G.R. No.

L-26699 March 16, 1976

BENITA SALAO vs. JUAN S. SALAO,

This litigation regarding a forty-seven-hectare fishpond located at Sitio Calunuran,

Hermosa, Bataan involves the law of trusts and prescription. The facts are as follows:

The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit, Malabon, Rizal
begot four children named Patricio, Alejandra, Juan (Banli) and Ambrosia. Manuel
Salao died in 1885. His eldest son, Patricio, died in 1886 survived by his only child.
Valentin Salao.

There is no documentary evidence as to what, properties formed part of Manuel

Salao's estate, if any. His widow died on May 28, 1914. After her death, her estate was
administered by her daughter Ambrosia.

It was partitioned extrajudicially in a deed dated December 29, 1918 but notarized on
May 22, 1919 (Exh. 21). The deed was signed by her four legal heirs, namely, her
three children, Alejandra, Juan and Ambrosia, and her grandson, Valentin Salao, in
representation of his deceased father, Patricio.

The lands left by Valentina Ignacio, all located at Barrio Dampalit were as follows:

Nature of Land Area in square

meters
(1) One-half interest in a fishpond which she had inherited
from her parents, Feliciano Ignacio and Damiana Mendoza,
21,700
and the other half of which was owned by her co-owner,
Josefa Sta. Ana
(2) Fishpond inherited from her parents 7,418
(3) Fishpond inherited from her parents . 6,989
(4) Fishpond with a bodega for salt 50,469
(5) Fishpond with an area of one hectare, 12 ares and 5
centares purchased from Bernabe and Honorata Ignacio by 11,205
Valentina Ignacio on November 9, 1895 with a bodega for salt
(6) Fishpond 8,000
(7) One-half interest in a fishpond with a total area of 10,424
5,217
square meters, the other half was owned by A. Aguinaldo
(8) Riceland 50,454
(9) Riceland purchased by Valentina Ignacio from Eduardo
Salao on January 27, 1890 with a house and two camarins 8,065
thereon
(10) Riceland in the name of Ambrosia Salao, with an area of
11,678 square meters, of which 2,173 square meters were 9,505
sold to Justa Yongco
TOTAL 179,022 sq. m.

To each of the legal heirs of Valentina Ignacio was adjudicated a distributive share
valued at P8,135.25. In satisfaction of his distributive share, Valentin Salao (who was
then already forty-eight years old) was given the biggest fishpond with an area of
50,469 square meters, a smaller fishpond with an area of 6,989 square meters and the
riceland with a net area of 9,905 square meters. Those parcels of land had an
aggregate appraised value of P13,501 which exceeded Valentin's distributive share.
So in the deed of partition he was directed to pay to his co-heirs the sum of P5,365.75.
That arrangement, which was obviously intended to avoid the fragmentation of the
lands, was beneficial to Valentin.

In that deed of partition (Exh. 21) it was noted that "desde la muerte de Valentina
Ignacio y Mendoza, ha venido administrando sus bienes la referida Ambrosia Salao"
"cuya administracion lo ha sido a satisfaccion de todos los herederos y por
designacion los mismos". It was expressly stipulated that Ambrosia Salao was not
obligated to render any accounting of her administration "en consideracion al resultado
satisfactorio de sus gestiones, mejoradas los bienes y pagodas por ella las
contribusiones (pages 2 and 11, Exh. 21).

By virtue of the partition the heirs became "dueños absolutos de sus respectivas
propiedadas, y podran inmediatamente tomar posesion de sus bienes, en la forma
como se han distribuido y llevado a cabo las adjudicaciones" (page 20, Exh. 21).

The documentary evidence proves that in 1911 or prior to the death of Valentina
Ignacio her two children, Juan Y. Salao, Sr. and Ambrosia Salao, secured a Torrens
title, OCT No. 185 of the Registry of Deeds of Pampanga, in their names for a forty-
seven-hectare fishpond located at Sitio Calunuran, Lubao, Pampanga (Exh. 14). It is
also known as Lot No. 540 of the Hermosa cadastre because that part of Lubao later
became a part of Bataan.

The Calunuran fishpond is the bone of contention in this case.

Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had engaged in the
fishpond business. Where they obtained the capital is not shown in any documentary
evidence. Plaintiffs' version is that Valentin Salao and Alejandra Salao were included in
that joint venture, that the funds used were the earnings of the properties supposedly
inherited from Manuel Salao, and that those earnings were used in the acquisition of
the Calunuran fishpond. There is no documentary evidence to support that theory.

On the other hand, the defendants contend that the Calunuran fishpond consisted of
lands purchased by Juan Y. Salao, Sr. and Ambrosia Salao in 1905, 1906, 1907 and
1908 as, shown in their Exhibits 8, 9, 10 and 13. But this point is disputed by the
plaintiffs.

However, there can be no controversy as to the fact that after Juan Y. Salao, Sr. and
Ambrosia Salao secured a Torrens title for the Calunuran fishpond in 1911 they
exercised dominical rights over it to the exclusion of their nephew, Valentin Salao.

Thus, on December 1, 1911 Ambrosia Salao sold under pacto de retro for P800 the
Calunuran fishpond to Vicente Villongco. The period of redemption was one year. In
the deed of sale (Exh19) Ambrosia confirmed that she and her brother Juan were
the dueños proindivisos of the said pesqueria. On December 7, 1911 Villongco, the
vendee a retro, conveyed the same fishpond to Ambrosia by way of lease for an anual
canon of P128 (Exh. 19-a).

After the fishpond was redeemed from Villongco or on June 8, 1914 Ambrosia and
Juan sold it under pacto de retroto Eligio Naval for the sum of P3,360. The period of
redemption was also one year (Exh. 20). The fishpond was later redeemed and Naval
reconveyed it to the vendors a retro in a document dated October 5, 1916 (Exh. 20-a).

The 1930 survey shown in the computation sheets of the Bureau of Lands reveals that
the Calunuran fishpond has an area of 479,205 square meters and that it was claimed
by Juan Salao and Ambrosia Salao, while the Pinanganacan fishpond (subsequently
acquired by Juan and Ambrosia) has an area of 975,952 square meters (Exh. 22).

Likewise, there is no controversy as to the fact that on May 27, 1911 Ambrosia Salao
bought for four thousand pesos from the heirs of Engracio Santiago a parcel of
swampland planted to bacawan and nipa with an area of 96 hectares, 57 ares and 73
centares located at Sitio Lewa, Barrio Pinanganacan, Lubao, Pampanga (Exh. 17-d).

The record of Civil Case No. 136, General Land Registration Office Record No. 12144,
Court of First Instance of Pampanga shows that Ambrosia Salao and Juan Salao filed
an application for the registration of that land in their names on January 15, 1916. They
alleged in their petition that "han adquirido dicho terreno por partes iguales y por la
compra a los herederos del finado, Don Engracio Santiago" (Exh. 17-a).

At the hearing on October 26, 1916 before Judge Percy M. Moir, Ambrosia testified for
the applicants. On that same day Judge Moir rendered a decision, stating, inter
alia, that the heirs of Engracio Santiago had sold the land to Ambrosia Salao and Juan
Salao. Judge Moir "ordena la adjudicacion y registro del terreno solicitado a nombre de
Juan Salao, mayor de edad y de estado casado y de su esposa Diega Santiago y
Ambrosia Salao, de estado soltera y mayor de edad, en participaciones iguales" (Exh.
17-e).

On November 28, 1916 Judge Moir ordered the issuance of a decree for the said land.
The decree was issued on February 21, 1917. On March 12, 1917 Original Certificate
of Title No. 472 of the Registry of Deeds of Pampanga was issued in the names of
Juan Salao and Ambrosia Salao.

That Pinanganacan or Lewa fishpond later became Cadastral Lot No. 544 of the
Hermosa cadastre (Exh. 23). It adjoins the Calunuran fishpond (See sketch, Exh. 1).

Juan Y. Salao, Sr. died on November 3, 1931 at the age of eighty years (Exh. C). His
nephew, Valentin Salao, died on February 9, 1933 at the age of sixty years according
to the death certificate (Exh. A. However, if according to Exhibit 21, he was forty-eight
years old in 1918, he would be sixty-three years old in 1933).

