[G.R. No. 144516.  February 11, 2004]

DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, vs. COMMISSION ON AUDIT, respondent.

D E C I S I O N

CARPIO, J.:

The Case

In this special civil action for certiorari,[1] the Development Bank of the Philippines (“DBP”) seeks to set aside COA Decision No. 98-403 [2] dated 6 October 1998 (“COA Decision”) and COA Resolution No. 2000-212 [3] dated 1 August 2000 issued by the Commission on Audit (“COA”).  The COA affirmed Audit Observation Memorandum (“AOM”) No. 93-2,[4] which disallowed in audit the dividends distributed under the Special Loan Program (“SLP”) to the members of the DBP Gratuity Plan.

Antecedent Facts

The DBP is a government financial institution with an original charter, Executive Order No. 81,[5] as amended by Republic Act No. 8523[6] (“DBP Charter”).  The COA is a constitutional body with the mandate to examine and audit all government instrumentalities and investment of public funds.[7]

The COA Decision sets forth the undisputed facts of this case as follows:

xxx [O]n February 20, 1980, the Development Bank of the Philippines (DBP) Board of Governors adopted Resolution No. 794 creating the DBP Gratuity Plan and authorizing the setting up of a retirement fund to cover the benefits due to DBP retiring officials and employees under Commonwealth Act No. 186, as amended.  The Gratuity Plan was made effective on June 17, 1967 and covered all employees of the Bank as of May 31, 1977.

On February 26, 1980, a Trust Indenture was entered into by and between the DBP and the Board of Trustees of the Gratuity Plan Fund, vesting in the latter the control and administration of the Fund.  The trustee, subsequently, appointed the DBP Trust Services Department (DBP-TSD) as the investment manager thru an Investment Management Agreement, with the end in view of making the income and principal of the Fund sufficient to meet the liabilities of DBP under the Gratuity Plan.

In 1983, the Bank established a Special Loan Program availed thru the facilities of the DBP Provident Fund and funded by placements from the Gratuity Plan Fund.  This Special Loan Program was adopted as “part of the benefit program of the Bank to provide financial assistance to qualified members to enhance and protect the value of their gratuity benefits” because “Philippine retirement laws and the Gratuity Plan do not allow partial payment of retirement benefits.”  The program was suspended in

1986 but was revived in 1991 thru DBP Board Resolution No. 066 dated January 5, 1991.

Under the Special Loan Program, a prospective retiree is allowed the option to utilize in the form of a loan a portion of his “outstanding equity” in the gratuity fund and to invest it in a profitable investment or undertaking. The earnings of the investment shall then be applied to pay for the interest due on the gratuity loan which was initially set at 9% per annum subject to the minimum investment rate resulting from the updated actuarial study. The excess or balance of the interest earnings shall then be distributed to the investor-members.

Pursuant to the investment scheme, DBP-TSD paid to the investor-members a total of P11,626,414.25 representing the net earnings of the investments for the years 1991 and 1992.  The payments were disallowed by the Auditor under Audit Observation Memorandum No. 93-2 dated March 1, 1993, on the ground that the distribution of income of the Gratuity Plan Fund (GPF) to future retirees of DBP is irregular and constituted the use of public funds for private purposes which is specifically proscribed under Section 4 of P.D. 1445.[8]

AOM No. 93-2 did “not question the authority of the Bank to set-up the [Gratuity Plan] Fund and have it invested in the Trust Services Department of the Bank.”[9] Apart from requiring the recipients of the P11,626,414.25 to refund their dividends, the Auditor recommended that the DBP record in its books as miscellaneous income the income of the Gratuity Plan Fund (“Fund”). The Auditor reasoned that “the Fund is still owned by the Bank, the Board of Trustees is a mere administrator of the Fund in the same way that the Trust Services Department where the fund was invested was a mere investor and neither can the employees, who have still an inchoate interest [i]n the Fund be considered as rightful owner of the Fund.”[10]

In a letter dated 29 July 1996,[11] former DBP Chairman Alfredo C. Antonio requested then COA Chairman Celso D. Gangan to reconsider AOM No. 93-2.  Chairman Antonio alleged that the express trust created for the benefit of qualified DBP employees under the Trust Agreement[12] (“Agreement”) dated 26 February 1980 gave the Fund a separate legal personality.  The Agreement transferred legal title over the Fund to the Board of Trustees and all earnings of the Fund accrue only to the Fund.  Thus, Chairman Antonio contended that the income of the Fund is not the income of DBP.

Chairman Antonio also asked COA to lift the disallowance of the P11,626,414.25 distributed as dividends under the SLP on the ground that the latter was simply a normal loan transaction. He compared the SLP to loans granted by other gratuity and retirement funds, like the GSIS, SSS and DBP Provident Fund.

The Ruling of the Commission on Audit

On 6 October 1998, the COA en banc affirmed AOM No. 93-2, as follows:

The Gratuity Plan Fund is supposed to be accorded separate personality under the administration of the Board of Trustees but that concept has been effectively eliminated when the Special Loan Program was adopted. xxx

The Special Loan Program earns for the GPF an interest of 9% per annum, subject to adjustment after actuarial valuation.  The investment scheme managed by the TSD accumulated more than that as evidenced by the payment of P4,568,971.84 in 1991 and P7,057,442,41 in 1992, to the member-borrowers.  In effect, the program is grossly disadvantageous to the government because it deprived the GPF of higher investment earnings by the unwarranted entanglement of its resources under the loan program in the guise of giving financial assistance to the availing employees. xxx

Retirement benefits may only be availed of upon retirement.  It can only be demanded and enjoyed when the employee shall have met the last requisite, that is, actual retirement under the Gratuity Plan.  During employment, the prospective retiree shall only have an inchoate right over the benefits.  There can be no partial payment or enjoyment of the benefits, in whatever guise, before actual retirement.  xxx

PREMISES CONSIDERED, the instant request for reconsideration of the disallowance amounting to P11,626,414.25 has to be, as it is hereby, denied.[13]

In its Resolution of 1 August 2000, the COA also denied DBP’s second motion for reconsideration.  Citing the Court’s ruling in Conte v. COA,[14] the COA concluded that the SLP was actually a supplementary retirement benefit in the guise of “financial assistance,” thus:

At any rate, the Special Loan Program is not just an ordinary and regular transaction of the Gratuity Plan Fund, as the Bank innocently represents. xxx It is a systematic investment mix conveniently implemented in a special loan program with the least participation of the beneficiaries, by merely filing an application and then wait for the distribution of net earnings.  The real objective, of course, is to give financial assistance to augment the value of the gratuity benefits, and this has the same effect as the proscribed supplementary pension/retirement plan under Section 28 (b) of C(ommonwealth) A(ct) 186.

This Commission may now draw authority from the case of Conte, et al. v. Commission on Audit (264 SCRA 19 [1996]) where the Supreme Court declared that “financial assistance” granted to retiring employees constitute supplementary retirement or pension benefits.  It was there stated:

“xxx  Said Sec. 28 (b) as amended by R.A. 4968 in no uncertain terms bars the creation of any insurance or retirement plan – other than the GSIS – for government officers and employees, in order to prevent the undue and iniquitous proliferation of such plans.  It is beyond cavil that Res. 56 contravenes the said provision of law and is therefore, invalid, void and of no effect.  To ignore this and rule otherwise would be tantamount to permitting every other government office or agency to put up its own supplementary retirement benefit plan under the guise of such “financial assistance.”[15]

Hence, the instant petition filed by DBP.

The Issues

The DBP invokes justice and equity on behalf of its employees because of prevailing economic conditions.  The DBP reiterates that the income of the Fund should be treated and recorded as separate from the income of DBP itself, and charges that COA committed grave abuse of discretion:

1.            IN CONCLUDING THAT THE ADOPTION OF THE SPECIAL LOAN PROGRAM CONSTITUTES A CIRCUMVENTION OF PHILIPPINE RETIREMENT LAWS;

2.            IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM IS GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT;

3.            IN CONCLUDING THAT THE SPECIAL LOAN PROGRAM CONSTITUTES A SUPPLEMENTARY RETIREMENT BENEFIT.[16]

The Office of the Solicitor General (“OSG”), arguing on behalf of the COA, questions the standing of the DBP to file the instant petition.  The OSG claims that the trustees of the Fund or the DBP employees themselves should pursue this certiorari proceeding since they would be the ones to return the dividends and not DBP.

The central issues for resolution are:  (1) whether DBP has the requisite standing to file the instant petition for certiorari; (2) whether the income of the Fund is income of DBP; and (3) whether the distribution of dividends under the SLP is valid.

The Ruling of the Court

The petition is partly meritorious.

The standing of DBP to file this petition for certiorari

As DBP correctly argued, the COA en banc implicitly recognized DBP’s standing when it ruled on DBP’s request for reconsideration from AOM No. 93-2 and motion for reconsideration from the Decision of 6 October 1998.  The supposed lack of standing of the DBP was not even an issue in the COA Decision or in the Resolution of 1 August 2000.

The OSG nevertheless contends that the DBP cannot question the decisions of the COA en banc since DBP is a government instrumentality.  Citing Section 2, Article IX-D of the Constitution,[17] the OSG argued that:

Petitioner may ask the lifting of the disallowance by COA, since COA had not yet made a definitive and final ruling on the matter in issue.  But after COA denied with finality the motion for reconsideration of petitioner, petitioner, being a government instrumentality, should accept COA’s ruling and leave the matter of questioning COA’s decision with the concerned investor-members.[18]

These arguments do not persuade us.

Section 2, Article IX-D of the Constitution does not bar government instrumentalities from questioning decisions of the COA.  Government agencies and government-owned and controlled corporations have long resorted to petitions for certiorari to question rulings of the COA.[19] These government entities filed their petitions with this Court pursuant to Section 7, Article IX of the Constitution, which mandates that aggrieved parties may bring decisions of the COA to the Court on certiorari.[20] Likewise, the Government Auditing Code expressly provides that a government agency aggrieved by a COA decision, order or ruling may raise  the controversy to the Supreme Court on certiorari “in the manner provided by law and the Rules of Court.”[21] Rule 64 of the Rules of Court now embodies this procedure, to wit:

SEC 2. Mode of review. –  A judgment or final order or resolution of the Commission on Elections and the Commission on Audit may be brought by the aggrieved party to the Supreme Court on certiorari under Rule 65, except as hereinafter provided.

The novel theory advanced by the OSG would necessarily require persons not parties to the present case – the DBP employees who are members of the Plan or the trustees of the Fund – to avail of certiorari under Rule 65.  The petition for certiorari under Rule 65, however, is not available to any person who feels injured by the decision of a tribunal, board or officer exercising judicial or quasi-judicial functions.  The “person aggrieved” under Section 1 of Rule 65 who can avail of the special civil action of certiorari pertains only to one who was a party in the proceedings before the court a quo,[22] or in this case, before the COA.  To hold otherwise would open the courts to numerous and endless litigations. [23] Since DBP was the sole party in the proceedings before the COA, DBP is the proper party to avail of the remedy of certiorari.

The real party in interest who stands to benefit or suffer from the judgment in the suit must prosecute or defend an action. [24] We have held that “interest” means material interest, an interest in issue that the decision will affect, as distinguished from mere interest in the question involved, or a mere incidental interest.[25]

As a party to the Agreement and a trustor of the Fund, DBP has a material interest in the implementation of the Agreement, and in the operation of the Gratuity Plan and the Fund as prescribed in the Agreement.  The DBP also possesses a real interest in upholding the legitimacy of the policies and programs approved by its Board of Directors for the benefit of DBP employees.  This includes the SLP and its implementing rules, which the DBP Board of Directors confirmed.

