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Insurance Case Digest: Philippine Phoenix Surety & Insurance Co. V.

Woodworks Inc (1979)


G.R. No. L-25317 August 6, 1979 Lessons Applicable: Estoppel and credit extension (Insurance) Laws Applicable: Section 77 of the Insurance Code

FACTS:

July 21, 1960: Woodworks, Inc. was issued a fire policy for its building machinery and equipment by Philippine Phoenix Surety & Insurance Co. for P500K covering July 21, 1960 to July 21, 1961. Woodworks did not pay the premium totalling to P10,593.36.

April 19, 1961: It was alleged that Woodworks notified Philippine Phoenix the cancellation of the Policy so Philippine Phoenix credited P3,110.25 for the unexpired period of 94 days and demanded in writing the payment of P7,483.11

Woodworks refused stating that it need not pay premium "because the Insurer did not stand liable for any indemnity during the period the premiums were not paid." Philippine Phoenix filed with the CFI to recover its earned premium of P7,483.11 Woodworks: to pay the premium after the issuance of the policy put an end to theinsurance contract and rendered the policy unenforceable CFI: favored Philippine Phoenix

ISSUE: W/N there was a valid insurance contract despite no premium payment was paid

HELD: NO. Reversed

Policy provides for pre-payment of premium. To constitute an extension of credit there must be a clear and express agreement therefor and there nust be acceptance of the extension - none here

Since the premium had not been paid, the policy must be deemed to have lapsed. failure to make a payment of a premium or assessment at the time provided for, the policy shall become void or forfeited, or the obligation of the insurer shall cease, or words to like effect, because the contract so prescribes and because such a

stipulation is a material and essential part of the contract. This is true, for instance, in the case of life, health and accident, fire and hail insurance policies

Explicit in the Policy itself is plaintiff's agreement to indemnify defendant for loss by fire only "after payment of premium" Compliance by the insured with the terms of the contract is a condition precedent to the right of recovery.

The burden is on an insured to keep a policy in force by the payment of premiums, rather than on the insurer to exert every effort to prevent the insured from allowing a policy to elapse through a failure to make premium payments.

Jurisprudence: G.R. No. L-4197


EN BANC

G.R. No. L-4197

March 20, 1952

FIDELA SALES DE GONZAGA, Plaintiff-Appellant, vs. THE CROWN LIFE INSURANCE COMPANY, Defendant-Appellee.

TUASON, J.:

This is one more case wherein the question of the effects of war in a pre-war insurance contracts is presented.

Reduced to their absolute essentials, the facts are that, on September 26, 1939 the Crown Life Insurance Co., whose home office is in Toronto, Canada, issued to Ramon Gonzaga through its branch office in Manila a 20year endowment policy for P15,000. The insured paid in due time the agreed yearly premium, which was P591.00, for three consecutive years, the last payment having been effected on September 6, 1941. On account of the outbreak of war, no premiums were paid after that date, although the policy was continued in force up to June 12, 1943, under its automatic premium loan clause.

Ramon Gonzaga died on June 27, 1945 from an accident. Unsuccessful in her attempt to collect the amount of the policy his widow and the beneficiary named in the policy began this suit on December 18, 1947. The defendant set up the defense that the policy had lapsed by non-payment of the stipulated premiums of the stipulated dates. And the trial court in a carefully written decision ruled against the plaintiff.

Since this action was decided by the court below, several cases analogous to this one in its main characteristics have come up before this Court. (Paz Lopez de Constantino vs. Asia Life Insurance Company,1 G.R. No. L1669; Agustina Peralta vs. Asia Life Insurance Company,2 G.R. No. L-1670; James McGuire vs. The Manufacturers Life Insurance Co;3 G. R. No. L-3581; National Leather Co; Inc. vs. TheUnited States Life Insurance Co.,4 G.R. No. L-2668; Victoria Hidalgo Vda. de Carrero, et al., vs. The Manufacturers Life Insurance Co.,5 G. R. No. L-3032; and West Coast Life Insurance Co. vs. Patricio H. Gubagaras,6 G. R. No. L-2810) In Paz Lopez de Constantinos. Asia Life Insurance Company, G. R. No. L-1669, the leading case, the Court speaking through Mr. Justice Bengzon, adopted this doctrine:

The case, therefore, is one in which time is material and of the essence of the contract. Non-payment at the day involves absolute forfeiture is such be the terms of the contract, as is the case here. Courts cannot with safety vary the stipulation of the parties by introducing equities for the relief of the insured against their own negligence.

The aforecited decisions are decisive of the proposition that non-payment of premiums by reason of war puts an end to the contract.

There is, however, one aspect of the case at bar not raised before and upon which the plaintiff rest her case in the alternative.

In its answer, the defendant alleged that "through its General Agents, Hanson, Orth and Stevenson, Inc., it had its offices open in the city of Manila during the Japanese occupation in the Philippines." Taking advantage of this allegation, and ignoring her own in her complaint - that "for the whole duration of the (war) and from thence to sometime thereafter, that is, in October, 1945, . . . defendant closed its business in the Islands, and had absolutely no agency or representative here to represent it, with authority to collect premiums from the Insured." - the plaintiff asserts that it was the defendant's duty to notify her husbands of its postal address during the war, and that its failure to do so excused deliquency in the payment of the premiums. The plaintiff cites the provision of the contract which states that "all premiums subsequent to the first year are payable to the

Company's authorized cashier at the place stated in the fourth page hereof, or at such other place instead thereof as may be designated from time to time by noticed to the Company mailed to the Insured at his last known post office address."

The evidence on this feature of the case reveals that, the defendant being an enemy corporation, its offices, which were housed at the Chaco building when the hostilities broke out, were ordered closed by the Japanese Military authorities in January 1942, and the officers of Hanson, Orth and Stevenson, Inc., defendants general agents, being American citizens, were entered. In addition, on August 25 the Japanese administration issued "Instruction No. 71" by which enemy alien insurance companies were expressly prohibited from doing business.

But before that instruction was promulgated Hanson, Orth and Stevenson, had opened in the house of one of their Filipino employees on Gonzales Street in Ermita an office with skeleton force, all Filipinos, for the purpose of receiving premiums from their policy holders; and notwithstanding the prohibition that office was not closed.

In the face of the Japanese Military decrees, which found sanctions in international law, the failure of the defendant or its Filipino employees to advise the insured of the defendant's new address did not work as a forfeiture of the right to have the premiums satisfied promptly. While clandestine transactions between the parties during the war might be binding, it was not obligatory on the insurer, and it was well-nigh risky for its employees, to send out notices to its widely scattered policy holders, what with the postal service under the control and administration of the ruthless occupants.

There is no duty when the law forbids; and there is no obligation without corresponding right enjoyed by another. The insured had no right to demand that the defendant maintain an office during the war, and the defendant was not obligated to do so. Had the defendant not opened any office at all during the occupation and stopped receiving premiums absolutely, the plaintiff's position would not have been any better or worse for the closing and suspension of the defendant's business. Had the plaintiff's husband actually tendered his premiums and the defendant's employees rejected them, he could not have insisted on the payment as a matter of right. Stated otherwise, the defendant's opening of an interim office partook of the nature of the privilege to the policy holders to keep their policies operative rather than a duty to them under the contract.

Of this privilege, incidentally, Gonzaga could have taken advantage if he was really intent on preserving his policy. Uncontroverted or admitted is the fact that the defendant's agent, through whom he had been insured, lived in Malabon, Rizal, and was his close acquaintance; and so were some of the defendant's Filipino employees who handled the insurance business of Hanson, Orth and Stevenson during the occupation. And Gonzaga admittedly come to Manila on a visit every now and then, and could have, without difficulty, contacted any of those people.

For another thing, the policy carried a clause providing for its reinstatement under certain conditions within three years from the date of lapse on application of the insured. The present policy lapsed on June 12, 1943, the Company's Manila branch was reopened on May 1, 1945 and resumed regular business through the same general agents at the Wilson Building on Juan Luna Street, Manila and Ramon Gonzaga died on June 27, 1945. It is undoubted that Gonzaga knew all that. It is not denied that he was an employee in the United States Navy, that the united States Navy had an office in the same Wilson Building, and that he came at least twice a month to that office for his salary.

Both in law and in reason, the action was properly dismissed and the appealed decision is hereby affirmed, with costs.

Paras, C.J., Pablo, Bengzon, Montemayor, Reyes, Jugo and Bautista Angelo, JJ., concur.

American Home Assurance v. Tantuco


G.R. No. 138941, 8 Oct. 2001

INSURANCE LAW: Liberality is the rule of construction in insurance contracts.

FACTS: Tantuco Enterprises, Inc. is a coconut oil milling and refining company. It owned two mills (the first oil mill and a new one), both located at its factory compound at Iyam, Lucena City. The two oil mills are separately covered by fire insurance policies issued by American Home Assurance Co. On Sept. 30, 1991, a fire broke out and gutted and consumed the new oil mill. American Home rejected the claim for the insurance proceeds on the ground that no policy was issued by it covering the burned oil mill. It stated that the new oil mill was under Building No. 15 while the insurance coverage extended only to the oil mill under Building No. 5.

ISSUE: Whether or not the new oil mill is covered by the fire insurance policy

HELD: In construing the words used descriptive of a building insured, the greatest liberality is shown by the courts in giving effect to the insurance. In view of the custom of insurance agents to examine buildings before writing policies upon them, and since a mistake as to the identity and character of the building is extremely unlikely, the courts are inclined to consider the policy of insurance covers any building which the parties manifestly intended to insure, however inaccurate the description may be. Notwithstanding, therefore, the misdescription in the policy, it is beyond dispute, to our mind, that what the parties manifestly intended to insure was the new oil mill. If the parties really intended to protect the first oil mill, then there is no need to specify it as new. Indeed, it would be absurd to assume that the respondent would protect its first oil mill for different amounts and leave uncovered its second one.

Republic v Del Monte G.R. No. 156956 October 9, 2006


C.J. Panganiban

Facts: Vilfran Liner lost in a case against Del Monte Motors. They were made to pay 11 million pesos for service contracts with Del Monte, and such was sourced from the counterbond posted by Vilfran. CISCO issued the counterbond. CISCO opposed but was rebuffed. The RTC released a motion for execution commanding the sheriff to levy the amount on the property of CISCO. To completely satisfy the amount, the Insurance Commissioner was also commanded to withdraw the security deposit filed by CISCO with the Commission according to Sec 203 of the Insurance Code. Insurance Commissioner Malinis was ordered by the RTC to withdraw the security bond of CISCO for the payment of the insurance indemnity won by Del Monte Motor against Vilfran Liner, the insured. Malinis didnt obey the order, so the respondent moved to cite him in contempt of Court. The RTC ruled against Malinis because he didnt have legal basis.

Issues: 1. Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be levied or garnished in favor of only one insured. 2. Whether or not the Insurance Commissioner has power to withhold the release of the security deposit.

Held: No. Yes. Petition granted.