The intestate estate of Valentin Salao was partitioned extrajudicially on December 28,
1934 between his two daughters, Benita Salao-Marcelo and Victorina Salao-Alcuriza
(Exh. 32). His estate consisted of the two fishponds which he had inherited in 1918
from his grandmother, Valentina Ignacio.

If it were true that he had a one-third interest in the Calunuran and Lewa fishponds with
a total area of 145 hectares registered in 1911 and 1917 in the names of his aunt and
uncle, Ambrosia Salao and Juan Y. Salao, Sr., respectively, it is strange that no
mention of such interest was made in the extrajudicial partition of his estate in 1934.

It is relevant to mention that on April 8, 1940 Ambrosia Salao donated to her

grandniece, plaintiff Benita Salao, three lots located at Barrio Dampalit with a total area
of 5,832 square meters (Exit. L). As donee Benita Salao signed the deed of donation.

On that occasion she could have asked Ambrosia Salao to deliver to her and to the
children of her sister, Victorina, the Calunuran fishpond if it were true that it was held in
trust by Ambrosia as the share of Benita's father in the alleged joint venture.

But she did not make any such demand. It was only after Ambrosia Salao's death that
she thought of filing an action for the reconveyance of the Calunuran fishpond which
was allegedly held in trust and which had become the sole property of Juan Salao y
Santiago (Juani).

On September 30, 1944 or during the Japanese occupation and about a year before
Ambrosia Salao's death on September 14, 1945 due to senility (she was allegedly
eighty-five years old when she died), she donated her one-half proindiviso share in the
two fishponds in question to her nephew, Juan S. Salao, Jr. (Juani) At that time she
was living with Juani's family. He was already the owner of the the other half of the said
fishponds, having inherited it from his father, Juan Y. Salao, Sr. (Banli) The deed of
denotion included other pieces of real property owned by Ambrosia. She reserved for
herself the usufruct over the said properties during her lifetime (Exh. 2 or M).

The said deed of donation was registered only on April 5, 1950 (page 39, Defendants'
Record on Appeal).
The lawyer of Benita Salao and the Children of Victorina Salao in a letter dated
January 26, 1951 informed Juan S. Salao, Jr. that his clients had a one-third share in
the two fishponds and that when Juani took possession thereof in 1945, he refused to
give Benita and Victorina's children their one-third share of the net fruits which
allegedly amounted to P200,000 (Exh. K).

Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated that
Valentin Salao did not have any interest in the two fishponds and that the sole owners
thereof his father Banli and his aunt Ambrosia, as shown in the Torrens titles issued in
1911 and 1917, and that he Juani was the donee of Ambrosia's one-half share (Exh. K-
1).

Benita Salao and her nephews and niece filed their original complaint against Juan S.
Salao, Jr. on January 9, 1952 in the Court of First Instance of Bataan (Exh. 36). They
amended their complaint on January 28, 1955. They asked for the annulment of the
donation to Juan S. Salao, Jr. and for the reconveyance to them of the Calunuran
fishpond as Valentin Salao's supposed one-third share in the 145 hectares of fishpond
registered in the names of Juan Y. Salao, Sr. and Ambrosia Salao.

Juan S. Salao, Jr. in his answer pleaded as a defense the indefeasibility of the Torrens
title secured by his father and aunt. He also invoked the Statute of Frauds, prescription
and laches. As counter-claims, he asked for moral damages amounting to P200,000,
attorney's fees and litigation expenses of not less than P22,000 and reimbursement of
the premiums which he has been paying on his bond for the lifting of the receivership
Juan S. Salao, Jr. died in 1958 at the age of seventy-one. He was substituted by his
widow, Mercedes Pascual and his six children and by the administrator of his estate.

In the intestate proceedings for the settlement of his estate the two fishponds in
question were adjudicated to his seven legal heirs in equal shares with the condition
that the properties would remain under administration during the pendency of this case
(page 181, Defendants' Record on Appeal).

After trial the trial court in its decision consisting of one hundred ten printed pages
dismissed the amended complaint and the counter-claim. In sixty-seven printed pages
it made a laborious recital of the testimonies of plaintiffs' fourteen witnesses, Gregorio
Marcelo, Norberto Crisostomo, Leonardo Mangali Fidel de la Cruz, Dionisio Manalili,
Ambrosio Manalili, Policarpio Sapno, Elias Manies Basilio Atienza, Benita Salao,
Emilio Cagui Damaso de la Peña, Arturo Alcuriza and Francisco Buensuceso, and the
testimonies of defendants' six witnesses, Marcos Galicia, Juan Galicia, Tiburcio
Lingad, Doctor Wenceslao Pascual, Ciriaco Ramirez and Pablo P. Salao. (Plaintiffs
presented Regino Nicodemus as a fifteenth witness, a rebuttal witness).

The trial court found that there was no community of property among Juan Y. Salao,
Sr., Ambrosia Salao and Valentin Salao when the Calunuran and Pinanganacan
(Lewa) lands were acquired; that a co-ownership over the real properties of Valentina
Ignacio existed among her heirr after her death in 1914; that the co-ownership was
administered by Ambrosia Salao and that it subsisted up to 1918 when her estate was
partitioned among her three children and her grandson, Valentin Salao.

The trial court surmised that the co-ownership which existed from 1914 to 1918 misled
the plaintiffs and their witnesses and caused them to believe erroneously that there
was a co-ownership in 1905 or thereabouts. The trial court speculated that if valentin
had a hand in the conversion into fishponds of the Calunuran and Lewa lands, he must
have done so on a salary or profit- sharing basis. It conjectured that Valentin's children
and grandchildren were given by Ambrosia Salao a portion of the earnings of the
fishponds as a reward for his services or because of Ambrosia's affection for her
grandnieces.

The trial court rationalized that Valentin's omission during his lifetime to assail the
Torrens titles of Juan and Ambrosia signified that "he was not a co-owner" of the
fishponds. It did not give credence to the testimonies of plaintiffs' witnesses because
their memories could not be trusted and because no strong documentary evidence
supported the declarations. Moreover, the parties involved in the alleged trust were
already dead.

It also held that the donation was validly executed and that even if it were void Juan S.
Salao, Jr., the donee, would nevertheless be the sole legal heir of the donor, Ambrosia
Salao, and would inherit the properties donated to him.

Both parties appealed. The plaintiffs appealed because their action for reconveyance
was dismissed. The defendants appealed because their counterclaim for damages was
dismissed.

The appeals, which deal with factual and legal issues, were made to the Court of
Appeals. However, as the amounts involved exceed two hundred thousand pesos, the
Court of Appeals elevated the case to this Court in its resolution of Octoter 3, 1966
(CA-G.R. No. 30014-R).

Plaintiffs' appeal. — An appellant's brief should contain "a subject index index of the
matter in the brief with a digest of the argument and page references" to the contents
of the brief (Sec. 16 [a], Rule 46, 1964 Rules of Court; Sec. 17, Rule 48, 1940 Rules of
Court).

The plaintiffs in their appellants' brief consisting of 302 pages did not comply with that
requirement. Their statements of the case and the facts do not contain "page
references to the record" as required in section 16[c] and [d] of Rule 46, formerly
section 17, Rule 48 of the 1940 Rules of Court.

Lawyers for appellants, when they prepare their briefs, would do well to read and re-
read section 16 of Rule 46. If they comply strictly with the formal requirements
prescribed in section 16, they might make a competent and luminous presentation of
their clients' case and lighten the burden of the Court.

What Justice Fisher said in 1918 is still true now: "The pressure of work upon this
Court is so great that we cannot, in justice to other litigants, undertake to make an
examination of the voluminous transcript of the testimony (1,553 pages in this case,
twenty-one witnesses having testified), unless the attorneys who desire us to make
such examination have themselves taken the trouble to read the record and brief it in
accordance with our rules" (Palara vs. Baguisi 38 Phil. 177, 181). As noted in an old
case, this Court decides hundreds of cases every year and in addition resolves in
minute orders an exceptionally considerable number of petitions, motions and
interlocutory matters (Alzua and Arnalot vs. Johnson, 21 Phil. 308, 395; See In re
Almacen, L-27654, February 18, 1970, 31 SCRA 562, 573).

Plaintiffs' first assignment of error raised a procedural issue. In paragraphs 1 to 14 of

their first cause of action they made certain averments to establish their theory that
Valentin Salao had a one-third interest in the two fishponds which were registrered in
the names of Juan Y. Salao, Sr. (Banli) and Ambrosia Salao.

