OBLIGATIONS AND CONTRACTS Part 4

Atty. EDUARDO T. REYES, III

Civil Law Review

College of Law

University of San Agustin

(Prelim Lecture Outline - Part 4)

CHAPTER 6
Rescissible Contracts

Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)

Comments:

1. Should be distinguished from MUTUAL DISSENT or MUTUAL BACKING-OUT. In mutual dissent, return of the fruits or restoration is subject to parties agreement or non-agreement. In real rescission, restoration is a necessary legal consequence.

Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission. (1291a)

Article 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could not be compelled at the time they were effected, are also rescissible. (1292)

Article 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. (1294)

Article 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n)

Article 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss. (1295)

Article 1386. Rescission referred to in Nos. 1 and 2 of article 1381 shall not take place with respect to contracts approved by the courts. (1296a)

Article 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient property to pay all debts contracted before the donation.

Alienations by onerous title are also presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or some writ of attachment has been issued. The decision or attachment need not refer to the property alienated, and need not have been obtained by the party seeking the rescission.

In addition to these presumptions, the design to defraud creditors may be proved in any other manner recognized by the law of evidence. (1297a)

Article 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it should be impossible for him to return them.

If there are two or more alienations, the first acquirer shall be liable first, and so on successively. (1298a)

Article 1389. The action to claim rescission must be commenced within four years.

For persons under guardianship and for absentees, the period of four years shall not begin until the termination of the former's incapacity, or until the domicile of the latter is known. (1299)

CHAPTER 7
Voidable Contracts

Article 1390. The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties:

(1) Those where one of the parties is incapable of giving consent to a contract;

(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification. (n)

Article 1391. The action for annulment shall be brought within four years.

This period shall begin:

In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.

In case of mistake or fraud, from the time of the discovery of the same.

And when the action refers to contracts entered into by minors or other incapacitated persons, from the time the guardianship ceases. (1301a)

Article 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)

Article 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit ratification if, with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who has a right to invoke it should execute an act which necessarily implies an intention to waive his right. (1311a)

Article 1394. Ratification may be effected by the guardian of the incapacitated person. (n)

Article 1395. Ratification does not require the conformity of the contracting party who has no right to bring the action for annulment. (1312)

Article 1396. Ratification cleanses the contract from all its defects from the moment it was constituted. (1313)

Article 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily.

However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. (1302a)

Article 1398. An obligation having been annulled, the contracting parties shall restore to each other the things which have been the subject matter of the contract, with their fruits, and the price with its interest, except in cases provided by law.

In obligations to render service, the value thereof shall be the basis for damages. (1303a)

Article 1399. When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. (1304)

Article 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so because it has been lost through his fault, he shall return the fruits received and the value of the thing at the time of the loss, with interest from the same date. (1307a)

Article 1401. The action for annulment of contracts shall be extinguished when the thing which is the object thereof is lost through the fraud or fault of the person who has a right to institute the proceedings.

If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the thing shall not be an obstacle to the success of the action, unless said loss took place through the fraud or fault of the plaintiff. (1314a)

Article 1402. As long as one of the contracting parties does not restore what in virtue of the decree of annulment he is bound to return, the other cannot be compelled to comply with what is incumbent upon him. (1308)

CHAPTER 8
Unenforceable Contracts (n)

Article 1403. The following contracts are unenforceable, unless they are ratified:

(1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers;

(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents:

(a) An agreement that by its terms is not to be performed within a year from the making thereof;

(b) A special promise to answer for the debt, default, or miscarriage of another;

(c) An agreement made in consideration of marriage, other than a mutual promise to marry;

(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum;

(e) An agreement for the leasing for a longer period than one year, or for the sale of real property or of an interest therein;

( f ) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a contract.

Article 1404. Unauthorized contracts are governed by article 1317 and the principles of agency in Title X of this Book.

Article 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them.

Article 1406. When a contract is enforceable under the Statute of Frauds, and a public document is necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right under Article 1357.

Article 1407. In a contract where both parties are incapable of giving consent, express or implied ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall give the contract the same effect as if only one of them were incapacitated.

If ratification is made by the parents or guardians, as the case may be, of both contracting parties, the contract shall be validated from the inception.

Article 1408. Unenforceable contracts cannot be assailed by third persons.

Comments:

1. Important features of Statute of Frauds

a. Ground for dismissal per Sec.1 (i) Rule 16, Rules of Court

b. It is a RULE OF ADMISSIBILITYunder Rules of Parol evidence

c. Only bars oral evidence to enforce action for damages but not an action to reform or to annul or to declare void as long as agreement is not covered by Statute of Frauds- SeeCayugan v. Santos[1]

d. Concerns the admissibility of evidence and not necessarily its weight or probative value 

CHAPTER 9
Void and Inexistent Contracts

Article 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy;

(2) Those which are absolutely simulated or fictitious;

(3) Those whose cause or object did not exist at the time of the transaction;

(4) Those whose object is outside the commerce of men;

(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained;

(7) Those expressly prohibited or declared void by law.

These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

-        In Pari delicto rule. – Does not apply to ABSOLUTELY SIMULATED CONTRACTS. The doctrine can be applied if there is an object or consideration but said consideration or object is illegal.

-        Exceptions to In Pari Delicto rule: Cases when there can be recovery:

a)    Interest paid in excess allowed by usury laws[2]

b)   One of the parties to an illegal contract is incapable of giving consent[3]

c)    Money is paid or property is delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before damage has been caused to a third person.[4]

d)   When agreement is not illegal per se but merely prohibited and the prohibition by the law is designated for the protection of the plaintiff[5]

e)    When the price of any commodity or article  is determined by statute or by authority of law , any person paying any amount in excess of the maximum price allowed may recover the excess[6]

f)     When the law fixes or authorizes the fixing of the maximum number of hours of labor and a contract is entered into whereby a labourer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit[7]

g)    When the law sets, or authorizes the setting of a minimum wage for labourers, and a contract is agreed upon which a laborer accepts a lower wage, he shall be entitled to recover the deficiency[8]

h)   Where the application of the in pari delicto rule contravenes public policy such as the policy against unjust enrichment[9]

i)      Superior public policy is involved[10]

-        Read Teresita I. Buenaventura v. Metropolitan Bank and Trust Company, G.R. No. 167082, August 03, 2016

-        “The burden of showing that a contract is simulated rests on the party impugning the contract. This is because of the presumed validity of the contract that has been duly executed. The proof required to overcome the presumption of validity must be convincing and preponderant.”

- Void Contract; Free Patent sold within 5-Year Prohibited Period

“ The contract of sale entered into between petitioner Anastacio and respondent-spouses on March 28, 1977 is null and void from inception for being contrary to law and public policy. As a void contract, it is imprescriptible and not susceptible of ratification.

Sec. 118 of Public Land Act prohibits such sale.

      (here, a clause was integrated in the Deed of Sake to the effect that the seller will obtain consent from Secretary of DENR and failure to do so, the sale will take effect after five years. Still VOID.)

Court’s resolution: Land shall be returned to Patentee or his family but they should return the purchase price plus interest.”

