G.R. No.

L-21334 December 10, 1924

THE GOVERNMENT OF THE PHILIPPINE ISLANDS vs. ANASTASIA

ABADILLA, ET AL.,

This is an appeal from a judgment in cadastral and land registration case

No. 3 of the Court of First Instance of Tayabas (G. L. R. O. Record No. 213)
in which case lots Nos. 3464, 3469, and 3470 are claimed by the
municipality of Tayabas and the governor of the province on one side, and
by Maria, Eufemio, Eugenia, Felix, Caridad, Segunda, and Emilia Palad on
the other. Lot No. 3470 is also claimed by Dorotea Lopez. The court below
ordered the registration of the three lots in the name of the governor of the
Province of Tayabas in trust for a secondary school to be established in the
municipality of Tayabas. The claimants Palad and Dorotea Lopez appealed.c

It appears from the evidence that the lands in question were originally
owned by one Luis Palad, a school teacher, who obtained titled to the land
by composicion gratuita in 1894. On January 25, 1892, Palad executed a
holographic will party in Spanish and partly in Tagalog. Palad died on
December 3, 1896, without descendants, but leaving a widow, the appellant
Dorotea Lopez, to whom he had been married since October 4, 1885. On
July 27, 1987, the Court of First Instance of Tayabas ordered the
protocolization of the will over the opposition of Leopoldo and Policarpio
Palad, collateral heirs of the deceased and of whom the appellants Palad are
descendants.c

The will contained a clause in Tagalog which, translated into English, reads:

That the cocoanut land in Colongcolong, which I have put under cultivation,
be used by my wife after my death during her life or until she marries,
which property is referred to in the inventory under No. 5, but from this
cocoanut land shall be taken what is to be lent to the persons who are to
plant cocoanut trees and that which is to be paid to them as their share of
the crop if any should remain; and that she try to earn with the product of
the cocoanut trees of which those bearing fruit are annually increasing; and
if the times aforementioned should arrive, I prepare and donate it to
secondary college to be erected in the capital of Tayabas; so this will be
delivered by my wife and the executors to the Ayuntamiento of this town,
should there be any, and if not, to the civil governor of this province in
order to cause the manager thereof to comply with my wishes for the good
of many and the welfare of the town.
After the death of Luis Palad the widow Dorotea Lopez remained in
possession of the land and in the year 1900 married one Calixto Dolendo.
On April 20, 1903, the aforesaid collateral heirs of Luis Palad brought an
action against the widow for the partition of the lands here in question on
the ground that she, by reason of her second marriage, had lost the right to
their exclusive use and possession. In the same action the municipality of
Tayabas intervened claiming the land under the clause of the Palad will
above quoted. During the pendency of the action an agreement was arrived
at by the parties under which the land which now constitutes lots Nos. 3464
and 3469 were turned over to the municipality as its share of the
inheritance under the will, and the remaining portion of the land in
controversy and which now forms lot No. 3470 was left in the possession of
Dorotea Lopez. On the strength of the agreement the action was dismissed
on November 9, 1904, upon motion by the counsel for the municipality and
concurred in by all the parties, reserving to the collateral heirs the right to
bring another action. The municipality of Tayabas has been in possession of
said lots Nos. 3464 and 3469 ever since and Dorotea Lopez has likewise
held uninterrupted possession of lot No. 3470.c

In regard to lots Nos. 3464 and 3469, claimed by the appellants Palad and
the appellees, the case presents several problems not directly covered by
statutory provisions or by Spanish or local precedents and, for the solution
of which, we must resort to the underlying principles of the law on the
subject. As it is doubtful whether the possession of the municipality of
Tayabas can be considered adverse within the meaning of section 41 of the
Code of Civil Procedure, the case as to these lots turns upon the
construction and validity of the clause quoted from the will of Luis Palad,
rather than upon the question of prescription of title.c

The clause is very unskillfully drawn; its language is ungrammatical and at

first blush seems somewhat obscure, but on closer examination it
sufficiently reveals the purpose of the testator. And if its provisions are not
in contravention of some established rule of law or public policy, they must
be respected and given effect. It may be observed that the question as to
the sufficiency of the form of the will must be regarded as settled by the
protocolization proceedings had in the year 1897.c

It is a well-known rule that testamentary dispositions must be liberally

construed so as to give effect to the intention of the testator as revealed by
the will itself. Applying this rule of construction it seems evident that by the
clause in question the testator proposed to create a trust for the benefit of
a secondary school to be established in the town of Tayabas, naming as
trustee the ayuntamiento of the town or if there be no ayuntamiento, then
the civil governor of the Province of Tayabas.c

As the law of trusts has been much more frequently applied in England and
in the United Stated than it has in Spain, we may draw freely upon
American precedents in determining the effect of the testamentary trust
here under consideration, especially so as the trusts known to American
and English equity jurisprudence are derived from the fidei commissa of the
Roman law and are based entirely upon Civil Law principles.c

In order that a trust may become effective there must, of course, be a

trustee and a cestui que trust, and counsel for the appellants Palad argues
that we here have neither; that there is no ayuntamiento, no Gobernador
Civil of the province, and no secondary school in the town of Tayabas.c

An ayuntamiento corresponds to what in English is termed a municipal

corporation and it may be conceded that the ordinary municipal government
in these Island falls short of being such a corporation. But we have
provincial governors who like their predecessors, the civil governors, are
the chief executives of their respective provinces. It is true that in a few
details the function and power of the two offices may vary somewhat, but it
cannot be successfully disputed that one office is the legal successor of the
other. It might as well be contended that when under the present regime
the title of the chief executive of the Philippine was changed from Civil
Governor to that of Governor-General, the latter was not the legal
successor of the former. There can therefore be but very little doubt that
the governor of the Province of Tayabas, as the successor of the civil
governor of the province under the Spanish regime, may acts as trustee in
the present case.c

In regard to private trust it is not always necessary that the cestui que
trustshould be named, or even be in esse at the time the trust is created in
his favor. (Flint on Trusts and Trustees, section 25; citing
Frazier vs. Frazier, 2 Hill Ch., 305; Ashurt vs. Given, 5 Watts & S., 329;
Carson vs. Carson, 1 Wins. [N. C.] 24.) Thus a devise to a father in trust for
accumulation for his children lawfully begotten at the time of his death has
been held to be good although the father had no children at the time of the
vesting of the funds in him as trustees. In charitable trust such as the one
here under discussion, the rule is still further relaxed. (Perry on Trusts, 5th
ed., section 66.)

This principle is in harmony with article 788 of the Civil Code which reads as
follows:
 Any disposition which imposes upon an heirs the obligation of periodically
investing specified sums in charitable works, such as dowries for poor maidens or
scholarships for students, or in favor of the poor, or any charitable public
educational institution, shall be valid under the following conditions:

If the charge is imposed on real property and is temporary, the heir or heirs
may dispose of the encumbered estate, but the lien shall continue until the record
thereof is canceled.

If the charge is perpetual, the heir may capitalize it and invest the capital at
interest, fully secured by first mortgage.

The capitalization and investment of the principal shall be made with the
intervention of the civil governor of the province after hearing the opinion of the
prosecuting officer.

In any case, if the testator should not have laid down any rules for the
management and application of the charitable legacy, it shall be done by the
executive authorities upon whom this duty devolves by law.

It is true that minor distinctions may possibly be drawn between the case
before us and that presupposed in the article quoted, but the general
principle is the same in both cases. Here the trustee, who holds the legal
title, as distinguished from the beneficial title resting in the cestui que trust,
must be considered the heirs. The devise under consideration does not in
terms require periodical investments of specified sums, but it is difficult to
see how this can affect the general principle involved, and unless the devise
contravenes some other provision of the Code it must be upheld.