The income of the Gratuity Plan Fund

The COA alleges that DBP is the actual owner of the Fund and its income, on the following grounds: (1) DBP made the contributions to the Fund; (2) the trustees of the Fund are merely administrators; and (3) DBP employees only have an inchoate right to the Fund.

The DBP counters that the Fund is the subject of a trust, and that the Agreement transferred legal title over the Fund to the trustees.  The income of the

Fund does not accrue to DBP. Thus, such income should not be recorded in DBP’s books of account.[26]

A trust is a “fiduciary relationship with respect to property which involves the existence of equitable duties imposed upon the holder of the title to the property to deal with it for the benefit of another.”[27] A trust is either express or implied.  Express trusts are those which the direct and positive acts of the parties create, by some writing or deed, or will, or by words evincing an intention to create a trust.[28]

In the present case, the DBP Board of Governors’ (now Board of Directors) Resolution No. 794 and the Agreement executed by former DBP Chairman Rafael Sison and the trustees of the Plan created an express trust, specifically, an employees’ trust.  An employees’ trust is a trust maintained by an employer to provide retirement, pension or other benefits to its employees.[29] It is a separate taxable entity[30] established for the exclusive benefit of the employees.[31]

Resolution No. 794 shows that DBP intended to establish a trust fund to cover the retirement benefits of certain employees under Republic Act No. 1616 [32] (“RA 1616”).  The principal and income of the Fund would be separate and distinct from the funds of DBP.  We quote the salient portions of Resolution No. 794, as follows:

2.       Trust Agreement – designed for in-house trustees of three (3) to be appointed by the Board of Governors and vested with control and administration of the funds appropriated annually by the Board to be invested in selective investments so that the income and principal of said contributions would be sufficient to meet the required payments of benefits as officials and employees of the Bank retire under the Gratuity Plan; xxx

The proposed funding of the gratuity plan has decided advantages on the part of the Bank over the present procedure, where the Bank provides payment only when an employee retires or on “pay as you go” basis:

1.       It is a definite written program, permanent and continuing whereby the Bank provides contributions to a separate trust fund, which shall be exclusively used to meet its liabilities to retiring officials and employees; and

2.       Since the gratuity plan will be tax qualified under the National Internal Revenue Code and RA 4917, the Bank’s periodic contributions thereto shall be deductible for tax purposes and the earnings therefrom tax free.[33] (Emphasis supplied)

In a trust, one person has an equitable ownership in the property while another person owns 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.[34] A person who establishes a trust is the trustor.  One in whom confidence is reposed as regards property for the benefit of another is the trustee.  The person for whose benefit the trust is created is the beneficiary.[35]

In the present case, DBP, as the trustor, vested in the trustees of the Fund legal title over the Fund as well as control over the investment of the money and assets of the Fund.  The powers and duties granted to the trustees of the Fund under the Agreement were plainly more than just administrative, to wit:

1.       The BANK hereby vests the control and administration of the Fund in the TRUSTEES for the accomplishment of the purposes for which said Fund is intended in defraying the benefits of the PLAN in accordance with its provisions, and the TRUSTEES hereby accept the trust xxx

2.       The TRUSTEES shall receive and hold legal title to the money and/or property comprising the Fund, and shall hold the same in trust for its beneficiaries, in accordance with, and for the uses and purposes stated in the provisions of the PLAN.

3.       Without in any sense limiting the general powers of management and administration given to TRUSTEES by our laws and as supplementary thereto, the TRUSTEES shall manage, administer, and maintain the Fund with full power and authority:

xxx

b.      To invest and reinvest at any time all or any part of the Fund in any real estate (situated within the Philippines), housing project, stocks, bonds, mortgages, notes, other securities or property which the said TRUSTEES may deem safe and proper, and to collect and receive all income and profits existing therefrom;

c.      To keep and maintain accurate books of account and/or records of the Fund xxx.

d.      To pay all costs, expenses, and charges incurred in connection with the administration, preservation, maintenance and protection of the Fund xxx to employ or appoint such agents or employees xxx.

e.      To promulgate, from time to time, such rules not inconsistent with the conditions of this Agreement xxx.

f.       To do all acts which, in their judgment, are needful or desirable for the proper and advantageous control and management of the Fund xxx.[36] (Emphasis supplied)

Clearly, the trustees received and collected any income and profit derived from the Fund, and they maintained separate books of account for this purpose.  The principal and income of the Fund will not revert to DBP even if the trust is subsequently modified or terminated.  The Agreement states that the principal and income must be used to satisfy all of the liabilities to the beneficiary officials and employees under the Gratuity Plan, as follows:

5.       The BANK reserves the right at any time and from time to time (1) to modify or amend in whole or in part by written directions to the TRUSTEES, any and all of the provisions of this Trust Agreement, or (2) to terminate this Trust Agreement upon thirty (30) days’ prior notice in writing to the TRUSTEES; provided, however, that no

modification or amendment which affects the rights, duties, or responsibilities of the TRUSTEES may be made without the TRUSTEES’ consent; and provided, that such termination, modification, or amendment prior to the satisfaction of all liabilities with respect to eligible employees and their beneficiaries, does not permit any part of the corpus or income of the Fund to be used for, or diverted to, purposes other than for the exclusive benefit of eligible employees and workers as provided for in the PLAN.  In the event of termination of this Trust Agreement, all cash, securities, and other property then constituting the Fund less any amounts constituting accrued benefits to the eligible employees, charges and expenses payable from the Fund, shall be paid over or delivered by the TRUSTEES to the members in proportion to their accrued benefits.[37] (Emphasis supplied)

The resumption of the SLP did not eliminate the trust or terminate the transfer of legal title to the Fund’s trustees.  The records show that the Fund’s Board of Trustees approved the SLP upon the request of the DBP Career Officials Association. [38] The DBP Board of Directors only confirmed the approval of the SLP by the Fund’s trustees.

The beneficiaries or cestui que trust of the Fund are the DBP officials and employees who will retire under Commonwealth Act No. 186[39] (“CA 186”), as amended by RA 1616.  RA 1616 requires the employer agency or government instrumentality to pay for the retirement gratuity of its employees who rendered service for the required number of years.[40] The Government Service Insurance System Act of 1997[41] still allows retirement under RA 1616 for certain employees.

As COA correctly observed, the right of the employees to claim their gratuities from the Fund is still inchoate.  RA 1616 does not allow employees to receive their gratuities until they retire. However, this does not invalidate the trust created by DBP or the concomitant transfer of legal title to the trustees.  As far back as in Government v. Abadilla,[42] the Court held that “it is not always necessary that the cestui que trust should be named, or even be in esse at the time the trust is created in his favor.” It is enough that the beneficiaries are sufficiently certain or identifiable.[43]

In this case, the GSIS Act of 1997 extended the option to retire under RA 1616 only to employees who had entered government service before 1 June 1977. [44] The DBP employees who were in the service before this date are easily identifiable.   As of the time DBP filed the instant petition, DBP estimated that 530 of its employees could still retire under RA 1616.  At least 60 DBP employees had already received their gratuities under the Fund.[45]

The Agreement indisputably transferred legal title over the income and properties of the Fund to the Fund’s trustees.  Thus, COA’s directive to record the income of the Fund in DBP’s books of account as the miscellaneous income of DBP constitutes grave abuse of discretion.  The income of the Fund does not form part of the revenues or profits of DBP, and DBP may not use such income for its own benefit.  The principal and income of the Fund together constitute the res or subject matter of the trust.  The Agreement established the Fund precisely so that it would eventually be sufficient to pay for the retirement benefits of DBP employees under RA

1616 without additional outlay from DBP.  COA itself acknowledged the authority of DBP to set up the Fund.  However, COA’s subsequent directive would divest the Fund of income, and defeat the purpose for the Fund’s creation.

The validity of the Special Loan Programand the disallowance of P11,626,414.25

In disallowing the P11,626,414.25 distributed as dividends under the SLP, the COA relied primarily on Republic Act No. 4968 (“RA 4968”) which took effect on 17 June 1967.  RA 4968 added the following paragraph to Section 28 of CA 186, thus:

(b)     Hereafter no insurance or retirement plan for officers or employees shall be created by any employer.  All supplementary retirement or pension plans heretofore in force in any government office, agency, or instrumentality or corporation owned or controlled by the government, are hereby declared inoperative or abolished:  Provided, That the rights of those who are already eligible to retire thereunder shall not be affected.

Even assuming, however, that the SLP constitutes a supplementary retirement plan, RA 4968 does not apply to the case at bar.  The DBP Charter, which took effect on 14 February 1986, expressly authorizes supplementary retirement plans “adopted by and effective in” DBP, thus:

SEC. 34.  Separation Benefits. –  All those who shall retire from the service or are separated therefrom on account of the reorganization of the Bank under the provisions of this Charter shall be entitled to all gratuities and benefits provided for under existing laws and/or supplementary retirement plans adopted by and effective in the Bank: Provided, that any separation benefits and incentives which may be granted by the Bank subsequent to June 1, 1986, which may be in addition to those provided under existing laws and previous retirement programs of the Bank prior to the said date, for those personnel referred to in this section shall be funded by the National Government; Provided, further, that, any supplementary retirement plan adopted by the Bank after the effectivity of this Chapter shall require the prior approval of the Minister of Finance.

xxx.

SEC. 37.  Repealing Clause. – All acts, executive orders, administrative orders, proclamations, rules and regulations or parts thereof inconsistent with any of the provisions of this charter are hereby repealed or modified accordingly. [46] (Emphasis supplied)

Being a special and later law, the DBP Charter[47] prevails over RA 4968.  The DBP originally adopted the SLP in 1983.  The Court cannot strike down the SLP now based on RA 4968 in view of the subsequent DBP Charter authorizing the SLP.

Nevertheless, the Court upholds the COA’s disallowance of the P11,626,414.25 in dividends distributed under the SLP.

According to DBP Board Resolution No. 0036 dated 25 January 1991, the “SLP allows a prospective retiree to utilize in the form of a loan, a portion of their outstanding equity in the Gratuity Plan Fund and to invest [the] proceeds in a profitable investment or undertaking.”[48] The basis of the loanable amount was an employee’s gratuity fund credit,[49] that is to say, what an employee would receive if he retired at the time he availed of the loan.

In his letter dated 26 October 1983 proposing the confirmation of the SLP, then DBP Chairman Cesar B. Zalamea stated that:

The primary objective of this proposal therefore is to counteract the unavoidable decrease in the value of the said retirement benefits through the following scheme:

I. To allow a prospective retiree the option to utilize in the form of a loan, a portion of his standing equity in the Gratuity Fund and to invest it in a profitable investment or undertaking.  The income or appreciation in value will be for his own account and should provide him the desired hedge against inflation or erosion in the value of the peso.  This is being proposed since Philippine retirement laws and the Gratuity Plan do not allow partial payment of retirement benefits, even the portion already earned, ahead of actual retirement.[50] (Emphasis supplied)

As Chairman Zalamea himself noted, neither the Gratuity Plan nor our laws on retirement allow the partial payment of retirement benefits ahead of actual retirement.  It appears that DBP sought to circumvent these restrictions through the SLP, which released a portion of an employee’s retirement benefits to him in the form of a loan.  Certainly, the DBP did this for laudable reasons, to address the concerns of DBP employees on the devaluation of their retirement benefits.  The remaining question is whether RA 1616 and the Gratuity Plan allow this scheme.

We rule that it is not allowed.