Ratio: 1. Sec 203- No judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the Commissioner. The court also claimed that the security deposit shall be (1) answerable for all the obligations of the depositing insurer under its insurance contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from levy by any claimant. To allow the garnishment of that deposit would impair the fund by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained. Further, this move would create, in favor of respondent, a preference of credit over the other policy holders and beneficiaries. Also, the securities are held as a contingency fund to answer for the claims against the insurance company by all its policy holders and their beneficiaries. This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all others. The other parties may have their own claims against the insurance company under other insurance contracts it has entered into. 2. The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatory authority over insurance matters. Under Sec 414 of the Insurance Code, "The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem necessary to secure the enforcement of the provisions of this Code. The commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority to persons or entities desiring to engage in insurance business in the Philippines;16 (2) revoke or suspend these certificates of authority upon finding grounds for the revocation or suspension; (3) impose upon insurance companies, their directors and/or officers and/or agents appropriate penalties -- fines, suspension or removal from office -- for failing to comply with the Code or with any of the commissioner's orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or unsound manner.

Included here is the duty to hold security deposits under Secs 191 and 202 of the Code for the benefit of policy holders. Sec 192, on the other hand, states: the securities deposited as aforesaid shall be returned upon the company's making application therefor and proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines. He has been given great discretion to regulate the business to protect the public. Also An implied trust is created by the law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company. He believed that the security deposit was exempt from execution to protect the policy holders.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 156956 October 9, 2006

REPUBLIC OF THE PHILIPPINES, by EDUARDO T. MALINIS, in His Capacity as Insurance Commissioner,petitioner, vs. DEL MONTE MOTORS, INC., respondent.

DECISION

PANGANIBAN, CJ.: The securities required by the Insurance Code to be deposited with the Insurance Commissioner are intended to answer for the claims of all policy holders in the event that the depositing insurance company becomes insolvent or otherwise unable to satisfy their claims. The security deposit must be ratably distributed among all the insured who are entitled to their respective shares; it cannot be garnished or levied upon by a single claimant, to the detriment of the others. The Case Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to reverse the January 16, 2003 Order2 of the Regional Court (RTC) of Quezon City (Branch 221) in Civil Case No. Q-97-30412. The RTC found Insurance Commissioner Eduardo T. Malinis guilty of indirect contempt for refusing to comply with the December 18, 2002 Resolution3 of the lower court. The January 16, 2003 Order states in full:

"On January 8, 2003, [respondent] filed a Motion to Cite Commissioner Eduardo T. Malinis of the Office of the Insurance Commission in Contempt of Court because of his failure and refusal to obey the lawful order of this court embodied in a Resolution dated December 18, 2002 directing him to allow the withdrawal of the security deposit of Capital Insurance and Surety Co. (CISCO) in the amount of P11,835,375.50 to be paid to Sheriff Manuel Paguyo in the satisfaction of the Notice of Garnishment pursuant to a Decision of this Court which has become final and executory. "During the hearing of the Motion set last January 10, 2003, Commissioner Malinis or his counsel or his duly authorized representative failed to appear despite notice in utter disregard of the order of this Court. However, Commissioner Malinis filed on January 15, 2003 a written Comment reiterating the same grounds already passed upon and rejected by this Court. This Court finds no lawful justification or excuse for Commissioner Malinis' refusal to implement the lawful orders of this Court. "Wherefore, premises considered and after due hearing, Commissioner Eduardo T. Malinis is hereby declared guilty of Indirect Contempt of Court pursuant to Section 3 [of] Rule 71 of the 1997 Rules of Civil Procedure for willfully disobeying and refusing to implement and obey a lawful order of this Court."4 The Facts On January 15, 2002, the RTC rendered a Decision in Civil Case No. Q-97-30412, finding the defendants (Vilfran Liner, Inc., Hilaria Villegas and Maura Villegas) jointly and severally liable to pay Del Monte Motors, Inc.,P11,835,375.50 representing the balance of Vilfran Liner's service contracts with respondent. The trial court further ordered the execution of the Decision against the counterbond posted by Vilfran Liner on June 10, 1997, and issued by Capital Insurance and Surety Co., Inc. (CISCO). On April 18, 2002, CISCO opposed the Motion for Execution filed by respondent, claiming that the latter had no record or document regarding the alleged issuance of the counterbond; thus, the bond was not valid and enforceable. On June 13, 2002, the RTC granted the Motion for Execution and issued the corresponding Writ. Armed with this Writ, Sheriff Manuel S. Paguyo proceeded to levy on the properties of CISCO. He also issued a Notice of Garnishment on several depository banks of the insurance company. Moreover, he served a similar notice on the Insurance Commission, so as to enforce the Writ on the security deposit filed by CISCO with the Commission in accordance with Section 203 of the Insurance Code. On December 18, 2002, after a hearing on all the pending Motions, the RTC ruled that the Notice of Garnishment served by Sheriff Paguyo on the insurance commission was valid. The trial court added that the letter and spirit of the law made the security deposit answerable for contractual obligations incurred by CISCO under the insurance contracts the latter had entered into. The RTC resolved thus: "Furthermore, the Commissioner of the Office of the Insurance Commission is hereby ordered to comply with its obligations under the Insurance Code by upholding the integrity and efficacy of bonds validly issued by duly accredited Bonding and Insurance Companies; and to safeguard the public interest by insuring the faithful performance to enforce contractual obligations under existing bonds. Accordingly said office is ordered to withdraw from the security deposit of Capital Insurance & Surety Company, Inc. the amount

ofP11,835.50 to be paid to Sheriff Manuel S. Paguyo in satisfaction of the Notice of Garnishment served on August 16, 2002."5 On January 8, 2003, respondent moved to cite Insurance Commissioner Eduardo T. Malinis in contempt of court for his refusal to obey the December 18, 2002 Resolution of the trial court. Ruling of the Trial Court The RTC held Insurance Commissioner Malinis in contempt for his refusal to implement its Order. It explained that the commissioner had no legal justification for his refusal to allow the withdrawal of CISCO's security deposit. Hence, this Petition.6 Issues Petitioner raises this sole issue for the Court's consideration: "Whether or not the security deposit held by the Insurance Commissioner pursuant to Section 203 of the Insurance Code may be levied or garnished in favor of only one insured."7 The Court's Ruling The Petition is meritorious. Preliminary Issue: Propriety of Review Before discussing the principal issue, the Court will first dispose of the question of mootness. Prior to the filing of the instant Petition, Insurance Commissioner Malinis sent the treasurer of the Philippines a letter dated March 26, 2003, stating that the former had no objection to the release of the security deposit to Del Monte Motors. Portions of the fund were consequently released to respondent in July, October, and December 2003. Thus, the issue arises: whether these circumstances render the case moot. Petitioner, however, contends that the partial releases should not be construed as an abandonment of its stand that security deposits under Section 203 of the Insurance Code are exempt from levy and garnishment. The Republic claims that the releases were made pursuant to the commissioner's power of control over the fund, not to the lower court's Order of garnishment. Petitioner further invokes the jurisdiction of this Court to put to rest the principal issue of whether security deposits made with the Insurance Commission may be levied and garnished. The issue is not totally moot. To stress, only a portion of respondent's claim was satisfied, and the Insurance Commission has required CISCO to replenish the latter's security deposit. Respondent, therefore, may one day decide to further garnish the security deposit, once replenished. Moreover, after the questioned Order of the lower court was issued, similar claims on the security deposits of various insurance companies have been made before the Insurance Commission. To set aside the resolution of the issue will only postpone a task that is certain to crop up in the future.

Besides, the business of insurance is imbued with public interest. It is subject to regulation by the State, with respect not only to the relations between the insurer and the insured, but also to the internal affairs of insurance companies.8 As this case is undeniably endowed with public interest and involves a matter of public policy, this Court shall not shirk from its duty to educate the bench and the bar by formulating guiding and controlling principles, precepts, doctrines and rules.9 Principal Issue: Exemption of Security Deposit from Levy or Garnishment Section 203 of the Insurance Code provides as follows: "Sec. 203. Every domestic insurance company shall, to the extent of an amount equal in value to twenty-fiveper centum of the minimum paid-up capital required under section one hundred eighty-eight, invest its funds only in securities, satisfactory to the Commissioner, consisting of bonds or other evidences of debt of the Government of the Philippines or its political subdivisions or instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank of the Philippines: Provided, That such investments shall at all times be maintained free from any lien or encumbrance; and Provided, further, That such securities shall be deposited with and held by the Commissioner for the faithful performance by the depositing insurer of all its obligations under its insurance contracts. The provisions of section one hundred ninety-two shall, so far as practicable, apply to the securities deposited under this section. "Except as otherwise provided in this Code, no judgment creditor or other claimant shall have the right to levy upon any of the securities of the insurer held on deposit pursuant to the requirement of the Commissioner." (Emphasis supplied) Respondent notes that Section 203 does not provide for an absolute prohibition on the levy and garnishment of the security deposit. It contends that the law requires the deposit, precisely to ensure faithful performance of all the obligations of the depositing insurer under the latter's various insurance contracts. Hence, respondent claims that the security deposit should be answerable for the counterbond issued by CISCO. The Court is not convinced. As worded, the law expressly and clearly states that the security deposit shall be (1) answerable for all the obligations of the depositing insurer under its insurance contracts; (2) at all times free from any liens or encumbrance; and (3) exempt from levy by any claimant. To be sure, CISCO, though presently under conservatorship, has valid outstanding policies. Its policy holders have a right under the law to be equally protected by its security deposit. To allow the garnishment of that deposit would impair the fund by decreasing it to less than the percentage of paid-up capital that the law requires to be maintained. Further, this move would create, in favor of respondent, a preference of credit over the other policy holders and beneficiaries. Our Insurance Code is patterned after that of California.10 Thus, the ruling of the state's Supreme Court on a similar concept as that of the security deposit is instructive. Engwicht v. Pacific States Life Assurance Co.11 held that the money required to be deposited by a mutual assessment insurance company with the state treasurer was "a trust fund to be ratably distributed amongst all the claimants entitled to share in it. Such a distribution cannot be had except in an action in the nature of a creditors' bill, upon the hearing of which, and with all the parties interested in the fund before it, the court may make equitable distribution of the fund, and appoint a receiver to carry that distribution into effect."12