-Anastacio Tingalan v. Sps. Ronaldo and Winona Melliza, G.R. No. 195247, June 29, 2015

A Foreigner Husband Connives with his Filipina Wife

To Purchase a Tract of Land in The Philippines and

Build a House Thereon Even if They Know that

Foreigners are Not Allowed to Own Lands

No Entitlement to Reimbursement under Article 22, for

Violation of Prohibition on Aliens from Owning Lands

Prohibition However, Does not Apply to Improvements;

Conjugal Partnership

Dissolution

“The issue to be resolved is not of first impression. In In Re: Petition

For Separation of Property-Elena Buenaventura Muller v. Helmut Muller23

the Court had already denied a claim for reimbursement of the value of

purchased parcels of Philippine land instituted by a foreigner Helmut Muller,

against his former Filipina spouse, Elena Buenaventura Muller. It held that

Helmut Muller cannot seek reimbursement on the ground of equity where it

is clear that he willingly and knowingly bought the property despite the

prohibition against foreign ownership of Philippine land24 enshrined under

Section 7, Article XII of the 1987 Philippine Constitution which reads:

Section 7. Save in cases of hereditary succession, no private lands shall be

transferred or conveyed except to individuals, corporations, or associations

qualified to acquire or hold lands of the public domain.

Undeniably, petitioner openly admitted that he “is well aware of the

[above-cited] constitutional prohibition”25 and even asseverated that,

because of such prohibition, he and respondent registered the subject

properties in the latter’s name.26 Clearly, petitioner’s actuations showed his

palpable intent to skirt the constitutional prohibition. On the basis of such

admission, the Court finds no reason why it should not apply the Muller

ruling and accordingly, deny petitioner’s claim for reimbursement.

As also explained in Muller, the time-honored principle is that he who

seeks equity must do equity, and he who comes into equity must come with

clean hands. Conversely stated, he who has done inequity shall not be

accorded equity. Thus, a litigant may be denied relief by a court of equity on

the ground that his conduct has been inequitable, unfair and dishonest, or

fraudulent, or deceitful. 27

In this case, petitioner’s statements regarding the real source of the

funds used to purchase the subject parcels of land dilute the veracity of his

claims: While admitting to have previously executed a joint affidavit that

respondent’s personal funds were used to purchase Lot 1,28 he likewise

claimed that his personal disability funds were used to acquire the same.

Evidently, these inconsistencies show his untruthfulness. Thus, as petitioner

has come before the Court with unclean hands, he is now precluded from

seeking any equitable refuge.

In any event, the Court cannot, even on the grounds of equity, grant

reimbursement to petitioner given that he acquired no right whatsoever over

the subject properties by virtue of its unconstitutional purchase. It is well-established

that equity as a rule will follow the law and will not permit that

to be done indirectly which, because of public policy, cannot be done

directly. Surely, a contract that violates the Constitution and the law is null

and void, vests no rights, creates no obligations and produces no legal effect

at all. Corollary thereto, under Article 1412 of the Civil Code,31 petitioner

cannot have the subject properties deeded to him or allow him to recover the

money he had spent for the purchase thereof. The law will not aid either

party to an illegal contract or agreement; it leaves the parties where it finds

them.32 Indeed, one cannot salvage any rights from an unconstitutional

transaction knowingly entered into.

28 Id. at 82.

29 Frenzel v. Catito, G.R. No. 143958, July 11, 2003, 406 SCRA 55, 70. 30 Id. at 69-70, citing Chavez s. Presidential Commission on Good Government, 307 SCRA 394 (1998). 31 Re: Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a

criminal offense, the following rules shall be observed:

(1) When the fault is on the part of both contracting parties, neither may recover what he

has given by virtue of the contract, or demand the performance of the other's

undertaking

x x x x 32 Id., citing Rellosa v. Hun, 93 Phil. 827 (1953).

Decision 9 G.R. No. 195670

Neither can the Court grant petitioner’s claim for reimbursement on

the basis of unjust enrichment.33 As held in Frenzel v. Catito, a case also

involving a foreigner seeking monetary reimbursement for money spent on

purchase of Philippine land, the provision on unjust enrichment does not

apply if the action is proscribed by the Constitution, to wit:

Futile, too, is petitioner's reliance on Article 22 of the New Civil

Code which reads:

Art. 22. Every person who through an act of performance

by another, or any other means, acquires or comes into

possession of something at the expense of the latter without

just or legal ground, shall return the same to him.

The provision is expressed in the maxim: "MEMO CUM ALTERIUS

DETER DETREMENTO PROTEST" (No person should unjustly enrich

himself at the expense of another). An action for recovery of what has

been paid without just cause has been designated as an accion in rem

verso. This provision does not apply if, as in this case, the action is

proscribed by the Constitution or by the application of the pari delicto

doctrine. It may be unfair and unjust to bar the petitioner from filing an

accion in rem verso over the subject properties, or from recovering the

money he paid for the said properties, but, as Lord Mansfield stated in the

early case of Holman v. Johnson: "The objection that a contract is immoral

or illegal as between the plaintiff and the defendant, sounds at all times

very ill in the mouth of the defendant. It is not for his sake, however, that

the objection is ever allowed; but it is founded in general principles of

policy, which the defendant has the advantage of, contrary to the real

justice, as between him and the plaintiff."34 (Citations omitted)

Nor would the denial of his claim amount to an injustice based on his

foreign citizenship.Precisely, it is the Constitution itself which demarcates

the rights of citizens and non-citizens in owning Philippine land. To be sure,

the constitutional ban against foreigners applies only to ownership of

Philippine land and not to the improvements built thereon, such as the two

(2) houses standing on Lots 1 and 2142 which were properly declared to be co-owned by the parties subject to partition. Needless to state, the purpose of

the prohibition is to conserve the national patrimony and it is this policy

which the Court is duty-bound to protect.

WHEREFORE, the petition is DENIED. Accordingly, the assailed

October 8, 2009 Decision and January 24, 201I Resolution of the Court of

Appeals in CA-G.R. CV No. 01940 are AFFIRMED.

-WILLEM BEUMER v. AVELINA AMORES, G.R. No. 195670, DEC 03, 2012

 IN PARI DELICTO RULE (EQUALLY MUTUALLY GUILTY)