Juan S. Salao, Jr. (Juani) in his answer "specifically" denied each and all the
allegations" in paragraphs I to 10 and 12 of the first cause of action with the
qualification that Original certificates of Title Nos. 185 and 472 were issued "more than
37 years ago" in the names of Juan (Banli) and Ambrosia under the circumstances set
forth in Juan S. Salao, Jr.'s "positive defenses" and "not under the circumstances
stated in the in the amended complaint".

The plaintiffs contend that the answer of Juan S. Salao, Jr. was in effect tin admission
of the allegations in their first cause of action that there was a co-ownership among
Ambrosia, Juan, AIejandra and Valentin, all surnamed Salao, regarding the Dampalit
property as early as 1904 or 1905; that the common funds were invested the
acquisition of the two fishponds; that the 47-hectare Calunuran fishpond was verbally
adjudicated to Valentin Salao in the l919 partition and that there was a verbal
stipulation to to register "said lands in the name only of Juan Y. Salao".

That contention is unfounded. Under section 6, Rule 9 of the 1940 of Rules of Court
the answer should "contain either a specific dinial a statement of matters in accordance
of the cause or causes of action asserted in the complaint". Section 7 of the same rule
requires the defendant to "deal specificaly with each material allegation of fact the truth
of wihich he does not admit and, whenever practicable shall set forth the substance of
the matters which he will rely upon to support his denial". "Material averments in the
complaint, other than those as to the amount damage, shall be deemed admitted when
specifically denied" (Sec. 8). "The defendant may set forth set forth by answer as many
affirmative defenses as he may have. All grounds of defenses as would raise issues of
fact not arising upon the preceding pleading must be specifically pleaded" (Sec. 9).
What defendant Juan S. Salao, Jr. did in his answer was to set forth in his "positive
defenses" the matters in avoidance of plaintiffs' first cause of action which which
supported his denials of paragraphs 4 to 10 and 12 of the first cause of action.
Obviously, he did so because he found it impracticable to state pierceneal his own
version as to the acquisition of the two fishponds or to make a tedious and repetitious
recital of the ultimate facts contradicting allegations of the first cause of action.

We hold that in doing so he substantially complied with Rule 9 of the 1940 Rules of
Court. It may be noted that under the present Rules of Court a "negative defense is the
specific denial of t the material fact or facts alleged in the complaint essential to
plaintiff's cause of causes of action". On the other hand, "an affirmative defense is an
allegation of new matter which, while admitting the material allegations of the
complaint, expressly or impliedly, would nevertheless prevent or bar recovery by the
plaintiff." Affirmative defenses include all matters set up "by of confession and
avoidance". (Sec. 5, Rule 6, Rules of Court).

The case of El Hogar Filipino vs. Santos Investments, 74 Phil. 79 and similar cases are
distinguishable from the instant case. In the El Hogar case the defendant filed a laconic
answer containing the statement that it denied "generally ans specifically each and
every allegation contained in each and every paragraph of the complaint". It did not set
forth in its answer any matters by way of confession and avoidance. It did not interpose
any matters by way of confession and avoidance. It did not interpose any affirmative
defenses.

Under those circumstances, it was held that defendant's specific denial was really a
general denial which was tantamount to an admission of the allegations of the
complaint and which justified judgment on the pleadings. That is not the situation in this
case.

The other nine assignments of error of the plaintiffs may be reduced to the decisive
issue of whether the Calunuran fishpond was held in trust for Valentin Salao by Juan
Y. Salao, Sr. and Ambrosia Salao. That issue is tied up with the question of whether
plaintiffs' action for reconveyance had already prescribed.

The plaintiffs contend that their action is "to enforce a trust which defendant" Juan S.
Salao, Jr. allegedly violated. The existence of a trust was not definitely alleged in
plaintiffs' complaint. They mentioned trust for the first time on page 2 of their appelants'
brief.

To determine if the plaintiffs have a cause of action for the enforcement of a trust, it is
necessary to maek some exegesis on the nature of trusts (fideicomosis). Trusts in
Anglo-American jurisprudence were derived from thefideicommissa of the Roman law
(Government of the Philippine Islands vs. Abadilla, 46 Phil. 642, 646).
"In its technical legal sense, a trust is defined as the right, enforceable solely in equity,
to the beneficial enjoyment of property, the legal title to which is vested in another, but
the word 'trust' is frequently employed to indicate duties, relations, and responsibilities
which are not strictly technical trusts" (89 C.J.S. 712).

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" (Art. 1440, Civil Code). There is a fiduciary relation between the trustee
and the cestui que trust as regards certain property, real, personal, money or choses in
action (Pacheco vs. Arro, 85 Phil. 505).

"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" (Art. 1441,
Civil Code). "No express trusts concerning an immovable or any interest therein may
be proven by parol evidence. An implied trust may be proven by oral evidence"
(Ibid, Arts. 1443 and 1457).

"No particular words are required for the creation of an express trust, it being sufficient
that a trust is clearly intended" (Ibid, Art. 1444; Tuason de Perez vs. Caluag, 96 Phil.
981; Julio vs. Dalandan, L-19012, October 30, 1967, 21 SCRA 543, 546). "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 either expressly or impliedly evincing an
intention to create a trust" (89 C.J.S. 72).

"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 matter of equity, independently of the particular intention of the
parties" (89 C.J.S. 724). They are ordinarily subdivided into resulting and constructive
trusts (89 C.J.S. 722).

"A resulting trust. is broadly defined as a trust which is raised or created by the act or
construction of law, but in its more restricted sense it is a trust raised by implication of
law and 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 or
instrument of conveyance (89 C.J.S. 725). Examples of resulting trusts are found in
articles 1448 to 1455 of the Civil Code. (See Padilla vs. Court of Appeals, L-31569,
September 28, 1973, 53 SCRA 168, 179; Martinez vs. Graño 42 Phil. 35).

On the other hand, a constructive trust is -a trust "raised by construction of law, or

arising by operation of law". In a more restricted sense and as contra-distinguished
from a resulting trust, a constructive trust is "a trust not created by any words, either
expressly or impliedly evincing a direct intension to create a trust, but by the
construction of equity in order to satisfy the demands of justice." It does not arise "by
agreement or intention, but by operation of law." (89 C.J.S. 726-727).
Thus, "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" (Art. 1456, Civil Code).

Or "if a person obtains legal title to property by fraud or concealment, courts of equity
will impress upon the title a so-called constructive trust in favor of the defrauded party".
Such a constructive trust is not a trust in the technical sense. (Gayondato vs. Treasurer
of the P. I., 49 Phil. 244).

Not a scintilla of documentary evidence was presented by the plaintiffs to prove that
there was an express trust over the Calunuran fishpond in favor of Valentin Salao.
Purely parol evidence was offered by them to prove the alleged trust. Their claim that
in the oral partition in 1919 of the two fishponds the Calunuran fishpond was assigned
to Valentin Salao is legally untenable.

It is legally indefensible because the terms of article 1443 of the Civil Code (already in
force when the action herein was instituted) are peremptory and unmistakable: parol
evidence cannot be used to prove an express trust concerning realty.

Is plaintiffs' massive oral evidence sufficient to prove an implied trust, resulting or

constructive, regarding the two fishponds?

Plaintiffs' pleadings and evidence cannot be relied upon to prove an implied trust. The
trial court's firm conclusion that there was no community of property during the lifetime
of Valentina; Ignacio or before 1914 is substantiated by defendants' documentary
evidence. The existence of the alleged co-ownership over the lands supposedly
inherited from Manuel Salao in 1885 is the basis of plaintiffs' contention that the
Calunuran fishpond was held in trust for Valentin Salao.

But that co-ownership was not proven by any competent evidence. It is quite
improbable because the alleged estate of Manuel Salao was likewise not satisfactorily
proven. The plaintiffs alleged in their original complaint that there was a co-ownership
over two hectares of land left by Manuel Salao. In their amended complaint, they
alleged that the co-ownership was over seven hectares of fishponds located in Barrio
Dampalit, Malabon, Rizal. In their brief they alleged that the fishponds, ricelands and
saltbeds owned in common in Barrio Dampalit had an area of twenty-eight hectares, of
which sixteen hectares pertained to Valentina Ignacio and eleven hectares represented
Manuel Salao's estate.