Basic is the statutory construction rule that provisions of a statute should be construed in accordance with the purpose for which it was enacted.13 That is, the securities are held as a contingency fund to answer for the claims against the insurance company by all its policy holders and their beneficiaries. This step is taken in the event that the company becomes insolvent or otherwise unable to satisfy the claims against it. Thus, a single claimant may not lay stake on the securities to the exclusion of all others. The other parties may have their own claims against the insurance company under other insurance contracts it has entered into. Respondent's Inchoate Right The right to lay claim on the fund is dependent on the solvency of the insurer and is subject to all other obligations of the company arising from its insurance contracts. Thus, respondent's interest is merely inchoate. Being a mere expectancy, it has no attribute of property. At this time, it is nonexistent and may never exist.14 Hence, it would be premature to make the security deposit answerable for CISCO's present obligation to Del Monte Motors. Moreover, since insolvency proceedings against CISCO have yet to be conducted, it would be impossible to establish at this time which claimants are entitled to the security deposit and in what pro-rated amounts. Only after all other claimants under subsisting policies issued by CISCO have been heard can respondent's share be determined. Powers of the Commissioner The Insurance Code has vested the Office of the Insurance Commission with both regulatory and adjudicatoryauthority over insurance matters.15 The general regulatory authority of the insurance commissioner is described in Section 414 of the Code as follows: "Sec. 414. The Insurance Commissioner shall have the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by this Code, and shall, notwithstanding any existing laws to the contrary, have sole and exclusive authority to regulate the issuance and sale of variable contracts as defined in section two hundred thirty-two and to provide for the licensing of persons selling such contracts, and to issue such reasonable rules and regulations governing the same. "The Commissioner may issue such rulings, instructions, circulars, orders and decisions as he may deem necessary to secure the enforcement of the provisions of this Code, subject to the approval of the Secretary of Finance. Except as otherwise specified, decisions made by the Commissioner shall be appealable to the Secretary of Finance." (Emphasis supplied) Pursuant to these regulatory powers, the commissioner is authorized to (1) issue (or to refuse to issue) certificates of authority to persons or entities desiring to engage in insurance business in the Philippines;16 (2) revoke or suspend these certificates of authority upon finding grounds for the revocation or suspension;17 (3) impose upon insurance companies, their directors and/or officers and/or agents appropriate penalties -- fines, suspension or removal from office -- for failing to comply with the Code or with any of the commissioner's orders, instructions, regulations or rulings, or for otherwise conducting business in an unsafe or unsound manner.18

Included in the above regulatory responsibilities is the duty to hold the security deposits under Sections 19119 and 203 of the Code, for the benefit and security of all policy holders. In relation to these provisions, Section 192 of the Insurance Code states: "Sec. 192. The Commissioner shall hold the securities, deposited as aforesaid, for the benefit and security of all the policyholders of the company depositing the same, but shall as long as the company is solvent, permit the company to collect the interest or dividends on the securities so deposited, and, from time to time, with his assent, to withdraw any of such securities, upon depositing with said Commissioner other like securities, the market value of which shall be equal to the market value of such as may be withdrawn. In the event of any company ceasing to do business in the Philippines the securities deposited as aforesaid shall be returned upon the company's making application therefor and proving to the satisfaction of the Commissioner that it has no further liability under any of its policies in the Philippines." (Emphasis supplied) Undeniably, the insurance commissioner has been given a wide latitude of discretion to regulate the insurance industry so as to protect the insuring public. The law specifically confers custody over the securities upon the commissioner, with whom these investments are required to be deposited. An implied trust20 is created by the law for the benefit of all claimants under subsisting insurance contracts issued by the insurance company.21 As the officer vested with custody of the security deposit, the insurance commissioner is in the best position to determine if and when it may be released without prejudicing the rights of other policy holders. Before allowing the withdrawal or the release of the deposit, the commissioner must be satisfied that the conditions contemplated by the law are met and all policy holders protected. Commissioner's Actions Entitled to Great Respect In this case, Commissioner Malinis refused to release the security deposit of CISCO. Believing that the funds were exempt from execution as provided by law, he sought to protect other policy holders. His interpretation of the provisions of the law carries great weight and consideration,22 as he is the head of a specialized body tasked with the regulation of insurance matters and primarily charged with the implementation of the Insurance Code. The emergence of the multifarious needs of modern society necessitates the establishment of diverse administrative agencies. In addressing these needs, the administrative agencies charged with applying and implementing particular statutes have accumulated experience and specialized capabilities. Thus, in a long line of cases, this Court has recognized that their construction of a statute is entitled to great respect and should ordinarily be controlling, unless clearly shown to be in sharp conflict with the governing statute or the Constitution and other laws.23 Clearly, then, the trial court erred in issuing the Writ of Garnishment against the security deposit of CISCO. It follows that without the issuance of a valid order, the insurance commissioner could not have been in contempt of court.24 WHEREFORE, the Petition is GRANTED and the assailed Order SET ASIDE. No costs. SO ORDERED. Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Footnotes
1

Rollo, pp. 20-50. Id. at 70-71. Penned by Judge (now Court of Appeals Justice) Noel G. Tijam. Id. at 54-69. January 16, 2003 Order; rollo, pp. 70-71. December 18, 2002 Resolution, pp. 15-16; rollo, pp. 68-69.

The case was deemed submitted for decision on February 8, 2005, upon receipt by this Court of petitioner's Memorandum signed by Assistant Solicitor General Karl B. Miranda and Solicitor Marsha C. Recon. Respondent's Memorandum, signed by Atty. Eduardo E. Francisco, was received by the Court on November 26, 2004.
7

Petitioner's Memorandum, p. 11. Uppercase in the original.

AFP Mutual Benefit Association, Inc. v. NLRC, 334 Phil. 712, January 28, 1997, citing Insular Life Assurance Co., Ltd. v. NLRC, 179 SCRA 459, November 15, 1989.
9

ABS-CBN Broadcasting Corporation v. Commission on Elections, 380 Phil. 780, January 28, 2000; Gonzales v. Chavez, 205 SCRA 816, February 4, 1992.
10

Maria Clara L. Campos, in her commentary on the Insurance Code of the Philippines, traces the history of the present Insurance Code as follows: "The forerunner of this [Insurance] Code was the Insurance Act which took effect on July 1, 1915, and which was copied almost verbatim from the California Insurance Act, with the exception of a few provisions which were adopted from the New York Law. x x x. The first Insurance Code took effect on December 18, 1974 and besides incorporating most of the provisions of the Insurance Act with a few changes, it contained many new provisions mostly regulatory in nature. After a number of these new provisions were rendered obsolete by subsequent amendments, the Insurance Code of 1978 was promulgated by Presidential Decree No. 1460, incorporating not only such amendments but also additional changes deemed necessary in order to keep pace with the changing needs and demands of the insurance industry. However, the substantive provisions governing the contract of insurance itself remain for the most part as they were under the Insurance Act." (Campos, Insurance, [1983], pp. 8-9.) The Court has held that rulings and general principles on insurance recognized in the state of California have persuasive authority in the Philippines. (Ang Giok Chip v. Springfield Fire and Marine Insurance Co., 56 Phil. 375, December 31, 1931 and Gercio v. Sun Life Assurance Co. of Canada, 48 Phil. 53, September 28, 1925).

11

153 Cal. 183, March 9, 1908, per curiam (citing San Francisco Savings Union v. Long, 123 Cal. 107, December 20, 1898, per Temple, J.).
12

Id.

13

The United Harbor Pilots' Association of the Philippines v. Association of International Shipping Lines, Inc., 440 Phil. 188, November 13, 2002.
14

See J.L.T. Agro, Inc. v. Balansag, 453 SCRA 211, March 11, 2005.

15

Go v. Office of the Ombudsman, 413 SCRA 608, October 17, 2003; Almendras Mining Corporation v. Office of the Insurance Commission, 160 SCRA 656, April 15, 1988.
16

Insurance Code, Secs. 186-187; see Almendras Mining Corporation v. Office of the Insurance Commission, supra.
17

Id., Secs. 241 and 247. Id., Sec. 415.

18

19

"Sec. 191. No insurance company organized or existing under the government or laws other than those of the Philippines shall engage in business in the Philippines unless possessed of paid-up unimpaired capital or assets and reserve not less than that herein required of domestic insurance companies, nor until it shall have deposited with the Commissioner for the benefit and security of the policyholders and creditors of such company in the Philippines, securities satisfactory to the Commissioner consisting of good securities of the Philippines, including new issued of stock of 'registered enterprises,' as this term is defined in Republic Act No. 5186, otherwise known as the Investment Incentives Act, as amended, to the actual market value of not less than the minimum paid-up capital required of domestic insurance companies: Provided, That at least fifty per centum of such securities shall consist of bonds or other evidences of debt of the Government of the Philippines, its political subdivisions and instrumentalities, or of government-owned or controlled corporations and entities, including the Central Bank. x x x."
20

Articles 1440 and 1441 of the Civil Code provide thus: "Art. 1440. A person who establishes a trust is called a 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. 1441 Trusts are either express or implied. Express trusts are created by the intention of the trustor or of the parties. Implied trusts come into being by operation of law."

21

Cesario P. Topiangco raises the issue of actual ownership and discusses the effects of placing security deposits in the custody of the Insurance Commissioner as follows: "Doubt has arisen as to whether the government securities, particularly Central Bank Certificates of Indebtedness, now in the possession of insurance companies as part of their investment portfolio are really owned by such companies. Placing these

securities in the custody of the Insurance Commissioner would minimize, if not entirely, erase such doubt. Besides, an insurance company in the verge of insolvency would find it difficult to dispose of such securities." (Topiangco, Commentaries and Jurisprudence on the Insurance Code of the Philippines, [1992], p. 167).
22

The United Harbor Pilots' Association of the Philippines v. Association of International Shipping Lines, Inc., supra note 13 at 202.
23

Union Bank of the Philippines v. Securities and Exchange Commission, 411 Phil. 94, June 6, 2001; Nestle Philippines, Inc. v. Court of Appeals, 203 SCRA 504, November 13, 1991; Asturias Sugar Central, Inc. v. Commissioner of Customs, 140 Phil. 20, 1969.
24

Factoran, Jr. v. Court of Appeals, 378, Phil. 282, December 13, 1999.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 136021 February 22, 2000

BENIGNA SECUYA, MIGUEL SECUYA, MARCELINO SECUYA, CORAZON SECUYA, RUFINA SECUYA, BERNARDINO SECUYA, NATIVIDAD SECUYA, GLICERIA SECUYA and PURITA SECUYA, petitioners, vs. GERARDA M. VDA. DE SELMA, respondent. PANGANIBAN, J.: In action for quieting of title, the plaintiff must show not only that there is a cloud or contrary interest over the subject real property, but that the have a valid title to it. In the present case, the action must fail, because petitioners failed to show the requisite title. The Case Before us is a Petition for Review seeking to set aside the July 30, 1998 Decision of the Court of Appeals (CA) in CA-G.R. CV No. 38580,1 which affirmed the judgment2 of the Regional Trial Court (RTC) of Cebu City. The CA ruled: WHEREFORE, [there being] no error in the appealed decision, the same is hereby AFFIRMED in toto.3 The decretal portion of the trial court Decision reads as follows:

WHEREFORE, in view of all the foregoing [evidence] and considerations, this court hereby finds the preponderance of evidence to be in favor of the defendant Gerarda Selma as judgment is rendered: 1. Dismissing this Complaint for Quieting of title, Cancellation of Certificate of Title of Gerarda vda. de Selma and damages, 2. Ordering the plaintiffs to vacate the premises in question and turn over the possession of the same to the defendant Gerarda Selma; 3. Requiring the plaintiffs to pay defendant the sum of P20,000 as moral damages, according to Art. 2217, attorney's fees of P15,000.00, litigation expenses of P5,000.00 pursuant to Art. 2208 No. 11 and to pay the costs of this suit.
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SO ORDERED.4 Likewise challenged is the October 14, 1998 CA Resolution which denied petitioners' Motion for Reconsideration.5 The Facts The present Petition is rooted in an action for quieting of title filed before the RTC by Benigna, Miguel, Marcelino, Corazon, Rufina, Bernardino, Natividad, Gliceria and Purita all surnamed Secuya against Gerarda M. vda. de Selma. Petitioners asserted ownership over the disputed parcel of land, alleging the following facts: xxx xxx xxx