Forgery; How Proved

Furthermore, forgery, as a rule, cannot be presumed and must be proved by clear, positive and convincing evidence, and the burden of proof lies on the party alleging forgery - in this case, petitioners. The fact of forgery can only be established by a comparison between the alleged forged signature and the authentic and genuine signature of the person whose signature is theorized to have been forged. 57 Pertinently, Section 22, Rule 132 of the Revised Rules of Court provides: Section. 22. How genuineness of handwriting proved. - The handwriting of a person may be proved by any witness who believes it to be the handwriting of such person because he has seen the person write, or has seen writing purporting to be his upon which the witness has acted or 54 Spouses Ramos v. Obispo and Far East Bank and Trust Company, 705 Phil. 221, 232 (2013). 55 Records, Vol. I, p. 197. 56 Id. at 2, paragraph 6. 57 Gepu/le-Garbo v. Spouses Garabato, 750 Phil. 846, 855-856 (2015). ) Decision 8 G.R. No. 216491 been charged, and has thus acquired knowledge of the handwriting of such person. Evidence respecting the handwriting may also be given by a comparison, made by the witness or the court, with writings admitted or treated as genuine by the party against whom the evidence is offered, or proved to be genuine to the satisfaction of the judge. (Emphasis supplied) In Gepulle-Garbo v. Spouses Garabato, 58 the Court explained the factors involved in the examination and comparison of handwritings in this wise: x x x [T]he authenticity of a questioned signature cannot be determined solely upon its general characteristics, similarities or dissimilarities with the genuine signature. Dissimilarities as regards spontaneity, rhythm, pressure of the pen, loops in the strokes, signs of stops, shades, etc., that may be found between the questioned signature and the genuine one are not decisive on the question of the former's authenticity. The result of examinations of questioned handwriting, even with the benefit of aid of experts and scientific instruments, is, at best, inconclusive. There are other factors that must be taken into consideration. The position of the writer, the condition of the surface on which the paper where the questioned signature is written is placed, his state of mind, feelings and nerves, and the kind of pen and/or paper used, play an important role on the general appearance of the signature. Unless, therefore, there is, in a given case, absolute absence, or manifest dearth, of direct or circumstantial competent evidence on the character of a questioned handwriting, much weight should not be given to characteristic similarities, or dissimilarities, between that questioned handwriting and an authentic one. 59 To prove forgery, petitioners offered in evidence the findings and testimony given by expert witness Perez, who declared that she found "significant divergences in the manner of execution, line quality, stroke structure and other individual handwriting characteristics" between the signature that appears on the Deed of Absolute Sale and the standard signatures of Donton, thereby concluding that they were not written by one and the same person. 60 On cross-examination, however, Perez admitted that she had no actual knowledge of the source of the specimen signatures given to her for examination, as it was the CIDG personnel who provided her with the same. 61 Thus, as the CA correctly observed, Perez's findings deserve little or no probative weight at all, considering that the signatures which she used for comparison came from an unverified source. Perforce, petitioners are left with no conclusive evidence to prove their allegation that Donton's signature on the Deed of Absolute Sale was forged. It bears stressing that the opinion of handwriting experts are not necessarily binding upon the court, the expert's function being to place 58 Supra note 57. 59 Id. at 856, citing Jimenez v. Commission on Ecumenical Mission, United Presbyterian Church, USA, 432 Phil. 895, 908-909 (2002). 60 See Questioned Document Report No. 153-02; records, Vol. I, pp. 203-204. 61 TSN, March 26, 2003, pp. 23-24. ~ Decision 9 G.R. No. 216491 before the court data upon which the court can form its own opinion. This principle holds true especially when the question involved is mere handwriting similarity or dissimilarity, which can be determined by a visual comparison of specimens of the questioned signatures with those of the currently existing ones. A finding of forgery does not depend entirely on the testimonies of handwriting experts, because the judge must conduct an independent examination of the questioned signature in order to arrive at a reasonable conclusion as to its authenticity.62 In fine, the Court, therefore, upholds the findings of the courts a quo in this respect. Be that as it may, the Court, however, differs from the findings of the courts a quo with respect to Stier's citizenship. More than the Certification63 issued by the BOI, which clearly states that Stier is an American citizen, the records contain other documents validating the information. For instance, in paragraph 1 64 of respondents' Answer with Counterclaim, 65 they admitted paragraphs 1, 2, and 3 of the Complaint insofar as their personal circumstances are concerned, and paragraph 2 of the Complaint states: "2. Defendant DUANE STIER is of legal age, married, an American citizen, a non-resident alien with postal address at Blk. 5, Lot 27, A, B, Phase 1, St. Michael Home Subd., Binangonan, Rizal; xx x"66 (Emphases supplied) Similarly, one of the attachments to the Manifestation 67 filed by respondents before the RTC is an Affidavit68 executed by Stier himself, stating: "I, DUANE STIER, of legal age, married, American citizen x x x"69 (Emphasis supplied) The foregoing statements made by Stier are admissions against interest and are therefore binding upon him. An admission against interest is the best evidence which affords the greatest certainty of the facts in dispute since no man would declare anything against himself unless such declaration is true. Thus, an admission against interest binds the person who makes the same, and absent any showing that this was made through palpable mistake, 62 Supra note 57, at 856-857. 63 Records, Vol. I, p. 202. 64 Id. at 35. 65 Id. at 35-40. 66 Id. at 2. 67 Id. at 223-226. 68 Id. at 242-244. 69 Id. at 242. ' v Decision 10 G.R. No. 216491 no amount of rationalization can offset it,70 especially so in this case where respondents failed to present even one piece of evidence in their defense. 71 Hence, the courts a quo erred in ruling that Stier' s American citizenship was not established in this case, effectively rendering the sale of the subject property as to him void ab initio, in light of the clear proscription under Section 7, Article XII of the Constitution against foreigners acquiring real property in the Philippines, to wit: Section 7. Save in cases of hereditary succession, no private lands shall be transferred or conveyed except to individuals, corporations, or associations qualified to acquire or hold lands of the public domain. Thus, lands of the public domain, which include private lands, may be transferred or conveyed only to individuals or entities qualified to acquire or hold private lands or lands of the public domain. Aliens, whether individuals or corporations, have been disqualified from acquiring lands of the public domain as well as private lands.72 In light of the foregoing, even if petitioners failed to prove that Donton's signature on the Deed of Absolute Sale was a forgery, the sale of the subject property to Stier is in violation of the Constitution; hence, null and void ab initio. A contract that violates the Constitution and the law is null and void and vests no rights and creates no obligations. It produces no legal effect at all.73 Furthermore, Stier is barred from recovering any amount that he paid for the subject property, the action being proscribed by the Constitution. 74 Nevertheless, considering that petitioners failed to prove their allegation that Maggay, the other vendee, had no capacity to purchase the subject property, the sale to her remains valid but only up to the extent of her undivided one-half share therein. 75 Meanwhile, the other undivided one-half share, which pertained to Stier, shall revert to Donton, the original owner, for being the subject of a transaction void ab initio. Consequently, the Deed of Absolute Sale, together with TCT No. N-225996 issued in respondents' favor, must be annulled only insofar as Stier is concerned, without prejudice, however, to the rights of any subsequent purchasers for value of the subject property. 70 Stanley Fine Furniture v. Galiano, 748 Phil. 624, 631-632 (2014). 71 See Order dated February 5, 2009; records, Vol. II, p. 416. 72 Frenzel v. Catito, 453 Phil. 885, 904 (2003), citing Po v. CA, 239 SCRA 341, 346 (1994 ). 73 See Krivenko v. Register of Deeds of Manila, 79 Phil. 461, 492-493 (1947); Rellosa v. Hun, 93 Phil. 827, 835 (1953); Caoile v. Peng, 93 Phil. 861 (1953); Pov. CA, supra note 72; Chavez v. Presidential Commission on Good Government, 366 Phil. 863, 869 (1999). 74 See Fullido v. Grilli, 785 SCRA 278, 301; Frenzel v. Catito, supra note 72 at 908. 75 See Rural Bank ofCabadbaran, Inc. v. Melecio-Yap, 740 Phil. 35, 51 (2014). ~ Decision 11 G.R. No. 216491 WHEREFORE, the petition is PARTLY GRANTED. The Decision dated June 13, 2014 and the Resolution dated January 21, 2015 of the Court of Appeals in CA-G.R. CV No. 97138, which affirmed the dismissal of the complaint filed by petitioners on the ground of insufficiency of evidence, are hereby REVERSED and SET ASIDE, and a NEW ONE is entered: (1) annulling the Deed of Absolute Sale dated July 16, 2001 insofar as respondent Duane Stier is concerned; (2) annulling Transfer Certificate of Title No. N-225996 insofar as respondent Duane Stier is concerned; and (3) directing the Registry of Deeds of Quezon City to issue a new title in the name of Peter Donton and Emily Maggay, all without prejudice to the rights of any subsequent purchasers for value of the subject property. SO ORDERED. WE CONCUR: h.Q. IJJ.M/ ES

