TRUST CASES.docx

Government v. Abadilla,46 Phil. 642
G.R. No. L-21334 December 10, 1924
THE GOVERNMENT OF THE PHILIPPINE ISLANDS, Petitioner,
vs. ANASTASIA ABADILLA, ET AL., claimants.
THE MUNICIPALITY OF TAYABAS, ET AL., claimants-appellees,
MARIA PALAD, ET AL., claimants-appellants.
Domingo Lopez, Ramon Diokno and Gabriel N. Trinidad for appellants.
Attorney-General Villa-Real for municipality as appellee.
No appearance for the other appellees.
OSTRAND, J.:
This is an appeal from a judgment in cadastral and land registration case
No. 3 of the Court of First Instance of Tayabas (G. L. R. O. Record No.
213) in which case lots Nos. 3464, 3469, and 3470 are claimed by the
municipality of Tayabas and the governor of the province on one side, and
by Maria, Eufemio, Eugenia, Felix, Caridad, Segunda, and Emilia Palad
on the other. Lot No. 3470 is also claimed by Dorotea Lopez. The court
below ordered the registration of the three lots in the name of the governor
of the Province of Tayabas in trust for a secondary school to be
established in the municipality of Tayabas. The claimants Palad and
Dorotea Lopez appealed.chanroblesvirtualawlibrary chanrobles virtual law
library
It appears from the evidence that the lands in question were originally
owned by one Luis Palad, a school teacher, who obtained titled to the land
by composicion gratuita in 1894. On January 25, 1892, Palad executed a
holographic will party in Spanish and partly in Tagalog. Palad died
on December 3, 1896, without descendants, but leaving a widow, the
appellant Dorotea Lopez, to whom he had been married since October
4, 1885. On July 27, 1987, the Court of First Instance of Tayabas ordered
the protocolization of the will over the opposition of Leopoldo and

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

by the counsel for the municipality and concurred in by all the parties,
reserving to the collateral heirs the right to bring another action. The
municipality of Tayabas has been in possession of said lots Nos. 3464
and 3469 ever since and Dorotea Lopez has likewise held
uninterrupted possession of lot No.
3470.chanroblesvirtualawlibrary chanrobles virtual law library
In regard to lots Nos. 3464 and 3469, claimed by the appellants Palad and
the appellees, the case presents several problems not directly covered by
statutory provisions or by Spanish or local precedents and, for the solution
of which, we must resort to the underlying principles of the law on the
subject. As it is doubtful whether the possession of the municipality of
Tayabas can be considered adverse within the meaning of section 41 of the
Code of Civil Procedure, the case as to these lots turns upon the
construction and validity of the clause quoted from the will of Luis Palad,
rather than upon the question of prescription of
title.chanroblesvirtualawlibrary chanrobles virtual law library
The clause is very unskillfully drawn; its language is ungrammatical
and at first blush seems somewhat obscure, but on closer examination
it sufficiently reveals the purpose of the testator. And if its provisions
are not in contravention of some established rule of law or public policy,
they must be respected and given effect. It may be observed that the
question as to the sufficiency of the form of the will must be regarded as
settled by the protocolization proceedings had in the year
It is a well-known rule that testamentary dispositions must be liberally
construed so as to give effect to the intention of the testator as
revealed by the will itself. Applying this rule of construction it seems
evident that by the clause in question the testator proposed to create a
trust for the benefit of a secondary school to be established in the
town of Tayabas, naming as trustee the ayuntamiento of the town or if
there be no ayuntamiento, then the civil governor of the Province of
Tayabas.chanroblesvirtualawlibrary chanrobles virtual law library