The right to retirement benefits accrues only upon certain prerequisites.  First, the conditions imposed by the applicable law  –  in this case, RA 1616 – must be fulfilled.[51] Second, there must be actual retirement.[52]  Retirement means there is “a bilateral act of the parties, a voluntary agreement between the employer and the employees whereby the latter after reaching a certain age agrees and/or consents to severe his employment with the former.”[53]

Severance of employment is a condition sine qua non for the release of retirement benefits. Retirement benefits are not meant to recompense employees who are still in the employ of the government.  That is the function of salaries and other emoluments.[54] Retirement benefits are in the nature of a reward granted by the State to a government employee who has given the best years of his life to the service of his country.[55]

The Gratuity Plan likewise provides that the gratuity benefit of a qualified DBP employee shall only be released “upon retirement under th(e) Plan.” [56]  As the COA correctly pointed out, this means that retirement benefits “can only be demanded and enjoyed when the employee shall have met the last requisite, that is, actual retirement under the Gratuity Plan.”[57]

There was thus no basis for the loans granted to DBP employees under the SLP.  The rights of the recipient DBP employees to their retirement gratuities were still inchoate, if not a mere expectancy, when they availed of the SLP.  No portion of their retirement benefits could be considered as “actually earned” or “outstanding” before retirement.  Prior to retirement, an employee who has served the requisite number of years is only eligible for, but not yet entitled to, retirement benefits.

The DBP contends that the SLP is merely a normal loan transaction, akin to the loans granted by the GSIS, SSS and the DBP Provident Fund.

The records show otherwise.

In a loan transaction or mutuum, the borrower or debtor acquires ownership of the amount borrowed.[58] As the owner, the debtor is then free to dispose of or to utilize the sum he loaned,[59]subject to the condition that he should later return the amount with the stipulated interest to the creditor.[60]

In contrast, the amount borrowed by a qualified employee under the SLP was not even released to him.  The implementing rules of the SLP state that:

The loan shall be available strictly for the purpose of investment in the following investment instruments:

a.            182 or 364-day term – Time deposits with DBP

b.            182 or 364-day T-bills /CB Bills

c.                        182 or 364-day term – DBP Blue Chip Fund

The investment shall be registered in the name of DBP-TSD in trust for availee-investor for his sole risk and account.  Choice of eligible terms shall be at the option of availee-investor.  Investments shall be commingled by TSD and Participation Certificates shall be issued to each availee-investor.

xxx

IV.  LOANABLE TERMS

xxx

e.            Allowable Investment Instruments – Time – Deposit – DBP T-Bills/CB Bills and DBP Blue Chip Fund.  TSD shall purchase new securities and/or allocate existing securities portfolio of GPF depending on liquidity position of the Fund xxx.

xxx

g.            Security – The loan shall be secured by GS, Certificate of Time Deposit and/or BCF Certificate of Participation which shall be registered in the name of DBP-

TSD in trust for name of availee-investor and shall be surrendered to the TSD for safekeeping.[61] (Emphasis supplied)

In the present case, the Fund allowed the debtor-employee to “borrow” a portion of his gratuity fund credit solely for the purpose of investing it in certain instruments specified by DBP.  The debtor-employee could not dispose of or utilize the loan in any other way.  These instruments were, incidentally, some of the same securities where the Fund placed its investments.  At the same time the Fund obligated the debtor-employee to assign immediately his loan to DBP-TSD so that the amount could be commingled with the loans of other employees.  The DBP-TSD – the same department which handled and had custody of the Fund’s accounts – then purchased or re-allocated existing securities in the portfolio of the Fund to correspond to the employees’ loans.

Simply put, the amount ostensibly loaned from the Fund stayed in the Fund, and remained under the control and custody of the DBP-TSD.  The debtor-employee never had any control or custody over the amount he supposedly borrowed.  However, DBP-TSD listed new or existing investments of the Fund corresponding to the “loan” in the name of the debtor-employee, so that the latter could collect the interest earned from the investments.

In sum, the SLP enabled certain DBP employees to utilize and even earn from their retirement gratuities even before they retired.  This constitutes a partial release of their retirement benefits, which is contrary to RA 1616 and the Gratuity Plan.   As we have discussed, the latter authorizes the release of gratuities from the earnings and principal of the Fund only upon retirement.

The Gratuity Plan will lose its tax-exempt status if the retirement benefits are released prior to the retirement of the employees.  The trust funds of employees other than those of private employers are qualified for certain tax exemptions pursuant to Section 60(B) – formerly Section 53(b) – of the National Internal Revenue Code.[62]  Section 60(B) provides:

Section 60.  Imposition of Tax. –

(A)     Application of Tax. – The tax imposed by this Title upon individuals shall apply to the income of estates or of any kind of property held in trust, including:

xxx

(B)     Exception. – The tax imposed by this Title shall not apply to employee’s trust which forms part of a pension, stock bonus or profit-sharing plan of an employer for the benefit of some or all of his employees (1) if contributions are made to the trust by such employer, or employees, or both for the purpose of distributing to such employees the earnings and principal of the fund accumulated by the trust in accordance with such plan, and (2) if under the trust instrument it is impossible, at any time prior to the satisfaction of all liabilities with respect to employees under the trust, for any part of the corpus or income to be (within the taxable year or thereafter) used for, or diverted to, purposes other than for the exclusive benefit of his employees: xxx (Emphasis supplied)

The Gratuity Plan provides that the gratuity benefits of a qualified DBP employee shall be released only “upon retirement under th(e) Plan.” If the earnings and principal of the Fund are distributed to DBP employees prior to their retirement, the Gratuity Plan will no longer qualify for exemption under Section 60(B).    To recall, DBP Resolution No. 794 creating the Gratuity Plan expressly provides that “since the gratuity plan will be tax qualified under the National Internal Revenue Code xxx, the Bank’s periodic contributions thereto shall be deductible for tax purposes and the earnings therefrom tax free.” If DBP insists that its employees may receive the P11,626,414.25 dividends, the necessary consequence will be the non-qualification of the Gratuity Plan as a tax-exempt plan.

Finally, DBP invokes justice and equity on behalf of its affected employees.  Equity cannot supplant or contravene the law.[63] Further, as evidenced by the letter of former DBP Chairman Zalamea, the DBP Board of Directors was well aware of the proscription against the partial release of retirement benefits when it confirmed the SLP.  If DBP wants “to enhance and protect the value of xxx  (the) gratuity benefits” of its employees, DBP must do so by investing the money of the Fund in the proper and sound investments, and not by circumventing restrictions imposed by law and the Gratuity Plan itself.

We nevertheless urge the DBP and COA to provide equitable terms and a sufficient period within which the affected DBP employees may refund the dividends they received under the SLP. Since most of the DBP employees were eligible to retire within a few years when they availed of the SLP, the refunds may be deducted from their retirement benefits, at least for those who have not received their retirement benefits.

WHEREFORE, COA Decision No. 98-403 dated 6 October 1998 and COA Resolution No. 2000-212 dated 1 August 2000 are AFFIRMED with MODIFICATION.  The income of the Gratuity Plan Fund, held in trust for the benefit of DBP employees eligible to retire under RA 1616, should not be recorded in the books of account of DBP as the income of the latter.

SO ORDERED.

LABISTE VS. LABISTEx-------------------------------------------------------------------------------------x D E C I S I O N TINGA, J.: This is a petition for review[1] under Rule 45 of the Rules of Court of the Court of Appeals’ Decision dated 30 June 2003[2] in CA-G.R. CV No. 65829. reversing the decision of the Regional Trial Court (RTC) of Cebu City, Branch 9. The appellate court denied petitioners’[3] motion for reconsideration in a Resolution dated 15 January 2004. The factual antecedents are as follows:

On 29 September 1919, the late Epifanio Labiste (Epifanio), on his own and on behalf of his brothers and sisters who were the heirs of Jose Labiste (Jose), purchased from the Bureau of Lands Lot No. 1054 of the Banilad Friar Lands Estate, with an area of 13,308 square meters, located at Guadalupe, Cebu City for P36.00.[4] Subsequently, on 9 June 1924, then Bureau of Lands Director Jorge B. Vargas executed Deed of Conveyance No. 12536 selling and ceding Lot No. 1054 to Epifanio and his brothers and sisters who were the heirs of Jose.[5] After full payment of the purchase price but prior to the issuance of the deed of conveyance, Epifanio executed an Affidavit[6] (Affidavit of Epifanio) in Spanish on 10 July 1923 affirming that he, as one of the heirs of Jose, and his uncle and petitioners’ predecessor-in-interest, Tranquilino Labiste (Tranquilino), then co-owned Lot No. 1054 because the money that was paid to the government came from the two of them. Tranquilino and the heirs of Jose continued to hold the property jointly. Sometime in 1928, the Register of Deeds of Cebu City issued Original Certificate of Title No. 3878 for Lot No. 1054. On 2 May 1928, Engineer Espiritu Bunagan (Engr. Bunagan), Deputy Public Land Surveyor, subdivided Lot No. 1054 into two lots: Lot No. 1054-A with an area of 6,664 square meters for Tranquilino and Lot No. 1054-B with an area of 6,664 square meters for Epifanio. The subdivision plan prepared by Engr. Bunagan was approved by Jose P. Dans, Acting Director of Lands on 28 October 1928.[7] Subsequently, on 18 October 1939, the heirs of Tranquilino[8] purchased the one-half (1/2) interest of the heirs of Jose[9] over Lot No. 1054 for P300.00, as evidenced by the Calig-onan sa Panagpalit[10] executed by the parties in the Visayan dialect. The heirs of Tranquilino immediately took possession of the entire lot. When World War II broke out, the heirs of Tranquilino fled Cebu City and when they came back they found their homes and possessions destroyed. The records in the Office of the Register of Deeds, Office of the City Assessor and other government offices were also destroyed during the war. Squatters have practically overrun the entire property, such that neither petitioners nor respondents possess it. In October 1993, petitioners learned that one of the respondents,[11] Asuncion Labiste, had filed on 17 September 1993 a petition for reconstitution of title over Lot No. 1054. Petitioners opposed the petition at first but by a compromise agreement between the parties dated 25 March 1994, petitioners withdrew their opposition to expedite the reconstitution process. Under the compromise agreement, petitioners were to be given time to file a complaint so that the issues could be litigated in an ordinary action and the reconstituted title was to be deposited with the Clerk of Court for a period of sixty (60) days to allow petitioners to file an action for reconveyance and to annotate a notice of lis pendens. The Register of Deeds of Cebu City issued the reconstituted title, TCT No. RT-7853,[12] in the name of “Epifanio Labiste, married to Tomasa Mabitad, his brothers and sisters, heirs of Jose Labiste” on 14 December 1994. However, respondents did not honor the compromise agreement. Petitioners filed a complaint[13] for annulment of title seeking the reconveyance of property and damages on 13 January 1995, docketed as Civil Case No. CEB-16943, with the RTC of Cebu City. Respondents claimed that the Affidavit of Epifanio and the Calig-onan sa Panagpalit were forgeries and that petitioners’ action had long prescribed or barred by laches.[14]