- THE HEIRS OF PETER DONTON, through their legal representative, FELIPE G. CAPULONG,

G.R. No. 216491

Petitioners,- versus - DUANE STIER and EMILY MAGGAY, REYES, JR., JJ

Respondents. Promulgated: •2 3 AUG 2017

Article 1410. The action or defense for the declaration of the inexistence of a contract does not prescribe.

 

Void Transactions Produce No Legal Effect

We grant the Petition. Indeed, the RTC did not comply with our ruling in Urban Bank when it refused to restore to petitioner the actual ownership of his club shares on the mere pretext that these had already been sold by Pefia to his successor-in-interest. 9 Id. at 289-298. 10 Id. at 330-335. 11 Id. at 337; Proof of Service of the Resolution of this Court dated 28 June 2016 reiterating compliance with the requirement to file a separate comment per Resolution dated 23 February 2015. r Resolution 5 G.R. No. 214303 As stated in this Court's Decision dated 19 October 2011, the RTC was bound to comply with this relevant directive: 12 b. If the property levied or garnished has been sold on execution pending appeal and Atty. Magdaleno Pena is the winning bidder or purchaser, he must fully restore the property to Urban Bank or respondent bank officers, and if actual restitution of the property is impossible, then he shall pay the full value of the property at the time of its seizure, with interest; (Emphasis supplied) There is no factual dispute that Pefia acquired the ACCI shares of petitioner by virtue of a winning bid in an execution sale that had already been declared by this Court, with finality, as null and void. In no uncertain terms, we declared that the "concomitant execution pending appeal is likewise without any effect. x x x. Consequently, all levies, garnishment and sales executed pending appeal are declared null and void, with the concomitant duty of restitution xx x." 13 Void transactions do not produce any legal or binding effect, and any contract directly resulting from that illegality is likewise void and inexistent. 14 Therefore, Pefia could not have been a valid transferee of the property. As a consequence, his successor-in-interest, Vera, could not have validly acquired those shares. 15 The RTC thus erred in refusing to restore the actual ACCI shares to petitioner on the basis of their void transfer to Vera. Neither was the RTC correct in its characterization of the actual restitution of the ACCI shares to petitioner as "impossible." For the obligation to be considered impossible under Article 1266 of the Civil Code, its physical or legal impossibility must first be proven. 16 Here, the RTC did not make any finding on whether or not it was physically impossible to effect the actual restitution of the property. On the other hand, petitioner correctly points out that since the shares are movable by nature, the same can be transferred back to Gonzalez, Jr. by recording the transaction in the stock and transfer book of the club. 17 12 Urban Bank, Inc. v. Pena, 675 Phil. 474, 584(2011 ). 13 Urban Bank, Inc. v. Pena, 675 Phil. 474, 555(2011 ). 14 Conjugal Partnership

 X x x

As regards legal impossibility, the RTC appears to have jumped to the conclusion that because of the perfected sale of the shares to Vera, petitioner can no longer claim actual restitution of the property. However, Article 1505 of the Civil Code instructs that "x x x where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell. xx x." The Court itself settled that Pefia acquired the properties by virtue of a null and void execution sale. In effect, his buyers acquired no better title to the goods than he had. Therefore, the RTC erred in appreciating the existence of legal impossibility in this case on the mere pretext that the prope1iies had already been transferred to third parties. By virtue of Article 1505, the true owners of the goods are definitely not legally precluded from claiming the ownership of their actual properties. All told, given the encompassing and overarching declaration of this Court nullifying the acquisition by Pefia of the properties of Urban Bank and its directors, and considering that actual restitution of the movable properties is neither phys~cally nor legally impossible, this Court finds that the refusal of the RTC to restore the actual shares on the mere pretext that these had been transferred by Pefia to third persons as utterly devoid of basis. Consequently, pursuant to our final ruling in Urban Bank. petitioner must be restored as owner of the actual ACCl shares, and not just be paid the full value of the property. WHEREFORE, premises considered, this Court resolves to: A. REVERSE the Omnibus Resolution dated 30 April 2014 and Resolution dated 17 September 2014 issued in Civil Case No. 12-758 by the Regional Trial Court of Makati City, Branch 65, insofar as these rulings refused to restore to the original owners the actual ownership of their club shares on the mere pretext that these had already been sold by Magdaleno Pefia to his successor-in-interest, and thus SET ASIDE the following pronouncements by the Regional Trial Comi in the Omnibus Resolution dated 30 April 2014 as affirmed in the Resolution dated 17 September 2014: I. PROPERTIES SUBJECT OF RESTITUTION OR REPARATION OF DAMAGES WITH RESPECT TO URBAN BANK (NOW EXPORT INDUSTRY BANK): xx xx b. Regarding the three (3) shares of Urban Bank in Tagaytay Highlands International Golf Club previously covered by Certificate Nos. 3027, 3166, and 3543 which are now in the names of third parties under Certificate Nos. 3848, 3847, and 3837, respectively, Magdaleno Pena r Resolution 7 G.R. No. 214303 must pay Urban Bank the amount realized from the sheriff's sale of these three (3) shares, with interest from the time these properties were seized; xx xx II. PROPERTIES SUBJECT OF RESTITUTION OR REPARATION OF DAMAGES WITH RESPECT TO ERIC L. LEE: xx xx b. Regarding the Manila Golf and Country Club previously in the name of Eric Lee which was validly and timely transferred in the name of Jose Singson, Magdaleno Pena must pay Eric Lee the amount realized from the sheriff's sale thereof~ with interest from the time the said share was seized; c. As to the share in Sta. Elena Golf Club (previously Certificate No. M099A), the title thereto having been validly and timely transferred in the name of Oscar Reyes and later to his assignee, Christian Osmond Reyes, Magdaleno Pei'ia must pay Eric Lee the amount realized from the sheriff's sale, with interest from the time the property was seized; xx xx IV. PROPERTIES SUBJECT OF RESTITUTION OR REPARATION OF DAMAGES WITH RESPECT TO DELFIN C. GONZALEZ, JR.: xx xx c. The title to the share in Alabang Country Club having been validly and timely transferred to the name of Arsenia Vera, Magdaleno Pei'ia shall pay Delfin C. Gonzalez, Jr. the full value of the property at the time of its seizure with interest counted as of said date. B. ORDER the presiding judge of the Regional Trial Court ofMakati City, Branch 65 to EXECUTE FULLY AND WITH DISPATCH, WITH RESPECT TO ALL PERSONS AND PROPERTIES COVERED, the Decision of this Court dated 19 October 2011 in G.R. Nos. 145817, 145822, and 162562 to restore and deliver to Urban Bank and its directors the full ownership and possession of all their actual prope1iies executed pending appeal. SO ORDERED. MARIA LOURDES P. A. SERENO Chie

 -DELFIN C. GONZALEZ, JR., , G.R. No. 214303 - versus - MAGDALENO M. PENA, COUNTRY CLUB, INC., JAN 3 0 2017

Article 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or instruments of a crime shall be applicable to the things or the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has given, and shall not be bound to comply with his promise. (1305)

Article 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the following rules shall be observed:

may recover what he has given by virtue of the contract, or demand the performance of the other's undertaking;

(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the return of what he has given without any obligation to comply his promise. (1306)

Article 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the debtor, with interest thereon from the date of the payment.