As the law of trusts has been much more frequently applied in England
and in the United Stated than it has in Spain, we may draw freely upon
American precedents in determining the effect of the testamentary trust
here under consideration, especially so as the trusts known to American
and English equity jurisprudence are derived from the fidei commissa of
the Roman law and are based entirely upon Civil Law
principles.chanroblesvirtualawlibrary chanrobles virtual law library
In order that a trust may become effective
there must, of course, be
a trustee and
a cestui que trust, and
counsel for the appellants Palad argues that we here have neither; that
there is no ayuntamiento, no Gobernador Civil of the province, and no
secondary school in the town of
Tayabas.chanroblesvirtualawlibrary chanrobles virtual law library
An ayuntamiento corresponds to what in English is termed a
municipal corporation and it may be conceded that the ordinary
municipal government in these Island falls short of being such a
corporation. But we have provincial governors who like their
predecessors, the civil governors, are the chief executives of their
respective provinces. It is true that in a few details the function and
power of the two offices may vary somewhat, but it cannot be successfully
disputed that one office is the legal successor of the other. It might as well
be contended that when under the present regime the title of the chief
executive of the Philippine was changed from Civil Governor to that of
Governor-General, the latter was not the legal successor of the former.
There can therefore be but very little doubt that the governor of the
Province of Tayabas, as the successor of the civil governor of the province

under the Spanish regime, may acts as trustee in the present
case.chanroblesvirtualawlibrary chanrobles virtual law library
In regard to private trust it is not always necessary that the cestui que
trust should be named, or even be in esse at the time the trust is
created in his favor. (Flint on Trusts and Trustees, section 25; citing
Frazier vs. Frazier, 2 Hill Ch., 305; Ashurt vs. Given, 5 Watts & S., 329;
Carson vs. Carson, 1 Wins. [N. C.] 24.) Thus a devise to a father in trust
for accumulation for his children lawfully begotten at the time of his death
has been held to be good although the father had no children at the time of
the vesting of the funds in him as trustees. In charitable trust such as the
one here under discussion, the rule is still further relaxed. (Perry on Trusts,
5th ed., section 66.)chanrobles virtual law library
This principle is in harmony with article 788 of the Civil Code which
reads as follows:
Any disposition which imposes upon an heirs the obligation of
periodically investing specified sums in charitable works, such as dowries
for poor maidens or scholarships for students, or in favor of the poor, or
any charitable public educational institution, shall be valid under the
following conditions:chanrobles virtual law library
If the charge is imposed on real property and is temporary, the heir or
heirs may dispose of the encumbered estate, but the lien shall continue
until the record thereof is canceled.chanroblesvirtualawlibrary chanrobles
virtual law library
If the charge is perpetual, the heir may capitalize it and invest the capital
at interest, fully secured by first
mortgage.chanroblesvirtualawlibrary chanrobles virtual law library
The capitalization and investment of the principal shall be made with
the intervention of the civil governor of the province after hearing the

opinion of the prosecuting officer.chanroblesvirtualawlibrary chanrobles
virtual law library
In any case, if the testator should not have laid down any rules for the
management and application of the charitable legacy, it shall be done
by the executive authorities upon whom this duty devolves by law.
It is true that minor distinctions may possibly be drawn between the case
before us and that presupposed in the article quoted, but the general
principle is the same in both cases. Here the trustee, who holds the legal
title, as distinguished from the beneficial title resting in the cestui que
trust, must be considered the heirs. The devise under consideration does
not in terms require periodical investments of specified sums, but it is
difficult to see how this can affect the general principle involved, and
unless the devise contravenes some other provision of the Code it must be
upheld.chanroblesvirtualawlibrary chanrobles virtual law library
We have been unable to find any such provision. There is no violation of
any rule against perpetuities: the devise does not prohibit the alienation of
the land devised. It does not violate article 670 of the Code: the making of
the will and the continuance or quantity of the estate of the heir are not left
in the discretion of the third party. The devisee is not uncertain and the
devise is therefore are repugnant to article 750 of the Civil Code. The
provincial governor can hardly be regarded as a public establishment
within the meaning of article 748 and may therefore receive the
inheritance without the previous approval of the
Government.chanroblesvirtualawlibrary chanrobles virtual law library
But counsel argues that assuming all this to be true the collateral heirs of
the deceased would nevertheless be entitled to the income of the land until
the cestui que trust is actually in esse. We do not think so. If the trustee
holds the legal title and the devise is valid, the natural heirs of the
deceased have no remaining interest in the land except their right to
the reversion in the event the devise for some reason should fail, an
event which has not as yet taken place. From a reading of the