We have been unable to find any such provision. There is no violation of

any rule against perpetuities: the devise does not prohibit the alienation of
the land devised. It does not violate article 670 of the Code: the making of
the will and the continuance or quantity of the estate of the heir are not left
in the discretion of the third party. The devisee is not uncertain and the
devise is therefore are repugnant to article 750 of the Civil Code. The
provincial governor can hardly be regarded as a public establishment within
the meaning of article 748 and may therefore receive the inheritance
without the previous approval of the Government.

But counsel argues that assuming all this to be true the collateral heirs of
the deceased would nevertheless be entitled to the income of the land until
the cestui que trust is actually in esse. We do not think so. If the trustee
holds the legal title and the devise is valid, the natural heirs of the
deceased have no remaining interest in the land except their right to the
reversion in the event the devise for some reason should fail, an event
which has not as yet taken place. From a reading of the testamentary
clause under discussion it seems quite evident that the intention of the
testator was to have income of the property accumulate for the benefit of
the proposed school until the same should be established.c

From what has been said it follows that the judgment appealed from must
be affirmed in regard to lots Nos. 3464 and 3469.c

As to lot No. 3470 little need be said. It may be noted that though the
Statute of Limitation does not run as between trustee and cestui que
trust as long as the trust relations subsist, it may run as between the trust
and third persons. Contending that the Colongcolong land was community
property of her marriage with Luis Palad and that lot No. 3470 represented
her share thereof, Dorotea Lopez has held possession of said lot, adverse to
all other claimants, since the year 1904 and has now acquired title by
prescription.c

The judgment appealed from is affirmed in regard to lots Nos. 3464 and
3469 and is reversed as to lot No. 3470, and it is ordered that said lot No.
3470 be registered in the name of the claimant Dorotea Lopez. No costs will
be allowed. So ordered.c
 G.R. No. 176959 September 8, 2010

METROPOLITAN BANK & TRUST COMPANY, INC. vs. THE BOARD OF

TRUSTEES OF RIVERSIDE MILLS CORP

This petition for review on certiorari under Rule 45 of the 1997 Rules of Civil
Procedure, as amended, prays for the reversal of the Decision1 dated November 7,
2006 and Resolution2 dated March 5, 2007 of the Court of Appeals (CA) in CA-G.R.
CV No. 76642. The CA had affirmed the Decision3 dated June 27, 2002 of the
Regional Trial Court (RTC), Branch 137, Makati City in Civil Case No. 97-997 which
declared invalid the reversion or application of the Riverside Mills Corporation
Provident and Retirement Fund (RMCPRF) to the outstanding obligation of Riverside
Mills Corporation (RMC) with Philippine Banking Corporation (Philbank).

The facts are as follows:

On November 1, 1973, RMC established a Provident and Retirement Plan4 (Plan) for
its regular employees. Under the Plan, RMC and its employees shall each contribute
2% of the employee’s current basic monthly salary, with RMC’s contribution to increase
by 1% every five (5) years up to a maximum of 5%. The contributions shall form part of
the provident fund (the Fund) which shall be held, invested and distributed by the
Commercial Bank and Trust Company. Paragraph 13 of the Plan likewise provided that
the Plan "may be amended or terminated by the Company at any time on account of
business conditions, but no such action shall operate to permit any part of the assets of
the Fund to be used for, or diverted to purposes other than for the exclusive benefit of
the members of the Plan and their … beneficiaries. In no event shall any part of the
assets of the Fund revert to [RMC] before all liabilities of the Plan have been
satisfied."5

On October 15, 1979, the Board of Trustees of RMCPRF (the Board) entered into an
Investment Management Agreement6 (Agreement) with Philbank (now, petitioner
Metropolitan Bank and Trust Company). Pursuant to the Agreement, petitioner shall
act as an agent of the Board and shall hold, manage, invest and reinvest the Fund in
Trust Account No. 1797 in its behalf. The Agreement shall be in force for one (1) year
and shall be deemed automatically renewed unless sooner terminated either by
petitioner bank or by the Board.

In 1984, RMC ceased business operations. Nonetheless, petitioner continued to render

investment services to respondent Board. In a letter7 dated September 27, 1995,
petitioner informed respondent Board that Philbank’s Board of Directors had decided to
apply the remaining trust assets held by it in the name of RMCPRF against part of the
outstanding obligations of RMC.
Subsequently, respondent RMC Unpaid Employees Association, Inc. (Association),
representing the terminated employees of RMC, learned of Trust Account No. 1797.
Through counsel, they demanded payment of their share in a letter8 dated February 4,
1997. When such demand went unheeded, the Association, along with the individual
members of RMCPRF, filed a complaint for accounting against the Board and its
officers, namely, Ernesto Tanchi, Jr., Carlitos Y. Lim, Amelita G. Simon, Evelina S.
Ocampo and Cesar Saligumba, as well as petitioner bank. The case was docketed as
Civil Case No. 97-997 in the RTC of Makati City, Branch 137.

On June 2, 1998, during the trial, the Board passed a Resolution9 in court declaring
that the Fund belongs exclusively to the employees of RMC. It authorized petitioner to
release the proceeds of Trust Account No. 1797 through the Board, as the court may
direct. Consequently, plaintiffs amended their complaint to include the Board as co-
plaintiffs.

On June 27, 2002, the RTC rendered a decision in favor of respondents. The trial court
declared invalid the reversion and application of the proceeds of the Fund to the
outstanding obligation of RMC to petitioner bank. The fallo of the decision reads:

WHEREFORE, judgment is hereby rendered:

1. Declaring INVALID the reversion or application of the Riverside Mills Corporation Provident
and Retirement Fund as payment for the outstanding obligation of Riverside Mills Corporation
with defendant Philippine Banking Corporation.

2. Defendant Philippine Banking Corporation (now [Global Bank]) is hereby ordered to:

a. Reverse the application of the Riverside Mills Corporation Provident and Retirement
Fund as payment for the outstanding obligation of Riverside Mills Corporation with
defendant Philippine Banking Corporation;

b. Render a complete accounting of the Riverside Mills Corporation Provident and

Retirement Fund; the Fund will then be subject to disposition by plaintiff Board of
Trustees in accordance with law and the Provident Retirement Plan;

c. Pay attorney’s fees equivalent to 10% of the total amounts due to plaintiffs Riverside
Mills Unpaid Employees Association and the individual beneficiaries of the Riverside
Mills Corporation Provident and Retirement Fund; and costs of suit.

3. The Riverside Mills Corporation Provident and Retirement Fund is ordered to determine the
beneficiaries of the FUND entitled to benefits, the amount of benefits per beneficiary, and pay
such benefits to the individual beneficiaries.

SO ORDERED.10

On appeal, the CA affirmed the trial court. It held that the Fund is distinct from RMC’s
account in petitioner bank and may not be used except for the benefit of the members
of RMCPRF. Citing Paragraph 13 of the Plan, the appellate court stressed that the
assets of the Fund shall not revert to the Company until after the liabilities of the Plan
had been satisfied. Further, the Agreement was specific that upon the termination of
the Agreement, petitioner shall deliver the Fund to the Board or its successor, and not
to RMC as trustor. The CA likewise sustained the award of attorney’s fees to
respondents.11

Hence, this petition.

