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ROBERTO ESCAY, ET AL. VS. COURT OF APPEALS, ET AL.

December 18, 1974| J. Fernandez


Prescription of Express Trust
MND
DOCTRINE: The prescriptibility of an action for reconveyance based on implied or constructive trust, is now a settled
question in this jurisdiction. It prescribes in ten years. Express trusts prescribe 10 years from the repudiation of the
trust.
CASE SUMMARY: The heirs of Emilio Escay are assailing the execution of a supplementary contract which transferred
properties to Jose Escay, in view of his assumption of his brother’s obligation with PNB. The heirs contend that there
was an implied/express trust created, hence, they have a right to reconveyance. The SC disagrees, but assuming there
was, the action has already prescribed.

FACTS:
 Emilio and Jose Escay were brothers who are now both deceased. While Emilio is still alive, he mortgaged his
properties now in question, to the Philippine National Bank. He died in 1924 which was before he could pay his
obligations with the bank.
 PNB filed a foreclosure suit in 1930 against the estate of Emilio, represented by the administrator, Atty. Eduardo
Arboleda.
 Pending the said suit, a contract referred to as original contract, was entered into by Jose Escay, Atty. Arboleda
and PNB, whereby Jose assumes the mortgage indebtedness of his deceased brother Emilio. The widow of Emilio,
Magdalena, agreed to such agreement, in her own behalf and as guardian ad litem of their children.
 The first contract did not state that the ownership of the properties in question is to be transferred to Jose Escay,
Sr in consideration of his assumption of the mortgage indebtedness (subject to the right of repurchase of Emilio’s
heirs within 5 years after the debt has been fully paid). Hence, a supplementary contract was entered into by
Arboleda, Jose Sr, and PNB and this was approved by the probate court taking the cognizance of Emilio’s estate,
in February 1934.
 Magdalena, Roberto, and the other children of Emilio filed a complaint against Jose and Atty. Arboleda for the
recovery of the ownership and possession of the properties. The case was provisionally dismissed after the
defendant have answered, upon motion of the parties on July 24 1944.
 No other facts re: procedure. CA dismissed the petition “for lack of merit”.
 The ff are the issues in this case:
o Validity of the original and supplementary contract, and the Order approving the latter.
o Acquisition of the properties by adverse possession
o Holding of the properties in (implied) trust for the heirs of Emilio.
 On the first issue: Roberto Escay et al (The heirs) contend that the supplementary contract are not deeds of sale,
because they merely consented to the transfer of possession of the properties; that the original and
supplementary contracts are fictitious for lack of consideration; that the action to annul a non-existent contract
does not prescribe; that the supplementary contract was null and void because the Court approved the same
without their knowledge and consent and that it had no power to approve sale of properties of the testate estate
of Emilio for the purpose of paying the mortgage lien; and that the supplementary contract were antichretic
contracts and therefore could transfer ownership to Jose.
 On the 2nd issue: Petitioners argue that since the properties are under the Torrens System, the CA and lower court
erred in holding that Jose et al had acquired the same by adverse possession or acquisitive prescription under Sec.
41 of Act 190.
 On the 3rd Issue: Titles were transferred to Jose by fraudulent means. Hence, there was an implied trust that was
created between the testate estate of Emilio and Jose Escay, and by operation of law, Jose became the trustee in
favor of the heirs as cestui que trust. Hence, Jose has the duty to reconvey said properties. Moreover, the original
contract created an express trust because the true intention of the parties was only to transfer possession and
administration to Jose, until the time that he has fully liquidated Emilio’s obligation. And since, am action based
on express trust does not prescribe, the right to recover the properties is still available for the heirs.
ISSUES AND RULING:
1st Issue: Was there a valid transfer of ownership of the properties to Jose through the contracts? YES
 The SC affirmed the CA and held that Magdalena, as heir and guardian, gave her conformity to the deed of
conveyance (as shown by Exhibit G). The transfer of the lots not being in the original contract could have been
an oversight by the bank’s attorney (Atty. Recto) who drew up the contract and was only concerned with
protecting the interest of the bank and had forgotten to provide for the consideration of the assumption of
obligation by Jose.
 It was also shown that Atty. Arboleda took this matter with the widow and the bank, and the widow agreed to the
execution of the supplementary contract.
 It is clear that the intention in the original contract was to transfer the properties to Jose and was confirmed by
the written consent, Exhibit G1.
o The original and supplementary contract were deeds of sale subject only to repurchase within 5 years by
the heirs.
o The contracts were executed by Atty. Arboleda only after a series of conferences with the widow and PNB.
It was a concerted decision of the four persons to sell the properties in question.
o Moreover, it is important to note that PNB had already filed for foreclosure of the said properties and
these contracts were executed so that the properties would not be sold at public auction wherein the
heirs would have less time allowance to repurchase the same.
 It is also a fact that Roberto (eldest son) executed a contract of lease where he acknowledged Jose as owner of
the properties, and Magdalena signed as a witness, showing that they knew there was already a genuine sale of
the properties.
 It is true that in order to be valid, the supplementary contract must be approved by the Court with prior written
notice to the heirs. However, the heirs of Emilio approved this contract through their mother, as guardian, which
was embodied in exhibit G2.
 Furthermore, Magdalena’s silence after being given notice of the Court’s approval of the supplementary contract
(via registered mail) supports the inference that the matter had be taken up by Atty. Arboleda with her and that
she consented to its execution.
 The contract is also not merely an antichretic contract. Jose did not become a creditor of the testate estate, but
a debtor of PNB. He was not charge with the duty of appropriating for himself the fruits of the properties in order
to satisfy his credit but to assume the obligation of Emilio.
 This also did not violate Section 718 of the Code of Civil Procedure when the Court in effect allowed the
foreclosure of the properties to satisfy the lien, even if it had no power to do so. The SC said that the CA is correct
that such provision cannot impair the substantive rights of the owners (the heirs) to sell what belonged to them.
A rule of procedure cannot prevail over the will of the owner.
 The contract was also supported by consideration which was the assumption of the mortgage indebtedness
with PNB, wherein Jose paid arrearages in amortizations, and yearly payments, and amounts which clearly
wiped out the obligations of the testate estate. Jose was able to fully pay the obligation to PNB.
o To this the petitioner counters that the annotation of the encumbrance still appears on the titles.
However, the Court said this is not significant because it is an accepted practice in all banking transactions
that the annotation are not cancelled, although debts had been fully paid. In fact, Jose was able to use the
properties as collateral to support his loan from Compania General de Tabacos.
 The 5 year period had also already expired long ago, because full payment was made in 1941. Jose Escay Sr. had
acquired full ownership of the properties.