They theorized that the eleven hectares "were, and necessarily, the nucleus, nay the
very root, of the property now in litigation (page 6, plaintiffs-appellants' brief). But the
eleven hectares were not proven by any trustworthy evidence. Benita Salao's
testimony that in 1918 or 1919 Juan, Ambrosia, Alejandra and Valentin partitioned
twenty-eight hectares of lands located in Barrio Dampalit is not credible. As noted by
the defendants, Manuel Salao was not even mentioned in plaintiffs' complaints.
The 1919 partition of Valentina Ignacio's estate covered about seventeen hectares of
fishponds and ricelands (Exh. 21). If at the time that partition was made there were
eleven hectares of land in Barrio Dampalit belonging to Manuel Salao, who died in
1885, those eleven hectares would have been partitioned in writing as in the case of
the seventeen hectares belonging to Valentina Ignacio's estate.

It is incredible that the forty-seven-hectare Calunuran fishpond would be adjudicated to

Valentin Salao mere by by word of mouth. Incredible because for the partition of
the seventeen hectares of land left by Valentina Ignacio an elaborate "Escritura de
Particion" consisting of twenty-two pages had to be executed by the four Salao heirs.
Surely, for the partition of one hundred forty-five hectares of fishponds among three of
the same Salao heirs an oral adjudication would not have sufficed.

The improbability of the alleged oral partition becomes more evident when it is borne in
mind that the two fishponds were registered land and "the act of registration" is "the
operative act" that conveys and affects the land (Sec. 50, Act No. 496). That means
that any transaction affecting the registered land should be evidenced by a registerable
deed. The fact that Valentin Salao and his successors-in-interest, the plaintiffs, never
bothered for a period of nearly forty years to procure any documentary evidence to
establish his supposed interest ox participation in the two fishponds is very suggestive
of the absence of such interest.

The matter may be viewed from another angle. As already stated, the deed of partition
for Valentina Ignacio's estate wag notarized in 1919 (Exh. 21). The plaintiffs assert that
the two fishponds were verbally partitioned also in 1919 and that the Calunuran
fishpond was assigned to Valentin Salao as his share.

Now in the partition of Valentina Ignacio's estate, Valentin was obligated to pay
P3,355.25 to Ambrosia Salao. If, according to the plaintiffs, Ambrosia administered the
two fishponds and was the custodian of its earnings, then it could have been easily
stipulated in the deed partitioning Valentina Ignacio's estate that the amount due from
Valentin would just be deducted by Ambrosia from his share of the earnings of the two
fishponds. There was no such stipulation. Not a shred of documentary evidence shows
Valentin's participation in the two fishponds.

The plaintiffs utterly failed to measure up to the yardstick that a trust must be proven by
clear, satisfactory and convincing evidence. It cannot rest on vague and uncertain
evidence or on loose, equivocal or indefinite declarations (De Leon vs. Molo-Peckson,
116 Phil. 1267, 1273).

Trust and trustee; establishment of trust by parol evidence; certainty of

proof. — Where a trust is to be established by oral proof, the testimony
supporting it must be sufficiently strong to prove the right of the alleged
beneficiary with as much certainty as if a document proving the trust were
shown. A trust cannot be established, contrary to the recitals of a Torrens
 title, upon vague and inconclusive proof.(Syllabus, Suarez vs. Tirambulo,
59 Phil. 303).

Trusts; evidence needed to establish trust on parol testimony. — In order to

establish a trust in real property by parol evidence, the proof should be as
fully convincing as if the act giving rise to the trust obligation were proven
by an authentic document. Such a trust cannot be established upon
testimony consisting in large part of insecure surmises based on ancient
hearsay. (Syllabus, Santa Juana vs. Del Rosario 50 Phil. 110).

The foregoing rulings are good under article 1457 of the Civil Code which, as already
noted, allows an implied trust to be proven by oral evidence. Trustworthy oral evidence
is required to prove an implied trust because, oral evidence can be easily fabricated.

On the other hand, a Torrens title is generally a conclusive of the ownership of the land
referred to therein (Sec. 47, Act 496). A strong presumption exists. that Torrens titles
were regularly issued and that they are valid. In order to maintain an action for
reconveyance, proof as to the fiduciary relation of the parties must be clear and
convincing (Yumul vs. Rivera and Dizon, 64 Phil. 13, 17-18).

The real purpose of the Torrens system is, to quiet title to land. "Once a title is
registered, the owner may rest secure, without the necessity of waiting in the portals of
the court, or sitting in the mirador de su casa, to avoid the possibility of losing his land"
(Legarda and Prieto vs. Saleeby, 31 Phil. 590, 593).

There was no resulting trust in this case because there never was any intention on the
part of Juan Y. Salao, Sr., Ambrosia Salao and Valentin Salao to create any trust.
There was no constructive trust because the registration of the two fishponds in the
names of Juan and Ambrosia was not vitiated by fraud or mistake. This is not a case
where to satisfy the demands of justice it is necessary to consider the Calunuran
fishpond " being held in trust by the heirs of Juan Y. Salao, Sr. for the heirs of Valentin
Salao.

And even assuming that there was an implied trust, plaintiffs' action is clearly barred by
prescription or laches (Ramos vs. Ramos, L-19872, December 3, 1974, 61 SCRA 284;
Quiniano vs. Court of Appeals, L-23024, May 31, 1971, 39 SCRA 221; Varsity Hills,
Inc. vs. Navarro, 9, February 29, 1972, 43 SCRA 503; Alzona vs. Capunitan and
Reyes, 114 Phil. 377).

Under Act No. 190, whose statute of limitation would apply if there were an implied
trust in this case, the longest period of extinctive prescription was only ten year (Sec.
40; Diaz vs. Gorricho and Aguado, 103 Phil. 261, 266).

The Calunuran fishpond was registered in 1911. The written extrajudicial demand for
its reconveyance was made by the plaintiffs in 1951. Their action was filed in 1952 or
after the lapse of more than forty years from the date of registration. The plaintiffs and
their predecessor-in-interest, Valentin Salao, slept on their rights if they had any rights
at all. Vigilanti prospiciunt jura or the law protects him who is watchful of his rights (92
C.J.S. 1011, citing Esguerra vs. Tecson, 21 Phil. 518, 521).

"Undue delay in the enforcement of a right is strongly persuasive of a lack of merit in

the claim, since it is human nature for a person to assert his rights most strongly when
they are threatened or invaded". "Laches or unreasonable delay on the part of a
plaintiff in seeking to enforce a right is not only persuasive of a want of merit but may,
according to the circumstances, be destructive of the right itself." (Buenaventura vs.
David, 37 Phil. 435, 440-441).

Having reached the conclusion that the plaintiffs are not entitled to the reconveyance of
the Calunuran fishpond, it is no longer n to Pass upon the validity of the donation made
by Ambrosia Salao to Juan S. Salao, Jr. of her one-half share in the two fishponds The
plaintiffs have no right and personality to assil that donation.

Even if the donation were declared void, the plaintiffs would not have any successional
rights to Ambrosia's share. The sole legal heir of Ambrosia was her nephew, Juan, Jr.,
her nearest relative within the third degree. Valentin Salao, if living in 1945 when
Ambrosia died, would have been also her legal heir, together with his first cousin,
Juan, Jr. (Juani). Benita Salao, the daughter of Valentin, could not represent him in the
succession to the estate of Ambrosia since in the collateral line, representation takes
place only in favor of the children of brothers or sisters whether they be of the full or
half blood is (Art 972, Civil Code). The nephew excludes a grandniece like Benita
Salao or great-gandnephews like the plaintiffs Alcuriza (Pavia vs. Iturralde 5 Phil. 176).

The trial court did not err in dismissing plaintiffs' complaint.

Defendants' appeal. — The defendants dispute the lower court's finding that the
plaintiffs filed their action in good faith. The defendants contend that they are entitled to
damages because the plaintiffs acted maliciously or in bad faith in suing them. They
ask for P25,000 attorneys fees and litigation expenses and, in addition, moral
damages.