The RTC in a Decision dated 23 August 1999[15] ruled in favor of petitioners. After evaluating the documents presented by petitioners, the RTC found that they are genuine and authentic as ancient documents and that they are valid and enforceable.[16] Moreover, it held that the action had not prescribed as the complaint was filed about a year after the reconstitution of the title by respondents. The judicial reconstitution was even opposed by petitioners until a compromise agreement was reached by the parties and approved by the RTC which ordered the reconstitution. The RTC further held that the reconstituted title did not give any more right to respondents than what their predecessors-in-interest actually had as it is limited to the reconstitution of the certificate as it stood at the time of its loss or destruction.[17] On appeal, the Court of Appeals, while affirming petitioners’ right to the property, nevertheless reversed the RTC’s decision on the ground of prescription and laches. It affirmed the RTC’s findings that the Affidavit and the Calig-onan sa Panagpalit are genuine and authentic, and that the same are valid and enforceable documents.[18] Citing Article 1144 of the Civil Code, it held that petitioners’ cause of action had prescribed for the action must be brought within ten (10) years from the time the right of action accrues upon the written contract which in this case was when petitioners’ predecessors-in-interest lost possession over the property after World War II. Also, the lapse of time to file the action constitutes neglect on petitioners’ part so the principle of laches is applicable.[19] Hence, the present petition. The genuineness and authenticity of the Affidavit of Epifanio and the Calig-onan sa Panagpalit are beyond cavil. As we have ruled in a litany of cases, resort to judicial review of the decisions of the Court of Appeals under Rule 45 is confined only to errors of law.[20] The findings of fact by the lower court are conclusive absent any palpable error or arbitrariness.[21] The Court finds no reason to depart from this principle. Moreover, it is a long settled doctrine that findings of fact of the trial court, when affirmed by the Court of Appeals, are binding upon the Court. It is not the function of the Supreme Court to weigh anew the evidence already passed upon by the Court of Appeals for these are deemed final and conclusive and may not be reviewed on appeal.[22] The sole issue that the Court has to resolve is whether or not petitioners’ cause of action has prescribed. The Court of Appeals erred in applying the rules on prescription and the principle of laches because what is involved in the present case is an express trust. Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the property for the benefit of the beneficiary.[23] Trust relations between parties may either be express or implied. An express trust is created by the intention of the trustor or of the parties. An implied trust comes into being by operation of law.[24] 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.[25] 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." The Affidavit of Epifanio is in the nature of a trust agreement. Epifanio affirmed that the lot brought in his name was co-owned by him, as one of the heirs of Jose, and his uncle Tranquilino. And by agreement, each of them has been in possession of half of the property. Their arrangement was corroborated by the subdivision plan prepared by Engr. Bunagan and approved by Jose P. Dans, Acting Director of Lands. As such, prescription and laches will run only from the time the express trust is repudiated. The Court has held that for acquisitive prescription to bar the action of the beneficiary against the trustee in an express trust for the recovery of the property held in trust it must be shown that: (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have been made known to the cestui que trust, and (c) the evidence thereon is clear and conclusive.[26] Respondents cannot rely on the fact that the Torrens title was issued in the name of Epifanio and the other heirs of Jose. It has been held that a trustee who obtains a Torrens title over property held in trust by him for another cannot repudiate the trust by relying on the registration.[27] The rule requires a clear repudiation of the trust duly communicated to the beneficiary. The only act that can be construed as repudiation was when respondents filed the petition for reconstitution in October 1993. And since petitioners filed their complaint in January 1995, their cause of action has not yet prescribed, laches cannot be attributed to them. It is hornbook doctrine that laches is a creation of equity and its application is controlled by equitable considerations. Laches cannot be used to defeat justice or perpetrate fraud and injustice.[28] Neither should its application be used to prevent the rightful owners of a property from

recovering what has been fraudulently registered in the name of another.[29] The equitable remedy of laches is, therefore, unavailing in this case. However, to recover the other half of the property covered by the private Calig-onan sa Panagpalit and to have it registered on the title of the property, petitioners should have filed an action to compel[30] respondents, as heirs of the sellers in the contract,[31] to execute a public deed of sale. A conveyance of land made in a private document does not affect its validity. Article 1358,like its forerunner Article 1280 of the Civil Code of Spain, does not require the accomplishment of the acts orcontracts in a public instrument in order to validate the act or contract but only to insure its efficacy,[32] so that after the existence of said contract has been admitted, the party bound may be compelled to execute the proper document.[33] But even assuming that such action was filed by petitioners, the same had already prescribed. It is settled that only laws existing at the time of the execution of a contract are applicable thereto and not later statutes, unless the latter are specifically intended to have retroactive effect.[34] Consequently, it is the Old Code of Civil Procedure (Act No. 190) which applies in this case since the Calig-onan sa Panagpalit was executed on 18 October 1939 while the New Civil Code took effect only on 30 August 1950. And section 43 of Act No. 190, like its counterpart Article 1144 of the New Civil Code, provides that action upon a written contract must be filed within ten years.[35]

WHEREFORE, the petition is PARTIALLY GRANTED. The Decision of the Court of Appeals dated 30 June 2003 in CA-G.R. CV No. 65829 is REVERSED and SET ASIDE and the Decision of the Regional Trial Court of Cebu City, Branch 9 dated 23 August 1999 is

REINSTATED with MODIFICATION in petitioners are hereby DECLARED the absolute owners of one-half of Lot No. 1054 or Lot No. 1054-A under TCT No. RT-7853. The Register of Deeds of Cebu City is hereby ORDERED to CANCEL TCT No. RT-7853 in part and issue a new Transfer Certificate of Title to petitioners, heirs of Tranquilino Labiste, covering Lot No. 1054-A. No costs.

SO ORDERED.

SOLEDAD CAÑEZO, VS. ROXAS Respondent. G.R. No. 148788 Promulgated: November 23, 2007x-----------------------------------------------------------------------------------------x D E C I S I O N NACHURA, J.: This is a petition for review on certiorari from the Decision[1] of the Court of Appeals, dated September 7, 2000, in CA-G.R. SP No. 53236, and Resolution dated May 9, 2001. On January 29, 1997, petitioner Soledad Cañezo filed a Complaint[2] for the recovery of real property plus damages with the Municipal Trial Court (MTC) of Naval, Biliran, against her father’s second wife, respondent Concepcion Rojas. The subject property is an unregistered land with an area of 4,169 square meters, situated at Higatangan, Naval, Biliran. Cañezo attached to the complaint a Joint Affidavit[3] executed on May 10, 1979 by Isidro Catandijan and Maximina Cañezo attesting to her acquisition of the property. In her complaint, the petitioner alleged that she bought the parcel of land in 1939 from Crisogono Limpiado, although the transaction was not reduced into writing. Thereafter, she immediately took possession of the property. When she and her husband left for Mindanao in 1948, she entrusted the said land to her father, Crispulo[4] Rojas, who took possession of, and cultivated, the property. In 1980, she found out that the respondent, her stepmother, was in possession of the property and was cultivating the same. She also discovered that the tax declaration over the property was already in the name of Crispulo Rojas.[5]

In her Answer, the respondent asserted that, contrary to the petitioner’s claim, it was her husband, Crispulo Rojas, who bought the property from Crisogono Limpiado in 1948, which accounts for the tax declaration being in Crispulo’s name. From then on, until his death in 1978, Crispulo possessed and cultivated the property. Upon his death, the property was included in his estate, which was administered by a special administrator, Bienvenido Ricafort. The petitioner, as heir, even received her share in the produce of the estate. The respondent further contended that the petitioner ought to have impleaded all of the heirs as defendants. She also argued that the fact that petitioner filed the complaint only in 1997 means that she had already abandoned her right over the property.[6] On July 3, 1998, after hearing, the MTC rendered a Decision in favor of the petitioner, thus: WHEREFORE, premises considered, the Court finds a preponderance of evidence in favor of plaintiff Soledad Cañezo and against defendant Concepcion Rojas by declaring plaintiff the true and lawful owner of the land more particularly described under paragraph 5 of the complaint and hereby orders defendant Concepcion Rojas: a) To vacate and surrender possession of the land toplaintiff;b) To pay plaintiff the sum of P34,000.00 actualdamages, P10,000.00 for attorney’s feesand litigation expenses; andc) To pay the costs. SO ORDERED.[7] Despite the respondent’s objection that the verbal sale cannot be proven without infringing the Statute of Frauds, the MTC gave credence to the testimony of the petitioners’ two witnesses attesting to the fact that Crisogono Limpiado sold the property to the petitioner in 1939. The MTC also found no evidence to show that Crispulo Rojas bought the property from Crisogono Limpiado in 1948. It held that the 1948 tax declaration in Crispulo’s name had little significance on respondent’s claim, considering that in 1948, the “country was then rehabilitating itself from the ravages of the Second World War” and “the government was more interested in the increase in tax collection than the observance of the niceties of law.”[8] The respondent appealed the case to the Regional Trial Court (RTC) of Naval, Biliran. On October 12, 1998, the RTC reversed the MTC decision on the ground that the action had already prescribed and acquisitive prescription had set in. The dispositive portion of the Decision reads: WHEREFORE, premises considered, the decision of the Municipal Trial Court of Naval, Biliran awarding ownership of the disputed land to the plaintiff and further

allowing recovery of damages is hereby REVERSED in toto. There is no award of damages. The said property remains as the legitime of the defendant Concepcion Rojas and her children. SO ORDERED.[9] However, acting on petitioner’s motion for reconsideration, the RTC amended its original decision on December 14, 1998.[10] This time, it held that the action had not yet prescribed considering that the petitioner merely entrusted the property to her father. The ten-year prescriptive period for the recovery of a property held in trust would commence to run only from the time the trustee repudiates the trust. The RTC found no evidence on record showing that Crispulo Rojas ever ousted the petitioner from the property. The dispositive portion of the amended decision reads as follows: WHEREFORE, in view of the foregoing considerations, the decision of this Court dated October 12, 1998 is hereby set aside and another is hereby entered modifying the decision of the Court a quo and declaring Soledad Rojas Vda. De Cañezo as the true and lawful owner of a parcel of land, more particularly described and bounded as follows: A parcel of land situated at Higatangan, Naval, Biliran, bounded on the North by Policarpio Limpiado; on the South by Fidel Limpiado; on the East by Seashore; and on the West by Crispolo (sic) Limpiado with an approximate area of 4,169 square meters per Tax Declaration No. 2258, later under Tax Declaration No. 4073 in the name of Crispolo Rojas and later in the name of the Heirs of Crispolo Rojas. Further, ordering defendant-appellant Concepcion Rojas and all persons claiming rights or interest under her to vacate and surrender possession of the land aforecited to the plaintiff or any of her authorized representatives, Ordering the Provincial and/or Municipal Assessor’s Office to cancel the present existing Tax Declaration in the name of Heirs of Crispolo Rojas referring to the above-described property in favor of the name of Soledad Rojas Vda. De Cañezo, Ordering the defendant-appellant Concepcion Rojas to pay the plaintiff-appellee the sum of P34,000.00 in actual damages, and to pay for the loss of her share in money value of the products of the coconuts of said land from 1979 to 1997 and to pay further until the case is terminated at the rate of P200.00 per quarter based on the regular remittances of the late Crispolo Rojas to the plaintiff-appellee, and to pay the costs. SO ORDERED.[11] The respondent filed a motion to reconsider the Amended Decision but the RTC denied the same in an Order dated April 25, 1999. She then filed a petition for review with the Court of Appeals (CA), which reversed the Amended Decision of the RTC on September 7, 2000, thus:

