said, and it is not amiss to repeat
now, that the so-called current account and savings deposits
have lost their character of deposits, properly so-called and are
convertible into simple commercial loans because, in cases of
such deposits, the bank has made use thereof in the ordinary
course of its transactions as an institution engaged in the
banking business, not because it so wishes, but precisely
because of the authority deemed to have been granted to it by
the appellants to enable them to collect the interest which they
had been and they are now collecting, and by virtue further of
the authority granted to it by section 125 of the Corporation Law
(Act No. 1459), as amended by Acts Nos. 2003 and 3610 and
section 9 of the Banking Law (Act No. 3154), without considering
of course the provisions of article 1768 of the Civil Code.
Wherefore, it is held that the deposits on current account of the
appellants in the bank under liquidation, with the right on their
right on their part to collect interest, have not created and could
not create a juridical relation between them except that of
creditors and debtor, they being the creditors and the bank the
debtor.
What has so far been said resolves adversely the contention of
the appellants, the question raised in the first and second
assigned errors Tiong Chui Gion in case G. R. No. 44200, and
the appellants' second and third assigned errors in case G. R.
No. 43697.
II. As to the third and first errors attributed to lower court by Tiong
Chui Gion in his case, and by the other appellants in theirs,
respectively, it should be stated that the question of set-off
raised by them cannot be resolved a like question in the said
case, G. R. No. 43682, entitled "In re Liquidation of Mercantile
Bank of China. Tan Tiong Tick, claimant." It is proper that set-
offs be made, inasmuch as the appellants and the bank being
reciprocally debtors and creditors, the same is only just and
according to law (art. 1195, Civil Code), particularly as none of
the appellants falls within the exceptions mentioned in section
58 of the Insolvency Law (Act No. 1956), reading:

