August 2011 Philippine Supreme Court Decisions on Civil Law

Here are select August 2011 rulings of the Supreme Court of the Philippines on civil law:

Civil Code

Contracts; rescission; accion pauliana. Under Article 1381 of the Civil Code, an accion pauliana is an action to rescind contracts in fraud of creditors. However, jurisprudence is clear that the following successive measures must be taken by a creditor before he may bring an action for rescission of an allegedly fraudulent contract: (1) exhaust the properties of the debtor through levying by attachment and execution upon all the property of the debtor, except such as are exempt by law from execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights (accion pauliana). It is thus apparent that an action to rescind, or an accion pauliana, must be of last resort, availed of only after the creditor has exhausted all the properties of the debtor not exempt from execution or after all other legal remedies have been exhausted and have been proven futile.

It does not appear that Metrobank sought other properties of SSC other than the subject lots alleged to have been transferred in fraud of creditors. Neither is there any showing that Metrobank subrogated itself in SSC’s transmissible rights and actions. Without availing of the first and second remedies, Metrobank simply undertook the third measure and filed an action for annulment of the chattel mortgages. This cannot be done. Article 1383 of the New Civil Code is very explicit that the right or remedy of the creditor to impugn the acts which the debtor may have done to defraud them is subsidiary in nature. It can only be availed of in the absence of any other legal remedy to obtain reparation for the injury. This fact is not present in this case. No evidence was presented nor even an allegation was offered to show that Metrobank had availed of the abovementioned remedies before it tried to question the validity of the contracts of chattel mortgage between IEB and SSC. Metropolitan Bank and Trust Company, substituted by Meridian Corporation vs. International Exchange Bank/Chuayuco Steel Manufacturing vs. International Exchange Bank; G.R. No. 176008/G.R. No. 176131, August 10, 2011.

Co-ownership. Article 484 of the Civil Code which defines co-ownership, states:

Art. 484. There is co-ownership whenever the ownership of an undivided thing or right belongs to different persons. . .

In the present case, petitioners insist that their predecessor-in-interest Lun co-owned the Gubat and Barcelona properties with his brother Fieng. To prove co-ownership over the Gubat property, petitioners presented: (1) tax declarations from 1929 to 1983 under the name of Fieng but paid by Lun; (2) the renewal certificate from Malayan Insurance Company Inc.; (3) the insurance contract; and (4) the statements of account from Supreme Insurance Underwriters which named Lun as administrator of the property. Likewise, to prove their right over the Barcelona property as legal heirs under intestate succession, petitioners presented a Deed of Sale dated 24 August 1923 between Chaco, as buyer, and Gabriel Gredona and Engracia Legata, as sellers, involving a price consideration of P1,200.

On the other hand, respondents presented notarized documents: (1) Deed of Sale dated 13 October 1935, and (2) Sale of Real Property dated 6 August 1936 showing that the former owners of the Gubat property entered into a sale transaction with Fieng, as buyer and Lun, as a witness to the sale. They also presented tax declarations in the name of Fieng from 1937 to 1958. After Fieng’s death, Co declared the Gubat property in his name in the succeeding tax declarations. Likewise, the respondents presented documents proving the declaration of the Barcelona property in the name of Co.

After a careful scrutiny of the records, we hold that the evidence of petitioners were insufficient or immaterial to warrant a positive finding of co-ownership over the Gubat and Barcelona properties. The CA correctly observed that petitioners failed to substantiate with reasonable certainty that (1) Chaco gave Fieng a start-up capital of P8,000 to be used by Lun and Fieng in setting up a business, (2) that the Philippine Honest and Company was a partnership between Lun and Fieng, and (3) that the Deed of Sale dated 24 August 1923 involving the Barcelona property is sufficient to establish co-ownership. Also, petitioners were not able to prove the existence of the alleged Chinese custom of placing properties in the name of the eldest child as provided under Article 12 of the Civil Code.

In contrast, respondents were able to show documents of sale from the original owners of the Gubat property rendering the claim of custom as immaterial. Also, respondents sufficiently established that Fieng was the registered owner of the Gubat and Barcelona properties while Lun was merely an administrator. Co Giok Lun vs. Jose Co; G.R. No. 184454, August 3, 2011.