Article 1414. When money is paid or property delivered for an illegal purpose, the contract may be repudiated by one of the parties before the purpose has been accomplished, or before any damage has been caused to a third person. In such case, the courts may, if the public interest will thus be subserved, allow the party repudiating the contract to recover the money or property.

Article 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts may, if the interest of justice so demands allow recovery of money or property delivered by the incapacitated person.

Article 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced, recover what he has paid or delivered.

Article 1417. When the price of any article or commodity is determined by statute, or by authority of law, any person paying any amount in excess of the maximum price allowed may recover such excess.

Article 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor, and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus fixed, he may demand additional compensation for service rendered beyond the time limit.

Article 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the deficiency.

Article 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced.

Article 1421. The defense of illegality of contract is not available to third persons whose interests are not directly affected.

Article 1422. A contract which is the direct result of a previous illegal contract, is also void and inexistent.

TITLE III
NATURAL OBLIGATIONS

Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the following articles.

Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily performs the contract cannot recover what he has delivered or the value of the service he has rendered.

Article 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person, the obligor cannot recover what he has paid.

Article 1426. When a minor between eighteen and twenty-one years of age who has entered into a contract without the consent of the parent or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the fact that he has not been benefited thereby, there is no right to demand the thing or price thus returned.

Article 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right to recover the same from the obligee who has spent or consumed it in good faith. (1160A)

Article 1428. When, after an action to enforce a civil obligation has failed the defendant voluntarily performs the obligation, he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered.

Article 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which he received by will or by the law of intestacy from the estate of the deceased, the payment is valid and cannot be rescinded by the payer.

Article 1430. When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable.

TITLE IV
ESTOPPEL (n)

Article 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

Article 1432. The principles of estoppel are hereby adopted insofar as they are not in conflict with the provisions of this Code, the Code of Commerce, the Rules of Court and special laws.

Article 1433. Estoppel may in pais or by deed.

Article 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee.

Article 1435. If a person in representation of another sells or alienates a thing, the former cannot subsequently set up his own title as against the buyer or grantee.

Article 1436. A lessee or a bailee is estopped from asserting title to the thing leased or received, as against the lessor or bailor.

Article 1437. When in a contract between third persons concerning immovable property, one of them is misled by a person with respect to the ownership or real right over the real estate, the latter is precluded from asserting his legal title or interest therein, provided all these requisites are present:

(1) There must be fraudulent representation or wrongful concealment of facts known to the party estopped;

(2) The party precluded must intend that the other should act upon the facts as misrepresented;

(3) The party misled must have been unaware of the true facts; and

(4) The party defrauded must have acted in accordance with the misrepresentation.

Article 1438. One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value.

Article 1439. Estoppel is effective only as between the parties thereto or their successors in interest.

Prescription; Quieting of Title; Laches

Prescription has not set in

We find it proper to delve into the more important issue to be

resolved, that is, whether the action for annulment of title and partition has

already prescribed. It must be pointed out that the issue of prescription had

already been raised by petitioner in his Motion to Dismiss24 dated August 5,

1992. This motion was granted by the trial court in its Order25 dated January

21, 1994. However, respondent appealed this Order with the Court of

Appeals in CA-G.R. CV No. 45121. The CA then rendered a Decision26

dated March 30, 2001, nullifying the order of dismissal of the trial court.

The CA essentially ruled that the case for partition and annulment of title did

not prescribe. The CA Decision was eventually affirmed by the Second

Division of this Court in G.R. No. 149287 by virtue of a minute Resolution27

23 Virtucio v. Alegarbes, G.R. No. 187451, August 29, 2012, 679 SCRA 412. 24 Rollo, pp. 73-75. 25 Id. at 80-81.

26 Id. at 83-96. 27 Id. at 115-116.

/

Decision 7 G.R. No. 227894

dated September 5, 2001, which became final and executory and was entered

into the Book of Entries of Judgments on October 16, 2001.

Accordingly, the resolution in G.R. No. 149287 should have written

finis to the issue of prescription. Nonetheless, to finally put to rest this

bothersome issue, it behooves this Court to further elucidate why the

respondent's action and right of partition is not barred by prescription. The

CA explained that prescription is inapplicable. While the appellate court's

observation is proper, it is inadequate as it fails to sufficiently explain why

the rule on the imprescriptibility and indefeasibility of Torrens titles do not

apply.

In the recent case of Pontigon v. Sanchez, We explained thus:

Under the Torrens System as enshrined in P.D. No. 1529, the

decree of registration and the certificate of title issued become

incontrovertible upon the expiration of one (1) year from the date of entry

of the decree of registration, without prejudice to an action for damages

against the applicant or any person responsible for the fraud. However,

actions for reconveyance based on implied trusts may be allowed beyond

the one-year period. As elucidated in Walstrom v. Mapa, Jr.:

[N]otwithstanding the irrevocability of the Torrens title

already issued in the name of another person, he can still be compelled

under the law to reconvey the subject property to the rightful owner.

The property registered is deemed to be held in trust for the real owner

by the person in whose name it is registered. After all, the Torrens

system was not designed to shield and protect one who had committed

fraud or misrepresentation and thus holds title in bad faith. In an action

for reconveyance, the decree of registration is respected as

incontrovertible. What is sought instead is the transfer of the property,

in this case the title thereof, which has been wrongfully or erroneously

registered in another person's name, to its rightful and legal owner, or

to one with a better right. This is what reconveyance is all about. Yet,

the right to seek reconveyance based on an implied or constructive

trust is not absolute nor is it imprescriptible. An action for

reconveyance based on an implied or constructive trust must perforce

prescribe in ten years from the issuance of the Torrens title over the

property. (Emphasis supplied)

Thus, an action for reconveyance of a parcel of land based on

implied or constructive trust prescribes in ten (10) years, the point of

reference being the date of registration of the deed or the date of the

issuance of the certificate oHitle over the property.