We hold that defemdamts' appeal is not meritorious. The record shows that the
plaintiffs presented fifteen witnesses during the protracted trial of this case which
lasted from 1954 to 1959. They fought tenaciously. They obviously incurred
considerable expenses in prosecuting their case. Although their causes of action
turned out to be unfounded, yet the pertinacity and vigor with which they pressed their
claim indicate their sincerity and good faith.

There is the further consideration that the parties were descendants of common
ancestors, the spouses Manuel Salao and Valentina Ignacio, and that plaintiffs' action
was based on their honest supposition that the funds used in the acquisition of the
lands in litigation were earnings of the properties allegedly inherited from Manuel
Salao.

Considering those circumstances, it cannot be concluded with certitude that plaintiffs'

action was manifestly frivolous or was primarily intended to harass the defendants. An
award for damages to the defendants does not appear to be just and proper.

The worries and anxiety of a defendant in a litigation that was not maliciously instituted
are not the moral damages contemplated in the law (Solis & Yarisantos vs. Salvador,
L-17022, August 14, 1965, 14 SCRA 887; Ramos vs. Ramos, supra). The instant case
is not among the cases mentioned in articles 2219 and 2220 of the Civil Code wherein
moral damages may be recovered. Nor can it be regarded as analogous to any of the
cases mentioned in those articles.

The adverse result of an action does not per se make the act wrongful and
subject the actor to the payment of moral damages. The law could not have
meant to impose a penalty on the right to litigate; such right is so precious
that moral damages may not be charged on those who may exercise it
erroneously. (Barreto vs. Arevalo, 99 Phil. 771. 779).

The defendants invoke article 2208 (4) (11) of the Civil Code which provides that
attorney's fees may be recovered "in case of a clearly unfounded civil action or
proceeding against the plaintiff" (defendant is a plaintiff in his counterclaim) or "in any
other case where the court deems it just and equitable" that attorney's fees should he
awarded.

But once it is conceded that the plaintiffs acted in good faith in filing their action there
would be no basis for adjudging them liable to the defendants for attorney's fees and
litigation expenses (See Rizal Surety & Insurance Co., Inc. vs. Court of Appeals, L-
23729, May 16, 1967, 20 SCRA 61).

It is not sound public policy to set a premium on the right to litigate. An adverse
decision does not ipso facto justify the award of attorney's fees to the winning party
(Herrera vs. Luy Kim Guan, 110 Phil. 1020, 1028; Heirs of Justiva vs. Gustilo, 61 O. G.
6959).

The trial court's judgment is affirmed. No pronouncement as to costs.

SO ORDERED.
 G.R. No. L-27294 June 28, 1983

ALFREDO ROA vs. HON. COURT OF APPEALS

Appeal by way of certiorari from the Decision of the Court of Appeals 1 in CA-G.R. No.
34746-R entitled "Alfredo Roa, Plaintiff-Appellant, versus Joaquin Casiño et al.,
Defendants-Appellees," and from the Resolution of the said Court 2 denying plaintiff-
appellant's motion for reconsideration of the said Decision.

On September 1, 1955, an action for recovery of possession of a parcel of land was

filed before the Court of First Instance of Misamis Oriental by Alfredo Roa, Sr. (now
deceased and subsequently substituted by his heirs, the herein petitioners) against
respondent spouses, Joaquin Casiño and Custodia Valdehuesa (real name appears to
be Teodosia Valdehuesa), successors-in- interest of one Pablo Valdehuesa, now
deceased.

In his complaint, Alfredo Roa, Sr. alleged that the said land is agricultural; that it is
situated in Bugo, formerly within the municipality of Tagoloan, Misamis Oriental, now
comprised within the limits of the City of Cagayan de Oro; that it is registered in his
name under Original Certificate of Title No. T-21D; that he found the private
respondents occupying said land. He prayed that possession of the same be returned
to him and that he be awarded actual and moral damages in the sum of P10,000.00.

In answer to the complaint, respondent spouses alleged that the land in question
formerly belonged to one Pablo Valdehuesa, father of respondent Custodia (Teodosia)
Valdehuesa and now deceased; that it was however titled in the name of Alfredo Roa,
Sr., Trinidad Reyes Roa, Esperanza Roa de Ongpin, Concepcion Roa and her
husband Zosimo Roa in Land Registration Case No. 12, G.R.L.O. Record No. 10003 of
the Court of First Instance of Misamis Oriental by virtue of an agreement entered into
between the Roas and said Pablo Valdehuesa; that the conditions of the said
compromise agreement were never complied with by the Roas notwithstanding the
death of Pablo Valdehuesa in 1928 and despite repeated demands for compliance
thereof; that the heirs of said Pablo Valdehuesa sold the land in question to them on
April 30, 1930, after rescinding the aforementioned compromise agreement; and that
they now enjoy the privileges of absolute ownership over said land by reason of their
continuous and adverse possession thereof since time immemorial. By way of
counterclaim, the respondents prayed for the reconveyance of the said parcel of land
contending that the compromise agreement created an implied trust between the
parties to it, and for damages in the amount of P10,000.00.

In answer to private respondent's counterclaim, Alfredo Roa, Sr. maintained that the
heirs of Pablo Valdehuesa cannot rescind the compromise agreement by their own act
alone or without going to court; and that the alleged sale of the said heirs to private
respondents was null and void, in view of the fact that respondent spouses knew that
the land was then titled in the name of the Roas under Act 496.

On December 22, 1959, the parties submitted to the Court a quo an agreed Stipulation
of Facts, to wit:

STIPULATION OF FACTS

That parties herein, assisted by their respective attorneys, have agreed on

the following facts:

1. That the plaintiff and the defendants are all of age and with capacity to
sue and be sued.

2. That the plaintiff and his brothers and sisters Trinidad Reyes Roa,
Esperanza Roa de Ongpin, Concepcion Roa and Zosimo Roa, husband of
the latter, were the owners pro-indiviso of a parcel of land located in
Tagoloan, Misamis Oriental, containing an area of several hundred
hectares, and sometime in 1925, and for the purpose of registering their
title to said parcel of land, the said co- owners filed an application with the
Court of First Instance of Misamis Oriental, and said application was
docketed in said Court as Expediente No. 12, G.L.R.O. Record No. 10003.

3. That in the application as well as in the plans accompanying said

application in Expediente No. 12, G.L.R.O. No. 10003, was included a
parcel of land which is now the portion in litigation in this case.

4. That one Pablo Valdehuesa filed an opposition in said Expediente No.

12, G.L.R.O. Record No. 10003. claiming absolute and exclusive
ownership over a portion which is now the property under litigation.

5. That sometime during the year 1925, the co-owners, said Concepcion
Roa, Esperanza Roa de Ongpin and Trinidad Reyes Roa and Zosimo Roa
entered into an agreement with the said Pablo Valdehuesa, and the terms
of their agreement are contained in the document hereto attached, made a
part hereof, and marked as Exhibit "1".

6. That in compliance with his obligation under and by virtue of said Exhibit
" 1" the said Pablo Valdehuesa withdrew the opposition filed by him in said
case Expediente No. 12, G.L.R.O. Record No. 10003, and as the result of
said withdrawal, the plaintiff and his co-owners succeeded in registering
their title to their property, including the portion owned by Pablo
Valdehuesa as claimed in his opposition.
7. That the said Pablo Valdehuesa died in May of 1928, and upon his death
his estate passed to the ownership of his widow and legitimate children
including all his rights under said Exhibit " 1 " to the property in question.

8. That since then the property in question has been in the possession of
the defendants, and their possession together with the possession of their
predecessors in said property has been open, continuous and
uninterrupted to this date.

9. That sometime after the issuance of title in favor of the plaintiff (Transfer
Certificate of Title No. 21-A) and his aforementioned brothers and sisters
covering the parcel of land subject matter of the application filed by them in
Expediente No. 12, G.L.R.O. Record No. 10003, the said plaintiff and his
brothers and sisters partitioned among themselves said property, and
plaintiff was adjudicated a share in said property, of which the parcel of
land covered by the opposition of Pablo Valdehuesa withdrawn under the
terms of Exhibit " 1" is a part or portion of said charge, and covered by T-
21-D (copy attached as Exh. "A").

10. That the portion in litigation as correctly described in paragraph 3 of the

complaint is covered by the certificate of title referred to above.

11. That in 1955 the plaintiff had a surveyor relocate the corners and
boundaries of his land as described in his title and that the portion of about
2 hectares on the eastern end of the land is in the possession and is
actually occupied by the defendant. This is the portion in litigation
described in par. 3 of the complaint .