8. The parcel of land subject of this case is a PORTION of Lot 5679 of the Talisay-Minglanilla Friar Lands Estate, referred to and covered [o]n Page 279, Friar Lands Sale Certificate Register of the Bureau of Lands (Exh. "K"). The property was originally sold, and the covering patent issued, to Maxima Caballero Vda. de Cario (Exhs. "K-1"; "K-2). Lot 5679 has an area of 12,750 square meters, more or less; 9. During the lifetime of Maxima Caballero, vendee and patentee of Lot 5679, she entered into that AGREEMENT OF PARTITION dated January 5, 1938 with Paciencia Sabellona, whereby the former bound herself and parted [with] one-third (1/3) portion of Lot 5679 in favor of the latter (Exh. "D"). Among others it was stipulated in said agreement of partition that the said portion of one-third so ceded will be located adjoining the municipal road (par. 5. Exh "D"); 10. Paciencia Sabellona took possession and occupation of that one-third portion of Lot 5679 adjudicated to her. Later, she sold the three thousand square meter portion thereof to Dalmacio Secuya on October 20, 1953, for a consideration of ONE THOUSAND EIGHT HUNDRED FIFTY PESOS (P1,850.00), by means of a private document which was lost (p. 8, tsn., 8/8/89-Calzada). Such sale was admitted and confirmed by Ramon Sabellona, only heir of Paciencia Sabellona, per that instrument denominated CONFIRMATION OF SALE OF UNDIVIDED SHARES, dated September 28, 1976(Exh. "B"); 11. Ramon Sabellona was the only [or] sole voluntary heir of Paciencia Sabellona, per that KATAPUSAN NGA KABUT-ON UG PANUGON NI PACIENCIA SABELLONA (Last Will and

Testament of Paciencia Sabellona), dated July 9, 1954, executed and acknowledged before Notary Public Teodoro P. Villarmina (Exh. "C"). Pursuant to such will, Ramon Sabellona inherited all the properties left by Paciencia Sabellona; 12. After the purchase [by] Dalmacio Secuya, predecessor-in interest of plaintiffs of the property in litigation on October 20, 1953, Dalmacio, together with his brothers and sisters he being single took physical possession of the land and cultivated the same. In 1967, Edilberto Superales married Rufina Secuya, niece of Dalmacio Secuya. With the permission and tolerance of the Secuyas, Edilberto Superales constructed his house on the lot in question in January 1974 and lived thereon continuously up to the present (p. 8., tsn 7/25/88 Daclan). Said house is inside Lot 5679-C-12-B, along lines 18-19-20 of said lot, per Certification dated August 10, 1985, by Geodetic Engineer Celestino R. Orozco (Exh. "F"); 13. Dalmacio Secuya died on November 20, 1961. Thus his heirs brothers, sisters, nephews and nieces are the plaintiffs in Civil Case No. CEB-4247 and now the petitioners; 14. In 1972, defendant-respondent Gerarda Selma bought a 1,000 square-meter portion of Lot 5679, evidenced by Exhibit "P". Then on February 19, 1975, she bought the bigger bulk of Lot 5679, consisting of 9,302 square meters, evidenced by that deed of absolute sale, marked as Exhibit "5". The land in question, a 3,000-square meter portion of Lot 5679, is embraced and included within the boundary of the later acquisition by respondent Selma; 15. Defendant-respondent Gerarda Selma lodged a complaint, and had the plaintiffspetitioners summoned, before the Barangay Captain of the place, and in the confrontation and conciliation proceedings at the Lupong Tagapayapa, defendant-respondent Selma was asserting ownership over the land inherited by plaintiffs-petitioners from Dalmacio Secuya of which they had long been in possession . . . in concept of owner. Such claim of defendantrespondent Selma is a cloud on the title of plaintiffs-petitioners, hence, their complaint (Annex "C").6 Respondent Selma's version of the facts, on the other hand, was summarized by the appellate court as follows: She is the registered owner of Lot 5679-C-120 consisting of 9,302 square meters as evidenced by TCT No. T-35678 (Exhibit "6", Record, p. 324), having bought the same sometime in February 1975 from Cesaria Caballero as evidenced by a notarized Deed of Sale (Exhibit "5", Record, p. 323) and ha[ve] been in possession of the same since then. Cesaria Caballero was the widow of Silvestre Aro, registered owner of the mother lot, Lot. No. 5679 with an area of 12,750 square meters of the Talisay-Minglanilla Friar Lands Estate, as shown by Transfer Certificate of Title No. 4752 (Exhibit "10", Record, p. 340). Upon Silvestre Aro's demise, his heirs executed an "Extrajudicial Partition and Deed of Absolute Sale" (Exhibit "11", Record, p. 341) wherein one-half plus one-fifth of Lot No. 5679 was adjudicated to the widow, Cesaria Caballero, from whom defendant-appellee derives her title.7 The CA Ruling In affirming the trial court's ruling, the appellate court debunked petitioners' claim of ownership of the land and upheld Respondent Selma's title thereto. It held that respondent's title can be traced to a valid TCT. On the other hand, it ruled that petitioners anchor their claim on an "Agreement of Partition" which is void for being violative of the Public Land Act. The CA noted that the said law

prohibited the alienation or encumbrance of land acquired under a free patent or homestead patent, for a period of five years from the issuance of the said patent. Hence, this Petition.8 The Issues In their Memorandum, petitioners urge the Court to resolve the following questions: 1. Whether or not there was a valid transfer or conveyance of one-third (1/3) portion of Lot 5679 by Maxima Caballero in favor of Paciencia Sabellona, by virtue of [the] Agreement of Partition dated January 5, 1938[;] and 2. Whether or not the trial court, as well as the court, committed grave abuse of discretion amounting to lack of jurisdiction in not making a finding that respondent Gerarda M. vda. de Selma [was] a buyer in bad faith with respect to the land, which is a portion of Lot 5679.9 For a clearer understanding of the above matters, we will divide the issues into three: first, the implications of the Agreement of Partition; second, the validity of the Deed of Confirmation of Sale executed in favor of the petitioners; and third, the validity of private respondent's title. The Court's Ruling The Petition fails to show any reversible error in the assailed Decision. Preliminary Matter: The Action for Quieting of Title In an action to quiet title, the plaintiffs or complainants must demonstrate a legal or an equitable title to, or an interest in, the subject real property.10 Likewise, they must show that the deed, claim, encumbrance or proceeding that purportedly casts a cloud on their title is in fact invalid or inoperative despite its prima facie appearance of validity or legal efficacy.11 This point is clear from Article 476 of the Civil Code, which reads: Whenever there is cloud on title to real property or any interest therein, by reason of any instrument, record, claim, encumbrance or proceeding which is apparently valid or effective but is in truth and in fact invalid, ineffective, voidable or unenforceable, and may be prejudicial to said title, an action may be brought to remove such cloud or to quiet title. An action may also be brought to prevent a cloud from being cast upon title to real property or any interest therein. In the case at bar, petitioners allege that TCT No. 5679-C-120, issued in the name of Private Respondent Selma, is a cloud on their title as owners and possessors of the subject property, which is a 3,000 square-meter portion of Lot No. 5679-C-120 covered by the TCT. But the underlying question is, do petitioners have the requisite title that would enable them to avail themselves of the remedy of quieting of title? Petitioners anchor their claim of ownership on two documents: the Agreement of Partition executed by Maxima Caballero and Paciencia Sabellona and the Deed of Confirmation of Sale executed by Ramon Sabellona. We will now examine these two documents.

First Issue: The Real Nature of the "Agreement of Partition" The duly notarized Agreement of Partition dated January 5, 1938; is worded as follows: AGREEMENT OF PARTITION I, MAXIMA CABALLERO, Filipina, of legal age, married to Rafael Cario, now residing and with postal address in the Municipality of Dumaguete, Oriental Negros, depose the following and say: 1. That I am the applicant of vacant lot No. 5679 of the Talisay-Minglanilla Estate and the said application has already been indorsed by the District Land Officer, Talisay, Cebu, for private sale in my favor; 2. That the said Lot 5679 was formerly registered in the name of Felix Abad y Caballero and the sale certificate of which has already been cancelled by the Hon. Secretary of Agriculture and Commerce; 3. That for and in representation of my brother, Luis Caballero, who is now the actual occupant of said lot I deem it wise to have the said lot paid by me, as Luis Caballero has no means o[r] any way to pay the government; 4. That as soon as the application is approved by the Director of Lands, Manila, in my favor, I hereby bind myself to transfer the one-third (l/3) portion of the above mentioned lot in favor of my aunt, Paciencia Sabellana y Caballero, of legal age, single, residing and with postal address in Tungkop, Minglanilla, Cebu. Said portion of one-third (1/3) will be subdivided after the approval of said application and the same will be paid by her to the government [for] the corresponding portion. 5. That the said portion of one-third (1/3) will be located adjoining the municipal road; 6. I, Paciencia Sabellana y Caballero, hereby accept and take the portion herein adjudicated to me by Mrs. Maxima Caballero of Lot No. 5679 Talisay-Minglanilla Estate and will pay the corresponding portion to the government after the subdivision of the same; IN WITNESS WHEREOF, we have hereunto set our hands this 5th day of January, 1988, at Talisay, Cebu."12 The Agreement: An Express Trust, Not a Partition Notwithstanding its purported nomenclature, this Agreement is not one of partition, because there was no property to partition and the parties were not co-owners. Rather, it is in the nature of a trust agreement. 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.13 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.14