SEC. 58. In all cases of mutual debts and mutual credits
between the parties, the account between them shall be stated,
and one debt set off against the other, and the balance only shall
be allowed and paid. But no set-off or counterclaim shall be
allowed of a claim in its nature not provable against the estate:
Provided, That no set-off on counterclaim shall be allowed in
favor of any debtor to the insolvent of a claim purchased by or
transferred to such debtor within thirty days immediately
preceding the filing, or after the filing of the petition by or against
the insolvent.
It has been said with much basis by Morse, in his work on Bank
and Banking (6th ed., vol. 1, pages 776 and 784) that:
The rules of law as to the right of set-off between the bank and
its depositors are not different from those applicable to other
parties. (Page 776.)
Where the bank itself stops payment and becomes insolvent,
the customer may avail himself in set-off against his
indebtedness to the bank of any indebtedness of the bank to
himself, as, for example, the balance due him on his deposit
account. (Page 784.)
But if set-offs are proper in these cases, when and how should
they be made, considering that the appellants ask for the
payment of interest? Are they by any chance entitled to interest?
If they are, when and until what time should they be paid the
same?
The question of whether they are entitled to interest should be
resolved in the same way that we resolved the case of the
claimant Tan Tiong Tick in the said case, G. R. No. 43682. The
circumstances in these two cases are certainly the same as
those in the said case with reference to the said question. The
Mercantile Bank of China owes to each of the appellants the
interest claimed by them, corresponding to the year ending
December 4, 1931, the date it was declared in a state of
liquidation, but not which the appellants claim should be earned
by their deposits after said date and until the full amounts thereof
are paid to them. And with respect to the question of set-off, this
should be deemed made, of course, as of the date when the
Mercantile Bank of China was declared in a state of liquidation,
that is, on December 4, 1931, for then there was already a
reciprocal concurrence of debts, with respect to said bank and
the appellants. (Arts. 1195 and 1196 of the Civil Code; 8
Manresa, 4th ed., p. 361.)
III. With respect to the fourth assigned error of the appellants in
case G. R. No. 43697, we hold, in view of the considerations set
out in resolving the other assignments of errors, that the lower
court properly denied the motion for new trial of said appellants.
In view of the foregoing, we modify the appealed judgments by
holding that the deposits claimed by the appellants, and
declared by the lower court to be ordinary credits are for the
following amounts: P10,285.27 of Tiong Chui Gion; P5,387.95
of Gopoco Grocery (Gopoco); P7,610.44 of Tan Locko;
P6961.01 of Woo & Lo & Co.; P6,224.34 of Sy Guan Huat; and
P1,917.50 of La Bella Tondeña, plus their corresponding
interest up to December 4, 1931; that their obligations to the
bank under liquidation which should be set off against said
deposits, are respectively for the following amounts: P664.77 of
Tiong Chui Gion; P4,669.60 of Gopoco Grocery (Gopoco);
P2,757.80 of Tan Locko; P6,929.68 of Woo & Lo & Co.;
P6,214.74 of Sy Huat; and P1,130.80 of La Bella Todeña; and
we order that the set-offs in question be made in the manner
stated in this decision, that is, as of the date already indicated,
December 4, 1931. In all other respects, we affirm the aforesaid
judgments, without special pronouncement as to costs. So
ordered.
6. REPUBLIC OF THE PHILIPPINES, represented by the
DIRECTOR OF LANDS, Petitioner, vs. REGISTER OF DEEDS
OF ROXAS CITY, ELIZABETH LEE, and PACITA YU-
LEE, Respondents. G.R. No. 158230 July 16, 2008
SUMMARY: The Republic filed for reversion of title against the
heirs of a Chinese citizen, since aliens were disqualified by the
R U L E 9 8 – C A S E D I G E S T | 10
Constitution to own real property in the Philippines. Court ruled
that reversion could no longer prosper. Although the sale of the
lot to the Chinese citizen violated the constitutional prohibition
on aliens acquiring land, the lot had already been acquired by
Elizabeth and Pacita through succession. The transfer of Lot No.
398 to Elizabeth and Pacita, who are Filipino citizens qualified
to acquire lands, can no longer be impugned on the basis of the
invalidity of the initial transfer. The flaw in the original transaction
is considered cured and the title of the transferee is deemed
valid considering that the objective of the constitutional
proscription against alien ownership of lands, that is to keep our
lands in Filipino hands, has been achieved.
NATURE: Petition for Review of a decision of the Court of
Appeals
FACTS: In March 1936, Lee Liong, a Chinese citizen, bought
Lot No. 398 from Vicenta Arcenas, Francisco, Carmen Ramon,
Mercedes, Concepcion, Mariano, Jose, and Manuel, all
surnamed Dinglasan.
In February 1944, Lee Liong died intestate and was survived by
his widow Ang Chia, and his sons Lee Bing Hoo and Lee Bun
Ting.
On 30 June 1947, the surviving heirs of Lee Liong extrajudicially
settled the estate of the deceased and partitioned among
themselves Lot No. 398. When Lee Bing Hoo and Lee Bun Ting
died, Lot No. 398 was transferred by succession to their
respective wives, Elizabeth Lee (Elizabeth) and Pacita Yu-Lee
(Pacita).
The sellers Dingalasans wanted to recover the lot on the ground
that Lee Liong was an alien; thus, their sale to him was void. In
the 1956 case of Dinglasan v. Lee Bun Ting,3 involving Lot No.
398, the Court held that even if the sale of the property was null
and void for violating the constitutional prohibition on the sale of
land to an alien, still the doctrine of in pari delicto barred the
sellers from recovering the title to the property.
Eleven years later, in the case of Lee Bun Ting v. Judge
Aligaen,4 the Court ordered the trial court to dismiss the
complaint of the Dinglasans for the recovery of Lot No. 398.
Applying the doctrine of res judicata, the Court held that the case
was a mere relitigation of the same issues previously adjudged
with finality in the Dinglasan case, involving the same parties or
their privies and concerning the same subject matter.
On 7 September 1993, Elizabeth and Pacita (private
respondents) filed a petition for reconstitution of title of Lot No.
398 because the records of the Register of Deeds, Roxas City
were burned during the war.
On 3 October 2001, the Court held that the trial court’s order of
reconstitution was void for lack of factual support because it was
based merely on the plan and technical description approved by
the Land Registration Authority.5
On 26 January 1995, petitioner Republic of the Philippines
(petitioner), through the Office of the Solicitor General (OSG),
filed with the Regional Trial Court of Roxas City a
Complaint6 for Reversion of Title against private respondents
and the Register of Deeds of Roxas City, praying that (1) the
sale of Lot No. 398 to Lee Liong be set aside for being null and
void ab initio; and (2) Lot No. 398 be reverted to the public
domain for the State’s disposal in accordance with law.
Private respondents invoked as affirmative defenses: (1)
prescription; (2) private ownership of Lot No. 398; and (3) Lee
Liong’s being a buyer in good faith and for value. Furthermore,
private respondents claimed that as Filipino citizens, they are
qualified to acquire Lot No. 398 by succession.
The trial court rendered a decision ordering the reversion of Lot
No. 398 to the State. The trial court held that private respondents
could not have acquired a valid title over Lot No. 398 because
the sale of the lot to their predecessor-in-interest Lee Liong was
null and void. Being an innocent purchaser in good faith and for
value did not cure Lee Liong’s disqualification as an alien who is
prohibited from acquiring land under the Constitution. The trial