Before us, petitioner makes the following assignment of errors:

I. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE REVERSION

AND APPLICATION BY PHILBANK OF THE FUND IN PAYMENT OF THE LOAN
OBLIGATIONS OF RIVERSIDE MILLS CORPORATION WERE INVALID.12
II. THE HONORABLE COURT OF APPEALS COMMITTED REVERSIBLE ERROR IN
DECLARING THAT "BY HAVING ENTERED INTO AN AGREEMENT WITH THE BOARD,
(PHILBANK) IS NOW ESTOPPED TO QUESTION THE LATTER’S AUTHORITY AS WELL
AS THE TERMS AND CONDITIONS THEREOF."13
III. THE HONORABLE COURT COMMITTED REVERSIBLE ERROR IN AWARDING
ATTORNEY’S FEES TO PLAINTIFFS-APPELLEES ON THE BASIS THAT "[PHILBANK]
WAS REMISS IN ITS DUTY TO TREAT RMCPRF’S ACCOUNT WITH THE HIGHEST
DEGREE OF CARE CONSIDERING THE FIDUCIARY NATURE OF THEIR
RELATIONSHIP, PERFORCE, THE PLAINTIFFS-APPELLEES WERE COMPELLED TO
LITIGATE TO PROTECT THEIR RIGHT."14

The fundamental issue for our determination is whether the proceeds of the RMCPRF
may be applied to satisfy RMC’s debt to Philbank.

Petitioner contends that RMC’s closure in 1984 rendered the RMCPRF Board of
Trustees functus officio and devoid of authority to act on behalf of RMCPRF. It thus
belittles the RMCPRF Board Resolution dated June 2, 1998, authorizing the release of
the Fund to several of its supposed beneficiaries. Without known claimants of the Fund
for eleven (11) years since RMC closed shop, it was justifiable for petitioner to consider
the Fund to have "technically reverted" to, and formed part of RMC’s assets. Hence, it
could be applied to satisfy RMC’s debts to Philbank. Petitioner also disputes the award
of attorney’s fees in light of the efforts taken by Philbank to ascertain claims before
effecting the reversion.

Respondents for their part, belie the claim that petitioner exerted earnest efforts to
ascertain claims. Respondents cite petitioner’s omission to publish a notice in
newspapers of general circulation to locate claims against the Fund. To them,
petitioner’s act of addressing the letter dated September 27, 1995 to the Board is a
recognition of its authority to act for the beneficiaries. For these reasons, respondents
believe that the reversion of the Fund to RMC is not only unwarranted but
unconscionable. For being compelled to litigate to protect their rights, respondents also
defend the award of attorney’s fees to be proper.

The petition has no merit.

A trust is a "fiduciary relationship with respect to property which involves the existence
of equitable duties imposed upon the holder of the title to the property to deal with it for
the benefit of another." A trust is either express or implied. Express trusts are those
which the direct and positive acts of the parties create, by some writing or deed, or will,
or by words evincing an intention to create a trust.15

Here, the RMC Provident and Retirement Plan created an express trust to provide
retirement benefits to the regular employees of RMC. RMC retained legal title to the
Fund but held the same in trust for the employees-beneficiaries. Thus, the allocation
under the Plan is directly credited to each member’s account:

6. Allocation:

a. Monthly Contributions:

1. Employee – to be credited to his account.

2. Employer – to be credited to the respective member’s account as stated under the

contribution provision.

b. Investment Earnings – semestral valuation of the fund shall be made and any earnings or
losses shall be credited or debited, as the case may be, to each member’s account in
proportion to his account balances based on the last proceeding (sic) [preceding] accounting
period.

c. Forfeitures – shall be retained in the fund.16 (Emphasis supplied.)

The trust was likewise a revocable trust as RMC reserved the power to terminate the
Plan after all the liabilities of the Fund to the employees under the trust had been paid.
Paragraph 13 of the Plan provided that "[i]n no event shall any part of the assets of the
Fund revert to the Company before all liabilities of the Plan have been satisfied."

Relying on this clause, petitioner, as the Fund trustee, considered the Fund to have
"technically reverted" to RMC, allegedly after no further claims were made thereon
since November 1984. Thereafter, it applied the proceeds of the Fund to RMC’s debt
with the bank pursuant to Paragraph 9 of Promissory Note No. 1618-8017 which RMC
executed on May 12, 1981. The pertinent provision of the promissory note reads:

IN THE EVENT THAT THIS NOTE IS NOT PAID AT MATURITY OR WHEN THE SAME BECOMES
DUE UNDER ANY OF THE PROVISIONS HEREOF, I/WE HEREBY AUTHORIZE THE BANK AT
ITS OPTION AND WITHOUT NOTICE, TO APPLY TO THE PAYMENT OF THIS NOTE, ANY AND
ALL MONEYS, SECURITIES AND THINGS OF VALUE WHICH MAY BE IN ITS HAND OR ON
DEPOSIT OR OTHERWISE BELONGING TO ME/US AND, FOR THIS PURPOSE, I/WE HEREBY,
JOINTLY AND SEVERALLY, IRREVOCABLY CONSTITUTE AND APPOINT THE SAID BANK TO
BE MY/OUR TRUE ATTORNEY-IN-FACT WITH FULL POWER AND AUTHORITY FOR ME/US AND
IN MY/OUR NAME AND BEHALF, AND WITHOUT PRIOR NOTICE, TO NEGOTIATE, SELL AND
TRANSFER ANY MONEYS, SECURITIES AND THINGS OF VALUE WHICH IT MAY HOLD, BY
PUBLIC OR PRIVATE SALE, AND APPLY THE PROCEEDS THEREOF TO THE PAYMENT OF
THIS NOTE. (Emphasis supplied.)
Petitioner contends that it was justified in supposing that reversion had occurred
because its efforts to locate claims against the Fund from the National Labor Relations
Commission (NLRC), the lower courts, the CA and the Supreme Court proved futile.

We are not convinced.

Employees’ trusts or benefit plans are intended to provide economic assistance to

employees upon the occurrence of certain contingencies, particularly, old age
retirement, death, sickness, or disability. They give security against certain hazards to
which members of the Plan may be exposed. They are independent and additional
sources of protection for the working group and established for their exclusive benefit
and for no other purpose.18 Here, while the Plan provides for a reversion of the Fund to
RMC, this cannot be done until all the liabilities of the Plan have been paid. And when
RMC ceased operations in 1984, the Fund became liable for the payment not only of
the benefits of qualified retirees at the time of RMC’s closure but also of those who
were separated from work as a consequence of the closure. Paragraph 7 of the
Retirement Plan states:

Separation from Service:

A member who is separated from the service of the Company before satisfying the
conditions for retirement due to resignation or any reason other than dismissal for
cause shall be paid the balance of his account as of the last day of the month prior to
separation. The amount representing the Company’s contribution and income thereon
standing to the credit of the separating member shall be paid to him as follows:

Completed % of Company’s Contribution and Earnings Thereon

Years Payable
of Membership
0–5 NIL
6 – 10 20%
11 – 15 40%
16 – 20 60%
21 – 25 80%
25 – over 100%

A member who is separated for cause shall not be entitled to withdraw the total amount
representing his contribution and that of the Company including the earned interest
thereon, and the employer’s contribution shall be retained in the fund.19 (Emphasis
supplied.)
The provision makes reference to a member-employee who is dismissed for cause.
Under the Labor Code, as amended, an employee may be dismissed for just or
authorized causes. A dismissal for just cause under Article 28220 of the Labor Code, as
amended, implies that the employee is guilty of some misfeasance towards his
employer, i.e. the employee has committed serious misconduct in relation to his work,
is guilty of fraud, has perpetrated an offense against the employer or any immediate
member of his family, or has grossly and habitually neglected his duties. Essentially, it
is an act of the employee that sets off the dismissal process in motion.

On the other hand, a dismissal for an authorized cause under Article 28321 and 28422 of
the Labor Code, as amended, does not entail any wrongdoing on the part of the
employee. Rather, the termination of employment is occasioned by the employer’s
exercise of management prerogative or by the illness of the employee – matters
beyond the worker’s control.