Interest; on final judgment. The Resolution of the National Labor Relations Commission is modified by including in the award, aside from the principal amount of P4,366,954.80, interest at the legal rate of 12% per annum from the date the Decision in the present case became final and executory, until the principal amount is fully paid. Agripino V. Molina vs. Pacific Plans, Inc.; G.R. No. 165476. August 15, 2011.

Interest; usury law. Petitioners contend that the interest rate of 24% per annum stipulated in the mortgage contract, which they executed in favor of respondent Bank, is usurious. This Court has consistently held that for some time now, usury has been legally non-existent and that interest can now be charged as lender and borrower may agree upon. In fact, Section 1 of Central Bank Circular No. 905, Series of 1982, which took effect on January 1, 1983, expressly provides that “[t]he rate of interest, including commissions, premiums, fees and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured, that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended.”

Nonetheless, this Court has also held in a number of cases, that nothing in the circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. Thus, the stipulated interest rates are illegal if they are unconscionable.

The question now is whether the 24% per annum interest rate is unreasonable under the circumstances obtaining in the present case. The Court rules in the negative.

In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, this Court held that the interest rate of 24% per annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties and they are bound by its stipulations.

Also, in Garcia v. Court of Appeals, this Court sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender.

Based on the above jurisprudence, the Court finds that the 24% per annum interest rate, provided for in the subject mortgage contracts for a loan of P225,000.00, may not be considered unconscionable. Moreover, considering that the mortgage agreement was freely entered into by both parties, the same is the law between them and they are bound to comply with the provisions contained therein. Spouses Nelson and Myra Villanueva vs.Court of Appeals, et al.;G.R. No. 163433. August 22, 2011.

Laches; as between relatives.  Laches, being rooted in equity, is not always to be applied strictly in a way that would obliterate an otherwise valid claim especially between blood relatives. The existence of a confidential relationship based upon consanguinity is an important circumstance for consideration; hence, the doctrine is not to be applied mechanically as between near relatives. Adaza v. Court of Appeals held that the relationship between the parties therein, who were siblings, was sufficient to explain and excuse what would otherwise have been a long delay in enforcing the claim and the delay in such situation should not be as strictly construed as where the parties are complete strangers vis-a-vis each other; thus, reliance by one party upon his blood relationship with the other and the trust and confidence normally connoted in our culture by that relationship should not be taken against him. Too, Sotto v. Teves ruled that the doctrine of laches is not strictly applied between near relatives, and the fact that the parties are connected by ties of blood or marriage tends to excuse an otherwise unreasonable delay. Estate of Margarita D. Cabacungan, represented by Luz Laigo-Ali vs. Marilou Laigo, et al. ;G.R. No. 175073. August 15, 2011.

Pledge; lesser transmission of rights. We cannot sustain the finding of the CA that: “The machineries were ceded to THIRD PARTY NONWOVEN by way of dacion en pago, a contract later entered into by WINWOOD/WINGYAN and THIRD PARTY NONWOVEN.” As aptly pointed out by petitioner, no evidence was presented by Nonwoven to show that the attached properties were subsequently sold to it by way of a dacion en pago. Also, there is nothing in the Agreement dated May 9, 1992 to indicate that the motorized sewing machines, snap machines and boilers were ceded to Nonwoven as payment for the Wingyan’s and Winwood’s obligation. It bears stressing that there can be no transfer of ownership if the delivery of the property to the creditor is by way of security. In fact, in case of doubt as to whether a transaction is one of pledge or dacion en pago, the presumption is that it is a pledge as this involves a lesser transmission of rights and interests. Union Bank of the Philippines vs. Alain Juniat, et al.; G.R. No. 171569, August 1, 2011.

Quasi-delict; elements. According to Article 2176 of the Civil Code, whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage done. To sustain a claim based on quasi-delict, the following requisites must concur: (a) damage suffered by the plaintiff; (b) fault or negligence of defendant; and (c) connection of cause and effect between the fault or negligence of defendant and the damage incurred by the plaintiff. These requisites must be proved by a preponderance of evidence. The claimants, respondents in this case, must, therefore, establish their claim or cause of action by preponderance of evidence, evidence which is of greater weight, or more convincing than that which is offered in opposition to it. Albert Tison and Claudio L. Jabon vs.Sps. Gregorio Pomasin and Consorcia Ponce Pomasin, et al.; G.R. No. 173180. August 24, 2011.