court further held that prescription cannot be invoked against the
State as regards an action for reversion or reconveyance of land
to the State.
On appeal, the Court of Appeals reversed the trial court’s
decision and declaring private respondents as the absolute and
lawful owners of Lot No. 398. The Court of Appeals agreed with
the trial court that the State is not barred by prescription.
However, the Court of Appeals held that the trial court erred in
ordering the reversion of Lot No. 398 to the State. Although the
sale of Lot No. 398 to Lee Liong violated the constitutional
prohibition on aliens acquiring land, the Court of Appeals noted
that Lot No. 398 had already been acquired by private
respondents through succession. The transfer of Lot No. 398 to
private respondents, who are Filipino citizens qualified to
acquire lands, can no longer be impugned on the basis of the
invalidity of the initial transfer. The flaw in the original transaction
is considered cured and the title of the transferee is deemed
valid considering that the objective of the constitutional
proscription against alien ownership of lands, that is to keep our
lands in Filipino hands, has been achieved. Petitioner moved for
reconsideration, which the Court of Appeals denied. Hence, this
petition for review.
Petitioner argues that since the sale of Lot No. 398 to Lee Liong
was void, Lot No. 398 never became part of the deceased Lee
Liong’s estate. Hence, Lot No. 398 could not be transmitted by
succession to Lee Liong’s surviving heirs and eventually to
private respondents.
ISSUE:
1.) Are Elizabeth and Pacita the absolute and lawful owners and
possessors of Lot No. 398, considering that their predecessor-
in-interest Lee Liong, an alien constitutionally prohibited to own
real property in the Philippines, acquired no right or title over the
lot which he could have transmitted by succession? YES.
2.) Are reversion proceedings still viable considering that Lot
398 has already been transferred to Filipino citizens? NO.
RULING: 1.) The circumstances of this case are similar to the
case of De Castro v. Teng Queen Tan,9 wherein a residential lot
was sold to a Chinese citizen. Upon the death of the alien
vendee, his heirs entered into an extrajudicial settlement of the
estate of the deceased and the subject land was transferred to
a son who was a naturalized Filipino. Subsequently, the vendor
of the lot filed a suit for annulment of sale for alleged violation of
the Constitution prohibiting the sale of land to aliens.
Independently of the doctrine of in pari delicto, the Court
sustained the sale, holding that while the vendee was an alien
at the time of the sale, the land has since become the property
of a naturalized Filipino citizen who is constitutionally qualified
to own land.
Similarly, in this case, upon the death of the original vendee who
was a Chinese citizen, his widow and two sons extrajudicially
settled his estate, including Lot No. 398. When the two sons
died, Lot No. 398 was transferred by succession to their
respective spouses, herein private respondents who are Filipino
citizens.
2.) In the reconstitution case of Lee v. Republic of the
Philippines10 involving Lot No. 398, this Court explained that the
OSG may initiate an action for reversion or escheat of lands
which were sold to aliens disqualified from acquiring lands under
the Constitution. However, in the case of Lot No. 398, the fact
that it was already transferred to Filipinos militates against
escheat proceedings, thus:
Although ownership of the land cannot revert to the
original sellers, because of the doctrine of pari delicto,
the Solicitor General may initiate an action for reversion
or escheat of the land to the State, subject to other
defenses, as hereafter set forth.
In this case, subsequent circumstances militate against
escheat proceedings because the land is now in the hands
R U L E 9 8 – C A S E D I G E S T | 11
of Filipinos. The original vendee, Lee Liong, has since died
and the land has been inherited by his heirs and
subsequently their heirs, Elizabeth Lee and Pacita Yu Lee.
Petitioners are Filipino citizens, a fact the Solicitor General
does not dispute.
The constitutional proscription on alien ownership of lands of the
public or private domain was intended to protect lands from
falling in the hands of non-Filipinos. In this case, however, there
would be no more public policy violated since the land is in the
hands of Filipinos qualified to acquire and own such land. "If land
is invalidly transferred to an alien who subsequently becomes a
citizen or transfers it to a citizen, the flaw in the original
transaction is considered cured and the title of the transferee is
rendered valid." Thus, the subsequent transfer of the property to
qualified Filipinos may no longer be impugned on the basis of
invalidity of the initial transfer. The objective of the constitutional
provision to keep our lands in Filipino hands has been
achieved.11
In this case, the reversion proceedings was initiated only
after almost 40 years from the promulgation of the case
of Dinglasan v. Lee Bun Ting,12 where the Court held that the
sale of Lot No. 398 was null and void for violating the
constitutional prohibition on the sale of land to an alien. If
petitioner had commenced reversion proceedings when Lot No.
398 was still in the hands of the original vendee who was an
alien disqualified to hold title thereto, then reversion of the land
to the State would undoubtedly be allowed. However, this is not
the case here. When petitioner instituted the action for reversion
of title in 1995, Lot No. 398 had already been transferred by
succession to private respondents who are Filipino
citizens.1avvphi1
Since Lot No. 398 has already been transferred to Filipino
citizens, the flaw in the original transaction is considered cured.
Clearly, since Lot No. 398 has already been transferred to
private respondents who are Filipino citizens, the prior invalid
sale to Lee Liong can no longer be assailed. Hence, reversion
proceedings will no longer prosper since the land is now in the
hands of Filipino citizens.
7. G.R. No. 192413 June 13, 2012
RIZAL COMMERCIAL BANKING CORPORATION, Petitioner,
versus HI-TRI DEVELOPMENT CORPORATION and LUZ R.
BAKUNAWA, Respondents.
FACTS:
Before the Court is a Rule 45 Petition for Review on Certiorari
filed by petitioner Rizal Commercial Banking Corporation
(RCBC) against respondents Hi-Tri Development Corporation
(Hi-Tri) and Luz R. Bakunawa (Bakunawa). Petitioner seeks to
appeal from the 26 November 2009 Decision and 27 May 2010
Resolution of the Court of Appeals (CA),1 which reversed and
set aside the 19 May 2008 Decision and 3 November 2008
Order of the Makati City Regional Trial Court (RTC) in Civil Case
No. 06-244. The case before the RTC involved the Complaint
for Escheat filed by the Republic of the Philippines (Republic)
pursuant to Act No. 3936, as amended by Presidential Decree
No. 679 (P.D. 679), against certain deposits, credits, and
unclaimed balances held by the branches of various banks in
the Philippines. The trial court declared the amounts, subject of
the special proceedings, escheated to the Republic and ordered
them deposited with the Treasurer of the Philippines (Treasurer)
and credited in favor of the Republic. The assailed RTC
judgments included an unclaimed balance in the amount
of P 1,019,514.29, maintained by RCBC in its Ermita Business
Center branch.
ISSUE:
Whether or not the allocated funds may be escheated in favor
of the Republic?
HELD:
 R U L E 9 8 – C A S E D I G E S T | 12