The distinction between just and authorized causes for dismissal lies in the fact that
payment of separation pay is required in dismissals for an authorized cause but not so
in dismissals for just cause. The rationale behind this rule was explained in the case of
Phil. Long Distance Telephone Co. v. NLRC23 and reiterated in San Miguel Corporation
v. Lao,24 thus:

We hold that henceforth separation pay shall be allowed as a measure of social justice only in those
instances where the employee is validly dismissed for causes other than serious misconduct or those
reflecting on his moral character. Where the reason for the valid dismissal is, for example, habitual
intoxication or an offense involving moral turpitude, like theft or illicit sexual relations with a fellow
worker, the employer may not be required to give the dismissed employee separation pay, or financial
assistance, or whatever other name it is called, on the ground of social justice.

xxx xxx xxx

The policy of social justice is not intended to countenance wrongdoing simply because
it is committed by the underprivileged. At best[,] it may mitigate the penalty but it
certainly will not condone the offense.

In San Miguel Corporation v. Lao, we reversed the CA ruling which granted retirement
benefits to an employee who was found by the Labor Arbiter and the NLRC to have
been properly dismissed for willful breach of trust and confidence.

Applied to this case, the penal nature of the provision in Paragraph 7 of the Plan,
whereby a member separated for cause shall not be entitled to withdraw the
contributions made by him and his employer, indicates that the "separation for cause"
being referred to therein is any of the just causes under Article 282 of the Labor Code,
as amended.

To be sure, the cessation of business by RMC is an authorized cause for the

termination of its employees. Hence, not only those qualified for retirement should
receive their total benefits under the Fund, but those laid off should also be entitled to
collect the balance of their account as of the last day of the month prior to RMC’s
closure. In addition, the Plan provides that the separating member shall be paid a
maximum of 40% of the amount representing the Company’s contribution and its
income standing to his credit. Until these liabilities shall have been settled, there can
be no reversion of the Fund to RMC.

Under Paragraph 625 of the Agreement, petitioner’s function shall be limited to the
liquidation and return of the Fund to the Board upon the termination of the Agreement.
Paragraph 14 of said Agreement further states that "it shall be the duty of the
Investment Manager to assign, transfer, and pay over to its successor or successors
all cash, securities, and other properties held by it constituting the fund less any
amounts constituting the charges and expenses which are authorized [under the
Agreement] to be payable from the Fund."26 Clearly, petitioner had no power to effect
reversion of the Fund to RMC.

The reversion petitioner effected also could hardly be said to have been done in good
faith and with due regard to the rights of the employee-beneficiaries. The restriction
imposed under Paragraph 13 of the Plan stating that "in no event shall any part of the
assets of the Fund revert to the Company before all liabilities of the Plan have been
satisfied," demands more than a passive stance as that adopted by petitioner in
locating claims against the Fund. Besides, the beneficiaries of the Fund are readily
identifiable – the regular or permanent employees of RMC who were qualified retirees
and those who were terminated as a result of its closure. Petitioner needed only to
secure a list of the employees concerned from the Board of Trustees which was its
principal under the Agreement and the trustee of the Plan or from RMC which was the
trustor of the Fund under the Retirement Plan. Yet, petitioner notified respondent
Board of Trustees only after Philbank’s Board of Directors had decided to apply the
remaining trust assets of RMCPRF to the liabilities of the company.

Petitioner nonetheless assails the authority of the Board of Trustees to issue the
Resolution of June 2, 1998 recognizing the exclusive ownership of the Fund by the
employees of RMC and authorizing its release to the beneficiaries as may be ordered
by the trial court. Petitioner contends that the cessation of RMC’s operations ended not
only the Board members’ employment in RMC, but also their tenure as members of the
RMCPRF Board of Trustees.

Again, we are not convinced. Paragraph 13 of the Plan states that "[a]lthough it is
expected that the Plan will continue indefinitely, it may be amended or terminated by
the Company at any time on account of business conditions." There is no dispute as to
the management prerogative on this matter, considering that the Fund consists
primarily of contributions from the salaries of members-employees and the Company.
However, it must be stressed that the RMC Provident and Retirement Plan was
primarily established for the benefit of regular and permanent employees of RMC. As
such, the Board may not unilaterally terminate the Plan without due regard to any
accrued benefits and rightful claims of members-employees. Besides, the Board is
bound by Paragraph 13 prohibiting the reversion of the Fund to RMC before all the
liabilities of the Plan have been satisfied.

As to the contention that the functions of the Board of Trustees ceased upon with
RMC’s closure, the same is likewise untenable.

Under Section 12227 of the Corporation Code, a dissolved corporation shall nevertheless continue as
a body corporate for three (3) years for the purpose of prosecuting and defending suits by or against
it and enabling it to settle and close its affairs, to dispose and convey its property and to distribute its
assets, but not for the purpose of continuing the business for which it was established. Within those
three (3) years, the corporation may appoint a trustee or receiver who shall carry out the said
purposes beyond the three (3)-year winding-up period. Thus, a trustee of a dissolved corporation may
commence a suit which can proceed to final judgment even beyond the three (3)-year period of
liquidation.28

In the same manner, during and beyond the three (3)-year winding-up period of RMC,
the Board of Trustees of RMCPRF may do no more than settle and close the affairs of
the Fund. The Board retains its authority to act on behalf of its members, albeit, in a
limited capacity. It may commence suits on behalf of its members but not continue
managing the Fund for purposes of maximizing profits. Here, the Board’s act of issuing
the Resolution authorizing petitioner to release the Fund to its beneficiaries is still part
of the liquidation process, that is, satisfaction of the liabilities of the Plan, and does not
amount to doing business. Hence, it was properly within the Board’s power to
promulgate.

Anent the award of attorney’s fees to respondents, we find the same to be in order.
Article 2208(2) of the Civil Code allows the award of attorney’s fees in cases where the
defendant’s act or omission has compelled the plaintiff to litigate with third persons or
to incur expenses to protect his interest. Attorney’s fees may be awarded by a court to
one (1) who was compelled to litigate with third persons or to incur expenses to protect
his or her interest by reason of an unjustified act or omission of the party from whom it
is sought.29

Here, petitioner applied the Fund in satisfaction of the obligation of RMC without
authority and without bothering to inquire regarding unpaid claims from the Board of
Trustees of RMCPRF. It wrote the members of the Board only after it had decided to
revert the Fund to RMC. Upon being met with objections, petitioner insisted on the
reversion of the Fund to RMC, despite the clause in the Plan that prohibits such
reversion before all liabilities shall have been satisfied, thereby leaving respondents
with no choice but to seek judicial relief.

WHEREFORE, the petition for review on certiorari is hereby DENIED. The Decision dated November
7, 2006 and the Resolution dated March 5, 2007 of the Court of Appeals in CA-G.R. CV No. 76642
are AFFIRMED. With costs against the petitioner. SO ORDERED.
G.R. No. 171805 May 30, 2011

PHILIPPINE NATIONAL BANK, Petitioner,

vs.
MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR (deceased),
represented by his heirs; RAMON A. BARCENILLA; ROSARIO T. BARCENILLA;
JOSE B. ENAD (deceased), represented by his heirs; and RICARDO GABUYA
(deceased), represented by his heirs, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 172021

MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners,

vs.
PHILIPPINE NATIONAL BANK, Respondent.