By way of additional exception, the Court, in a catena of cases, has

permitted the filing of an action for reconveyance despite the lapse of

more than ten (10) years from the issuance of title. The common

denominator of these cases is that the plaintiffs therein were in actual

possession of the disputed land, converting the action from

reconveyance of property into one for quieting of title.

lmprescriptibility is accorded to cases for quieting of title since the

plaintiff has the right to wait until his possession is disturbed or his title is

Decision 8 G.R. No. 227894

questioned before initiating an action to vindicate his right.28 (Emphasis

supplied; citations omitted)

Given the falsity of the ESW, it becomes apparent that petitioner

obtained the registration through fraud. This wrongful registration gives

occasion to the creation of an implied or constructive trust under Article

1456 of the New Civil Code.29 An action for reconveyance based on an

implied trust generally prescribes in ten years. However, if the plaintiff

remains in possession of the property, the prescriptive period to recover title of possession does not run against him. In such case, his action is deemed in the nature of a quieting of title, an action that is imprescriptible. 30

In the case before us, the certificate of title over the subject property

was issued on November 24, 1970. Yet, the complaint for partition and

annulment of the title was only filed on July 1, 1992, more than twenty (20)

years since the assailed title was issued. Respondent's complaint before the RTC would have been barred by prescription. However, based on

respondent's submission before the trial court, both petitioner and

respondent were residing at the subject property at the time the complaint was filed. The complaint3 1 states:

1) That Plaintiff is of legal age, married, Filipino and presently residing

at 2227 Romblon St., G. Tuazon, Sampaloc, Manila; while defendant

is likewise of legal age, married, Filipino and residing at 2227

Romblon St., G. Tuazon, Sampaloc, Manila, where he may be served

with summons and other processes of this Honorable Court;32

This was unqualifiedly admitted by petitioner in his Amended Answer

and no denial was interposed therefrom. 33 Petitioner's failure to refute

respondent's possession of the subject property may be deemed as a judicial

admission. A party may make judicial admissions in (a) the pleadings, (b)

during the trial, either by verbal or written manifestations or stipulations, or

( c) in other stages of the judicial proceeding. 34 A judicial admission

conclusively binds the party making it and he cannot thereafter take a

position contradictory to or inconsistent with his pleadings. Acts or facts

admitted do not require proof and cannot be contradicted, unless it is shown

that the admission was made through palpable mistake or that no such

admission was made. 35

28 G.R. No. 221513, December 5, 2016. 29 Art. 14 56. If property is acquired through mistake or fraud, the person obtaining it is, by force of

law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. 30 Aniceto Uy v. Court of Appeals, Mindanao Station, Cagayan de Oro City, Carmencita NavalSai,

rep. by her Attorney-in-fact Rodolfo Florentino, G.R. No. 173186, September 16, 2015. 31 Rollo, pp. 68-72. 32 Id. at 68. 33 Id. at 123. 34 Adolfo v. Adolfo, G.R. No. 201427, March 18, 2015, 753 SCRA 580, citing 2 Regalado,

REMEDIAL LAW COMPENDIUM 656 (9th rev ed.). 35 Extraordinary Development Corporation v. Samson-Bica, G.R. No. 191090, October 13, 2014,

738 SCRA 147, 164.

Decision 9 G.R. No. 227894

Considering that respondent was in actual possession of the disputed

land at the time of the filing of the complaint, the present case may be

treated as an action for quieting of title.

Quieting of title is a common law remedy for the removal of any

cloud, doubt, or uncertainty affecting title to real property. 36 In Heirs of

Delfin and Maria Tappa v. Heirs of Jose Bacud,37 this Court reiterated the

requisites for an action for quieting of title:

The action filed by Spouses Tappa was one for quieting oftitle and

recovery of possession. In Baricuatro, Jr. v. Court of Appeals, an action

for quieting of title is essentially a common law remedy grounded on

equity, to wit:

x x x Originating in equity jurisprudence, its purpose is to

secure 11 ••• an adjudication that a claim of title to or an interest in

property, adverse to that of the complainant, is invalid, so that the

complainant and those claiming under him may be forever afterward

free from any danger of hostile claim. 11 In an action for quieting of

title, the competent court is tasked to determine the respective rights of

the complainant and other claimants, 11 ••• not only to place things in their

proper place, to make the one who has no rights to said immovable

respect and not disturb the other, but also for the benefit of both, so that

he who has the right would see every cloud of doubt over the property

dissipated, and he could afterwards without fear introduce the

improvements he may desire, to use, and even to abuse the property as

he deems best. x x x. 11 (Emphasis in the original.)

In our jurisdiction, the remedy is governed by Article 476 and 477

of the Civil Code, which state:

Art. 476. Whenever there is a cloud on title to real property or any

interest therein, by reason of any instrument, record, claim, encumbrance

or proceeding which is apparently valid or effective but is in truth and in

fact invalid, ineffective, voidable, or unenforceable, and may be

prejudicial to said title, an action may be brought to remove such cloud or

to quiet the title.

An action may also be brought to prevent a cloud from being cast

upon title to real property or any interest therein.

Art. 477. The plaintiff must have legal or equitable title to, or

interest in the real property which is the subject-matter of the action. He

need not be in possession of said property.

From the foregoing provisions, we reiterate the rule that for an

action to quiet title to prosper, two indispensable requisites must concur,

namely: (1) the plaintiff or complainant has a legal or an equitable title to

or interest in the real property subject of the action; and (2) the deed,

claim, encumbrance or proceeding claimed to be casting cloud on his title

must be shown to be in fact invalid or inoperative despite its prima facie

appearance of validity or legal efficacy.

xx xx

36 Quintosv. Nicolas, G.R. No. 210252, June 16, 2014, 726 SCRA 482, 493.

37 G.R. No. 187633, April 4, 2016, 788 SCRA 13, 25-30.

Decision 10 G.R. No. 227894

A cloud on a title exists when (1) there is an instrument (deed, or

contract) or record or claim or encumbrance or proceeding; (2) which is

apparently valid or effective; (3) but is, in truth and in fact, invalid,

ineffective, voidable, or unenforceable or extinguished (or terminated) or

barred by extinctive prescription; and (4) and may be prejudicial to the

title.

Since it was already established that respondent's signature on the

ESW, which was the basis of petitioner's title over the property, was forged,

then it is only necessary for the cloud on respondent's title to be removed.

Thus, the trial court's order to cancel TCT No. 102822 and uphold the

parties' co-ownership was proper.

The present action is not barred by Laches

We also find no merit in petitioner's argument that the case is barred

by laches.

Jurisprudence has defined laches as the failure or neglect, for an

unreasonable and unexplained length of time, to do that which-by the

exercise of due diligence-could or should have been done earlier. It is the

negligence or omission to assert a right within a reasonable period,

warranting the presumption that the party entitled to assert it has either

abandoned or declined to assert it. 38

Based on the facts presented before us, it appears that respondent did

not sleep on his rights, as claimed by petitioner. It is undeniable that

respondent had filed several cases to assert his rights over the property.

Aside from the present complaint, respondent also filed, on separate

occasions, three criminal complaints for: 1) falsification of public document,

2) estafa through falsification of public documents, and 3) forgery, all

against herein petitioner. To Our mind, the filing of these cases at different

times negates the claim of laches. Time and again, this Court has ruled that

courts, under the principle of equity, will not be guided or bound strictly by

the statute of limitations or the doctrine of laches when to do so, manifest

wrong or injustice would result. 39

IN VIEW OF THE FOREGOING, the petition is DENIED. The

Decision dated September 3 0, 2011 of the Regional Trial Court, Branch 5 5,

Manila in Civil Case No. 92-61716, as affirmed by the Court of Appeals in

its Decision dated June 28, 2016 in CA-G.R. CV No. 99908, is hereby

AFFIRMED.