testamentary clause under discussion it seems quite evident that the
intention of the testator was to have income of the property accumulate for
the benefit of the proposed school until the same should be
established.chanroblesvirtualawlibrary chanrobles virtual law library
From what has been said it follows that the judgment appealed from must
be affirmed in regard to lots Nos. 3464 and
As to lot No. 3470 little need be said. It may be noted that though the
Statute of Limitation does not run as between trustee and cestui que
trust as long as the trust relations subsist, it may run as between the
trust and third persons. Contending that the Colongcolong land was
community property of her marriage with Luis Palad and that lot No. 3470
represented her share thereof, Dorotea Lopez has held possession of said
lot, adverse to all other claimants, since the year 1904 and has now
acquired title by prescription.chanroblesvirtualawlibrary chanrobles
virtual law library
The judgment appealed from is affirmed in regard to lots Nos. 3464 and
3469 and is reversed as to lot No. 3470, and it is ordered that said lot No.
3470 be registered in the name of the claimant Dorotea Lopez. No costs
will be allowed. So ordered.chanroblesvirtualawlibrary chanrobles virtual
law library
Street, Avanceña, Villamor and Romualdez, JJ., concur. chanrobles virtual
law library
MBTC Board of Trustees of Riverside Mills Corp., GRN. 176959,
Sept. 8, 2010
G.R. No. 176959 September 8, 2010

METROPOLITAN BANK & TRUST COMPANY, INC. (as
successor-in-interest of the banking operations of Global Business
Bank, Inc. formerly known as PHILIPPINE BANKING
CORPORATION), Petitioner,
vs.
THE BOARD OF TRUSTEES OF RIVERSIDE MILLS
CORPORATION PROVIDENT AND RETIREMENT FUND,
represented by ERNESTO TANCHI, JR., CESAR SALIGUMBA,
AMELITA SIMON, EVELINA OCAMPO and CARLITOS Y. LIM,
RMC UNPAID EMPLOYEES ASSOCIATION, INC., and THE
INDIVIDUAL BENEFICIARIES OF THE PROVIDENT AND
RETIREMENT FUND OF RMC, Respondents.
D E C I S I O N
VILLARAMA, JR., J.:
This petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, prays for the reversal of the Decision1
dated
November 7, 2006 and Resolution2
dated March 5, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 76642. The CA had affirmed the
Decision3
dated June 27, 2002 of the Regional Trial Court (RTC), Branch
137, Makati City in Civil Case No. 97-997 which declared invalid the
reversion or application of the Riverside Mills Corporation Provident and
Retirement Fund (RMCPRF) to the outstanding obligation of Riverside
Mills Corporation (RMC) with Philippine Banking Corporation
(Philbank).
The facts are as follows:
On November 1, 1973, RMC established a Provident and Retirement
Plan4
(Plan) for its regular employees. Under the Plan, RMC and its
employees shall each contribute 2% of the employee’s current basic
monthly salary, with RMC’s contribution to increase by 1% every five (5)
years up to a maximum of 5%. The contributions shall form part of the