The present Agreement of Partition involves an express trust. Under Article 1444 of the Civil Code, "[n]o particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended." That Maxima Caballero bound herself to give one third of Lot No. 5629 to Paciencia Sabellona upon the approval of the former's application is clear from the terms of the Agreement. Likewise, it is evident that Paciencia acquiesced to the covenant and is thus bound to fulfill her obligation therein. As a result of the Agreement, Maxima Caballero held the portion specified therein as belonging to Paciencia Sabellona when the application was eventually approved and a sale certificate was issued in her name.15 Thus, she should have transferred the same to the latter, but she never did so during her lifetime. Instead, her heirs sold the entire Lot No. 5679 to Silvestre Aro in 1955. From 1954 when the sale certificate was issued until 1985 when petitioners filed their Complaint, Paciencia and her successors-in-interest did not do anything to enforce their proprietary rights over the disputed property or to consolidate their ownership over the same. In fact, they did not even register the said Agreement with the Registry of Property or pay the requisite land taxes. While petitioners had been doing nothing, the disputed property, as part of Lot No. 5679, had been the subject of several sales transactions16 and covered by several transfer certificates of title. The Repudiation of the Express Trust While no time limit is imposed for the enforcement of rights under express trusts,17 prescription may, however, bar a beneficiary's action for recovery, if a repudiation of the trust is proven by clear and convincing evidence and made known to the beneficiary.18 There was a repudiation of the express trust when the heirs of Maxima Caballero failed to deliver or transfer the property to Paciencia Sabellona, and instead sold the same to a third person not privy to the Agreement. In the memorandum of incumbrances of TCT No. 308719 issued in the name of Maxima, there was no notation of the Agreement between her and Paciencia. Equally important, the Agreement was not registered; thus, it could not bind third persons. Neither was there any allegation that Silvestre Aro, who purchased the property from Maxima's heirs, knew of it. Consequently, the subsequent sales transactions involving the land in dispute and the titles covering it must be upheld, in the absence of proof that the said transactions were fraudulent and irregular. Second Issue: The Purported Sale to Dalmacio Secuya Even granting that the express trust subsists, petitioners have not proven that they are the rightful successors-in-interest of Paciencia Sabellona. The Absence of the Purported Deed of Sale Petitioners insist that Paciencia sold the disputed property to Dalmacio Secuya on October 20, 1953, and that the sale was embodied in a private document. However, such document, which would have been the best evidence of the transaction, was never presented in court, allegedly because it had been lost. While a sale of a piece of land appearing in a private deed is binding between the parties, it cannot be considered binding on third persons, if it is not embodied in a public instrument and recorded in the Registry of Property.20 Moreover, while petitioners could not present the purported deed evidencing the transaction between Paciencia Sabellona and Dalmacio Secuya, petitioners' immediate predecessor-in-interest,

private respondent in contrast has the necessary documents to support her claim to the disputed property. The Questionable Value of the Deed Executed by Ramon Sabellona To prove the alleged sale of the disputed property to Dalmacio, petitioners instead presented the testimony of Miguel Secuya, one of the petitioners; and a Deed21 confirming the sale executed by Ramon Sabellona, Paciencia's alleged heir. The testimony of Miguel was a bare assertion that the sale had indeed taken place and that the document evidencing it had been destroyed. While the Deed executed by Ramon ratified the transaction, its probative value is doubtful. His status as heir of Paciencia was not affirmatively established. Moreover, he was not presented in court and was thus not quizzed on his knowledge or lack thereof of the 1953 transaction. Petitioners' Failure to Exercise Owners' Rights to the Property Petitioners insist that they had been occupying the disputed property for forty-seven years before they filed their Complaint for quieting of title. However, there is no proof that they had exercised their rights and duties as owners of the same. They argue that they had been gathering the fruits of such property; yet, it would seem that they had been remiss in their duty to pay the land taxes. If petitioners really believed that they owned the property, they have should have been more vigilant in protecting their rights thereto. As noted earlier, they did nothing to enforce whatever proprietary rights they had over the disputed parcel of land. Third Issue: The Validity of Private Respondent's Title Petitioners debunk Private Respondent Selma's title to the disputed property, alleging that she was aware of their possession of the disputed properties. Thus, they insist that she could not be regarded as a purchaser in good faith who is entitled to the protection of the Torrens system. Indeed, a party who has actual knowledge of facts and circumstances that would move a reasonably cautious man to make an inquiry will not be protected by the Torrens system. In Sandoval v. Court of Appeals,22 we held: It is settled doctrine that one who deals with property registered under the Torrens system need not go beyond the same, but only has to rely on the title. He is charged with notice only of such burdens and claims as are annotated on the title. The aforesaid principle admits of an unchallenged exception: that a person dealing with registered land has a right to rely on the Torrens certificate of title and to dispense without the need of inquiring further except when the party has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry, or when the purchaser has knowledge of a defect or the lack of title in his vendor or of sufficient facts to induce a reasonably prudent man to inquire into the status of title of the property in litigation. The presence of anything which excites or arouses suspicion should then prompt the vendee to look beyond the certificate and investigate the title of the vendor appearing on the face of the certificate. One who falls within the exception can neither be denominated an

innocent purchaser for value purchaser in good faith; and hence does not merit the protection of the law. Granting arguendo that private respondent knew that petitioners, through Superales and his family, were actually occupying the disputed lot, we must stress that the vendor, Cesaria Caballero, assured her that petitioners were just tenants on the said lot. Private respondent cannot be faulted for believing this representation, considering that petitioners' claim was not noted in the certificate of the title covering Lot No. 5679. Moreover, the lot, including the disputed portion, had been the subject of several sales transactions. The title thereto had been transferred several times, without any protestation or complaint from the petitioners. In any case, private respondent's title is amply supported by clear evidence, while petitioners' claim is barren of proof. Clearly, petitioners do not have the requisite title to pursue an action for quieting of title.
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WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs against petitioners. SO ORDERED. Melo, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.

Footnotes
1

Seventeenth Division, composed of J. Portia Alio-Hormachuelos (ponente), J. Buenaventura J. Guerrero (chairman) and J. Renato C. Dacudao (member).
2

Penned by Judge German G. Lee Jr. Rollo, p. 29. RTC Decision, p. 13; rollo, p. 54. Rollo, p. 31. Petition, pp. 3-6; rollo, pp. 5-8. CA Decision, p. 3; rollo, p. 27.

This case was deemed submitted for decision on July 29, 1999, upon simultaneous receipt by this Court of the Memoranda of both parties. Petitioners' Memorandum was signed by Atty. Alejandro V. Peregrino; respondent's Memorandum, by Atty. Roberto R. Palmares.
9

Memorandum for Petitioners, p. 6; rollo, p. 145.

10

Art. 477, Civil Code. "The plaintiff must have legal or equitable title to, or an interest in the real property which is the subject matter of the action. He need not be in possession of said property."
11

Tolentino, Civil Code of the Philippines, Vol. II, p. 150. Records, p. 53. Rizal Surety & Insurance Company v. CA, 261 SCRA 69, August 28, 1996. Art. 1441, Civil Code. Records, p. 6.

12

13

14

15

16

Lot No. 5679 was sold to Silvestre Aro in 1955, and TCT No. 4752 was issued in his name in 1959. Upon his death, his heirs inherited the property, and his children sold their shares to Cesaria Caballero, Aro's widow. Cesaria Caballero then entered into several mortgage and sales transactions with several banks and with Francisco Sioson, Edgar Adlawan and Private Respondent Gerarda Selma.
17

Aquino, Civil Code, Vol. II, p. 557. See Mindanao Development Authority v. CA, 113 SCRA 429, April 5, 1982. Dated March 9, 1954. Art. 709, Civil Code. Records, p. 4. 260 SCRA 283, August 1, 1996, per Romero, J. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

18

19

20

21

22

G.R. No. 157784

December 16, 2008

RICHARD B. LOPEZ, in his capacity as Trustee of the Trust Estate of the Late JULIANA LOPEZ-MANZANO,petitioner, vs. COURT OF APPEALS, CORAZON LOPEZ, FERNANDO LOPEZ, ROBERTO LOPEZ, represented by LUZVIMINDA LOPEZ, MARIA ROLINDA MANZANO, MARIA ROSARIO MANZANO SANTOS, JOSE MANZANO, JR., NARCISO MANZANO (all represented by Attorney-in-fact, MODESTO RUBIO), MARIA CRISTINA MANZANO RUBIO, IRENE MONZON and ELENA MANZANO, respondents. DECISION

TINGA, J.: This is a petition for review on certiorari 1under Rule 45 of the 1997 Rules of Civil Procedure, assailing the Decision2 and Resolution3 of the Court of Appeals in CA-G.R. CV No. 34086. The Court of Appeals' decision affirmed the summary judgment of the Regional Trial Court (RTC), Branch 10, Balayan, Batangas, dismissing petitioner's action for reconveyance on the ground of prescription. The instant petition stemmed from an action for reconveyance instituted by petitioner Richard B. Lopez in his capacity as trustee of the estate of the late Juliana Lopez Manzano (Juliana) to recover from respondents several large tracts of lands allegedly belonging to the trust estate of Juliana. The decedent, Juliana, was married to Jose Lopez Manzano (Jose). Their union did not bear any children. Juliana was the owner of several properties, among them, the properties subject of this dispute. The disputed properties totaling more than 1,500 hectares consist of six parcels of land, which are all located in Batangas. They were the exclusive paraphernal properties of Juliana together with a parcel of land situated in Mindoro known as Abra de Ilog and a fractional interest in a residential land on Antorcha St., Balayan, Batangas. On 23 March 1968, Juliana executed a notarial will,4 whereby she expressed that she wished to constitute a trust fund for her paraphernal properties, denominated as Fideicomiso de Juliana Lopez Manzano (Fideicomiso), to be administered by her husband. If her husband were to die or renounce the obligation, her nephew, Enrique Lopez, was to become administrator and executor of the Fideicomiso. Two-thirds (2/3) of the income from rentals over these properties were to answer for the education of deserving but needy honor students, while one-third 1/3 was to shoulder the expenses and fees of the administrator. As to her conjugal properties, Juliana bequeathed the portion that she could legally dispose to her husband, and after his death, said properties were to pass to herbiznietos or great grandchildren. Juliana initiated the probate of her will five (5) days after its execution, but she died on 12 August 1968, before the petition for probate could be heard. The petition was pursued instead in Special Proceedings (S.P.) No. 706 by her husband, Jose, who was the designated executor in the will. On 7 October 1968, the Court of First Instance, Branch 3, Balayan, Batangas, acting as probate court, admitted the will to probate and issued the letters testamentary to Jose. Jose then submitted an inventory of Juliana's real and personal properties with their appraised values, which was approved by the probate court. Thereafter, Jose filed a Report dated 16 August 1969, which included a proposed project of partition. In the report, Jose explained that as the only compulsory heir of Juliana, he was entitled by operation of law to one-half (1/2) of Juliana's paraphernal properties as his legitime, while the other one-half (1/2) was to be constituted into theFideicomiso. At the same time, Jose alleged that he and Juliana had outstanding debts totaling P816,000.00 excluding interests, and that these debts were secured by real estate mortgages. He noted that if these debts were liquidated, the "residuary estate available for distribution would, value-wise, be very small." From these premises, Jose proceeded to offer a project of partition. The relevant portion pertaining to theFideicomiso stated, thus: PROJECT OF PARTITION 14. Pursuant to the terms of the Will, one-half (1/2) of the following properties, which are not burdened with any obligation, shall be constituted into the "Fidei-comiso de Juliana Lopez Manzano" and delivered to Jose Lopez Manzano as trustee thereof:

Location Abra de Ilog, Mindoro Antorcha St. Balayan, Batangas

Title No. TCT - 540 TCT - 1217-A

Area (Sq. M.)