DECISION

LEONARDO-DE CASTRO, J.:

Before the Court are two petitions for review on certiorari under Rule 45 of the Rules of
Court both seeking to annul and set aside the Decision1 dated September 29, 2005 as
well as the Resolution2 dated March 6, 2006 of the Court of Appeals in CA-G.R. CV
No. 75744, entitled "Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased)
represented by his heirs, Ramon A. Barcenilla (deceased) represented by his heirs,
Rosario T. Barcenilla, Jose B. Enad (deceased) represented by his heirs, and Ricardo
Gabuya (deceased) represented by his heirs v. Philippine National Bank, Jose Garrido
and Register of Deeds of Cebu City." The September 29, 2005 Decision of the Court of
Appeals set aside the Decision3 dated November 18, 1998 of the Regional Trial Court
(RTC) of Cebu City, Branch 17, in Civil Case No. CEB-21511. Furthermore, it ordered
the Philippine National Bank (PNB) to pay Merelo B. Aznar; Matias B. Aznar III; Jose L.
Aznar (deceased), represented by his heirs; Ramon A. Barcenilla (deceased),
represented by his heirs; Rosario T. Barcenilla; Jose B. Enad (deceased), represented
by his heirs; and Ricardo Gabuya (deceased), represented by his heirs (Aznar, et al.),
the amount of their lien based on the Minutes of the Special Meeting of the Board of
Directors4 (Minutes) of the defunct Rural Insurance and Surety Company, Inc. (RISCO)
duly annotated on the titles of three parcels of land, plus legal interests from the time of
PNB’s acquisition of the subject properties until the finality of the judgment but
dismissing all other claims of Aznar, et al. On the other hand, the March 6, 2006
Resolution of the Court of Appeals denied the Motion for Reconsideration
subsequently filed by each party.

The facts of this case, as stated in the Decision dated September 29, 2005 of the Court
of Appeals, are as follows:
In 1958, RISCO ceased operation due to business reverses. In plaintiffs’ desire to
rehabilitate RISCO, they contributed a total amount of ₱212,720.00 which was used in
the purchase of the three (3) parcels of land described as follows:

"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate, G.L.R.O. Record No.
3732) situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx
containing an area of SEVENTY[-]EIGHT THOUSAND ONE HUNDRED EIGHTY[-
]FIVE SQUARE METERS (78,185) more or less. x x x" covered by Transfer Certificate
of Title No. 8921 in the name of Rural Insurance & Surety Co., Inc.";

"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O. Record No.
3732), situated in the Municipality of Talisay, Province of Cebu, Island of Cebu. xxx
containing an area of THREE HUNDRED TWENTY[-]NINE THOUSAND FIVE
HUNDRED FORTY[-]SEVEN SQUARE METERS (329,547), more or less. xxx"
covered by Transfer Certificate of Title No. 8922 in the name of Rural Insurance &
Surety Co., Inc." and

"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988), situated in the
District of Lahug, City of Cebu, Island of Cebu. xxx containing an area of FIFTY[-]FIVE
THOUSAND SIX HUNDRED FIFTY[-]THREE (55,653) SQUARE METERS, more or
less." covered by Transfer Certificate of Title No. 24576 in the name of Rural Insurance
& Surety Co., Inc."

After the purchase of the above lots, titles were issued in the name of RISCO. The
amount contributed by plaintiffs constituted as liens and encumbrances on the
aforementioned properties as annotated in the titles of said lots. Such annotation was
made pursuant to the Minutes of the Special Meeting of the Board of Directors of
RISCO (hereinafter referred to as the "Minutes") on March 14, 1961, pertinent portion
of which states:

xxxx

3. The President then explained that in a special meeting of the stockholders

previously called for the purpose of putting up certain amount of ₱212,720.00 for the
rehabilitation of the Company, the following stockholders contributed the amounts
indicated opposite their names:

CONTRIBUTED SURPLUS

MERELO B. AZNAR ₱50,000.00

MATIAS B. AZNAR 50,000.00
JOSE L. AZNAR 27,720.00
 RAMON A. BARCENILLA 25,000.00
ROSARIO T. BARCENILLA 25,000.00
JOSE B. ENAD 17,500.00
RICARDO GABUYA 17,500.00

212,720.00

xxxx

And that the respective contributions above-mentioned shall constitute as their lien or
interest on the property described above, if and when said property are titled in the
name of RURAL INSURANCE & SURETY CO., INC., subject to registration as their
adverse claim in pursuance of the Provisions of Land Registration Act, (Act No. 496, as
amended) until such time their respective contributions are refunded to them
completely.

x x x x"

Thereafter, various subsequent annotations were made on the same titles, including
the Notice of Attachment and Writ of Execution both dated August 3, 1962 in favor of
herein defendant PNB, to wit:

On TCT No. 8921 for Lot 3597:

Entry No. 7416-V-4-D.B. – Notice of Attachment – By the Provincial Sheriff of Cebu,

Civil Case No. 47725, Court of First Instance of Manila, entitled "Philippine National
Bank, Plaintiff, versus Iluminada Gonzales, et al., Defendants", attaching all rights,
interest and participation of the defendant Iluminada Gonzales and Rural Insurance &
Surety Co., Inc. of the two parcels of land covered by T.C.T. Nos. 8921, Attachment
No. 330 and 185.

Date of Instrument – August 3, 1962.

Date of Inscription – August 3, 1962, 3:00 P.M.

Entry No. 7417-V-4-D.B. – Writ of Execution – By the Court of First Instance of Manila,
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the
defendants, to make the sum of Seventy[-]One Thousand Three Hundred Pesos
(₱71,300.00) plus interest etc., in connection with Civil Case No. 47725, File No. T-
8021.

Date of Instrument – July 21, 1962.

Date of Inscription – August 3, 1962, 3:00 P.M.

Entry No. 7512-V-4-D.B. – Notice of Attachment – By the Provincial Sheriff of Cebu,

Civil Case Nos. IV-74065, 73929, 74129, 72818, in the Municipal Court of the City of
Manila, entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et
als., Defendants", attaching all rights, interests and participation of the defendants, to
the parcels of land covered by T.C.T. Nos. 8921 & 8922 Attachment No. 186, File No.
T-8921.

Date of the Instrument – August 16, 1962.

Date of Inscription – August 16, 1962, 2:50 P.M.

Entry No. 7513-V-4-D.B. – Writ of Execution – By the Municipal Court of the City of
Manila, commanding the Provincial Sheriff of Cebu, of the lands and buildings of the
defendants, to make the sum of Three Thousand Pesos (₱3,000.00), with interest at
12% per annum from July 20, 1959, in connection with Civil Case Nos. IV-74065,
73929, 74613 annotated above.

File No. T-8921

Date of the Instrument – August 11, 1962.

Date of the Inscription – August 16, 1962, 2:50 P.M.

On TCT No. 8922 for Lot 7380:

(Same as the annotations on TCT 8921)

On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court order):

Entry No. 1660-V-7-D.B. – Notice of Attachment – by the Provincial Sheriff of Cebu,

Civil Case No. 47725, Court of First Instance of Manila, entitled "Philippine National
Bank, Plaintiff, versus, Iluminada Gonzales, et al., Defendants", attaching all rights,
interest, and participation of the defendants Iluminada Gonzales and Rural Insurance &
Surety Co., Inc. of the parcel of land herein described.

Attachment No. 330 & 185.

Date of Instrument – August 3, 1962.

Date of Inscription – August 3, 1962, 3:00 P.M.

Entry No. 1661-V-7-D.B. – Writ of Execution by the Court of First Instance of Manila
commanding the Provincial Sheriff of Cebu, of the lands and buildings of the
defendants to make the sum of Seventy[-]One Thousand Three Hundred Pesos
(₱71,300.00), plus interest, etc., in connection with Civil Case No. 47725.

File No. T-8921.

Date of the Instrument – July 21, 1962.

Date of the Inscription – August 3, 1962 3:00 P.M.