The Court held in the negative. An ordinary check refers to a bill It is undisputed that there was no effective delivery of the check,
of exchange drawn by a depositor (drawer) on a bank rendering the instrument incomplete. In addition, we have
(drawee), requesting the latter to pay a person named therein already settled that respondents retained ownership of the
(payee) or to the order of the payee or to the bearer, a named funds. As it is obvious from their foregoing actions that they have
sum of money.25 The issuance of the check does not of itself not abandoned their claim over the fund, we rule that the
operate as an assignment of any part of the funds in the bank to allocated deposit, subject of the Manager’s Check, should be
the credit of the drawer.26 Here, the bank becomes liable only excluded from the escheat proceedings. We reiterate our
after it accepts or certifies the check. After the check is accepted pronouncement that the objective of escheat proceedings is
for payment, the bank would then debit the amount to be paid to state forfeiture of unclaimed balances. We further note that there
the holder of the check from the account of the depositor-drawer. is nothing in the records that would show that the OSG appealed
the assailed CA judgments. We take this failure to appeal as an
There are checks of a special type called manager’s or cashier’s indication of disinterest in pursuing the escheat proceedings in
checks. These are bills of exchange drawn by the bank’s favor of the Republic.
manager or cashier, in the name of the bank, against the bank
itself. Typically, a manager’s or a cashier’s check is procured
from the bank by allocating a particular amount of funds to be
debited from the depositor’s account or by directly paying or
depositing to the bank the value of the check to be drawn. Since
the bank issues the check in its name, with itself as the drawee,
the check is deemed accepted in advance. Ordinarily, the check
becomes the primary obligation of the issuing bank and
constitutes its written promise to pay upon demand.