Improvements

2,940,000 pasture, etc. 13,040 Residential (1/6 thereof)

and all those properties to be inherited by the decedent, by intestacy, from her sister, Clemencia Lopez y Castelo. 15. The other half (1/2) of the aforesaid properties is adjudicated to Jose Lopez Manzano as heir. Then, Jose listed those properties which he alleged were registered in both his and Juliana's names, totaling 13 parcels in all. The disputed properties consisting of six (6) parcels, all located in Balayan, Batangas, were included in said list. These properties, as described in the project of partition, are as follows: Location Pantay, Calaca, Batangas Mataywanak, Tuy, Batangas Patugo, Balayan, Batangas Cagayan, Balayan, Batangas Pook, Baayan Batangas Bolbok, Balayan, Batangas Calzada, Balayan, Batangas Gumamela, Balayan, Batangas Bombon, Balayan, Batangas Paraaque, Rizal Paraaque, Rizal Modesto St., Manila TCT-282340 TCT-11577 TCT-52212 OCT-29[6]94 OCT-2807 TCT-1220 TCT-1281 TCT-18845 TCT 1978 TCT-2575 Title No. Area (Sq. M.) 91,283 485,486 16,757,615 411,331 135,922 444,998 2,312 829 4,532 800 800 137.8 residential residential residential Improvements coconuts sugar coconut, sugar, citrus, pasteur sugar sugar sugar sugar

and the existing sugar quota in the name of the deceased with the Central Azucarera Don Pedro at Nasugbo. 16. The remaining shall likewise go to Jose Lopez Manzano, with the condition to be annotated on the titles thereof, that upon his death, the same shall pass on to Corazon Lopez, Ferdinand Lopez, and Roberto Lopez: Location Dalig, Balayan, Batangas San Juan, Rizal Title No. TCT-10080 TCT-53690 Area (Sq. M.) Improvements

482,872 sugar 523 residential

On 25 August 1969, the probate court issued an order approving the project of partition. As to the properties to be constituted into the Fideicomiso, the probate court ordered that the certificates of title thereto be cancelled, and, in lieu thereof, new certificates be issued in favor of Jose as trustee of the Fideicomiso covering one-half (1/2) of the properties listed under paragraph 14 of the project of partition; and regarding the other half, to be registered in the name of Jose as heir of Juliana. The properties which Jose had alleged as registered in his and Juliana's names, including the disputed lots, were adjudicated to Jose as heir, subject to the condition that Jose would settle the obligations charged on these properties. The probate court, thus, directed that new certificates of title be issued in favor of Jose as the registered owner thereof in its Order dated 15 September 1969. On even date, the certificates of title of the disputed properties were issued in the name of Jose. The Fideicomiso was constituted in S.P No. 706 encompassing one-half (1/2) of the Abra de Ilog lot on Mindoro, the 1/6 portion of the lot in Antorcha St. in Balayan, Batangas and all other properties inherited ab intestato by Juliana from her sister, Clemencia, in accordance with the order of the probate court in S.P. No. 706. The disputed lands were excluded from the trust. Jose died on 22 July 1980, leaving a holographic will disposing of the disputed properties to respondents. The will was allowed probate on 20 December 1983 in S.P. No. 2675 before the RTC of Pasay City. Pursuant to Jose's will, the RTC ordered on 20 December 1983 the transfer of the disputed properties to the respondents as the heirs of Jose. Consequently, the certificates of title of the disputed properties were cancelled and new ones issued in the names of respondents. Petitioner's father, Enrique Lopez, also assumed the trusteeship of Juliana's estate. On 30 August 1984, the RTC of Batangas, Branch 9 appointed petitioner as trustee of Juliana's estate in S.P. No. 706. On 11 December 1984, petitioner instituted an action for reconveyance of parcels of land with sum of money before the RTC of Balayan, Batangas against respondents. The complaint5 essentially alleged that Jose was able to register in his name the disputed properties, which were the paraphernal properties of Juliana, either during their conjugal union or in the course of the performance of his duties as executor of the testate estate of Juliana and that upon the death of Jose, the disputed properties were included in the inventory as if they formed part of Jose's estate when in fact Jose was holding them only in trust for the trust estate of Juliana. Respondents Maria Rolinda Manzano, Maria Rosario Santos, Jose Manzano, Jr., Narciso Manzano, Maria Cristina Manzano Rubio and Irene Monzon filed a joint answer6 with counterclaim for damages. Respondents Corazon, Fernando and Roberto, all surnamed Lopez, who were minors at that time and represented by their mother, filed a motion to dismiss,7 the resolution of which was

deferred until trial on the merits. The RTC scheduled several pre-trial conferences and ordered the parties to submit pre-trial briefs and copies of the exhibits. On 10 September 1990, the RTC rendered a summary judgment,8 dismissing the action on the ground of prescription of action. The RTC also denied respondents' motion to set date of hearing on the counterclaim. Both petitioner and respondents elevated the matter to the Court of Appeals. On 18 October 2002, the Court of Appeals rendered the assailed decision denying the appeals filed by both petitioner and respondents. The Court of Appeals also denied petitioner's motion for reconsideration for lack of merit in its Resolution dated 3 April 2003. Hence, the instant petition attributing the following errors to the Court of Appeals: I. THE COURT OF APPEAL'S CONCLUSION THAT PETITIONER'S ACTION FOR [RECONVEYANCE] HAS PRESCRIBED TAKING AS BASIS SEPTEMBER 15, 1969 WHEN THE PROPERTIES IN DISPUTE WERE TRANSFERRED TO THE NAME OF THE LATE JOSE LOPEZ MANZANO IN RELATION TO DECEMBER 12, 1984 WHEN THE ACTION FOR RECONVEYANCE WAS FILED IS ERRONEOUS. II. THE RESPONDENT COURT OF APPEALS CONCLUSION IN FINDING THAT THE FIDUCIARY RELATION ASSUMED BY THE LATE JOSE LOPEZ MANZANO, AS TRUSTEE, PURSUANT TO THE LAST WILL AND TESTAMENT OF JULIANA LOPEZ MANZANO WAS IMPLIED TRUST, INSTEAD OF EXPRESS TRUST IS EQUALLY ERRONEOUS. None of the respondents filed a comment on the petition. The counsel for respondents Corazon, Fernando and Roberto, all surnamed Lopez, explained that he learned that respondents had migrated to the United States only when the case was pending before the Court of Appeals.9 Counsel for the rest of the respondents likewise manifested that the failure by said respondents to contact or communicate with him possibly signified their lack of interest in the case.10 In a Resolution dated 19 September 2005, the Court dispensed with the filing of a comment and considered the case submitted for decision.11 The core issue of the instant petition hinges on whether petitioner's action for reconveyance has prescribed. The resolution of this issue calls for a determination of whether an implied trust was constituted over the disputed properties when Jose, the trustee, registered them in his name. Petitioner insists that an express trust was constituted over the disputed properties; thus the registration of the disputed properties in the name of Jose as trustee cannot give rise to prescription of action to prevent the recovery of the disputed properties by the beneficiary against the trustee. Evidently, Juliana's testamentary intent was to constitute an express trust over her paraphernal properties which was carried out when the Fideicomiso was established in S.P. No. 706.12 However, the disputed properties were expressly excluded from the Fideicomiso. The probate court adjudicated the disputed properties to Jose as the sole heir of Juliana. If a mistake was made in excluding the disputed properties from the Fideicomiso and adjudicating the same to Jose as sole heir, the mistake was not rectified as no party appeared to oppose or appeal the exclusion of the disputed properties from the Fideicomiso. Moreover, the exclusion of the disputed properties from the Fideicomiso bore the approval of the probate court. The issuance of the probate court's order adjudicating the disputed properties to Jose as the sole heir of Juliana enjoys the presumption of regularity.13

On the premise that the disputed properties were the paraphernal properties of Juliana which should have been included in the Fideicomiso, their registration in the name of Jose would be erroneous and Jose's possession would be that of a trustee in an implied trust. Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties.14 The provision on implied trust governing the factual milieu of this case is provided in Article 1456 of the Civil Code, which states: ART. 1456. If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. In Aznar Brothers Realty Company v. Aying,15 the Court differentiated two kinds of implied trusts, to wit: x x x In turn, implied trusts are either resulting or constructive trusts. These two are differentiated from each other as follows: Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the nature of circumstances of the consideration involved in a transaction whereby one person thereby becomes invested with legal title but is obligated in equity to hold his legal title for the benefit of another. On the other hand, constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold.16 A resulting trust is presumed to have been contemplated by the parties, the intention as to which is to be found in the nature of their transaction but not expressed in the deed itself.17 Specific examples of resulting trusts may be found in the Civil Code, particularly Arts. 1448,18 1449,19 1451,20 145221 and 1453.22 A constructive trust is created, not by any word evincing a direct intention to create a trust, but by operation of law in order to satisfy the demands of justice and to prevent unjust enrichment.23 It is raised by equity in respect of property, which has been acquired by fraud, or where although acquired originally without fraud, it is against equity that it should be retained by the person holding it.24 Constructive trusts are illustrated in Arts. 1450,251454,26 145527 and 1456.28 The disputed properties were excluded from the Fideicomiso at the outset. Jose registered the disputed properties in his name partly as his conjugal share and partly as his inheritance from his wife Juliana, which is the complete reverse of the claim of the petitioner, as the new trustee, that the properties are intended for the beneficiaries of the Fideicomiso. Furthermore, the exclusion of the disputed properties from the Fideicomiso was approved by the probate court and, subsequently, by the trial court having jurisdiction over the Fideicomiso. The registration of the disputed properties in the name of Jose was actually pursuant to a court order. The apparent mistake in the adjudication of the disputed properties to Jose created a mere implied trust of the constructive variety in favor of the beneficiaries of the Fideicomiso.

Now that it is established that only a constructive trust was constituted over the disputed properties, may prescription for the recovery of the properties supervene? Petitioner asserts that, if at all, prescription should be reckoned only when respondents caused the registration of the disputed properties in their names on 13 April 1984 and not on 15 September 1969, when Jose registered the same in his name pursuant to the probate court's order adjudicating the disputed properties to him as the sole heir of Juliana. Petitioner adds, proceeding on the premise that the prescriptive period should be counted from the repudiation of the trust, Jose had not performed any act indicative of his repudiation of the trust or otherwise declared an adverse claim over the disputed properties. The argument is tenuous. The right to seek reconveyance based on an implied or constructive trust is not absolute. It is subject to extinctive prescription.29 An action for reconveyance based on implied or constructive trust prescribes in 10 years. This period is reckoned from the date of the issuance of the original certificate of title or transfer certificate of title. Since such issuance operates as a constructive notice to the whole world, the discovery of the fraud is deemed to have taken place at that time.30 In the instant case, the ten-year prescriptive period to recover the disputed property must be counted from its registration in the name of Jose on 15 September 1969, when petitioner was charged with constructive notice that Jose adjudicated the disputed properties to himself as the sole heir of Juana and not as trustee of theFideicomiso. It should be pointed out also that Jose had already indicated at the outset that the disputed properties did not form part of the Fideicomiso contrary to petitioner's claim that no overt acts of repudiation may be attributed to Jose.It may not be amiss to state that in the project of partition submitted to the probate court, Jose had indicated that the disputed properties were conjugal in nature and, thus, excluded from Juliana's Fideicomiso. This act is clearly tantamount to repudiating the trust, at which point the period for prescription is reckoned. In any case, the rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and unless he repudiates the trust applies only to express trusts and resulting implied trusts. However, in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of said trust is not a condition precedent to the running of the prescriptive period.31 Thus, for the purpose of counting the ten-year prescriptive period for the action to enforce the constructive trust, the reckoning point is deemed to be on 15 September 1969 when Jose registered the disputed properties in his name. WHEREFORE, the instant petition for review on certiorari is DENIED and the decision and resolution of the Court of Appeals in CA-G.R. CV No. 34086 are AFFIRMED. Costs against petitioner. SO ORDERED. DANTE O. TINGA Associate Justice

WE CONCUR:

LEONARDO A. QUISUMBING Associate Justice Chairperson CONCHITA CARPIO MORALES Associate Justice PRESBITERO J. VELASCO, JR. Associate Justice

ARTURO D. BRION Associate Justice

ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. LEONARDO A. QUISUMBING Associate Justice Chairperson, Second Division

CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson's Attestation, it is hereby certified that the conclusions in the above Decision were reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. REYNATO S. PUNO Chief Justice

Footnotes
1

Rollo, pp. 8-90.