Quasi-delict; liability of employer for negligence of employee; bases. Standard may hold RCJ liable for two reasons, both of which rely upon facts uncontroverted by RCJ. One, RCJ is the registered owner of the bus driven by Mangoba. Two, RCJ is Mangoba’s employer.

Standard’s allegation in its amended complaint that RCJ is the registered owner of the passenger bus with plate number NYG 363 was sufficient to state a cause of action against RCJ. The registered owner of a vehicle should be primarily responsible to the public for injuries caused while the vehicle is in use. The main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner.

Moreover, when the employee causes damage due to his own negligence while performing his own duties, there arises the juris tantum presumption that the employer is negligent, rebuttable only by proof of observance of the diligence of a good father of a family. For failure to rebut such legal presumption of negligence in the selection and supervision of employees, the employer is likewise responsible for damages, the basis of the liability being the relationship of pater familias or on the employer’s own negligence. RCJ Bus Lines, Inc. vs. Standard Insurance Company Incorporated; G.R. No. 193629, August 17, 2011.

Quasi-delict; negligence; violation of law is negligence; causal connection.  Driving without a proper license is a violation of traffic regulation. Under Article 2185 of the Civil Code, the legal presumption of negligence arises if at the time of the mishap, a person was violating any traffic regulation. However, in Sanitary Steam Laundry, Inc. v. Court of Appeals, we held that a causal connection must exist between the injury received and the violation of the traffic regulation. It must be proven that the violation of the traffic regulation was the proximate or legal cause of the injury or that it substantially contributed thereto. Negligence, consisting in whole or in part, of violation of law, like any other negligence, is without legal consequence unless it is a contributing cause of the injury. Likewise controlling is our ruling in Añonuevo v. Court of Appeals where we reiterated that negligence per se, arising from the mere violation of a traffic statute, need not be sufficient in itself in establishing liability for damages. In said case, Añonuevo, who was driving a car, did not attempt “to establish a causal connection between the safety violations imputed to the injured cyclist, and the accident itself. Instead, he relied on a putative presumption that these violations in themselves sufficiently established negligence appreciable against the cyclist. Since the onus on Añonuevo is to conclusively prove the link between the violations and the accident, we can deem him as having failed to discharge his necessary burden of proving the cyclist’s own liability.” We took the occasion to state that:

The rule on negligence per se must admit qualifications that may arise from the logical consequences of the facts leading to the mishap. The doctrine (and Article 2185, for that matter) is undeniably useful as a judicial guide in adjudging liability, for it seeks to impute culpability arising from the failure of the actor to perform up to a standard established by a legal fiat. But the doctrine should not be rendered inflexible so as to deny relief when in fact there is no causal relation between the statutory violation and the injury sustained. Presumptions in law, while convenient, are not intractable so as to forbid rebuttal rooted in fact. After all, tort law is remunerative in spirit, aiming to provide compensation for the harm suffered by those whose interests have been invaded owing to the conduct of other.

In the instant case, no causal connection was established between the tractor-trailer driver’s restrictions on his license to the vehicular collision. Furthermore, Jabon was able to sufficiently explain that the Land Transportation Office merely erred in not including restriction code 8 in his license. Albert Tison and Claudio L. Jabon vs.Sps. Gregorio Pomasin and Consorcia Ponce Pomasin, et al.;  G.R. No. 173180. August 24, 2011.

Quieting of title; direct attack on title. The RCA likewise asserts that the case for quieting of title is a collateral attack on its title which is prohibited by law. However, we agree with the CA in holding that the complaint against the RCA does not amount to a collateral attack because the action for the declaration of nullity of OCT No. 17629 is a clear and direct attack on its title.