12. That Expediente No. 12, G.L.R.O. Record No. 10003 have been totally
destroyed during the last World War, and the parties reserve the right to
present additional evidence during the hearing of this case.

Cagayan de Oro City, December 22, 1959.

(Sgd.
)
ALFR
EDO
ROA
Plaint
iff

(Sgd.)
HERNANDO
PINEDA
 (Attorney for
Plaintiff)

(Sgd.) JOAQUIN CASIÑO

(Sgd.)
CUSTODIA
VALDEHUESA
(Defendants)

(Sgd.) MANUEL C.
FERNANDEZ

(Sgd.)
CONCORDIO C.
DIEL
(Attorney for
defendants")

The aforesaid compromise agreement mentioned in paragraph 5 of the agreed

Stipulation of Facts was thereafter ratified on May 11, 1927 as shown in Exhibit " 1" as
follows:

SEPAN TODOS LOS QUE LA PRESENTE VIEREN :

Que nosotros, los abajo firmantes, mayores de edad hacemos constar:

1. Que somos los dueños mancomunados de la propiedad conocida por

Terrenos de Bugu, en el municipio de Tagoloan, provincia de Misamis.

2. Que en la tramitacion del Exp. No.12,G.L.R.O.,Record No. 10003, para

el registro de dicha propiedad, el Sr. Pablo Valdehuesa del municipio de
Tagoloan, que era uno de los opositores, consintio en retirar su oposicion
contra nuestra citada solicitud de registro a condicion de que le
reconozcamos su dominio y propiedad sobre una parcela de terreno dentro
de la comprension de Bugu que el ocupaba, o se le compre, y de otro
modo se le compense al reintegrarnos dicha parcela en tiempo oportuno.
La descripcion del terreno referido cuya extension es de una hectares,
cuarenta y nueve areas y cincuenta y nueve centiareas, aparece en el
escrito de oposicion que obra en el referido Exp. 12, y que luego fue
retirado por convenio de partes.

3. Por tanto, en complimiento de dicho convenio y como consecuencia del

mismo, ratificamos lo que tenemos prometido, para lo cual autorizamos al
Sr. Zosimo Roa a que busque y adquiera otro pedazo de terreno fuera de
la comprension de Bugu, de una hectarea, cuarenta y nueve areas y
 cincuenta y nueve centiareas, poco mas o menos, y que sea acceptable
para el Sr. Pablo Valdehuesa, como canje or permuta con la parcela que el
ocupa; en la inteligencia de que el valor de compra no exceda de P400.00
en su defecto, si no se encuentra un terreno que sea satisfactorio para el
Sr. Pablo Valdehuesa, se le compensara el reintegro arriba citado en la
mencionada cantidad de P400.00.

4. Por su parte, el Sr. Pablo Valdehuesa, acepta todo lo establecido en

este documento, obligandose a respetarlo y acatarlo.

En testimonio de todo lo cual, firmamos el presente documento en

Cagayan de Misamis, hoy, 11 de Mayo de 1927.

(Sgd.) Trinidad Roa de Reyes (Sgd.) Esperanza Roa de Ongpin

(Sgd.) Concepcion Roa (Sgd.) Zosimo Roa

__________________________

Alfredo Roa

___________________________

Pablo Valdehuesa

Pursuant to said Exhibit "1", Concepcion, Esperanza, Trinidad and Zosimo, all
surnamed Roa, agreed to replace the land of Pablo Valdehuesa with another parcel of
land with an area of 1.4959 hectares to be given to Pablo Valdehuesa in exchange for
the land occupied by him, or if said land was not acceptable to him, to pay him the
amount of P400.00. Neither of these undertakings was complied with by the Roas and
Pablo Valdehuesa continued in possession of the land occupied by him until the same
was sold by the heirs of Pablo Valdehuesa to the respondent spouses on April 30,
1930.

On March 6, 1964, the lower court rendered the decision ordering the plaintiff Alfredo
Roa to reconvey the land in dispute to the defendants, now the respondent spouses,
on the ground that same could not have been registered in the name of the plaintiff and
his brother and sisters if not for the compromise agreement aforestated and further to
pay said defendants the amount of P1,000.00 as attorney's fees plus costs.

On appeal taken by Alfredo Roa, the appellate court affirmed the decision of the lower
court and declared that (a) the compromise agreement created an express trust
between the Roa brothers and sisters, including Alfredo, Sr., (b) that the respondent
spouses' action for reconveyance was imprescriptible on the authority of Mirabiles, et
al. v. Quito, et al., L- 14008, October 18, 1956; and (c) that Alfredo Roa cannot invoke
the indefeasibility and imprescriptibility of the Torrens title issued in his name for the
land in dispute since the said title was secured by him in breach of an express trust,
and thus, the Court ordered the reconveyance of the property within fifteen (15) days
from the finality of the decision.

Alfredo Roa, now substituted by his heirs, the herein petitioners Alfredo Roa, Jr.,
Leticia Roa de Borja, Ruben Roa, Cornelio Roa and Elsie Roa-Cacnio, moved to
reconsider the adverse decision. Acting on this motion for reconsideration, the Court of
Appeals in a majority resolution denied the said motion, and while conceding that "the
creation of an express trust leaves room for doubt," the said Court ruled that the
compromise agreement, at the least gave rise to an implied trust under Art. 1456 of the
New Civil Code. Hence, petitioners filed this present petition on the following
assignment of errors:

I. The respondent Court of Appeals erred when it ruled that Alfredo Roa,
the petitioners' predecessor-in-interest, was bound by the compromise
agreement (Exh. "I") in the execution of which, according to the Stipulation
of Facts, said Alfredo Roa neither participated nor signed.

II. On the assumption that the aforementioned compromise agreement was

binding upon Alfredo Roa, the respondent Court of Appeals erred when it
held the said agreement, which stipulated the conveyance of the property
in dispute for a consideration, as having established a trust relationship
between the parties to it.

III. The respondent Court of Appeals erred when it held that the ruling in the
case of Gerona, et al. va. De Guzman, G.R. No. L-19060, May 29, 1964, is
inapplicable to the case at bar.

On the first assigned error, We reject the contention of the petitioners that Alfredo Roa,
Sr. was not bound by the compromise agreement for not being a participant or
signatory thereto. It may be true that Alfredo Roa, Sr. did not sign the compromise
agreement, Exh. " 1 ", for he was then in Manila working as a newspaperman but he
certainly benefited from the effects of the compromise agreement which obliged Pablo
Valdehuesa to withdraw, as he did withdraw his opposition to the registration of the
Roa property under the Torrens system. The Roa property was subsequently
registered without opposition and title was issued thereto in the name of Alfredo Roa,
his brother Zosimo and his sisters Trinidad, Esperanza and Concepcion, all surnamed
Roa as co-owners thereof. Certainly, the Roas may not escape compliance from their
obligation under the compromise agreement by partitioning the property and assigning
the property in dispute as part of the share of the petitioners. Moreover, it will be a pure
and simple case of unjust enrichment for petitioners to acquire and own the property of
Pablo Valdehuesa, without paying the value thereof or exchanging the land with
another with an equal area as originally agreed.
With respect to the second assignment of error, We do not agree with the holding of
the respondent appellate court that an express trust was created between the parties
by reason of the compromise agreement entered into between them. Express trusts
are created by the intention of the trustor or one of the parties (Article 1441, New Civil
Code). While no particular words are required for the creation of an express trust, it
being sufficient that a trust is clearly intended (Article 1444, New Civil Code), in the
case at bar, We find no direct and positive intent to create a trust relationship between
the parties to the compromise agreement under which Pablo Valdehuesa agreed to
withdraw his opposition to the application for registration upon the commitment of the
Roas to give Valdehuesa another piece of land of equal area or pay its price of P
400.00. It seems clear to Us that the Roas under the compromise agreement did not
commit themselves to hold the lot claimed by Pablo Valdehuesa for Pablo Valdehuesa
and in Pablo Valdehuesa's name.