Penned by J. Roberto A. Barrios, Chairman of the Fifteenth Division, and concurred in by JJ. Eliezer De Los Santos and Danilo B. Pine; rollo, p. 92-105.
3

Id. at 108. Records, pp. 654-655. MI TESTAMENTO

Yo, JULIANA LOPEZ MANZANO, residente de Balayan, Batangas, por la presente otorgo este un testamento y ultima voluntad en espaol, lenguaje que poseo, y en efecto declare; xxx TERCERO. Con respecto a mis propriedades parafernales, constituyo en fideicomiso que se llamara Fideicomiso de Juliana Lopez Manzano, todo cuanto pueda yo disponer legalmente de dichas propriedades parafernales, bajo la administracion de mi marido, Jose Lopez Manzano, y en caso de su fallicimiento o renuncia, de mi sobrino, Enrique Lopez y Solis, como fideicomisario. De las rentas de dicho fideicomiso, que se depositaran en un banco, dos terceras partes (2/3) deberan segregarse para sufregar los gastos de la educacion de los nietos, bizmietos y tataranietos de las familias Lopez Solis; Lopez Jison, y Lopez Chavez y todos los estudiantes de Balayan, Tuy, y Calaca, Batangas, que obtengan calificaciones sobrasalientes en sus estudios, pero carezcan de medios para continuar su educacion ulterior. El tercio (1/3) restante sera adjudicado a quienquiera que fuese el fideicomisario como sus honorarios por los trabajos de administracion. CUATRO. Con respecto a nuestras propriedades conyugales y las propriedades cuyos titulos estan nombre de nosotros dos, adjudico la totalidad de la parte que yo pueda disponer legalmente a mis marido, Jose Lopez Manzano. A su fallecimiento, dichas propiedades (sic) pasaran a mis bizniestos Corazon, Ferdinand, y Roberto, todos appellidados Lopez, hijos de mi nieto Lorenzo J. Lopez. QUINTO. Por la presente nombre y designo a mi marido, Jose Lopez Manzano, y en caso de su fallecimiento or renuncia, a mi sobrino, Enrique Lopez y Solis, albacea, con relevacin de fianza, de este mi testamento que abarca la totalidad de los bienes que pueda disponer bajo la ley. Firmo la presente en Balayan, Batangas hoy 23 de Marzo de 1968.
5

Records, pp. 1-18. Id. at 135-143. Id. at 164-167. Id. at 773-784. Rollo, p. 306. Id., at 301. Id. at 331.

10

11

12

Records, p. 751. The properties that pertained to the Fideicomiso were the Abra de Ilog lot in Mindoro, the residential property on Antorcha St., Balayan, Batangas and the properties inherited from Clemencia Lopez.

13

Rules of Court, Rule 131, Sec. 3. Disputable presumptions.-The following presumptions are satisfactory if uncontradicted, but may be contradicted and overcome by evidence: xxx (m) That official duty has been regularly performed; (n) That a court, or judge acting as such, whether in the Philippines or elsewhere, was acting in the lawful exercise of jurisdiction.
14

Heirs of Yap v. Court of Appeals, 371 Phil. 523, 530 (1999). G.R. No. 144773, 16 May 2005, 458 SCRA 496. Id. at 508-509. Spouses Bejoc v. Cabreros, 22 July 2005, 464 SCRA 78, 85

15

16

17

18

Art. 1448. There is an implied trust when property is sold, and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The former is the trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in favor of the child.
19

Art. 1449. There is also an implied trust when a donation is made to a person but it appears that although the legal estate is transmitted to the donee, he nevertheless is either to have no beneficial interest or only a part thereof.
20

Art. 1451. When land passes by succession to any person and he causes the legal title to be put in the name of another, a trust is established by implication of law for the benefit of the true owner.
21

Art. 1452. If two or more persons agree to purchase property and by common the consent legal title is taken in the name of one of them for the benefit of all, a trust is created by force of law in favor of the others in proportion to the interest of each.
22

Art. 1453. When property is conveyed to a person in reliance upon his declared intention to hold for it, or transfer it to another or the grantor, there is an implied trust in favor of the person whose benefit is contemplated. O'Lao v. Co Cho Chit, G.R. No. 58010, 31 March 1993, 220 SCRA 656, 663-4.
23

Spouses Bejoc v. Cabreros, supra note 17. Policarpio v. Court of Appeals, 336 Phil. 329, 342 (1997).

24

25

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

26

Art. 1454. If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him.
27

Art. 1455. When any trustee, guardian or other person holding a fiduciary relationship uses trust funds for the purchase of property and causes the conveyance to be made to him or to a third person, a trust is established by operation of law in favor of the person to whom the funds belong.
28

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. O'Lao v. Co Cho Chit, G.R. No. 58010, 31 March 1993, 220 SCRA 656, 663-4.
29

Spouses Bejoc v. Cabreros, G.R. No. 145849, 22 July 2005, 464 SCRA 78, 88. Id. Aznar Brothers Realty Company v. Aying, supra note 8 at 508.

30

31

BA Finance Corp vs CA
BA Finance Corp vs. CA GR 61464, May 28 1988

FACTS:

Augusto Yulo secured a loan from the petitioner in the amount of P591,003.59 as evidenced by a promissory note he signed in his own behalf and as a representative of A&L Industries. Augusto presented an alleged special power of attorney executed by his wife, Lily Yulo, who managed the business and under whose name the said business was registered, purportedly authorized the husband to procure the loan and sign the promissory note. 2months prior the procurement of the loan, Augusto left Lily and their children which in turn abandoned their conjugal home. When the obligation became due and demandable, Augusto failed to pay the same.

The petitioner prayed for the issuance of a writ of attachment alleging that said spouses were guilty of fraud consisting of the execution of Deed of Assignment assigning the rights, titles and interests over a construction contract executed by and between the spouses and A. Soriano Corporation. The writ hereby prayed for was issued by the trial court and not contented with the order, petitioner filed a motion for the examination of attachment debtor alleging that the properties attached by the sheriff were not sufficient to secure the satisfaction of any judgment which was likewise granted by the court.

ISSUE: WON A&L Industries can be held liable for the obligations contracted by the husband.

HELD:

A&L Industries is a single proprietorship, whose registered owner is Lily Yulo. The said proprietorship was established during the marriage and assets were also acquired during the same. Hence, it is presumed that the property forms part of the conjugal partnership of the spouses and be held liable for the obligations contracted by the husband. However, for the property to be liable, the obligation contracted by the husband must have redounded to the benefit of the conjugal partnership. The obligation was contracted by Augusto for his own benefit because at the time he incurred such obligation, he had already abandoned his family and left their conjugal home. He likewise made it appear that he was duly authorized by his wife in behalf of the company to procure such loan from the petitioner. Clearly, there must be the requisite showing that some advantage accrued to the welfare of the spouses.

Thus, the Court ruled that petitioner cannot enforce the obligation contracted by Augusto against his conjugal properties with Lily. Furthermore, the writ of attachment cannot be issued against the said properties and that the petitioner is ordered to pay Lily actual damages amouting to P660,000.00.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

G.R. No. 98275 November 13, 1992 BA FINANCE CORPORATION, petitioner, vs. HON. COURT OF APPEALS, REGIONAL TRIAL COURT OF ANGELES CITY, BRANCH LVI, CARLOS OCAMPO, INOCENCIO TURLA, SPOUSES MOISES AGAPITO and SOCORRO M. AGAPITO and NICOLAS CRUZ,respondents.

MELO, J.: The question of petitioner's responsibility for damages when on March 6, 1983, an accident occurred involving petitioner's Isuzu ten-wheeler truck then driven by an employee of Lino Castro is the thrust of the petition for review on certiorari now before Us considering that neither the driver nor Lino Castro appears to be connected with petitioner. On October 13, 1988, the disputed decision in the suit below was rendered by the court of origin in this manner: 1. Ordering Rock B.A. and Rogelio Villar y Amare jointly and severally to pay the plaintiffs as follows: a) To the plaintiff Carlos Ocampo P121,650.00; b) To the plaintiff Moises Ocampo P298,500.00 c) To the plaintiff Nicolas Cruz P154,740.00 d) To the plaintiff Inocencio Turla, Sr. 48,000.00 2. Dismissing the case against Lino Castro 3. Dismissing the third-party complaint against STRONGHOLD 4. Dismissing all the counterclaim of the defendants and third-party defendants. 5. Ordering ROCK to reimburse B.A. the total amount of P622,890.00 which the latter is adjudged to pay to the plaintiffs. (p. 46, Rollo) Respondent Court of Appeals affirmed the appealed disposition in toto through Justice Rasul, with Justices De Pano, Jr. and Imperial concurring, on practically the same grounds arrived at by the

court a quo (p. 28, Rollo). Efforts exerted towards re-evaluation of the adverse were futile (p. 37, Rollo). Hence, the instant petition. The lower court ascertained after due trial that Rogelio Villar y Amare, the driver of the Isuzu truck, was at fault when the mishap occurred in as much as he was found guilty beyond reasonable doubt of reckless imprudence resulting in triple homicide with multiple physical injuries with damage to property in a decision rendered on February 16, 1984 by the Presiding Judge of Branch 6 of the Regional Trial Court stationed at Malolos, Bulacan. Petitioner was adjudged liable for damages in as much as the truck was registered in its name during the incident in question, following the doctrine laid down by this Court in Perez vs. Gutierrez (53 SCRA 149 [1973]) and Erezo, et al. vs. Jepte (102 Phil. 103 [1957]). In the same breadth, Rock Component Philippines, Inc. was ordered to reimburse petitioner for any amount that the latter may be adjudged liable to pay herein private respondents as expressly stipulated in the contract of lease between petitioner and Rock Component Philippines, Inc. Moreover, the trial court applied Article 2194 of the new Civil Code on solidary accountability of join tortfeasors insofar as the liability of the driver, herein petitioner and Rock Component Philippines was concerned (pp. 6-7, Decision; pp. 44-45, Rollo). To the question of whether petitioner can be held responsible to the victim albeit the truck was leased to Rock Component Philippines when the incident occurred, the appellate court answered in the affirmative on the basis of the jurisprudential dogmas which, as aforesaid, were relied upon by the trial court although respondent court was quick to add the caveat embodied in the lease covenant between petitioner and Rock Component Philippines relative to the latter's duty to reimburse any amount which may be adjudged against petitioner (pp. 32-33, Rollo). Petitioner asseverates that it should not have been haled to court and ordered to respond for the damage in the manner arrived at by both the trial and appellate courts since paragraph 5 of the complaint lodged by the plaintiffs below would indicate that petitioner was not the employer of the negligent driver who was under the control an supervision of Lino Castro at the time of the accident, apart from the fact that the Isuzu truck was in the physical possession of Rock Component Philippines by virtue of the lease agreement. Aside from casting clouds of doubt on the propriety of invoking the Perez and Erezo doctrines, petitioner continue to persist with the idea that the pronouncements of this Court in Duavit vs. Court of Appeals (173 SCRA 490 [1989]) and Duquillo vs. Bayot (67 Phil 131 [1939]) dovetail with the factual and legal scenario of the case at hand. Furthermore, petitioner assumes, given the socalled hiatus on the basis for the award of damages as decreed by the lower and appellate courts, that Article 2180 of the new Civil Code on vicarious liability will divest petitioner of any responsibility absent as there is any employer-employee relationship between petitioner and the driver. Contrary to petitioner's expectations, the recourse instituted from the rebuffs it encountered may not constitute a sufficient foundation for reversal of the impugned judgment of respondent court. Petitioner is of the impression that the Perez and Erezo cases are inapplicable due to the variance of the generative facts in said cases as against those obtaining in the controversy at bar. A contrario, the lesson imparted by Justice Labrador in Erezo is still good law, thus: . . . In previous decisions, We already have held that the registered owner of a certificate of public convenience is liable to the public for the injuries or damages suffered by passengers or third persons caused by the operation of said vehicle, even though the same had been transferred to a third person. (Montoya vs. Ignacio, 94 Phil., 182 50 Off. Gaz., 108; Roque vs. Malibay Transit, Inc., G.R. No. L-8561, November 18, 1955; Vda. de Medina vs. Cresencia, 99 Phil., 506, 52 Off. Gaz., [10], 4606.) The principle upon which this doctrine is based is that in dealing with vehicles