An action is deemed an attack on a title when its objective is to nullify the title, thereby challenging the judgment pursuant to which the title was decreed. The attack is direct when the objective is to annul or set aside such judgment, or enjoin its enforcement. On the other hand, the attack is indirect or collateral when, in an action to obtain a different relief, an attack on the judgment is nevertheless made as an incident thereof.

The complaint filed with the RTC pertinently alleged that the claim of ownership by the RCA is spurious as its title, denominated as OCT No. 17629, is fake for the following reasons: (1) that the erasures are very apparent and the title itself is fake; (2) it was made to appear under Memorandum of Encumbrance Entry No. 1007 that the title is a reconstituted title when in truth, it is not; and (3) the verification reveals that there was no petition filed before any court where an order was issued for the reconstitution and re-issuance of an owner’s duplicate copy. It is thus clear from the foregoing that the case filed questioning the genuineness of OCT No. 17629 is a direct attack on the title of the RCA.  Roman Catholic Archbishop of San Fernando, Pampanga, represented herein by the incumbent Archbishop vs. Eduardo Soriano, et al./Marcial and Victoria Balagtas, et al. vs. Roman Catholic Archbishop of San Fernando, Pampanga, etc.; G.R. No. 153829/G.R. No. 160909. August 17, 2011.

Subrogation. Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who substitutes another succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The principle covers a situation wherein an insurer who has paid a loss under an insurance policy is entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered by the policy. RCJ Bus Lines, Inc. vs. Standard Insurance Company Incorporated; G.R. No. 193629, August 17, 2011.

Trusts. [Digester’s Note: Here, the Supreme Court provides us with a taxonomy of trust!] A trust is the legal relationship between one person having an equitable ownership of property and another person owning the legal title to such property, the equitable ownership of the former entitling him to the performance of certain duties and the exercise of certain powers by the latter.

Trusts are either express or implied. Express or direct trusts are created by the direct and positive acts of the parties, by some writing or deed, or will, or by oral declaration in words evincing an intention to create a trust. Implied trusts – also called “trusts by operation of law,” “indirect trusts” and “involuntary trusts” – arise by legal implication based on the presumed intention of the parties or on equitable principles independent of the particular intention of the parties. They are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or, independently of the particular intention of the parties, as being inferred from the transaction by operation of law basically by reason of equity.

Implied trusts are further classified into constructive trusts and resulting trusts.

Constructive trusts, on the one hand, come about in the main by operation of law and not by agreement or intention. They arise not by any word or phrase, either expressly or impliedly, evincing a direct intention to create a trust, but one which arises in order to satisfy the demands of justice. Also known as trusts ex maleficio, trusts ex delicto and trusts de son tort, they are construed against one who by actual or constructive fraud, duress, abuse of confidence, commission of a wrong or any form of unconscionable conduct, artifice, concealment of questionable means, or who in any way against equity and good conscience has obtained or holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy. They are aptly characterized as “fraud-rectifying trust,” imposed by equity to satisfy the demands of justice and to defeat or prevent the wrongful act of one of the parties. Constructive trusts are illustrated in Articles 1450, 1454, 1455 and 1456.

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

Articles 1448 to 1456 of the Civil Code enumerate cases of implied trust, but the list according to Article 1447 is not exclusive of others which may be established by the general law on trusts so long as the limitations laid down in Article 1442 are observed, that is, that they be not in conflict with the New Civil Code, the Code of Commerce, the Rules of Court and special laws.

While resulting trusts generally arise on failure of an express trust or of the purpose thereof, or on a conveyance to one person upon a consideration from another (sometimes referred to as a “purchase-money resulting trust”), they may also be imposed in other circumstances such that the court, shaping judgment in its most efficient form and preventing a failure of justice, must decree the existence of such a trust. A resulting trust, for instance, arises where, there being no fraud or violation of the trust, the circumstances indicate intent of the parties that legal title in one be held for the benefit of another. It also arises in some instances where the underlying transaction is without consideration, such as that contemplated in Article 1449 of the Civil Code. Where property, for example, is gratuitously conveyed for a particular purpose and that purpose is either fulfilled or frustrated, the court may affirm the resulting trust in favor of the grantor or transferor, where the beneficial interest in property was not intended to vest in the grantee.