If the compromise agreement did not result to an express trust relationship, did it,
however, give rise to an implied trust? Private respondents claim that under the terms
of the compromise agreement, the land claimed by Pablo Valdehuesa should be
deemed held in trust by the Roas when the latter failed to relocate him or pay the price
therefor. The respondent appellate court took private respondents' position, and
opined, 3 thus —

It could thus be gleaned that had it not been for the promise of the Roas
contained in Exhibit 1, Valdehuesa would not have been induced to
withdraw his opposition in the land registration case. When, therefore, the
Roas turned their back to a solemn agreement entered in a court
proceedings, they were guilty of fraud.

Fraud is every kind of deception, whether in the form of insidious

machinations, manipulations, concealments or misrepresentations, for the
purpose of leading another party into error and then execute a particular
act. It must have a determining influence on the consent of the victim." (4
Tolentino, Civil Code, p. 462)

It results from the foregoing that although the creation of an express trust
leaves room for doubt, by operation of law, an implied trust is created,

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. (N.C.C)".

We cannot sustain the holding of the respondent appellate court in its Resolution
denying petitioners' motion for reconsideration that by operation of law an implied trust
was created under the terms of the compromise agreement in the light of Article 1456
of the New Civil Code cited above. We rule that Art. 1456 is not applicable because it
is quite clear that the property of Pablo Valdehuesa was acquired by the Roas not
through mistake or fraud but by reason of the voluntary agreement of Valdehuesa to
withdraw his opposition to the registration of the land under the Torrens system.

There is incontrovertible evidence that the Roas intended to abide by the compromise
agreement at the time of the execution of the same. The private respondents
themselves introduced additional evidence which showed that on May 11, 1927,
Trinidad Roa, Esperanza Roa de Ongpin, Concepcion Roa and Zosimo Roa confirmed
in writing the terms and conditions of the agreement they had entered into with Pablo
Valdehuesa in the land registration proceedings. Even the respondent appellate court
expressly determined the aforesaid failure of the Roas to comply with the terms of the
compromise agreement to be an afterthought; thus,

The change of mind of the plaintiff-appellant later is of no moment in the

case at bar. 4

While it is Our ruling that the compromise agreement between the parties did not
create an express trust nor an implied trust under Art. 1456 of the New Civil Code, We
may, however, make recourse to the principles of the general law of trusts, insofar as
they are not in conflict with the New Civil Code, Code of Commerce, the Rules of Court
and special laws which under Art. 1442 of the New Civil Code are adopted. While
Articles 1448 to 1456 of the New Civil Code enumerates cases of implied trust, Art.
1447 specifically stipulates that the enumeration of the cases of implied trust does not
exclude others established by the general law of trusts, but the limitations laid down in
Art 1442 shag be applicable.

In American law and jurisprudence, We find the following general principles:

A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust

de son tort, an involuntary trust, or an implied trust, is a trust by operation of law which
arises contrary to intention and in invitum, against one who, by fraud, actual or
constructive, by duress or abuse of confidence, by commission of wrong, or by any form
of unconscionable conduct, artifice, concealment, or questionable means, or who in any
way against equity and good conscience, either has obtained or holds the legal right to
property which he ought not, in equity and good conscience, hold and enjoy. It is raised
by equity to satisfy the demands of justice. However, a constructive trust does not arise
on every moral wrong in acquiring or holding property or on every abuse of confidence
in business or other affairs; ordinarily such a trust arises and will be declared only on
wrongful acquisitions or retentions of property of which equity, in accordance with its
fundamental principles and the traditional exercise of its jurisdiction or in accordance
with statutory provision, takes cognizance. It has been broadly ruled that a breach of
confidence, although in business or social relations, rendering an acquisition or
retention of property by one person unconscionable against another, raises a
constructive trust. (76 Am. Jur. 2d, Sec. 221, pp. 446-447).

And specifically applicable to the case at bar is the doctrine that "A constructive trust is
substantially an appropriate remedy against unjust enrichment. 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." (76 Am. Jur. 2d, Sec. 222, p. 447).

The above principle is not in conflict with the New Civil Code, Code of Commerce,
Rules of Court and special laws. And since We are a court of law and of equity, the
case at bar must be resolved on the general principles of law on constructive trust
which basically rest on equitable considerations in order to satisfy the demands of
justice, morality, conscience and fair dealing and thus protect the innocent against
fraud. As the respondent court said, "It behooves upon the courts to shield fiduciary
relations against every manner of chickanery or detestable design cloaked by legal
technicalities."

The next point to resolve is whether the counterclaim of private respondents for the
reconveyance of the property in dispute has already prescribed in the light of
established jurisprudence that the right to enforce an implied trust prescribes in ten
years.

Admittedly, Pablo Valdehuesa and his heirs remained in possession of the property in
question in 1925 when by reason of the compromise agreement Valdehuesa withdrew
his opposition to the registration applied for by the Roas for which reason the latter
were able to obtain a Torrens title to the property in their name. However, Valdehuesa
and his heirs continued their possession of the land until he sold the property in
question to private respondents herein on April 30, 1930 and the latter remained in
possession and were never disturbed in their occupancy until the filing of the original
complaint for recovery of possession on Sept. 1, 1955 after demand was made upon
them when a relocation survey initiated by petitioners established that private
respondents were actually occupying about 2 hectares on the eastern end of the
property. Upon these facts, the prescriptive period may only be counted from the time
petitioners repudiated the trust relation in 1955 upon the filing of the complaint for
recovery of possession against private respondents so that the counterclaim of the
private respondents contained in their amended answer of June 12, 1956 wherein they
asserted absolute ownership of the disputed realty by reason of their continuous and
adverse possession of the same is well within the ten-year prescriptive period.

Finally, the case at bar is quite similar to the case of Dolores Pacheco vs. Santiago
Arro, 85 Phil. 505, wherein the claim to the lots in the cadastral case was withdrawn by
the respondents relying upon the assurance and promise made in open court by Dr. M.
Y. in behalf of J. Y. y R., the predecessor-in-interest of the petitioners and the Court
held that a trust or a fiduciary relation between them arose, or resulted therefrom, or
was created thereby and the trustee cannot invoke the statute of limitations to bar the
action and defeat the right of the cestuis que trustent. (Cited in Tolentino, Civil Code of
the Philippines, Vol. IV, p. 627).

WHEREFORE, IN VIEW OF THE FOREGOING, the judgment appealed from is hereby

AFFIRMED. SO ORDERED.
 [G.R. No. 183050 : January 25, 2012]

ADVENT CAPITAL AND FINANCE CORPORATION, PETITIONER, VS.

NICASIO I. ALCANTARA AND EDITHA I. ALCANTARA,
RESPONDENTS.

This case is about the validity of a rehabilitation court's order that

compelled a third party, in possession of money allegedly belonging to the
debtor of a company under rehabilitation, to deliver such money to its
court-appointed receiver over the debtor's objection.cralaw

The Facts and the Case

On July 16, 2001 petitioner Advent Capital and Finance Corporation (Advent
Capital) filed a petition for rehabilitation[1] with the Regional Trial Court
(RTC) of Makati City.[2] Subsequently, the RTC named Atty. Danilo L.
Concepcion as rehabilitation receiver.[3] Upon audit of Advent Capital's
books, Atty. Concepcion found that respondents Nicasio and Editha
Alcantara (collectively, the Alcantaras) owed Advent Capital
P27,398,026.59, representing trust fees that it supposedly earned for
managing their several trust accounts.[4]

Prompted by this finding, Atty. Concepcion requested Belson Securities, Inc.

(Belson) to deliver to him, as Advent Capital's rehabilitation receiver, the
P7,635,597.50 in cash dividends that Belson held under the Alcantaras'
Trust Account 95-013. Atty. Concepcion claimed that the dividends, as
trust fees, formed part of Advent Capital's assets. Belson refused,
however, citing the Alcantaras' objections as well as the absence of an
appropriate order from the rehabilitation court.[5]

Thus, Atty. Concepcion filed a motion before the rehabilitation court to

direct Belson to release the money to him. He said that, as rehabilitation
receiver, he had the duty to take custody and control of Advent Capital's
assets, such as the sum of money that Belson held on behalf of Advent
Capital's Trust Department.[6]

The Alcantaras made a special appearance before the rehabilitation

court[7] to oppose Atty. Concepcion's motion. They claimed that the money
in the trust account belonged to them under their Trust Agreement[8] with
Advent Capital. The latter, they said, could not claim any right or interest
in the dividends generated by their investments since Advent Capital merely
held these in trust for the Alcantaras, the trustors-beneficiaries. For this
reason, Atty. Concepcion had no right to compel the delivery of the
dividends to him as receiver. The Alcantaras concluded that, under the
circumstances, the rehabilitation court had no jurisdiction over the subject
dividends.