WHEREFORE, the amended decision dated December 14, 1998 rendered in Civil Case No. B-1041 is hereby REVERSED and SET ASIDE. The complaint filed by Soledad Cañezo before the Municipal Trial Court of Naval, Biliran is hereby DISMISSED on grounds of laches and prescription and for lack of merit. SO ORDERED.[12] The CA held that the petitioner’s inaction for several years casts a serious doubt on her claim of ownership over the parcel of land. It noted that 17 years lapsed since she discovered that respondent was in adverse possession of the property before she instituted an action to recover the same. And during the probate proceedings, the petitioner did not even contest the inclusion of the property in the estate of Crispulo Rojas. [13] The CA was convinced that Crispulo Rojas owned the property, having bought the same from Crisogono Limpiado in 1948. Supporting this conclusion, the appellate court cited the following circumstances: (1) the property was declared for taxation purposes in Crispulo’s name and he had been paying the taxes thereon from 1948 until his death in 1978; (2) Crispulo adversely possessed the same property from 1948 until his death in 1978; and (3) upon his death in 1978, the property was included in his estate, the proceeds of which were distributed among his heirs.[14] The CA further held that, assuming that there was an implied trust between the petitioner and her father over the property, her right of action to recover the same would still be barred by prescription since 49 years had already lapsed since Crispulo adversely possessed the contested property in 1948.[15] On May 9, 2001, the CA denied the petitioner’s motion for reconsideration for lack of merit.[16] In this petition for review, the petitioner, substituted by her heirs, assigns the following errors: That the Court of Appeals committed grave abuse of discretion in setting aside petitioner’s contention that the Petition for Review filed by respondent CONCEPCION ROJAS before the Court of Appeals was FILED OUT OF TIME; That the Court of Appeals erred and committed grave abuse of discretion amounting to lack or excess of jurisdiction when it decided that the filing of the case by SOLEDAD CAÑEZO for Recovery of Real Property was already barred by PRESCRIPTION AND LACHES.[17] The petitioner insists that the respondent’s petition for review before the CA was filed out of time. The petitioner posits that the CA may not grant an additional extension of time to file the petition except for the most compelling reason. She contends that the fact that respondent’s counsel needed additional time to secure the certified copy of his annexes cannot be considered as a compelling reason that would justify an additional period of

extension. She admits, though, that this issue was raised for the first time in their motion for reconsideration, but insists that it can be raised at any time since it concerns the jurisdiction of the CA over the petition. The petitioner further posits that prescription and laches are unavailing because there was an express trust relationship between the petitioner and Crispulo Rojas and his heirs, and express trusts do not prescribe. Even assuming that it was not an express trust, there was a resulting trust which generally does not prescribe unless there is repudiation by the trustee. For her part, the respondent argues that the petitioners are now estopped from questioning the CA Resolution granting her second motion for extension to file the petition for review. She notes that the petitioner did not raise this issue in the comment that she filed in the CA. In any case, the grant of the second extension of time was warranted considering that the certified true copy of the assailed RTC orders did not arrive at the office of respondent’s counsel in Cebu City in time for the filing of the petition. On the merits, the respondent asserts that the complaint is barred by prescription, laches and estoppel. From 1948 until his death in 1978, Crispulo cultivated the property and was in adverse, peaceful and continuous possession thereof in the concept of owner. It took the petitioner 49 years from 1948 before she filed the complaint for recovery of the property in 1997. Granting that it was only in 1980 that she found out that the respondent adversely possessed the property, still petitioner allowed 17 years to elapse before she asserted her alleged right over the property. Finally, the respondent maintains that the other co-owners are indispensable parties to the case; and because they were not impleaded, the case should be dismissed. The petition has no merit. On the procedural issue raised by the petitioner, we find no reversible error in the grant by the CA of the second motion for extension of time to file the respondent’s petition. The grant or denial of a motion for extension of time is addressed to the sound discretion of the court.[18] The CA obviously considered the difficulty in securing a certified true copy of the assailed decision because of the distance between the office of respondent’s counsel and the trial court as a compelling reason for the request. In the absence of any showing that the CA granted the motion for extension capriciously, such exercise of discretion will not be disturbed by this Court. On the second issue, the petitioner insists that her right of action to recover the property cannot be barred by prescription or laches even with the respondent’s uninterrupted possession of the property for 49 years because there existed between her and her father an express trust or a resulting trust. Indeed, if no trust relations existed, the possession of the property by the respondent, through her predecessor, which dates back to 1948, would already have given rise to acquisitive prescription in accordance with Act No. 190 (Code of Civil Procedure).[19] Under Section 40 of Act No. 190, an action for recovery of real property, or of an interest therein, can be brought only within ten years after the cause of action accrues. This period coincides with the ten-year period for acquisitive prescription provided under Section 41[20] of the same Act.

Thus, the resolution of the second issue hinges on our determination of the existence of a trust over the property --- express or implied --- between the petitioner and her father. 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.[21] Trusts are either express or implied.[22] 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.[23] Implied trusts 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 superinduced on the transaction by operation of law basically by reason of equity.[24] An implied trust may either be a resulting trust or a constructive trust. It is true that in express trusts and resulting trusts, a trustee cannot acquire by prescription a property entrusted to him unless he repudiates the trust.[25] The following discussion is instructive: There is a rule that a trustee cannot acquire by prescription the ownership of property entrusted to him, or that an action to compel a trustee to convey property registered in his name in trust for the benefit of the cestui que trust does not prescribe, or that the defense of prescription cannot be set up in an action to recover property held by a person in trust for the benefit of another, or that property held in trust can be recovered by the beneficiary regardless of the lapse of time. That rule applies squarely to express trusts. The basis of the rule is that the possession of a trustee is not adverse. Not being adverse, he does not acquire by prescription the property held in trust. Thus, Section 38 of Act 190 provides that the law of prescription does not apply "in the case of a continuing and subsisting trust." The rule of imprescriptibility of the action to recover property held in trust may possibly apply to resulting trusts as long as the trustee has not repudiated the trust. x x x x Acquisitive prescription may bar the action of the beneficiary against the trustee in an express trust for the recovery of the property held in trust where (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have been made known to the cestui que trust, and (c) the evidence thereon is clear and conclusive.[26] As a rule, however, the burden of proving the existence of a trust is on the party asserting its existence, and such proof must be clear and satisfactorily show the existence of the trust and its elements.[27] The presence of the following elements must be proved: (1) a trustor or settlor who executes the instrument creating the trust; (2) a trustee, who is the person expressly designated to carry out the trust; (3) the trust res, consisting of duly identified and definite real properties; and (4) the cestui que trust, or beneficiaries whose identity must be clear.[28] Accordingly, it was

incumbent upon petitioner to prove the existence of the trust relationship. And petitioner sadly failed to discharge that burden. The existence of express trusts concerning real property may not be established by parol evidence.[29] It must be proven by some writing or deed. In this case, the only evidence to support the claim that an express trust existed between the petitioner and her father was the self-serving testimony of the petitioner. Bare allegations do not constitute evidence adequate to support a conclusion. They are not equivalent to proof under the Rules of Court.[30] In one case, the Court allowed oral testimony to prove the existence of a trust, which had been partially performed. It was stressed therein that what is important is that there should be an intention to create a trust, thus: What is crucial is the intention to create a trust. While oftentimes the intention is manifested by the trustor in express or explicit language, such intention may be manifested by inference from what the trustor has said or done, from the nature of the transaction, or from the circumstances surrounding the creation of the purported trust. However, an inference of the intention to create a trust, made from language, conduct or circumstances, must be made with reasonable certainty. It cannot rest on vague, uncertain or indefinite declarations. An inference of intention to create a trust, predicated only on circumstances, can be made only where they admit of no other interpretation.[31] Although no particular words are required for the creation of an express trust, a clear intention to create a trust must be shown; and the proof of fiduciary relationship must be clear and convincing. The creation of an express trust must be manifested with reasonable certainty and cannot be inferred from loose and vague declarations or from ambiguous circumstances susceptible of other interpretations.[32] In the case at bench, an intention to create a trust cannot be inferred from the petitioner’s testimony and the attendant facts and circumstances. The petitioner testified only to the effect that her agreement with her father was that she will be given a share in the produce of the property, thus: Q: What was your agreement with your father Crispulo Rojas when you left this property to him?A: Every time that they will make copra, they will give a share. Q: In what particular part in Mindanao [did] you stay with your husband?A: Bansalan, Davao del Sur. Q: And while you were in Bansalan, Davao del Sur, did Crispolo Rojas comply with his obligation of giving your share the proceeds of the land?A: When he was still alive, he gave us every three months sometimes P200.00 and sometimes P300.00.[33]

This allegation, standing alone as it does, is inadequate to establish the existence of a trust because profit-sharing per se, does not necessarily translate to a trust relation. It could also be present in other relations, such as in deposit. What distinguishes a trust from other relations is the separation of the legal title and equitable ownership of the property. In a trust relation, legal title is vested in the fiduciary while equitable ownership is vested in a cestui que trust. Such is not true in this case. The petitioner alleged in her complaint that the tax declaration of the land was transferred to the name of Crispulo without her consent. Had it been her intention to create a trust and make Crispulo her trustee, she would not have made an issue out of this because in a trust agreement, legal title is vested in the trustee. The trustee would necessarily have the right to transfer the tax declaration in his name and to pay the taxes on the property. These acts would be treated as beneficial to the cestui que trust and would not amount to an adverse possession.[34] Neither can it be deduced from the circumstances of the case that a resulting trust was created. A resulting trust is a species of implied trust that is presumed always to have been contemplated by the parties, the intention as to which can be found in the nature of their transaction although not expressed in a deed or instrument of conveyance. A resulting trust is based on the equitable doctrine that it is the more valuable consideration than the legal title that determines the equitable interest in property.[35] While implied trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations. Trustworthy evidence is required because oral evidence can easily be fabricated.[36] 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 are proven by an authentic document. An implied trust, in fine, cannot be established upon vague and inconclusive proof.[37] In the present case, there was no evidence of any transaction between the petitioner and her father from which it can be inferred that a resulting trust was intended. In light of the disquisitions, we hold that there was no express trust or resulting trust established between the petitioner and her father. Thus, in the absence of a trust relation, we can only conclude that Crispulo’s uninterrupted possession of the subject property for 49 years, coupled with the performance of acts of ownership, such as payment of real estate taxes, ripened into ownership. The statutory period of prescription commences when a person who has neither title nor good faith, secures a tax declaration in his name and may, therefore, be said to have adversely claimed ownership of the lot.[38] While tax declarations and receipts are not conclusive evidence of ownership and do not prove title to the land, nevertheless, when coupled with actual possession, they constitute evidence of great weight and can be the basis of a claim of ownership through prescription.[39] Moreover, Section 41 of Act No. 190 allows adverse possession in any character to ripen into ownership after the lapse of ten years. There could be prescription under the said section even in the absence of good faith and just title.[40]

All the foregoing notwithstanding, even if we sustain petitioner’s claim that she was the owner of the property and that she constituted a trust over the property with her father as the trustee, such a finding still would not advance her case.

Assuming that such a relation existed, it terminated upon Crispulo’s death in 1978. A trust terminates upon the death of the trustee where the trust is personal to the trustee in the sense that the trustor intended no other person to administer it.[41] If Crispulo was indeed appointed as trustee of the property, it cannot be said that such appointment was intended to be conveyed to the respondent or any of Crispulo’s other heirs. Hence, after Crispulo’s death, the respondent had no right to retain possession of the property. At such point, a constructive trust would be created over the property by operation of law. Where one mistakenly retains property which rightfully belongs to another, a constructive trust is the proper remedial device to correct the situation.[42] A constructive trust is one created 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. It does not come about by agreement or intention but in the main by operation of law, construed 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.[43] As previously stated, the rule that a trustee cannot, by prescription, acquire ownership over property entrusted to him until and unless he repudiates the trust, applies to express trusts and resulting implied trusts. However, in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of the said trust is not a condition precedent to the running of the prescriptive period.[44] A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary.[45] The relation of trustee and cestui que trust does not in fact exist, and the holding of a constructive trust is for the trustee himself, and therefore, at all times adverse. In addition, a number of other factors militate against the petitioner’s case. First, the petitioner is estopped from asserting ownership over the subject property by her failure to protest its inclusion in the estate of Crispulo. The CA, thus, correctly observed that:

Even in the probate proceedings instituted by the heirs of Crispulo Rojas, which included her as a daughter of the first marriage, Cañezo never contested the inclusion of the contested property in the estate of her father. She even participated in the project of partition of her father’s estate which was approved by the probate court in 1984. After personally receiving her share in the proceeds of the estate for 12 years, she suddenly claims ownership of part of her father’s estate in 1997.