Intention – although only presumed, implied or supposed by law from the nature of the transaction or from the facts and circumstances accompanying the transaction, particularly the source of the consideration – is always an element of a resulting trust and may be inferred from the acts or conduct of the parties rather than from direct expression of conduct. Certainly, intent as an indispensable element, is a matter that necessarily lies in the evidence, that is, by evidence, even circumstantial, of statements made by the parties at or before the time title passes. Because an implied trust is neither dependent upon an express agreement nor required to be evidenced by writing, Article 1457 of our Civil Code authorizes the admission of parole evidence to prove their existence. Parole evidence that is required to establish the existence of an implied trust necessarily has to be trustworthy and it cannot rest on loose, equivocal or indefinite declarations.

Thus, contrary to the Court of Appeals’ finding that there was no evidence on record showing that an implied trust relation arose between Margarita and Roberto, we find that petitioner before the trial court, had actually adduced evidence to prove the intention of Margarita to transfer to Roberto only the legal title to the properties in question, with attendant expectation that Roberto would return the same to her on accomplishment of that specific purpose for which the transaction was entered into. The evidence of course is not documentary, but rather testimonial.

As a trustee of a resulting trust, therefore, Roberto, like the trustee of an express passive trust, is merely a depositary of legal title having no duties as to the management, control or disposition of the property except to make a conveyance when called upon by the cestui que trust. Hence, the sales he entered into with respondents are a wrongful conversion of the trust property and a breach of the trust. Estate of Margarita D. Cabacungan, represented by Luz Laigo-Ali vs. Marilou Laigo, et al. ;G.R. No. 175073. August 15, 2011.

Trusts; agency; trust pursuit rule; when prescription begins to run. There is a fundamental principle in agency that where certain property entrusted to an agent and impressed by law with a trust in favor of the principal is wrongfully diverted, such trust follows the property in the hands of a third person and the principal is ordinarily entitled to pursue and recover it so long as the property can be traced and identified, and no superior equities have intervened. This principle is actually one of trusts, since the wrongful conversion gives rise to a constructive trust which pursues the property, its product or proceeds, and permits the beneficiary to recover the property or obtain damages for the wrongful conversion of the property. Aptly called the “trust pursuit rule,” it applies when a constructive or resulting trust has once affixed itself to property in a certain state or form.

Hence, a trust will follow the property – through all changes in its state and form as long as such property, its products or its proceeds, are capable of identification, even into the hands of a transferee other than a bona fide purchaser for value, or restitution will be enforced at the election of the beneficiary through recourse against the trustee or the transferee personally. This is grounded on the principle in property law that ownership continues and can be asserted by the true owner against any withholding of the object to which the ownership pertains, whether such object of the ownership is found in the hands of an original owner or a transferee, or in a different form, as long as it can be identified. Accordingly, the person to whom is made a transfer of trust property constituting a wrongful conversion of the trust property and a breach of the trust, when not protected as a bona fide purchaser for value, is himself liable and accountable as a constructive trustee. The liability attaches at the moment of the transfer of trust property and continues until there is full restoration to the beneficiary. Thus, the transferee is charged with, and can be held to the performance of the trust, equally with the original trustee, and he can be compelled to execute a reconveyance.

This scenario is characteristic of a constructive trust imposed by Article 1456 of the Civil Code, which impresses upon a person obtaining property through mistake or fraud the status of an implied trustee for the benefit of the person from whom the property comes. Petitioner, in laying claim against respondents who are concededly transferees who professed having validly derived their ownership from Roberto, is in effect enforcing against respondents a constructive trust relation that arose by virtue of the wrongful and fraudulent transfer to them of the subject properties by Roberto.

It is settled that an action for reconveyance based on a constructive implied trust prescribes in 10 years likewise in accordance with Article 1144 of the Civil Code. Yet not like in the case of a resulting implied trust and an express trust, prescription supervenes in a constructive implied trust even if the trustee does not repudiate the relationship. In other words, repudiation of said trust is not a condition precedent to the running of the prescriptive period.