The Regional Trial Court shall proceed with the partition of the

subject lot with dispatch.

38 Quintas v. Nicolas, supra note 36, at 502.

- JOSE S. OCAMPO,

Petitioner,

G.R. No. 227894

RICARD0 S. OCAMPO, SR.,

Respondent.

July 5, 2017

TITLE V
TRUSTS (n)

CHAPTER 1
General Provisions

Article 1440. A person who establishes a trust is called the trustor; one in whom confidence is reposed as regards property for the benefit of another person is known as the trustee; and the person for whose benefit the trust has been created is referred to as the beneficiary.

Article 1441. Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law.

Article 1442. The principles of the general law of trusts, insofar as they are not in conflict with this Code, the Code of Commerce, the Rules of Court and special laws are hereby adopted.

CHAPTER 2
Express Trusts

Article 1443. No express trusts concerning an immovable or any interest therein may be proved by parol evidence.

Article 1444. No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended.

Article 1445. No trust shall fail because the trustee appointed declines the designation, unless the contrary should appear in the instrument constituting the trust.

Article 1446. Acceptance by the beneficiary is necessary. Nevertheless, if the trust imposes no onerous condition upon the beneficiary, his acceptance shall be presumed, if there is no proof to the contrary.

CHAPTER 3
Implied Trusts

Article 1447. The enumeration of the following cases of implied trust does not exclude others established by the general law of trust, but the limitation laid down in article 1442 shall be applicable.

Article 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.

“Purchase Money Resulting Trust”

Partition; Accounting; Implied Trust

As for the TCT No. T-59882 in the name of Margarito, like in the case

at bar, although a certificate of title is the best proof of ownership of a piece of land, the mere issuance of the same in the name of any person does not foreclose the possibility that the real property may be under co-ownership with persons not named in the certificate or that the registrant may only be a trustee or that other parties may have acquired interest subsequent to the issuance of the certificate of title. 52 The principle that a trustee who puts a certificate of registration in his name cannot repudiate the trust by relying on the registration is one of the well-known limitations upon a title.53

There is an implied trust when a property is sold and the legal estate is

granted to one party but the price is paid by another for the purpose of

having the beneficial interest of the property. 54 This is sometimes referred to as a purchase money resulting trust, the elements of which are: (a) an actual payment of money, property or services, or an equivalent, constituting valuable consideration; and (b) such consideration must be furnished by the alleged beneficiary of a resulting trust. 55

A trust, which derives its strength from the confidence one reposes on

another especially between families, does not lose that character simply

because of what appears in a legal document. 56 From the foregoing, this

Court finds that an implied resulting trust existed among the parties. The

pieces of evidence presented demonstrate their intention to acquire the Sta.

Monica property in the course of their business, just like the other properties

that were also the subjects of the partition case and the compromise

agreement they entered into. Although the Sta. Monica property was titled

under the name of Margarito, the surrounding circumstances as to its

56

Rollo, p. 79.

luxuria Homes, Inc. v. CA, 361 Phil. 989, 1000 (1999).

lee Tek Sheng v. CA, 354 Phil. 556, 561-562 ( 1998).

Tong v. Go Tiat Kun, supra note 35, at 593.

Article 1448 of the Civil Code.

Tong v. Go Tiat Kun, supra note 35, at 592-593.

Id. at 593.

r/I

Decision - 12 - G.R. No. 202088

acquisition speak of the intent that the equitable or beneficial ownership of

the property should belong to the Bautista siblings.

Inevitably, the RTC's Order of partition of the Sta. Monica property

was erroneously set aside by the CA and this Court is convinced that

petitioners satisfactorily established that they are co-owners of the property

and are entitled to the reliefs prayed for.

WHEREFORE, the petition is hereby GRANTED. The Decision

dated March 6, 2012 and the Resolution dated May

-MANUEL L. BAUTISTA, SPOUSES

ANGEL SAHAGUN and

CARMELITA BAUTISTA, and

ANIANO L. BAUTISTA,

Petitioners,

- versus -

MARGARITO L. BAUTISTA,

Respondent.

G.R. No. 202088

Promulgated:

0 8 MAR 2017

However, please note that in a case where the bank “was well aware of the limitations on its real estate holdings under the General Banking Act and that its ‘warehousing agreement’ with Tala was a scheme to circumvent the limitation”, it was held that no implied trust could have been created, to wit:

x x x An implied trust could not have been formed between the Bank and Tal as this Court has held that ‘where the purchase is made in violation of an existing statute and in evasion of its express provision, no trust can result in favor of the party who is guilty of the fraud.”[1]

Article 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.

Article 1450. If the price of a sale of property is loaned or paid by one person for the benefit of another and the conveyance is made to the lender or payor to secure the payment of the debt, a trust arises by operation of law in favor of the person to whom the money is loaned or for whom its is paid. The latter may redeem the property and compel a conveyance thereof to him.

Article 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner.

Article 1452. If two or more persons agree to purchase property and by common consent the legal title is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each.

Comment:

            “A trustee who obtains a Torrens title over a property held in trust for him by another cannot repudiate the trust by relying on the registration.”[2]

Article 1453. When property is conveyed to a person in reliance upon his declared intention to hold it for, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated.

Article 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.

Article 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong.

Article 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.

Article 1457. An implied trust may be proved by oral evidence.

Comments:

            1.“An implied trust could not have been formed between the Bank and Tala as this Court has held that “where the purchase is made in violation of an existing statute and in evasion of its express provision, no trust can result in favour of the party who is guilty of fraud.[11]”

            2. ALIENS PROHIBITED FROM ACQUIRING PHILIPPINE LANDS[12]

 “As early as Krivenko v. Register of Deeds, We have interpreted the foregoing to mean that, under the Constitution then in force, aliens may not acquire residential lands: "One of the fundamental principles underlying the provision of Article XIII of the Constitution x x x is 'that lands, minerals, forests, and other natural resources constitute the exclusive heritage of the Filipino nation. They should, therefore, be preserved for those under the sovereign authority of that nation and for their posterity."' These provisions have been substantially carried over to the present Constitution, and jurisprudence confirms that aliens are disqualified from acquiring lands of the public domain. In Ting Ho v. Teng Gui, 52 Muller v. Muller, 53 Frenzel v. Catito,54 and Cheesman v. Intermediate Appellate Court, 55 all cited in Matthews v. Sps. Taylor, 56 We upheld the constitutional prohibition on aliens acquiring land in the Philippines. We have consistently ruled thus in line with constitutional intent to preserve and conserve the national patrimony. Our Constitution clearly reserves for Filipino citizens or corporations at least sixty percent of the capital of which is owned by Filipinos the right to acquire lands of the public domain.  The prohibition against aliens owning lands in the Philippines is subject only to limited constitutional exceptions, and not even an implied trust can be permitted on equity considerations.  Much as We sympathize with the plight of a mother who adopted an infant son, only to have her ungrateful ward eject her from her property during her twilight years, We cannot grant her prayer. Applying the above rules to the present case, We find that she acquired the subject parcels of land in violation of the constitutional prohibition against aliens owning real property in the Philippines. Axiomatically, the properties in question cannot be legally reconveyed to one who had no right to own them in the first place.”