On February 5, 2007 the rehabilitation court granted Atty. Concepcion's

motion.[9] It held that, under Rule 59, Section 6 of the Rules of Court, a
receiver has the duty to immediately take possession of all of the
corporation's assets and administer the same for the benefit of corporate
creditors. He has the duty to collect debts owing to the corporation, which
debts form part of its assets. Complying with the rehabilitation court's
order and Atty. Concepcion's demand letter, Belson turned over the subject
dividends to him.

Meanwhile, the Alcantaras filed a special civil action of certiorari before the
Court of Appeals (CA), seeking to annul the rehabilitation court's order. On
January 30, 2008 the CA rendered a decision,[10] granting the petition and
directing Atty. Concepcion to account for the dividends and deliver them to
the Alcantaras. The CA ruled that the Alcantaras owned those
dividends. They did not form part of Advent Capital's assets as
contemplated under the Interim Rules of Procedure on Corporate
Rehabilitation (Interim Rules).

The CA pointed out that the rehabilitation proceedings in this case referred
only to the assets and liabilities of the company proper, not to those of its
Trust Department which held assets belonging to other people. Moreover,
even if the Trust Agreement provided that Advent Capital, as trustee, shall
have first lien on the Alcantara's financial portfolio for the payment of its
trust fees, the cash dividends in Belson's care cannot be summarily applied
to the payment of such charges. To enforce its lien, Advent Capital has to
file a collection suit. The rehabilitation court cannot simply enforce the
latter's claim by ordering Belson to deliver the money to it.[11]

The CA denied Atty. Concepcion and Advent Capital's motion for

reconsideration,[12] prompting the filing of the present petition for review
under Rule 45.

The Issue Presented

The sole issue in this case is whether or not the cash dividends held by
Belson and claimed by both the Alcantaras and Advent Capital constitute
corporate assets of the latter that the rehabilitation court may, upon
motion, require to be conveyed to the rehabilitation receiver for his
disposition.

Ruling of the Court

Advent Capital asserts that the cash dividends in Belson's possession

formed part of its assets based on paragraph 9 of its Trust Agreement with
the Alcantaras, which states:

9.Trust Fee: Other Expenses - As compensation for its services

hereunder, the TRUSTEE shall be entitled to a trust or management
fee of 1 (one) % per annum based on the quarterly average market
value of the Portfolio or a minimum annual fee of P5,000.00,
whichever is higher. The said trust or management fee shall
automatically be deducted from the Portfolio at the end of each
calendar quarter. The TRUSTEE shall likewise be reimbursed for all
reasonable and necessary expenses incurred by it in the discharge
of its powers and duties under this Agreement, and in all cases, the
TRUSTEE shall have a first lien on the Portfolio for the payment of
the trust fees and other reimbursable expenses.

According to Advent Capital, it could automatically deduct its management

fees from the Alcantaras' portfolio that they entrusted to it. Paragraph 9 of
the Trust Agreement provides that Advent Capital could automatically
deduct its trust fees from the Alcantaras' portfolio, "at the end of each
calendar quarter," with the corresponding duty to submit to the Alcantaras
a quarterly accounting report within 20 days after.[13]

But the problem is that the trust fees that Advent Capital's receiver was
claiming were for past quarters. Based on the stipulation, these should have
been deducted as they became due. As it happened, at the time Advent
Capital made its move to collect its supposed management fees, it neither
had possession nor control of the money it wanted to apply to its
claim. Belson, a third party, held the money in the Alcantaras'
names. Whether it should deliver the same to Advent Capital or to the
Alcantaras is not clear. What is clear is that the issue as to who should get
the same has been seriously contested.

The practice in the case of banks is that they automatically collect their
management fees from the funds that their clients entrust to them for
investment or lending to others. But the banks can freely do this since it
holds or has control of their clients' money and since their trust agreement
authorized the automatic collection. If the depositor contests the
deduction, his remedy is to bring an action to recover the amount he claims
to have been illegally deducted from his account.

Here, Advent Capital does not allege that Belson had already deducted the
management fees owing to it from the Alcantaras' portfolio at the end of
each calendar quarter. Had this been done, it may be said that the money
in Belson's possession would technically be that of Advent Capital. Belson
would be holding such amount in trust for the latter. And it would be for
the Alcantaras to institute an action in the proper court against Advent
Capital and Belson for misuse of its funds.

But the above did not happen. Advent Capital did not exercise its right to
cause the automatic deduction at the end of every quarter of its supposed
management fee when it had full control of the dividends. That was its
fault. For their part, the Alcantaras had the right to presume that Advent
Capital had deducted its fees in the manner stated in the contract. The
burden of proving that the fees were not in fact collected lies with Advent
Capital.

Further, Advent Capital or its rehabilitation receiver cannot unilaterally

decide to apply the entire amount of cash dividends retroactively to cover
the accumulated trust fees. Advent Capital merely managed in trust for the
benefit of the Alcantaras the latter's portfolio, which under Paragraph
2[14] of the Trust Agreement, includes not only the principal but also its
income or proceeds. The trust property is only fictitiously attributed by law
to the trustee "to the extent that the rights and powers vested in a nominal
owner shall be used by him on behalf of the real owner."[15]

The real owner of the trust property is the trustor-beneficiary. In this case,
the trustors-beneficiaries are the Alcantaras. Thus, Advent Capital could
not dispose of the Alcantaras' portfolio on its own. The income and
principal of the portfolio could only be withdrawn upon the Alcantaras'
written instruction or order to Advent Capital.[16] The latter could not also
assign or encumber the portfolio or its income without the written consent
of the Alcantaras.[17] All these are stipulated in the Trust Agreement.

Ultimately, the issue is what court has jurisdiction to hear and adjudicate
the conflicting claims of the parties over the dividends that Belson held in
trust for their owners. Certainly, not the rehabilitation court which has not
been given the power to resolve ownership disputes between Advent Capital
and third parties. Neither Belson nor the Alcantaras are its debtors or
creditors with interest in the rehabilitation.

Advent Capital must file a separate action for collection to recover the trust
fees that it allegedly earned and, with the trial court's authorization if
warranted, put the money in escrow for payment to whoever it rightly
belongs. Having failed to collect the trust fees at the end of each calendar
quarter as stated in the contract, all it had against the Alcantaras was a
claim for payment which is a proper subject for an ordinary action for
collection. It cannot enforce its money claim by simply filing a motion in
the rehabilitation case for delivery of money belonging to the Alcantaras but
in the possession of a third party.

Rehabilitation proceedings are summary and non-adversarial in nature, and

do not contemplate adjudication of claims that must be threshed out in
ordinary court proceedings. Adversarial proceedings similar to that in
ordinary courts are inconsistent with the commercial nature of a
rehabilitation case. The latter must be resolved quickly and expeditiously
for the sake of the corporate debtor, its creditors and other interested
parties. Thus, the Interim Rules "incorporate the concept of prohibited
pleadings, affidavit evidence in lieu of oral testimony, clarificatory hearings
instead of the traditional approach of receiving evidence, and the grant of
authority to the court to decide the case, or any incident, on the basis of
affidavits and documentary evidence."[18]

Here, Advent Capital's claim is disputed and requires a full trial on the
merits. It must be resolved in a separate action where the Alcantaras'
claim and defenses may also be presented and heard. Advent Capital
cannot say that the filing of a separate action would defeat the purpose of
corporate rehabilitation. In the first place, the Interim Rules do not exempt
a company under rehabilitation from availing of proper legal procedure for
collecting debt that may be due it. Secondly, Court records show that
Advent Capital had in fact sought to recover one of its assets by filing a
separate action for replevininvolving a car that was registered in its
name.[19]cralaw

WHEREFORE, the petition is DENIED for lack of merit and the assailed
decision and resolution of the Court of Appeals in CA-G.R. SP 98692
are AFFIRMED, without prejudice to any action that petitioner Advent
Capital and Finance Corp. or its rehabilitation receiver might institute
regarding the trust fees subject of this case. SO ORDERED.