Nevertheless, the mere issuance of a manager’s check does not

ipso facto work as an automatic transfer of funds to the account
of the payee. In case the procurer of the manager’s or cashier’s
check retains custody of the instrument, does not tender it to the
intended payee, or fails to make an effective delivery, we find
the following provision on undelivered instruments under the
Negotiable Instruments Law applicable:

Sec. 16. Delivery; when effectual; when presumed. – Every

contract on a negotiable instrument is incomplete and revocable
until delivery of the instrument for the purpose of giving effect
thereto. As between immediate parties and as regards a remote
party other than a holder in due course, the delivery, in order to
be effectual, must be made either by or under the authority of
the party making, drawing, accepting, or indorsing, as the case
may be; and, in such case, the delivery may be shown to have
been conditional, or for a special purpose only, and not for the
purpose of transferring the property in the instrument. But where
the instrument is in the hands of a holder in due course, a valid
delivery thereof by all parties prior to him so as to make them
liable to him is conclusively presumed. And where the
instrument is no longer in the possession of a party whose
signature appears thereon, a valid and intentional delivery by
him is presumed until the contrary is proved.

Petitioner acknowledges that the Manager’s Check was

procured by respondents, and that the amount to be paid for the
check would be sourced from the deposit account of Hi-
Tri. When Rosmil did not accept the Manager’s Check offered
by respondents, the latter retained custody of the instrument
instead of cancelling it. As the Manager’s Check neither went to
the hands of Rosmil nor was it further negotiated to other
persons, the instrument remained undelivered. Petitioner does
not dispute the fact that respondents retained custody of the
instrument.

Since there was no delivery, presentment of the check to the

bank for payment did not occur. An order to debit the account of
respondents was never made. In fact, petitioner confirms that
the Manager’s Check was never negotiated or presented for
payment to its Ermita Branch, and that the allocated fund is still
held by the bank. As a result, the assigned fund is deemed to
remain part of the account of Hi-Tri, which procured the
Manager’s Check. The doctrine that the deposit represented by
a manager’s check automatically passes to the payee is
inapplicable, because the instrument – although accepted in
advance – remains undelivered. Hence, respondents should
have been informed that the deposit had been left inactive for
more than 10 years, and that it may be subjected to escheat
proceedings if left unclaimed.

After a careful review of the RTC records, we find that it is no

longer necessary to remand the case for hearing to determine
whether the claim of respondents was valid. There was no
contention that they were the procurers of the Manager’s Check.