SPECIAL SUPPLEMENT ON NATURAL OBLIGATIONS, ESTOPPEL & TRUST

Civil Law Review
Atty. Eduardo T. Reyes, III
University of San Agustin
College of Law

I. X executes a will but it was declared void and the heirs paid a legacy to a friend of their father, can it be revoked and legacy returned?

-General rule: Article 1430. “When a will is declared void because it has not been executed in accordance with the formalities required by law, but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the defective will, the payment is effective and irrevocable.

-What if heir had no knowledge that the will was void?

II. Estoppel; Landlord- Tenant

“It is clear from the above-quoted provision that [w]hat a tenant is estopped from denying x x x is the title of his landlord at the time of the commencement of the landlord-tenant relation. If the title asserted is one that is alleged to have been acquired subsequent to the commencement of that relation, the presumption will not apply. Hence, the tenant may show that the landlords title has expired or been conveyed to another or himself; and he is not estopped to deny a claim for rent, if he has been ousted or evicted by title paramount.

Thus, we declared in Borre v. Court of Appeals that:

The rule on estoppel against tenants is subject to a qualification. It does not apply if the landlords title has expired, or has been conveyed to another, or has been defeated by a title paramount, subsequent to the commencement of lessor-lessee relationship [VII Francisco, The Revised Rules of Court in the Philippines 87 (1973)]. In other words, if there was a change in the nature of the title of the landlord during the subsistence of the lease, then the presumption does not apply. Otherwise, if the nature of the landlords title remains as it was during the commencement of the relation of landlord and tenant, then estoppel lies against the tenant. (Emphasis supplied.)


While petitioner appears to have already lost ownership of the property at the time of the commencement of the tenant-landlord relationship between him and respondent, the change in the nature of petitioners title, as far as respondent is concerned, came only after the commencement of such relationship or during the subsistence of the lease. This is precisely because at the time of the execution of the second and third contracts of lease, respondent was still not aware of the transfer of ownership of the leased property to China Bank. It was only in November 2003 or less than two months before the expiration of said contracts when respondent came to know of the same after it was notified by said bank. This could have been the reason why respondent did not anymore pay petitioner the rents for the succeeding months of December 2003 and January 2004. Thus, it can be said that there was a change in the nature of petitioners title during the subsistence of the lease that the rule on estoppel against tenants does not apply in this case. Petitioners reliance on said conclusive presumption must, therefore, necessarily fail since there was no error on the part of the CA when it entertained respondents assertion of a title adverse to petitioner.”
-Enrico Santos v. NSO, G.R. No. 171129, April 6, 2011

III. Express Trust v. Implied Trust (Oral Evidence).
Art. 1443, NCC- “No express trusts concerning an immovable or any interest therein may be proved by parol evidence.”

“Petitioner contends that private respondent is attempting to enforce an unenforceable express trust over the disputed real property. Petitioner is in error when she contends that an express trust was created by private respondent when he transferred the property to his son. Judge Abraham P. Vera, in his order dated March 31, 1993 in Civil Case No. Q-92-14352, declared:
[e]xpress trust are those that are created by the direct and positive acts of the parties, by some writing or deed or will or by words evidencing an intention to create a trust. On the other hand, implied trusts are those which, without being expressed, are deducible from the nature of the transaction by operation of law as matters of equity, independently of the particular intention of the parties. Thus, if the intention to establish a trust is clear, the trust is express; if the intent to establish a trust is to be taken from circumstances or other matters indicative of such intent, then the trust is implied (Cuaycong vs. Cuaycong, 21 SCRA 1191 [1967].
In the cases at hand, private respondent contends that the pieces of property were transferred in the name of the deceased Alexander for the purpose of taking care of the property for him and his siblings.Such transfer having been effected without cause of consideration, a resulting trust was created.
A resulting trust arises in favor of one who pays the purchase money of an estate and places the title in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest therein for himself. The trust is said to result in law from the acts of the parties. Such a trust is implied in fact (Tolentino, Civil Code of the Philippines, Vol. 4, p. 678).
If a trust was then created, it was an implied, not an express trust, which may be proven by oral evidence (Article 1457, Civil code), and it matters not whether property is real or personal (Paras, Civil Code of the Philippines, Annotated, Vol. 4, p. 814).
Petitioners assertion that private respondents action is barred by the statute of limitations is erroneous. The statue of limitations cannot apply in this case. Resulting trusts generally do not prescribe (Caladiao vs. Vda. De Blas, 10 SCRA 691 [1964]), except when the trustee repudiates the trust. Further, an action to reconvey will not prescribe so long as the property stands in the name of the trustee (Manalang, et. al. vs. Canlas, et. al., 94 Phil. 776 [1954]). To allow prescription would be to permit a trustee to acquire title against his principal and the true owner.”
-[G.R. No. 112872. April 19, 2001] THE INTESTATE ESTATE OF ALEXANDER T. TY, represented by the Administratrix, SYLVIA S. TY, petitioner, vs. COURT OF APPEALS, HON. ILDEFONSO E. GASCON, and ALEJANDRO B. TY, respondents.[G.R. No. 114672. April 19, 2001] SYLVIA S. TY, in her capacity as Administratrix of the Intestate Estate of Alexander T. Ty, petitioner, vs. COURT OF APPEALS and ALEJANDRO B. TY, respondents.
IV. Do actions to recover immovable based on trust Prescribe?

As a rule no. The action to compel the trustee to convey the property registered in his name for the benefit of the cestui que trust  does not prescribe. (Caladiao v. Santos Vda. De Blas, 10 SCRA 691; Diaz v. Gorricho, 103 Phil. 261). If at all, it is only when the trustee repudiates the trust that the period of prescription commences to run. The prescriptive period is 10 years from the repudiation of the trust (Heirs of Maria de La Cruz v. CA, 182 SCRA 638) or issuance of a title (Gonzales v. CA, G.R. No. 66479, Nov. 21, 1991).

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[1] 34 Phil. 100

[2] Modina v. CA, 317 SCRA 696 (1999)

[3] Art. 1415, NCC

[4] Art. 1414, NCC

[5] Angeles v. Court of Appeals, 102 Phil 1006

[6] Art. 1417, NCC

[7] Art. 1418, NCC

[8] Art. 1419, NCC

[9] Gonzalo v. Tarnate, Jr., G.R. No. 160600, January 15, 2014

[10] See Liguez v.CA, L-11240, December 18, 1957

[11] Tala Realty Services Corp., Inc. et al., v. Banco Filipino Savings & Mortgage Bank, G.R. No. 181369, June 22, 2016

[12] JOSE NORBERTO ANG, Petitioner, - versus - THE ESTATE OF SY SO, Respondent. ··-·-'"''"'•·-·· G.R. No. 182252, August 03, 2016

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[1] Tala Realty Services, Corp. Inc. et al v. Banco Filipino Savings & Mortgage Bank, G.R. No. 181369, June 22, 2016

[2] Heirs of Feliciano Yambao, etc v. Heirs of Hermogenes Yambao, G.R. No. 194260, April 16, 2016