Entry No. 1861-V-7-D.B. - Notice of Attachment – By the Provincial Sheriff of Cebu,

Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871, in the Municipal Court of the
City of Manila, entitled "Jose Garrido, Plaintiff, versus Rural Insurance & Surety Co.,
Inc., et als., Defendants", attaching all rights, interest and participation of the
defendants, to the parcel of land herein described.

Attachment No. 186.

File No. T-8921.

Date of the Instrument – August 16, 1962.

Date of the Instription – August 16, 1962 2:50 P.M.

Entry No. 1862-V-7-D.B. – Writ of Execution – by the Municipal Court of Manila,

commanding the Provincial Sheriff of Cebu, of the lands and buildings of the
Defendants, to make the sum of Three Thousand Pesos (P3,000.00), with interest at
12% per annum from July 20, 1959, in connection with Civil Case Nos. IV-74065,
73929, 74129, 72613 & 72871 annotated above.

File No. T-8921.

Date of the Instrument – August 11, 1962.

Date of the Inscription – August 16, 1962 at 2:50 P.M.

As a result, a Certificate of Sale was issued in favor of Philippine National Bank, being
the lone and highest bidder of the three (3) parcels of land known as Lot Nos. 3597
and 7380, covered by T.C.T. Nos. 8921 and 8922, respectively, both situated at
Talisay, Cebu, and Lot No. 1328-C covered by T.C.T. No. 24576 situated at Cebu City,
for the amount of Thirty-One Thousand Four Hundred Thirty Pesos (P31,430.00).
Thereafter, a Final Deed of Sale dated May 27, 1991 in favor of the Philippine National
Bank was also issued and Transfer Certificate of Title No. 24576 for Lot 1328-C
(corrected to 1323-C) was cancelled and a new certificate of title, TCT 119848 was
issued in the name of PNB on August 26, 1991.
This prompted plaintiffs-appellees to file the instant complaint seeking the quieting of
their supposed title to the subject properties, declaratory relief, cancellation of TCT and
reconveyance with temporary restraining order and preliminary injunction. Plaintiffs
alleged that the subsequent annotations on the titles are subject to the prior annotation
of their liens and encumbrances. Plaintiffs further contended that the subsequent writs
and processes annotated on the titles are all null and void for want of valid service
upon RISCO and on them, as stockholders. They argued that the Final Deed of Sale
and TCT No. 119848 are null and void as these were issued only after 28 years and
that any right which PNB may have over the properties had long become stale.

Defendant PNB on the other hand countered that plaintiffs have no right of action for
quieting of title since the order of the court directing the issuance of titles to PNB had
already become final and executory and their validity cannot be attacked except in a
direct proceeding for their annulment. Defendant further asserted that plaintiffs, as
mere stockholders of RISCO do not have any legal or equitable right over the
properties of the corporation. PNB posited that even if plaintiff’s monetary lien had not
expired, their only recourse was to require the reimbursement or refund of their
contribution.51awphi1

Aznar, et al., filed a Manifestation and Motion for Judgment on the Pleadings6 on
October 5, 1998. Thus, the trial court rendered the November 18, 1998 Decision, which
ruled against PNB on the basis that there was an express trust created over the
subject properties whereby RISCO was the trustee and the stockholders, Aznar, et al.,
were the beneficiaries or the cestui que trust. The dispositive portion of the said ruling
reads:

WHEREFORE, judgment is hereby rendered as follows:

a) Declaring the Minutes of the Special Meeting of the Board of Directors of

RISCO approved on March 14, 1961 (Annex "E," Complaint) annotated on the
titles to subject properties on May 15, 1962 as an express trust whereby RISCO
was a mere trustee and the above-mentioned stockholders as beneficiaries being
the true and lawful owners of Lots 3597, 7380 and 1323;

b) Declaring all the subsequent annotations of court writs and processes, to wit:
Entry No. 7416-V-4-D.B., 7417-V-4-D.B., 7512-V-4-D.B., and 7513-V-4-D.B. in
TCT No. 8921 for Lot 3597 and TCT No. 8922 for Lot 7380; Entry No. 1660-V-7-
D.B., Entry No. 1661-V-7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-
D.B., Entry No. 4329-V-7-D.B., Entry No. 3761-V-7-D.B. and Entry No. 26522 v.
34, D.B. on TCT No. 24576 for Lot 1323-C, and all other subsequent annotations
thereon in favor of third persons, as null and void;

c) Directing the Register of Deeds of the Province of Cebu and/or the Register of
Deeds of Cebu City, as the case may be, to cancel all these annotations
mentioned in paragraph b) above the titles;
 d) Directing the Register of Deeds of the Province of Cebu to cancel and/or annul
TCTs Nos. 8921 and 8922 in the name of RISCO, and to issue another titles in
the names of the plaintiffs; and

e) Directing Philippine National Bank to reconvey TCT No. 119848 in favor of the
plaintiffs.7

PNB appealed the adverse ruling to the Court of Appeals which, in its September 29,
2005 Decision, set aside the judgment of the trial court. Although the Court of Appeals
agreed with the trial court that a judgment on the pleadings was proper, the appellate
court opined that the monetary contributions made by Aznar, et al., to RISCO can only
be characterized as a loan secured by a lien on the subject lots, rather than an express
trust. Thus, it directed PNB to pay Aznar, et al., the amount of their contributions plus
legal interest from the time of acquisition of the property until finality of
judgment.lawphil The dispositive portion of the decision reads:

WHEREFORE, premises considered, the assailed Judgment is hereby SET ASIDE.

A new judgment is rendered ordering Philippine National Bank to pay plaintiffs-

appellees the amount of their lien based on the Minutes of the Special Meeting of the
Board of Directors duly annotated on the titles, plus legal interests from the time of
appellants’ acquisition of the subject properties until the finality of this judgment.

All other claims of the plaintiffs-appellees are hereby DISMISSED.8

Both parties moved for reconsideration but these were denied by the Court of Appeals.
Hence, each party filed with this Court their respective petitions for review on certiorari
under Rule 45 of the Rules of Court, which were consolidated in a Resolution9 dated
October 2, 2006.

In PNB’s petition, docketed as G.R. No. 171805, the following assignment of errors
were raised:

THE COURT OF APPEALS ERRED IN AFFIRMING THE FINDINGS OF THE

TRIAL COURT THAT A JUDGMENT ON THE PLEADINGS WAS WARRANTED
DESPITE THE EXISTENCE OF GENUINE ISSUES OF FACTS ALLEGED IN
PETITIONER PNB’S ANSWER.

II

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE

RIGHT OF RESPONDENTS TO REFUND OR REPAYMENT OF THEIR
CONTRIBUTIONS HAD NOT PRESCRIBED AND/OR THAT THE MINUTES OF
 THE SPECIAL MEETING OF THE BOARD OF DIRECTORS OF RISCO
CONSTITUTED AS AN EFFECTIVE ADVERSE CLAIM.

III

THE COURT OF APPEALS ERRED IN NOT CONSIDERING THE DISMISSAL

OF THE COMPLAINT ON GROUNDS OF RES JUDICATA AND LACK OF
CAUSE OF ACTION ALLEGED BY PETITIONER IN ITS ANSWER.10

On the other hand, Aznar, et al.’s petition, docketed as G.R. No. 172021, raised the
following issue:

THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE CONTRIBUTIONS

MADE BY THE STOCKHOLDERS OF RISCO WERE MERELY A LOAN SECURED
BY THEIR LIEN OVER THE PROPERTIES, SUBJECT TO REIMBURSEMENT OR
REFUND, RATHER THAN AN EXPRESS TRUST.11

Anent the first issue raised in G.R. No. 171805, PNB argues that a judgment on the
pleadings was not proper because its Answer,12 which it filed during the trial court
proceedings of this case, tendered genuine issues of fact since it did not only deny
material allegations in Aznar, et al.’s Complaint13 but also set up special and affirmative
defenses. Furthermore, PNB maintains that, by virtue of the trial court’s judgment on
the pleadings, it was denied its right to present evidence and, therefore, it was denied
due process.