As to when the prescriptive period commences to run, Crisostomo v. Garcia elucidated as follows:

When property is registered in another’s name, an implied or constructive trust is created by law in favor of the true owner. The action for reconveyance of the title to the rightful owner prescribes in 10 years from the issuance of the title. An action for reconveyance based on implied or constructive trust prescribes in ten years from the alleged fraudulent registration or date of issuance of the certificate of title over the property.

It is now well settled that the prescriptive period to recover property obtained by fraud or mistake, giving rise to an implied trust under Art. 1456 of the Civil Code, is 10 years pursuant to Art. 1144. This ten-year prescriptive period begins to run from the date the adverse party repudiates the implied trust, which repudiation takes place when the adverse party registers the land.

From the foregoing, it is clear that an action for reconveyance under a constructive implied trust in accordance with Article 1456 does not prescribe unless and until the land is registered or the instrument affecting the same is inscribed in accordance with law, inasmuch as it is what binds the land and operates constructive notice to the world. In the present case, however, the lands involved are concededly unregistered lands; hence, there is no way by which Margarita, during her lifetime, could be notified of the furtive and fraudulent sales made in 1992 by Roberto in favor of respondents, except by actual notice from Pedro himself in August 1995. Hence, it is from that date that prescription began to toll. The filing of the complaint in February 1996 is well within the prescriptive period. Finally, such delay of only six months in instituting the present action hardly suffices to justify a finding of inexcusable delay or to create an inference that Margarita has allowed her claim to stale by laches. Estate of Margarita D. Cabacungan, represented by Luz Laigo-Ali vs. Marilou Laigo, et al.; G.R. No. 175073. August 15, 2011.

Trusts; implied trust; action for reconveyance; prescription; laches. The invocation of the rules on limitation of actions relative to a resulting trust is not in point because the resulting trust relation between Margarita and Roberto had been extinguished by the latter’s death. A trust, it is said, terminates upon the death of the trustee, particularly where the trust is personal to him. Besides, prescription and laches, in respect of this resulting trust relation, hardly can impair petitioner’s cause of action. On the one hand, in accordance with Article 1144 of the Civil Code, an action for reconveyance to enforce an implied trust in one’s favor prescribes in ten years from the time the right of action accrues, as it is based upon an obligation created by law. It sets in from the time the trustee performs unequivocal acts of repudiation amounting to an ouster of the cestui que trust which are made known to the latter. In this case, it was the 1992 sale of the properties to respondents that comprised the act of repudiation which, however, was made known to Margarita only in 1995 but nevertheless impelled her to institute the action in 1996 – still well within the prescriptive period. Hardly can be considered as act of repudiation Roberto’s open court declaration which he made in the 1979 adoption proceedings involving respondents to the effect that he owned the subject properties, nor even the fact that he in 1977 had entered into a lease contract on one of the disputed properties which contract had been subject of a 1996 decision of the Court of Appeals. These do not suffice to constitute unequivocal acts in repudiation of the trust. Estate of Margarita D. Cabacungan, represented by Luz Laigo-Ali vs. Marilou Laigo, et al. ;G.R. No. 175073. August 15, 2011.

Trusts; implied trust; action for reconveyance; prescription; when claimant is in actual possession. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.” An action for reconveyance based on implied trust prescribes in 10 years as it is an obligation created by law, to be counted from the date of issuance of the Torrens title over the property. This rule, however, applies only when the plaintiff or the person enforcing the trust is not in possession of the property.

In Vda. de Cabrera v. Court of Appeals, we said that there is no prescription when in an action for reconveyance, the claimant is in actual possession of the property because this in effect is an action for quieting of title:

[S]ince if a person claiming to be the owner thereof is in actual possession of the property, as the defendants are in the instant case, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe. The reason for this is that one who is in actual possession of a piece of land claiming to be the owner thereof may wait until his possession is disturbed or his title is attacked before taking steps to vindicate his right, the reason for the rule being, that his undisturbed possession gives him a continuing right to seek the aid of a court of equity to ascertain and determine the nature of the adverse claim of a third party and its effect on his own title, which right can be claimed only by one who is in possession.