registered under the Public Service Law, the public has the right to assume or presumed that the registered owner is the actual owner thereof, for it would be difficult with the public to enforce the actions that they may have for injuries caused to them by the vehicles being negligently operated if the public should be required to prove who actual the owner is. How would the public or third persons know against whom to enforce their rights in case of subsequent transfer of the vehicles? We do not imply by this doctrine, however, that the registered owner may not recover whatever amount he had paid by virtue of his liability to third persons from the person to whom he had actually sold, assigned or conveyed the vehicle. Under the same principle the registered owner of any vehicle, even if not used for a public service, should primarily responsible to the public or to the third persons for injuries caused the latter while the vehicle is being driven on the highways or streets. The members of the Court are in agreement that the defendant-appellant should be held liable to plaintiff-appellee for the injuries occasioned to the latter because of the negligence of the driver, even if the defendant-appellant was no longer an owner of the vehicle at the time of the damage because he had previously sold it to another. What is the legal basis for his (defendants-appellant's) liability? There is a presumption that the owner of the guilty vehicle is the defendant-appellant as he is the registered owner in the Motor Vehicle Office. Should he not be allowed to prove the truth, that he had sold it to another and thus shift the responsibility for the injury to the real and the actual owner? The defendants hold the affirmative of this proposition; the trial court hold the negative. The Revised Motor Vehicle Law (Act No. 3992, as amended) provides that the vehicle may be used or operated upon any public highway unless the same is properly registered. It has been stated that the system of licensing and the requirement that each machine must carry a registration number, conspicuously displayed, is one of the precautions taken to reduce the danger of injury of pedestrians and other travelers from the careless management of automobiles, and to furnish a means of ascertaining the identity of persons violating the laws and ordinances, regulating the speed and operation of machines upon the highways (2 R. C. L. 1176). Not only are vehicles to be registered and that no motor vehicles are to be used or operated without being properly registered from the current year, furnish the Motor Vehicle Office a report showing the name and address of each purchaser of motor vehicle during the previous month and the manufacturer's serial number and motor number. (Section 5[c], Act No. 3992, as amended.) Registration is required not to make said registration the operative act by which ownership in vehicles is transferred, as in land registration cases, because the administrative proceeding of registration does not bear any essential relation to the contract of sale between the parties (Chinchilla vs. Rafael and Verdaguer, 39 Phil. 888), but to permit the use and operation of the vehicle upon any public highway (section 5[a], Act No. 3992, as amended). the main aim of motor vehicle registration is to identify the owner so that if any accident happens, or that any damage or injury is caused by the vehicle on the public highways, responsibility therefor can be fixed on a definite individual, the registered owner. Instances are numerous where vehicles running on public highways caused accidents or injuries to pedestrians or other vehicles without positive identification of the owner or drivers, or with very scant means of identification. It is to forestall these circumstances, so inconvenient or prejudicial to the public, that the motor vehicle registration is primarily obtained, in the

interest of the determinations of persons responsible for damages or injuries caused on public highways. One of the principle purposes of motor vehicles legislation is identification of the vehicle and of the operator, in case of accident; and another is that the knowledge that means of detection are always available my act as a deterrent from lax observance of the law and of the rules of conservative and safe operation. Whatever purpose there may be in these statutes, it is subordinate at the last to the primary purpose of rendering it certain that the violator of the law or of the rules of safety shall not escape because of lack of means to discover him. The purpose of the statute is thwarted, and the displayed number becomes a "share and delusion," if courts would entertain such defenses as that put forward by appellee in this case. No responsible person or corporation could be held liable for the most outrageous acts of negligence, if they should be allowed to pace a "middleman" between them and the public, and escape liability by the manner in which they recompense their servants. (King vs. Breham Automobile Co., Inc. 145 S. W. 278, 279.) With the above policy in mind, the question that defendant-appellant poses is: should not the registered owner be allowed at the trial to prove who the actual and real owner is, and in accordance with such proof escape or evade responsibility and lay the same on the person actually owning the vehicle? We hold with the trial court that the law does not allow him to do so; the law, with its aim and policy in mind, does not relieve him directly of the responsibility that the law fixes and places upon him as an incident or consequence of registration. Were a registered owner allowed to evade responsibility by proving who the supposed transferee or owner is, it would be easy for him, by collusion with others or otherwise, to escape said responsibility and transfer the same to an indefinite person, or to one who possesses no property with which to respond financially for the damage or injury done. A victim of recklessness on the public highways is usually without means to discover or Identify the person actually causing the injury or damage. He has no means other then by a recourse to the registration in the Motor Vehicles Office to determine who is the owner. The protection that the law aims to extend to him would become illusory were the registered owner given the opportunity to escape liability by disproving his ownership. If the policy of the law is to be enforced and carried out, the registered owner should not be allowed to prove the contrary to the prejudice of the person injured, that is, to prove that a third person or another has become the owner, so that he may thereby be relieved of the responsibility to the injured person. The above policy and application of the law may appear quite harsh and would seem to conflict with truth and justice. We do not think it is so. A registered owner who has already sold or transferred a vehicle has the recourse to a third-party complaint, in the same action brought against him to recover for the damage or injury done, against the vendee or transferee of the vehicle. The inconvenience of the suit is no justification for relieving him of liability; said inconvenience is the price he pays for failure to comply with the registration that the law demands and requires. In synthesis, we hold that the registered owner, the defendant-appellant herein, is primarily responsible for the damage caused to the vehicle of the plaintiff-appellee, but he (defendant-appellant) has a right to be indemnified by the real or actual owner

of the amount that he may be required to pay as damage for the injury caused to the plaintiff-appellant. If the foregoing words of wisdom were applied in solving the circumstance whereof the vehicle had been alienated or sold to another, there certainly can be no serious exception against utilizing the same rationale to the antecedents of this case where the subject vehicle was merely leased by petitioner to Rock Component Philippines, Inc., with petitioner retaining ownership over the vehicle. Petitioner's reliance on the ruling of this Court in Duavit vs. Court of Appeals and in Duquillo vs. Bayot (supra) is legally unpalatable for the purpose of the present discourse. The vehicles adverted to in the two cases shared a common thread, so to speak, in that the jeep and the truck were driven in reckless fashion without the consent or knowledge of the respective owners. Cognizant of the inculpatory testimony spewed by defendant Sabiniano when he admitted that he took the jeep from the garage of defendant Dauvit without the consent or authority of the latter, Justice Gutierrez, Jr. in Duavit remarked; . . . Herein petitioner does not deny ownership of the vehicle involved in the mishap but completely denies having employed the driver Sabiniano or even having authorized the latter to drive his jeep. The jeep was virtually stolen from the petitioner's garage. To hold, therefore, the petitioner liable for the accident caused by the negligence of Sabiniano who was neither his driver nor employee would be absurd as it would be like holding liable the owner of a stolen vehicle for an accident caused by the person who stole such vehicle. In this regard, we cannot ignore the many cases of vehicles forcibly taken from their owners at gunpoint or stolen from garages and parking areas and the instances of service station attendants or mechanics of auto repair shops using, without the owner's consent, vehicles entrusted to them for servicing or repair.(at p. 496.) In the Duquillo case, the defendant therein cannot, according to Justice Diaz, be held liable for anything because of circumstances which indicated that the truck was driven without the consent or knowledge of the owner thereof. Consequently, there is no need for Us to discuss the matter of imputed negligence because petitioner merely presumed, erroneously, however, that judgment was rendered against it on the basis of such doctrine embodied under Article 2180 of the new Civil Code. WHEREFORE, the petition is hereby DISMISSED and decision under review AFFIRMED without special pronouncement as to costs. SO ORDERED. Gutierrez, Jr., Bidin, Davide, Jr., Romero and Melo, JJ. concur.

Tuesday, September 18, 2012

BA Finance Corporation vs. CA Case Digest


BA Finance Corporation vs. CA 161 SCRA 608

Facts: Augusto Yulo, respondent, secured a loan from the petitioner, BA Finance Corp., as evidenced by his signature on a promissory note in behalf of the A & L Industries. About two months prior to the loan, however, Augusto Yulo had already left Lily Yulo and their children and had abandoned their conjugal home. When the obligation became due and demandable, Augusto Yulo failed to pay the same.

Petitioner filed its amended complaint against the spouses on the basis of the promissory note. They also prayed for the issuance of a writ of attachment that the said spouses were guilty of fraud in contracting the debt. The trial court issued the writ of attachment thereby enabling the petitioner to attach the properties of A & L Industries. Private respondent Lily Yulo filed her answer with counterclaim, alleging that Augusto had already abandoned her and their children five months before the filing of the complaint and that they were already separated when the promissory note was executed. She also alleged that her signature was forged in the special power of attorney procured by Augusto.

Petitioner contends that even if the signature was forged or even if the attached properties were her exclusive property, the same can be made answerable to the obligation because the said properties form part of the conjugal partnership of the spouses Yulo.

Issue: Whether or not the exclusive property of private respondent forms part of the conjugal partnership of the spouses and be made answerable to the obligation.

Ruling: SC ordered the release of the attachment of the said property. Though it is presumed that the single proprietorship established during the marriage is conjugal and even if it is registered in the name of only one of the spouses. However, for the said property to be held liable, the obligation contracted by the husband must have redounded to the benefit of the conjugal partnership.

In the case at bar, the obligation which the petitioner is seeking to enforce against the conjugal property managed by the private respondent was undoubtedly contracted by Augusto Yulo for his own benefit because at the time he incurred the obligation he had already abandoned his family and had left their conjugal home.

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