1
Translated from Spanish: “I hereby state that I agree and I am pursuant to the contract granted by and between Mr. Jose Escay and
the Philippine National Bank dated April 28, 1933, in which the rights of the testamentary in the lots of land currently mortgaged to
the Philippine National Bank, transferred to Mr. Jose Escay, forcing the latter to assume all the obligation of the testamentary in
favor of the National Bank Philippine. Bacolod, Negros Occidental, May 13, 1933.”
2
This was actually executed before the execution of the supplementary contract but since the latter was only executed in view of
the omission of the consideration in the original contract and the fact that the guardian had already expressed her conformity to the
transfer of the properties through the original contract, this conformity was already in conformity to the supplementary contract.
2nd Issue: W/N the CA erred in deciding that Jose acquired the properties via acquisitive prescription? NO.
 The titles to the properties had been transferred to Jose Escay Sr. as early as 1939, and therefore, the matter
on acquisitive prescription need not be discussed.
rd
3 Issue: W/N the heirs are entitled to reconveyance by virtue of a trust relation between the estate and Jose? NO.
 First, no fraud was proven. Evidence is clear that the contracts were the result of the series of negotiations
between the parties. The contract was prepared by Atty. Arboleda and the bank’s lawyer. No evidence that PNB
contrived with Atty. Arboleda or the heirs.
o It is ridiculous to imagine that PNB with no interest to serve except its own would lend itself as a party to
a fraud in order to divest Emilio’s estate of its rightful ownership over the properties. As noted above,
the only interest of Atty Recto was to protect the rights of PNB that’s why he overlooked the omission of
a consideration in the supplementary contract.
o HENCE, there was no trust relation that arose.
 Secondly, on the creation of express trust.
o Settled is the rule that a party may not change his theory on appeal. In the lower court, this was not raised
by the heirs because they relied on implied trust. In the CA, they did not discuss implied trust, but again
shifted in their MR. Before the SC now, they again relied on implied trust. And now their reply to the
comment of Jose et al on the MR (of SC’s resolution) involves the issue of express trust.
o In any case, an express trust concerning an immovable cannot be proved by parole evidence AND
actions based on express trust also prescribe and the property held in trust may be acquired by adverse
possession from the moment the trust is repudiated by the trustee.
 In this case, Jose repudiated the same in 1941 when he refused to transfer the property to the
heirs.
o The defense of extinctive prescription is available to Jose et al because (1)obligation has been fully paid
by him; (2)Jose held the properties by adverse and public possession for his exclusive benefit; (3)The heirs
discovered the alleged fraud in 1941, when Jose refused to return the properties.
 (1) From 1941, the 5 year period for repurchase started to run. Any right of repurchase after such
expiration had already been extinguished.
 (2)Jose’s possession was open, public, adverse, and continuous. So even when he was not yet the
registered owner in 1939, his possession for 25 years had already extinguished any right of the
heirs for reconveyance. Under section 40 of the Code of Civil Procedure, any action for
reconveyance prescribes in 10 years.
 (3) Assuming there was fraud, the lapse of time from 1941 has extinguished any right of
reconveyance because an implied trust prescribes in 10 years. And assuming there was an
express trust, the same had been repudiated by Jose in 1941. Meanwhile, the complaint that
the parties filed in 1941 was dismissed provisionally.
 The prescriptibility of an action for reconveyance based on implied or constructive trust, is now a settled question
in this jurisdiction. It prescribes in ten years.
 Express trusts prescribe 10 years from the repudiation of the trust.

DISPOSITION: For all these reasons, We voted to dismiss the petitioners' petition for certiorari, and We now deny their
motion for reconsideration