The principle of estoppel in pais applies when -- by one’s acts, representations, admissions, or silence when there is a need to speak out -- one, intentionally or through culpable negligence, induces another to believe certain facts to exist; and the

latter rightfully relies and acts on such belief, so as to be prejudiced if the former is permitted to deny the existence of those facts.[46] Such a situation obtains in the instant case.

Second, the action is barred by laches. The petitioner allegedly discovered that the property was being possessed by the respondent in 1980.[47] However, it was only in 1997 that she filed the action to recover the property. Laches is negligence or omission to assert a right within a reasonable time, warranting a presumption that the party entitled to it has either abandoned or declined to assert it.[48]

Finally, the respondent asserts that the court a quo ought to have dismissed the complaint for failure to implead the other heirs who are indispensable parties. We agree. We note that the complaint filed by the petitioner sought to recover ownership, not just possession of the property; thus, the suit is in the nature of an action for reconveyance. It is axiomatic that owners of property over which reconveyance is asserted are indispensable parties. Without them being impleaded, no relief is available, for the court cannot render valid judgment. Being indispensable parties, their absence in the suit renders all subsequent actions of the trial court null and void for want of authority to act, not only as to the absent parties but even as to those present. Thus, when indispensable parties are not before the court, the action should be dismissed.[49] At any rate, a resolution of this issue is now purely academic in light of our finding that the complaint is already barred by prescription, estoppel and laches.

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals, dated September 7, 2000, and Resolution dated May 9, 2001, are AFFIRMED. SO ORDERED.

[G.R. No. 144773. May 16, 2005]AZNAR VS. AYING

This resolves the petition for review on certiorari seeking the modification of the Decision[1] of the Court of Appeals (CA) dated March 7, 2000 which affirmed with modification the Decision of the Regional Trial Court (RTC) of Lapu-Lapu City, Branch 27 in Civil Case No. 2930-L; and the Resolution dated August 2, 2000 denying petitioner’s motion for reconsideration of the aforementioned decision.

The antecedent facts are as follows:

The disputed property is Lot No. 4399 with an area of 34,325 square meters located at Dapdap, Lapu-Lapu City. Crisanta Maloloy-on petitioned for the issuance of a cadastral decree in her favor over said parcel of land. After her death in 1930, the Cadastral Court issued a Decision directing the issuance of a decree in the name of Crisanta Maloloy-on’s eight children, namely: Juan, Celedonio, Emiliano, Francisco,

Simeon, Bernabe, Roberta and Fausta, all surnamed Aying. The certificate of title was, however, lost during the war.

Subsequently, all the heirs of the Aying siblings executed an Extra-Judicial Partition of Real Estate with Deed of Absolute Sale dated March 3, 1964, conveying the subject parcel of land to herein petitioner Aznar Brothers Realty Company. Said deed was registered with the Register of Deeds of Lapu-Lapu City on March 6, 1964 under Act No. 3344 (the law governing registration for unregistered land), and since then, petitioner had been religiously paying real property taxes on said property.

In 1988, herein petitioner filed a Petition for Reconstitution of the Original Title as the original title over the subject property had been lost during the war. On April 12, 1988, the court granted said petition, thereby directing the Register of Deeds of Lapu-Lapu City to issue a reconstituted title in the name of the abovementioned Aying siblings. Thus, Original Certificate of Title (OCT) No. RO-2856 was issued.

In 1991, petitioner, claiming to be the rightful owner of the subject property, sent out notices to vacate, addressed to persons occupying the property. Unheeded, petitioner then filed a complaint for ejectment against the occupants before the Metropolitan Trial Court (MTC), Lapu-Lapu City.

On February 1, 1994, the MTC ordered the occupants to vacate the property. The case eventually reached this Court, docketed as G.R. No. 128102, entitled Aznar Brothers Realty Company vs. Court of Appeals, Luis Aying, Demetrio Sida, Felomino Augusto, Federico Abing, and Romeo Augusto.[2] On March 7, 2000, a Decision was promulgated in favor of herein petitioner, declaring it as the rightful possessor of the parcel of land in question.

Meanwhile, herein respondents, along with other persons claiming to be descendants of the eight Aying siblings, all in all numbering around 220 persons, had filed a complaint for cancellation of the Extra-Judicial Partition with Absolute Sale, recovery of ownership, injunction and damages with the RTC of Lapu-Lapu City. The complaint was dismissed twice without prejudice. Said complaint was re-filed on August 19, 1993, docketed as Civil Case No. 2930-L.

In their amended complaint, herein respondents (plaintiffs before the RTC) alleged that: they are co-owners of subject property, being descendants of the registered owners thereof under OCT No. RO-2856; they had been in actual, peaceful, physical, open, adverse, continuous and uninterrupted possession in concept of owner of subject parcel of land since time immemorial; their possession was disturbed only in the last quarter of 1991 when some of them received notices to vacate from petitioner and several weeks thereafter, earthmoving equipment entered the disputed land, bulldozing the same and destroying plants, trees and concrete monuments (“mohon”); respondents discovered that such activities were being undertaken by petitioner together with Sta. Lucia Realty and Development, Inc.; petitioner claimed to be the owner of subject property by virtue of an extra-judicial partition of real estate with deed of absolute sale executed in petitioner’s favor by the alleged heirs of Crisanta Maloloy-on; the aforementioned extra-judicial partition of real estate with deed of absolute sale is a fraud and is null and void ab initio because not all the co-owners of subject property affixed their signature on said document and some of the co-owners who supposedly signed said document had been dead at the time of the execution thereof; petitioner entered subject land in bad faith, knowing fully well that it did not

have any right to the land and used force, threat and intimidation against respondents; and they suffered moral damages.[3]

Petitioner (defendant before the RTC) filed its Answer, denying that respondents are the lawful owners of subject parcel of land by virtue of their being descendants or heirs of the registered owners of subject property. Instead, petitioner alleged that it had been in actual possession of subject land as owner thereof by virtue of the extra-judicial partition of real property and deed of absolute sale executed in its favor; that in fact, it had been paying taxes thereon religiously; that it tolerated about 6 persons to live on said land but said persons were eventually ejected by court order. Petitioner then raised the affirmative defenses of failure to state cause of action and prescription, as it took respondents 27 years, 10 months and 27 days to file the action to recover subject property, when an action to recover property based on an implied trust should be instituted within 4 years from discovery of the fraud.[4]

In the Pre-Trial Order dated January 30, 1995 of the RTC, the issues were narrowed down to the following:

1. Whether or not the plaintiffs [herein respondents] are the heirs of the registered owners of Lot No. 4399.

2. Whether or not plaintiffs are the owners of Lot No. 4399.

3. Whether or not the defendant Aznar [herein petitioner] is estopped to make any claim on Lot No. 4399.

4. Whether or not the defendant Aznar is a builder in bad faith.

5. Whether or not the defendants are liable for damages and attorney’s fees in favor of the plaintiffs.

6. Whether or not the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is valid and had, in effect, validly conveyed to defendant Aznar Lot No. 4399.

7. Whether or not the plaintiffs’ action has prescribed.[5]

After trial, the RTC rendered a Decision dated July 4, 1997, ruling that respondents’ evidence failed to prove that the extra-judicial partition with deed of absolute sale was a totally simulated or fictitious contract and concluded that said document is valid, thus, effectively conveying to petitioner the property in question. It further held that respondents’ action had prescribed in that the action is considered as one for reconveyance based on implied or constructive trust, it prescribed in 10 years from the registration of the deed on March 6, 1964; and if the action is considered as one for annulment of contract on the ground of fraud, it should have been filed within 4 years from discovery of the fraud. The trial court also ruled that respondents failed to present any admissible proof of filiation, hence, they were not able to prove that they are indeed heirs of the eight Aying siblings who appear as the registered owners under OCT No. RO-2856.

The dispositive portion of the RTC Decision reads as follows:

WHEREFORE, judgment is hereby rendered dismissing the amended complaint on the ground of prescription, and declaring the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale dated March 3, 1964 as valid and binding, adjudging that Lot 4399 with an area of 34,325 square meters located at Dapdap, Mactan, Lapu-Lapu City had been validly conveyed to and in favor of Aznar Brothers Realty Company, and directing the Register of Deeds of Lapu-Lapu City to register the above-mentioned deed in accordance with law and to cancel Original Certificate of Title No. RO-2856, and to issue a transfer certificate of title in the name of Aznar Brothers Realty Company upon payment of the necessary registration fees pursuant thereto.

The Writ of Preliminary Injunction issued in this case is hereby ordered dissolved.

The Motion for Contempt filed by the plaintiffs against defendants is dismissed for want of factual and legal basis.

Costs against the plaintiffs.

SO ORDERED.[6]

Herein respondents appealed the foregoing decision to the CA and on March 7, 2000, said court promulgated its Decision, the dispositive portion of which is reproduced hereunder:

THE FOREGOING CONSIDERED, the contested Decision while AFFIRMED is hereby MODIFIED. The heirs of Emiliano Aying, Simeon Aying and Roberta Aying are hereby declared as the lawful owners of the contested property but equivalent only to 3/8.

SO ORDERED.

In modifying the RTC judgment, the CA ratiocinated that “an action for recovery of possession of registered land never prescribes in view of the provision of Section 44, Act No. 496 (now Sec. 47, PD 1520), to the effect that no title to registered land in derogation to that of a registered owner shall be acquired by prescription.” The CA further ruled that even if the action is deemed to be based on implied trust, prescription did not begin to run since there is no evidence that positive acts of repudiation were made known to the heirs who did not participate in the execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale. Thus, striking down the RTC’s ruling that the respondents’ complaint is dismissible on the ground of prescription, the CA held instead that herein respondents’ action had not prescribed but upheld the validity of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale, except as to the shares of the heirs of Emiliano, Simeon and Roberta, who did not participate in the execution of said document.

Herein petitioner’s motion for reconsideration of the CA decision was denied per Resolution dated August 2, 2000.

Hence, the present petition for review on certiorari assailing the CA decision on the following grounds:

I

THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE RULE THAT AN HEIR OF THE ORIGINAL REGISTERED OWNER MAY LOSE HIS RIGHT TO RECOVER A TITLED PROPERTY BY REASON OF LACHES;

II

THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE RULE THAT THE ACT OF REGISTRATION OF THE DEED OF PARTITION WITH SALE MAY BE CONSIDERED AN UNEQUIVOCAL REPUDIATION OF THE TRUST GIVING RISE TO PRESCRIPTION;

III

THE COURT OF APPEALS ERRED IN FAILING TO APPLY THE PROVISIONS OF ARTICLE 1104 OF THE CIVIL CODE TO THE EFFECT THAT IN THE ABSENCE OF BAD FAITH OR FRAUD, THE PARTITION WITH PRETERITION OF ANY COMPULSORY HEIR SHALL NOT BE RESCINDED.[7]

In their Comment, respondents argue that this case is an action to declare as null and void the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale, hence, under Article 1410 of the Civil Code, an action for declaration of an inexistent contract does not prescribe. Respondents further posit that the principle of laches should be applied against petitioner and not against them, as they (respondents) had been in actual possession of the subject property, while petitioner merely brought action to eject them more than 29 years after the alleged execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale. They also refuted petitioner’s arguments regarding the application of the principles of implied and constructive trusts in this case.

At the outset, it should be stressed that not all the plaintiffs who filed the amended complaint before the trial court had been impleaded as respondents in the present petition. The only parties impleaded are the heirs of Emiliano, Simeon and Roberta Aying, whom the CA adjudged as owners of a 3/8 portion of the land in dispute for not having participated in the execution of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale.