In Ciriaco’s case, as it has been judicially established that he is in actual possession of the property he claims as his and that he has a better right to the disputed portion, his suit for reconveyance is in effect an action for quieting of title. Hence, petitioner’s defense of prescription against Ciriaco does not lie. Philippine National Bank vs. Ciriaco Jumamoy and Heirs of Antonio Go Pace, represented by Rosalia Pace;  G.R. No. 169901, August 3, 2011.

Special Laws

P.D. No, 1529; land registration; buyer in good faith.  Fundamental is the rule in land registration law that the issue of whether the buyer of realty is in good or bad faith is relevant only where the subject of the sale is registered land and the purchase was made from the registered owner whose title to the land is clean, in which case the purchaser who relies on the clean title of the registered owner is protected if he is a purchaser in good faith and for value. Since the properties in question are unregistered lands, respondents purchased the same at their own peril. Their claim of having bought the properties in good faith, i.e., without notice that there is some other person with a right to or interest therein, would not protect them should it turn out, as it in fact did in this case, that their seller, Roberto, had no right to sell them. Estate of Margarita D. Cabacungan, represented by Luz Laigo-Ali vs. Marilou Laigo, et al. ;G.R. No. 175073. August 15, 2011.

P.D. No. 1529; land registration; buyer in good faith; higher diligence standards for banks. Undoubtedly, our land registration statute extends its protection to an innocent purchaser for value, defined as “one who buys the property of another, without notice that some other person has a right or interest in such property and pays the full price for the same, at the time of such purchase or before he has notice of the claims or interest of some other person in the property.” An “innocent purchaser for value” includes an innocent lessee, mortgagee, or other encumbrancer for value.

Here, we agree with the disposition of the RTC and the CA that PNB is not an innocent purchaser for value. As we have already declared:

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. (Emphasis ours.)

PNB’s contention that Ciriaco failed to allege in his complaint that PNB failed to take the necessary precautions before accepting the mortgage is of no moment. It is undisputed that the 2.5002-hectare portion of the mortgaged property has been adjudged in favor of Ciriaco’s predecessor-in-interest in Civil Case No. 2514. Hence, PNB has the burden of evidence that it acted in good faith from the time the land was offered as collateral.

However, PNB miserably failed to overcome this burden. There was no showing at all that it conducted an investigation; that it observed due diligence and prudence by checking for flaws in the title; that it verified the identity of the true owner and possessor of the land; and, that it visited subject premises to determine its actual condition before accepting the same as collateral.

Both the CA and the trial court correctly observed that PNB could not validly raise the defense that it relied on Antonio’s clean title. The land, when it was first mortgaged, was then unregistered under our Torrens system. The first mortgage was on February 25, 1971 while OCT No. P-4952 was issued on July 19, 1971. Since the Paces offered as collateral an unregistered land, with more reason PNB should have proven before the RTC that it had verified the status of the property by conducting an ocular inspection before granting Antonio his first loan. Good faith which is a question of fact could have been proven in the proceedings before the RTC, but PNB dispensed with the trial proper and let its opportunity to dispute factual allegations pass. Had PNB really taken the necessary precautions, it would have discovered that a large portion of Lot 13521 is occupied by Ciriaco. Philippine National Bank vs. Ciriaco Jumamoy and Heirs of Antonio Go Pace, represented by Rosalia Pace; G.R. No. 169901, August 3, 2011.

Value of Torrens Title. The incontrovertibility of a title does not preclude a rightful claimant to a property from seeking other remedies because it was never the intention of the Torrens system to perpetuate fraud. As explained in Vda. de Recinto v. Inciong, the mere possession of a certificate of title under the Torrens system does not necessarily make the possessor a true owner of all the property described therein for he does not by virtue of said certificate alone become the owner of the land illegally included. It is evident from the records that the petitioner owns the portion in question and therefore the area should be conveyed to her. The remedy of the land owner whose property has been wrongfully or erroneously registered in another’s name is, after one year from the date of the decree, not to set aside the decree, but, respecting the decree as incontrovertible and no longer open to review, to bring an ordinary action in the ordinary court of justice for reconveyance or, if the property has passed into the hands of an innocent purchaser for value, for damages. Philippine National Bank vs. Ciriaco Jumamoy and Heirs of Antonio Go Pace, represented by Rosalia Pace; G.R. No. 169901, August 3, 2011.

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