The contention is meritorious.

The legal basis for rendering a judgment on the pleadings can be found in Section 1,
Rule 34 of the Rules of Court which states that "[w]here an answer fails to tender an
issue, or otherwise admits the material allegations of the adverse party’s pleading, the
court may, on motion of that party, direct judgment on such pleading. x x x."

Judgment on the pleadings is, therefore, based exclusively upon the allegations
appearing in the pleadings of the parties and the annexes, if any, without consideration
of any evidence aliunde.14 However, when it appears that not all the material
allegations of the complaint were admitted in the answer for some of them were either
denied or disputed, and the defendant has set up certain special defenses which, if
proven, would have the effect of nullifying plaintiff’s main cause of action, judgment on
the pleadings cannot be rendered.15

In the case at bar, the Court of Appeals justified the trial court’s resort to a judgment on
the pleadings in the following manner:

Perusal of the complaint, particularly, Paragraph 7 thereof reveals:

"7. That in their desire to rehabilitate RISCO, the above-named stockholders
contributed a total amount of Ph₱212,720.00 which was used in the purchase of the
above-described parcels of land, which amount constituted liens and encumbrances on
subject properties in favor of the above-named stockholders as annotated in the titles
adverted to above, pursuant to the Minutes of the Special Meeting of the Board of
Directors of RISCO approved on March 14, 1961, a copy of which is hereto attached
as Annex "E".

On the other hand, defendant in its Answer, admitted the aforequoted allegation with
the qualification that the amount put up by the stockholders was "used as part
payment" for the properties. Defendant further averred that plaintiff’s liens and
encumbrances annotated on the titles issued to RISCO constituted as "loan from the
stockholders to pay part of the purchase price of the properties" and "was a personal
obligation of RISCO and was thus not a claim adverse to the ownership rights of the
corporation." With these averments, We do not find error on the part of the trial court in
rendering a judgment on the pleadings. For one, the qualification made by defendant in
its answer is not sufficient to controvert the allegations raised in the complaint. As to
defendants’ contention that the money contributed by plaintiffs was in fact a "loan" from
the stockholders, reference can be made to the Minutes of the Special Meeting of the
Board of Directors, from which plaintiffs-appellees anchored their complaint, in order to
ascertain the true nature of their claim over the properties. Thus, the issues raised by
the parties can be resolved on the basis of their respective pleadings and the annexes
attached thereto and do not require further presentation of evidence aliunde.16

However, a careful reading of Aznar, et al.’s Complaint and of PNB’s Answer would
reveal that both parties raised several claims and defenses, respectively, other than
what was cited by the Court of Appeals, which requires the presentation of evidence
for resolution, to wit:

Complaint (Aznar, et al.) Answer (PNB)

11. That these subsequent annotations on
the titles of the properties in question are
subject to the prior annotation of liens and
encumbrances of the above-named
stockholders per Entry No. 458-V-7-D.B.
inscribed on TCT No. 24576 on May 15,
1962 and per Entry No. 6966-V-4-D.B. on
TCT No. 8921 and TCT No. 8922 on May
15, 1962;
12. That these writs and processes
annotated on the titles are all null and void
for total want of valid service upon RISCO
and the above-named stockholders
considering that as early as sometime in
1958, RISCO ceased operations as earlier
10) Par. 11 is denied as the loan
from the stockholders to pay part of
the purchase price of the properties
was a personal obligation of
RISCO and was thus not a claim
adverse to the ownership rights of
the corporation;
11) Par. 12 is denied as in fact
notice to RISCO had been sent to
its last known address at Plaza
Goite, Manila;
 stated, and as early as May 15, 1962, the
liens and encumbrances of the above-
named stockholders were annotated in the
titles of subject properties;
13. That more particularly, the Final Deed
of Sale (Annex "G") and TCT No. 119848
are null and void as these were issued only
after 28 years and 5 months (in the case of
the Final Deed of Sale) and 28 years, 6
months and 29 days (in the case of TCT
119848) from the invalid auction sale on
December 27, 1962, hence, any right, if
any, which PNB had over subject properties
had long become stale;
14. That plaintiffs continue to have
possession of subject properties and of
their corresponding titles, but they never
received any process concerning the
petition filed by PNB to have TCT 24576
over Lot 1323-C surrendered and/or
cancelled;
15. That there is a cloud created on the
aforementioned titles of RISCO by reason
of the annotate writs, processes and
proceedings caused by Jose Garrido and
PNB which were apparently valid or
effective, but which are in truth and in fact
invalid and ineffective, and prejudicial to
said titles and to the rights of the plaintiffs,
which should be removed and the titles
quieted.17
12) Par. 13 is denied for no law
requires the final deed of sale to be
executed immediately after the end
of the redemption period.
Moreover, another court of
competent jurisdiction has already
ruled that PNB was entitled to a
final deed of sale;
13) Par. 14 is denied as plaintiffs
are not in actual possession of the
land and if they were, their
possession was as trustee for the
creditors of RISCO like PNB;
14) Par. 15 is denied as the court
orders directing the issuance of
titles to PNB in lieu of TCT 24576
and TCT 8922 are valid judgments
which cannot be set aside in a
collateral proceeding like the
instant case.18

Furthermore, apart from refuting the aforecited material allegations made by Aznar, et
al., PNB also indicated in its Answer the special and affirmative defenses of (a)
prescription; (b) res judicata; (c) Aznar, et al., having no right of action for quieting of
title; (d) Aznar, et al.’s lien being ineffective and not binding to PNB; and (e) Aznar, et
al.’s having no personality to file the suit.19

From the foregoing, it is indubitably clear that it was error for the trial court to render a
judgment on the pleadings and, in effect, resulted in a denial of due process on the
part of PNB because it was denied its right to present evidence. A remand of this case
would ordinarily be the appropriate course of action. However, in the interest of justice
and in order to expedite the resolution of this case which was filed with the trial court
way back in 1998, the Court finds it proper to already resolve the present controversy
in light of the existence of legal grounds that would dispose of the case at bar without
necessity of presentation of further evidence on the other disputed factual claims and
defenses of the parties.

A thorough and comprehensive scrutiny of the records would reveal that this case
should be dismissed because Aznar, et al., have no title to quiet over the subject
properties and their true cause of action is already barred by prescription.

At the outset, the Court agrees with the Court of Appeals that the agreement contained
in the Minutes of the Special Meeting of the RISCO Board of Directors held on March
14, 1961 was a loan by the therein named stockholders to RISCO. We quote with
approval the following discussion from the Court of Appeals Decision dated September
29, 2005:

Careful perusal of the Minutes relied upon by plaintiffs-appellees in their claim, showed
that their contributions shall constitute as "lien or interest on the property" if and when
said properties are titled in the name of RISCO, subject to registration of their adverse
claim under the Land Registration Act, until such time their respective contributions are
refunded to them completely.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are
clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of its stipulation shall control. When the language of the contract is explicit
leaving no doubt as to the intention of the drafters thereof, the courts may not read into
it any other intention that would contradict its plain import.

The term lien as used in the Minutes is defined as "a discharge on property usually for
the payment of some debt or obligation. A lien is a qualified right or a proprietary
interest which may be exercised over the property of another. It is a right which the law
gives to have a debt satisfied out of a particular thing. It signifies a legal claim or
charge on property; whether real or personal, as a collateral or security for the
payment of some debt or obligation." Hence, from the use of the word "lien" in the
Minutes, We find that the money contributed by plaintiffs-appellees was in the nature of
a loan, secured by their liens and interests duly annotated on the titles. The annotation
of their lien serves only as collateral and does not in any way vest ownership of
property to plaintiffs.20 (Emphases supplied.)