It is significant to note that herein petitioner does not question the CA conclusion that respondents are heirs of the aforementioned three Aying siblings. Hence, the trial court and appellate court’s findings that the Extra- Judicial Partition of Real Estate with Deed of Absolute Sale was not forged nor simulated and that the heirs of Emiliano, Simeon and Roberta Aying did not participate in the execution thereof, are now beyond cavil.

The issues raised by petitioner for the Court’s resolution are (1) whether or not respondents’ cause of action is imprescriptible; and (2) if their right to bring action is indeed imprescriptible, may the principle of laches apply.

Respondents alleged in their amended complaint that not all the co-owners of the land in question signed or executed the document conveying ownership thereof to petitioner and made the conclusion that said document is null and void. We agree with the ruling of the RTC and the CA that the Extra-Judicial Partition of Real Estate

with Deed of Absolute Sale is valid and binding only as to the heirs who participated in the execution thereof, hence, the heirs of Emiliano, Simeon and Roberta Aying, who undisputedly did not participate therein, cannot be bound by said document.

However, the facts on record show that petitioner acquired the entire parcel of land with the mistaken belief that all the heirs have executed the subject document. Thus, the trial court is correct that the provision of law applicable to this case is Article 1456 of the Civil Code which states:

ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.

In Vda. De Esconde vs. Court of Appeals,[8] the Court expounded thus:

Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court stated:

A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting property which is held by the trustee for the benefit of the cestui que trust. A constructive trust, unlike an express trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the beneficiary.[9]

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

. . . implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. In turn, implied trusts are either resulting or constructive trusts. These two are differentiated from each other as follows:

Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the nature of circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another. On the other hand, constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.[10] (Emphasis supplied)

Based on such concept of constructive trusts, the Court ruled in said case that:

The rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and unless he repudiates the trust, applies to express trusts and

resulting implied trusts. However, in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of said trust is not a condition precedent to the running of the prescriptive period.[11]

The next question is, what is the applicable prescriptive period?

In Amerol vs. Bagumbaran,[12] the Court expounded on the prescriptive period within which to bring an action for reconveyance of property based on implied or constructive trust, to wit:

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

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

(1) Upon a written contract;(2) Upon an obligation created by law;(3) Upon a judgment.

xxx xxx xxx

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it is now well-settled that an action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the Torrens title over the property.[13]

It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the deed or the date of the issuance of the certificate of title over the property, but if the person claiming to be the owner thereof is in actual possession of the property, the right to seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe.[14]

In the present case, respondents Wenceslao Sumalinog, an heir of Roberta Aying; Laurencio Aying, an heir of Emiliano Aying; and Paulino Aying, an heir of Simeon Aying, all testified that they had never occupied or been in possession of the land in dispute.[15] Hence, the prescriptive period of ten years would apply to herein respondents.

The question then arises as to the date from which the ten-year period should be reckoned, considering that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act No. 3344 and not under Act No. 496 (Land Registration Act), despite the fact the land in dispute was already titled under Act No. 496 in the names of the Aying siblings at the time the subject document was executed.

In Spouses Abrigo vs. De Vera,[16] it was held that registration of instruments must be done in the proper registry, in order to affect and bind the land and, thus, operate as constructive notice to the world.[17] Therein, the Court ruled:

x x x If the land is registered under the Land Registration Act (and has therefore a Torrens Title), and it is sold but the subsequent sale is registered not under the Land Registration Act but under Act 3344, as amended, such sale is not considered REGISTERED x x x .[18]

In this case, since the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale was registered under Act No. 3344 and not under Act No. 496, said document is deemed not registered. Accordingly, the ten-year prescriptive period cannot be reckoned from March 6, 1964, the date of registration of the subject document under Act No. 3344. The prescriptive period only began to run from the time respondents had actual notice of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale.

The only evidence on record as to when such prescriptive period commenced as to each of the respondents are Wenceslao Sumalinog’s (heir of Roberta Aying) testimony that about three years after 1964, they already learned of the existence of the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale;[19] and Laurencio Aying’s (heir of Emiliano Aying) admission that he found out about the sale of the land in dispute a long time ago and can only estimate that it must be after martial law.[20] Paulino Aying (heir of Simeon Aying) gave no testimony whatsoever as to when the children of Simeon Aying actually learned of the existence of the document of sale. On the other hand, petitioner did not present any other evidence to prove the date when respondents were notified of the execution of the subject document.

In view of the lack of unambiguous evidence of when the heirs of Emiliano Aying and Simeon Aying discovered the existence of the document of sale, it must be determined which party had the burden of proof to establish such fact.

The test for determining where the burden of proof lies is to ask which party to an action or suit will fail if he offers no evidence competent to show the facts averred as the basis for the relief he seeks to obtain.[21] Moreover, one alleging a fact that is denied has the burden of proving it and unless the party asserting the affirmative of an issue sustains the burden of proof of that issue by a preponderance of the evidence, his cause will not succeed.[22] Thus, the defendant bears the burden of proof as to all affirmative defenses which he sets up in answer to the plaintiff’s claim or cause of action; he being the party who asserts the truth of the matter he has alleged, the burden is upon him to establish the facts on which that matter is predicated and if he fails to do so, the plaintiff is entitled to a verdict or decision in his favor.[23]

In the case at bar, it was petitioner, as the defendant before the RTC, which set up in its Answer the affirmative defense of prescription. It was, therefore, incumbent upon petitioner to prove the date from which the prescriptive period began to run. Evidence as to the date when the ten-year prescriptive period began exists only as to the heirs of Roberta Aying, as Wenceslao Sumalinog admitted that they learned of the existence of the document of sale in the year 1967. As to the heirs of Emiliano Aying and Simeon Aying, there is no clear evidence of the date when they discovered the

document conveying the subject land to petitioner. Petitioner miserably failed to adduce proof of when the heirs of Emiliano Aying and Simeon Aying were notified of the subject document. Hence, with regard to said heirs, the Court may consider the admission in the amended complaint that they learned of the conveyance of the disputed land only in 1991 when petitioner sent notices to vacate to the occupants of the subject land, as the date from which the ten-year prescriptive period should be reckoned.

Respondents filed their Amended Complaint on December 6, 1993.[24] Thus, with regard to respondent heirs of Roberta Aying who had knowledge of the conveyance as far back as 1967, their cause of action is already barred by prescription when said amended complaint was filed as they only had until 1977 within which to bring action. As to the respondent heirs of Emiliano and Simeon Aying, they were able to initiate their action for reconveyance of property based on implied or constructive trust well within the ten-year prescriptive period reckoned from 1991 when they were sent by petitioner a notice to vacate the subject property.

Evidently, laches cannot be applied against respondent heirs of Emiliano and Simeon Aying, as they took action to protect their interest well within the period accorded them by law.

With regard to petitioner’s argument that the provision of Article 1104 of the Civil Code, stating that a partition made with preterition of any of the compulsory heirs shall not be rescinded, should be applied, suffice it to say that the Extra-Judicial Partition of Real Estate with Deed of Absolute Sale is not being rescinded. In fact, its validity had been upheld but only as to the parties who participated in the execution of the same. As discussed above, what was conveyed to petitioner was ownership over the shares of the heirs who executed the subject document. Thus, the law, particularly, Article 1456 of the Civil Code, imposed the obligation upon petitioner to act as a trustee for the benefit of respondent heirs of Emiliano and Simeon Aying who, having brought their action within the prescriptive period, are now entitled to the reconveyance of their share in the land in dispute.

IN VIEW OF THE FOREGOING, the petition is PARTIALLY GRANTED and the Decision of the Court of Appeals dated March 7, 2000 is MODIFIED, as follows: The amended complaint of the heirs of Roberta Aying is DISMISSED on the ground of prescription. However, the heirs of Emiliano Aying and Simeon Aying, having instituted the action for reconveyance within the prescriptive period, are hereby DECLARED as the LAWFUL OWNERS of a 2/8 portion of the parcel of land covered by Original Certificate of Title No. RO-2856.

SO ORDERED.

LOPEZ, VS CA G.R. No. 157784TINGA, J.: This is a petition for review on certiorari [1]under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Decision[2] and Resolution[3] of the Court of Appeals in CA-G.R. CV No. 34086. The Court of Appeals’ decision affirmed the summary judgment of the Regional Trial Court (RTC), Branch 10, Balayan, Batangas, dismissing petitioner’s action for reconveyance on the ground of prescription. The instant petition stemmed from an action for reconveyance instituted by petitioner Richard B. Lopez in his capacity as trustee of the estate of the late Juliana Lopez Manzano (Juliana) to recover from respondents several large tracts of lands allegedly belonging to the trust estate of Juliana. The decedent, Juliana, was married to Jose Lopez Manzano (Jose). Their union did not bear any children. Juliana was the owner of several properties, among them, the properties subject of this dispute. The disputed properties totaling more than 1,500 hectares consist of six parcels of land, which are all located in Batangas. They were the exclusive paraphernal properties of Juliana together with a parcel of land situated in Mindoro known as Abra de Ilog and a fractional interest in a residential land on Antorcha St., Balayan, Batangas. On 23 March 1968, Juliana executed a notarial will,[4] whereby she expressed that she wished to constitute a trust fund for her paraphernal properties, denominated as Fideicomiso de Juliana Lopez Manzano (Fideicomiso), to be administered by her husband. If her husband were to die or renounce the obligation, her nephew, Enrique Lopez, was to become administrator and executor of the Fideicomiso. Two-thirds (2/3) of the income from rentals over these properties were to answer for the education of deserving but needy honor students, while one-third 1/3 was to shoulder the expenses and fees of the administrator. As to her conjugal properties, Juliana bequeathed the portion that she could legally dispose to her husband, and after his death, said properties were to pass to her biznietos or great grandchildren. Juliana initiated the probate of her will five (5) days after its execution, but she died on 12 August 1968, before the petition for probate could be heard. The petition was pursued instead in Special Proceedings (S.P.) No. 706 by her husband, Jose, who was the designated executor in the will. On 7 October 1968, the Court of First Instance, Branch 3, Balayan, Batangas, acting as probate court, admitted the will to probate and issued the letters testamentary to Jose. Jose then submitted an inventory of Juliana’s real and personal properties with their appraised values, which was approved by the probate court. Thereafter, Jose filed a Report dated 16 August 1969, which included a proposed project of partition. In the report, Jose explained that as the only compulsory heir of Juliana, he was entitled by operation of law to one-half (1/2) of Juliana’s paraphernal properties as his legitime, while the other one-half (1/2) was to be constituted into the Fideicomiso. At the same time, Jose alleged that he and Juliana had outstanding debts totaling P816,000.00 excluding interests, and that these debts were secured by real estate mortgages. He noted that if these debts were liquidated, the “residuary estate available for distribution would, value-wise, be very small.”

From these premises, Jose proceeded to offer a project of partition. The relevant portion pertaining to the Fideicomiso stated, thus: PROJECT OF PARTITION 14. Pursuant to the terms of the Will, one-half (1/2) of the following properties, which are not burdened with any obligation, shall be constituted into the “Fidei-comiso de Juliana Lopez Manzano” and delivered to Jose Lopez Manzano as trustee thereof: Location Title No. Area (Sq. M.) Improvements Abra de Ilog, TCT - 540 2,940,000 pasture, etc.Mindoro Antorcha St. TCT – 1217-A 13,040 residentialBalayan, Batangas (1/6 thereof) and all those properties to be inherited by the decedent, by intestacy, from her sister, Clemencia Lopez y Castelo. 15. The other half (1/2) of the aforesaid properties is adjudicated to Jose Lopez Manzano as heir. Then, Jose listed those properties which he alleged were registered in both his and Juliana’s names, totaling 13 parcels in all. The disputed properties consisting of six (6) parcels, all located in Balayan, Batangas, were included in said list. These properties, as described in the project of partition, are as follows:Location Title No. Area (Sq. M.) Improvements Pantay, Calaca, 91,283 coconutsBatangas Mataywanak, OCT-29[6]94 485,486 sugarTuy, Batangas Patugo, Balayan, OCT-2807 16,757,615 coconut,Batangas sugar, citrus, pasteur Cagayan, Balayan, TCT-1220 411,331 sugarBatangas Pook, Baayan TCT-1281 135,922 sugarBatangas Bolbok, Balayan, TCT-18845 444,998 sugarBatangasCalzada, Balayan, TCT 1978 2,312 sugarBatangas Gumamela, Balayan, TCT-2575 829 BatangasBombon, Balayan, 4,532

BatangasParañaque, Rizal TCT-282340 800 residentialParañaque, Rizal TCT-11577 800 residentialModesto St., Manila TCT-52212 137.8 residential and the existing sugar quota in the name of the deceased with the Central Azucarera Don Pedro at Nasugbo. 16. The remaining ¼ shall likewise go to Jose Lopez Manzano, with the condition to be annotated on the titles thereof, that upon his death, the same shall pass on to Corazon Lopez, Ferdinand Lopez, and Roberto Lopez: Location Title No. Area (Sq. M.) Improvements Dalig, Balayan, TCT-10080 482,872 sugarBatangas San Juan, Rizal TCT-53690 523 residential On 25 August 1969, the probate court issued an order approving the project of partition. As to the properties to be constituted into the Fideicomiso, the probate court ordered that the certificates of title thereto be cancelled, and, in lieu thereof, new certificates be issued in favor of Jose as trustee of the Fideicomiso covering one-half (1/2) of the properties listed under paragraph 14 of the project of partition; and regarding the other half, to be registered in the name of Jose as heir of Juliana. The properties which Jose had alleged as registered in his and Juliana’s names, including the disputed lots, were adjudicated to Jose as heir, subject to the condition that Jose would settle the obligations charged on these properties. The probate court, thus, directed that new certificates of title be issued in favor of Jose as the registered owner thereof in its Order dated 15 September 1969. On even date, the certificates of title of the disputed properties were issued in the name of Jose. The Fideicomiso was constituted in S.P No. 706 encompassing one-half (1/2) of the Abra de Ilog lot on Mindoro, the 1/6 portion of the lot in Antorcha St. in Balayan, Batangas and all other properties inherited ab intestato by Juliana from her sister, Clemencia, in accordance with the order of the probate court in S.P. No. 706. The disputed lands were excluded from the trust. Jose died on 22 July 1980, leaving a holographic will disposing of the disputed properties to respondents. The will was allowed probate on 20 December 1983 in S.P. No. 2675 before the RTC of Pasay City. Pursuant to Jose’s will, the RTC ordered on 20 December 1983 the transfer of the disputed properties to the respondents as the heirs of Jose. Consequently, the certificates of title of the disputed properties were cancelled and new ones issued in the names of respondents. Petitioner’s father, Enrique Lopez, also assumed the trusteeship of Juliana’s estate. On 30 August 1984, the RTC of Batangas, Branch 9 appointed petitioner as trustee of Juliana’s estate in S.P. No. 706. On 11 December 1984, petitioner instituted an action for reconveyance of parcels of land with sum of money before the RTC of Balayan, Batangas against respondents. The complaint[5] essentially alleged that Jose was able to register in his name the disputed properties, which were the paraphernal properties of Juliana, either during their conjugal union or in the course of the performance of his duties as executor of the testate estate of Juliana and that upon

the death of Jose, the disputed properties were included in the inventory as if they formed part of Jose’s estate when in fact Jose was holding them only in trust for the trust estate of Juliana. Respondents Maria Rolinda Manzano, Maria Rosario Santos, Jose Manzano, Jr., Narciso Manzano, Maria Cristina Manzano Rubio and Irene Monzon filed a joint answer[6] with counterclaim for damages. Respondents Corazon, Fernando and Roberto, all surnamed Lopez, who were minors at that time and represented by their mother, filed a motion to dismiss,[7] the resolution of which was deferred until trial on the merits. The RTC scheduled several pre-trial conferences and ordered the parties to submit pre-trial briefs and copies of the exhibits. On 10 September 1990, the RTC rendered a summary judgment,[8] dismissing the action on the ground of prescription of action. The RTC also denied respondents’ motion to set date of hearing on the counterclaim. Both petitioner and respondents elevated the matter to the Court of Appeals. On 18 October 2002, the Court of Appeals rendered the assailed decision denying the appeals filed by both petitioner and respondents. The Court of Appeals also denied petitioner’s motion for reconsideration for lack of merit in its Resolution dated 3 April 2003. Hence, the instant petition attributing the following errors to the Court of Appeals: I. THE COURT OF APPEAL’S CONCLUSION THAT PETITIONER’S ACTION FOR [RECONVEYANCE] HAS PRESCRIBED TAKING AS BASIS SEPTEMBER 15, 1969 WHEN THE PROPERTIES IN DISPUTE WERE TRANSFERRED TO THE NAME OF THE LATE JOSE LOPEZ MANZANO IN RELATION TO DECEMBER 12, 1984 WHEN THE ACTION FOR RECONVEYANCE WAS FILED IS ERRONEOUS. II. THE RESPONDENT COURT OF APPEALS CONCLUSION IN FINDING THAT THE FIDUCIARY RELATION ASSUMED BY THE LATE JOSE LOPEZ MANZANO, AS TRUSTEE, PURSUANT TO THE LAST WILL AND TESTAMENT OF JULIANA LOPEZ MANZANO WAS IMPLIED TRUST, INSTEAD OF EXPRESS TRUST IS EQUALLY ERRONEOUS. None of the respondents filed a comment on the petition. The counsel for respondents Corazon, Fernando and Roberto, all surnamed Lopez, explained that he learned that respondents had migrated to the United States only when the case was pending before the Court of Appeals.[9] Counsel for the rest of the respondents likewise manifested that the failure by said respondents to contact or communicate with him possibly signified their lack of interest in the case.[10] In a Resolution dated 19 September 2005, the Court dispensed with the filing of a comment and considered the case submitted for decision.[11] The core issue of the instant petition hinges on whether petitioner’s action for reconveyance has prescribed. The resolution of this issue calls for a determination of

whether an implied trust was constituted over the disputed properties when Jose, the trustee, registered them in his name. Petitioner insists that an express trust was constituted over the disputed properties; thus the registration of the disputed properties in the name of Jose as trustee cannot give rise to prescription of action to prevent the recovery of the disputed properties by the beneficiary against the trustee. Evidently, Juliana’s testamentary intent was to constitute an express trust over her paraphernal properties which was carried out when the Fideicomiso was established in S.P. No. 706.[12] However, the disputed properties were expressly excluded from the Fideicomiso. The probate court adjudicated the disputed properties to Jose as the sole heir of Juliana. If a mistake was made in excluding the disputed properties from the Fideicomiso and adjudicating the same to Jose as sole heir, the mistake was not rectified as no party appeared to oppose or appeal the exclusion of the disputed properties from the Fideicomiso. Moreover, the exclusion of the disputed properties from the Fideicomiso bore the approval of the probate court. The issuance of the probate court’s order adjudicating the disputed properties to Jose as the sole heir of Juliana enjoys the presumption of regularity.[13] On the premise that the disputed properties were the paraphernal properties of Juliana which should have been included in the Fideicomiso, their registration in the name of Jose would be erroneous and Jose’s possession would be that of a trustee in an implied trust. Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties.[14] The provision on implied trust governing the factual milieu of this case is provided in Article 1456 of the Civil Code, which states: ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. In Aznar Brothers Realty Company v. Aying,[15] the Court differentiated two kinds of implied trusts, to wit: x x x In turn, implied trusts are either resulting or constructive trusts. These two are differentiated from each other as follows: Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the nature of circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another. On the other hand, constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.[16]

A resulting trust is presumed to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction but not expressed in the deed itself.[17] Specific examples of resulting trusts may be found in the Civil Code, particularly Arts. 1448,[18] 1449,[19] 1451,[20] 1452[21] and 1453.[22] A constructive trust is created, not by any word evincing a direct intention to create a trust, but by operation of law in order to satisfy the demands of justice and to prevent unjust enrichment.[23] It is raised by equity in respect of property, which has been acquired by fraud, or where although acquired originally without fraud, it is against equity that it should be retained by the person holding it.[24] Constructive trusts are illustrated in Arts. 1450,[25] 1454,[26] 1455[27] and 1456.[28]The disputed properties were excluded from the Fideicomiso at the outset. Jose registered the disputed properties in his name partly as his conjugal share and partly as his inheritance from his wife Juliana, which is the complete reverse of the claim of the petitioner, as the new trustee, that the properties are intended for the beneficiaries of the Fideicomiso. Furthermore, the exclusion of the disputed properties from the Fideicomiso was approved by the probate court and, subsequently, by the trial court having jurisdiction over the Fideicomiso. The registration of the disputed properties in the name of Jose was actually pursuant to a court order. The apparent mistake in the adjudication of the disputed properties to Jose created a mere implied trust of the constructive variety in favor of the beneficiaries of the Fideicomiso. Now that it is established that only a constructive trust was constituted over the disputed properties, may prescription for the recovery of the properties supervene? Petitioner asserts that, if at all, prescription should be reckoned only when respondents caused the registration of the disputed properties in their names on 13 April 1984 and not on 15 September 1969, when Jose registered the same in his name pursuant to the probate court’s order adjudicating the disputed properties to him as the sole heir of Juliana. Petitioner adds, proceeding on the premise that the prescriptive period should be counted from the repudiation of the trust, Jose had not performed any act indicative of his repudiation of the trust or otherwise declared an adverse claim over the disputed properties. The argument is tenuous. The right to seek reconveyance based on an implied or constructive trust is not absolute. It is subject to extinctive prescription.[29] An action for reconveyance based on implied or constructive trust prescribes in 10 years. This period is reckoned from the date of the issuance of the original certificate of title or transfer certificate of title. Since such issuance operates as a constructive notice to the whole world, the discovery of the fraud is deemed to have taken place at that time.[30] In the instant case, the ten-year prescriptive period to recover the disputed property must be counted from its registration in the name of Jose on 15 September 1969, when petitioner was charged with constructive notice that Jose adjudicated the disputed properties to himself as the sole heir of Juana and not as trustee of the Fideicomiso. It should be pointed out also that Jose had already indicated at the outset that the disputed properties did not form part of the Fideicomiso contrary to petitioner’s claim that no overt acts of repudiation may be attributed to Jose. It may not be amiss to

state that in the project of partition submitted to the probate court, Jose had indicated that the disputed properties were conjugal in nature and, thus, excluded from Juliana’s Fideicomiso. This act is clearly tantamount to repudiating the trust, at which point the period for prescription is reckoned.In any case, the rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and unless he repudiates the trust applies only to express trusts and resulting implied trusts. However, in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of said trust is not a condition precedent to the running of the prescriptive period.[31] Thus, for the purpose of counting the ten-year prescriptive period for the action to enforce the constructive trust, the reckoning point is deemed to be on 15 September 1969 when Jose registered the disputed properties in his name. WHEREFORE, the instant petition for review on certiorari is DENIED and the decision and resolution of the Court of Appeals in CA-G.R. CV No. 34086 are AFFIRMED. Costs against petitioner. SO ORDERED.