We are not persuaded by the contention of Aznar, et al., that the language of the
subject Minutes created an express trust.

Trust is the right to the beneficial enjoyment of property, the legal title to which is
vested in another. It is a fiduciary relationship that obliges the trustee to deal with the
property for the benefit of the beneficiary. Trust relations between parties may either be
express or implied. An express trust is created by the intention of the trustor or of the
parties. An implied trust comes into being by operation of law.21
Express trusts, sometimes referred to as direct trusts, are intentionally created by the
direct and positive acts of the settlor or the trustor - by some writing, deed, or will or
oral declaration. It is created not necessarily by some written words, but by the direct
and positive acts of the parties.22 This is in consonance with Article 1444 of the Civil
Code, which states that "[n]o particular words are required for the creation of an
express trust, it being sufficient that a trust is clearly intended."

In other words, the creation of an express trust must be manifested with reasonable
certainty and cannot be inferred from loose and vague declarations or from ambiguous
circumstances susceptible of other interpretations.23

No such reasonable certitude in the creation of an express trust obtains in the case at
bar. In fact, a careful scrutiny of the plain and ordinary meaning of the terms used in
the Minutes does not offer any indication that the parties thereto intended that Aznar,
et al., become beneficiaries under an express trust and that RISCO serve as trustor.

Indeed, we find that Aznar, et al., have no right to ask for the quieting of title of the
properties at issue because they have no legal and/or equitable rights over the
properties that are derived from the previous registered owner which is RISCO, the
pertinent provision of the law is Section 2 of the Corporation Code (Batas Pambansa
Blg. 68), which states that "[a] corporation is an artificial being created by operation of
law, having the right of succession and the powers, attributes and properties expressly
authorized by law or incident to its existence."

As a consequence thereof, a corporation has a personality separate and distinct from

those of its stockholders and other corporations to which it may be connected.24 Thus,
we had previously ruled in Magsaysay-Labrador v. Court of Appeals25 that the interest
of the stockholders over the properties of the corporation is merely inchoate and
therefore does not entitle them to intervene in litigation involving corporate property, to
wit:

Here, the interest, if it exists at all, of petitioners-movants is indirect, contingent,

remote, conjectural, consequential and collateral. At the very least, their interest is
purely inchoate, or in sheer expectancy of a right in the management of the corporation
and to share in the profits thereof and in the properties and assets thereof on
dissolution, after payment of the corporate debts and obligations.

While a share of stock represents a proportionate or aliquot interest in the property of

the corporation, it does not vest the owner thereof with any legal right or title to any of
the property, his interest in the corporate property being equitable or beneficial in
nature. Shareholders are in no legal sense the owners of corporate property, which is
owned by the corporation as a distinct legal person.26

In the case at bar, there is no allegation, much less any proof, that the corporate
existence of RISCO has ceased and the corporate property has been liquidated and
distributed to the stockholders. The records only indicate that, as per Securities and
Exchange Commission (SEC) Certification27 dated June 18, 1997, the SEC merely
suspended RISCO’s Certificate of Registration beginning on September 5, 1988 due to
its non-submission of SEC required reports and its failure to operate for a continuous
period of at least five years.

Verily, Aznar, et al., who are stockholders of RISCO, cannot claim ownership over the
properties at issue in this case on the strength of the Minutes which, at most, is merely
evidence of a loan agreement between them and the company. There is no indication
or even a suggestion that the ownership of said properties were transferred to them
which would require no less that the said properties be registered under their names.
For this reason, the complaint should be dismissed since Aznar, et al., have no cause
to seek a quieting of title over the subject properties.

At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to
RISCO. Unfortunately, the right to seek repayment or reimbursement of their
contributions used to purchase the subject properties is already barred by prescription.

Section 1, Rule 9 of the Rules of Court provides that when it appears from the
pleadings or the evidence on record that the action is already barred by the statute of
limitations, the court shall dismiss the claim, to wit:

Defenses and objections not pleaded either in a motion to dismiss or in the answer are
deemed waived. However, when it appears from the pleadings or the evidence on
record that the court has no jurisdiction over the subject matter, that there is another
action pending between the same parties for the same cause, or that the action is
barred by a prior judgment or by statute of limitations, the court shall dismiss the
claim. (Emphasis supplied.)

In Feliciano v. Canoza,28 we held:

We have ruled that trial courts have authority and discretion to dismiss an action on the ground of
prescription when the parties’ pleadings or other facts on record show it to be indeed time-barred x x
x; and it may do so on the basis of a motion to dismiss, or an answer which sets up such ground as
an affirmative defense; or even if the ground is alleged after judgment on the merits, as in a motion
for reconsideration; or even if the defense has not been asserted at all, as where no statement
thereof is found in the pleadings, or where a defendant has been declared in default. What is
essential only, to repeat, is that the facts demonstrating the lapse of the prescriptive period,
be otherwise sufficiently and satisfactorily apparent on the record; either in the averments of
the plaintiffs complaint, or otherwise established by the evidence.29 (Emphasis supplied.)

The pertinent Civil Code provision on prescription which is applicable to the issue at
hand is Article 1144(1), to wit:
The following actions must be brought within ten years from the time the right of action accrues:

1. Upon a written contract;

 2. Upon an obligation created by law;

3. Upon a judgment. (Emphasis supplied.)

Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining Co.,30 we held that the
term "written contract" includes the minutes of the meeting of the board of directors of a
corporation, which minutes were adopted by the parties although not signed by them,
to wit:

Coming now to the question of prescription raised by defendant Lepanto, it is

contended by the latter that the period to be considered for the prescription of the claim
regarding participation in the profits is only four years, because the modification of the
sharing embodied in the management contract is merely verbal, no written document
to that effect having been presented. This contention is untenable. The modification
appears in the minutes of the special meeting of the Board of Directors of Lepanto held
on August 21, 1940, it having been made upon the authority of its President, and in
said minutes the terms of modification had been specified. This is sufficient to have the
agreement considered, for the purpose of applying the statute of limitations, as a
written contract even if the minutes were not signed by the parties (3 A.L.R., 2d, p.
831). It has been held that a writing containing the terms of a contract if adopted by two
persons may constitute a contract in writing even if the same is not signed by either of
the parties (3 A.L.R., 2d, pp. 812-813). Another authority says that an unsigned
agreement the terms of which are embodied in a document unconditionally accepted
by both parties is a written contract (Corbin on Contracts, Vol. I, p. 85).31

Applied to the case at bar, the Minutes which was approved on March 14, 1961 is
considered as a written contract between Aznar, et al., and RISCO for the
reimbursement of the contributions of the former. As such, the former had a period of
ten (10) years from 1961 within which to enforce the said written contract. However, it
does not appear that Aznar, et al., filed any action for reimbursement or refund of their
contributions against RISCO or even against PNB. Instead the suit that Aznar, et al.,
brought before the trial court only on January 28, 1998 was one to quiet title over the
properties purchased by RISCO with their contributions. It is unmistakable that their
right of action to claim for refund or payment of their contributions had long prescribed.
Thus, it was reversible error for the Court of Appeals to order PNB to pay Aznar, et al.,
the amount of their liens based on the Minutes with legal interests from the time of
PNB’s acquisition of the subject properties.

In view of the foregoing, it is unnecessary for the Court to pass upon the other issues
raised by the parties.

WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack of
merit. The petition of PNB in G.R. No. 171805 is GRANTED. The Complaint, docketed
as Civil Case No. CEB-21511, filed by Aznar, et al., is hereby DISMISSED. No costs.

SO ORDERED.