provident fund (the Fund) which shall be held, invested and
distributed by the Commercial Bank and Trust Company. Paragraph
13 of the Plan likewise provided that the Plan "may be amended or
terminated by the Company at any time on account of business
conditions, but no such action shall operate to permit any part of the
assets of the Fund to be used for, or diverted to purposes other than for the
exclusive benefit of the members of the Plan and their … beneficiaries. In
no event shall any part of the assets of the Fund revert to [RMC] before all
liabilities of the Plan have been satisfied."5
On October 15, 1979, the Board of Trustees of RMCPRF (the Board)
entered into an Investment Management Agreement6
(Agreement) with
Philbank (now, petitioner Metropolitan Bank and Trust Company).
Pursuant to the Agreement, petitioner shall act as an agent of the Board
and shall hold, manage, invest and reinvest the Fund in Trust Account No.
1797 in its behalf. The Agreement shall be in force for one (1) year and
shall be deemed automatically renewed unless sooner terminated either by
petitioner bank or by the Board.
In 1984, RMC ceased business operations. Nonetheless, petitioner
continued to render investment services to respondent Board. In a
letter7
dated September 27, 1995, petitioner informed respondent Board
that Philbank’s Board of Directors had decided to apply the remaining
trust assets held by it in the name of RMCPRF against part of the
outstanding obligations of RMC.
Subsequently, respondent RMC Unpaid Employees Association, Inc.
(Association), representing the terminated employees of RMC, learned of
Trust Account No. 1797. Through counsel, they demanded payment of
their share in a letter8
dated February 4, 1997. When such demand went
unheeded, the Association, along with the individual members of
RMCPRF, filed a complaint for accounting against the Board and its
officers, namely, Ernesto Tanchi, Jr., Carlitos Y. Lim, Amelita G. Simon,
Evelina S. Ocampo and Cesar Saligumba, as well as petitioner bank. The

case was docketed as Civil Case No. 97-997 in the RTC of Makati City,
Branch 137.
On June 2, 1998, during the trial, the Board passed a Resolution9
in court
declaring that the Fund belongs exclusively to the employees of RMC. It
authorized petitioner to release the proceeds of Trust Account No. 1797
through the Board, as the court may direct. Consequently, plaintiffs
amended their complaint to include the Board as co-plaintiffs.
On June 27, 2002, the RTC rendered a decision in favor of respondents.
The trial court declared invalid the reversion and application of the
proceeds of the Fund to the outstanding obligation of RMC to petitioner
bank. The fallo of the decision reads:
WHEREFORE, judgment is hereby rendered:
1. Declaring INVALID the reversion or application of the
Riverside Mills Corporation Provident and Retirement Fund as
payment for the outstanding obligation of Riverside Mills
Corporation with defendant Philippine Banking Corporation.
2. Defendant Philippine Banking Corporation (now [Global Bank])
is hereby ordered to:
a. Reverse the application of the Riverside Mills
Corporation Provident and Retirement Fund as payment for
the outstanding obligation of Riverside Mills Corporation
with defendant Philippine Banking Corporation;
b. Render a complete accounting of the Riverside Mills
Corporation Provident and Retirement Fund; the Fund will
then be subject to disposition by plaintiff Board of Trustees
in accordance with law and the Provident Retirement Plan;
c. Pay attorney’s fees equivalent to 10% of the total
amounts due to plaintiffs Riverside Mills Unpaid

Employees Association and the individual beneficiaries of
the Riverside Mills Corporation Provident and Retirement
Fund; and costs of suit.
3. The Riverside Mills Corporation Provident and Retirement Fund
is ordered to determine the beneficiaries of the FUND entitled to
benefits, the amount of benefits per beneficiary, and pay such
benefits to the individual beneficiaries.
SO ORDERED.10
On appeal, the CA affirmed the trial court. It held that the Fund is distinct
from RMC’s account in petitioner bank and may not be used except for
the benefit of the members of RMCPRF. Citing Paragraph 13 of the Plan,
the appellate court stressed that the assets of the Fund shall not revert to
the Company until after the liabilities of the Plan had been satisfied.
Further, the Agreement was specific that upon the termination of the
Agreement, petitioner shall deliver the Fund to the Board or its successor,
and not to RMC as trustor. The CA likewise sustained the award of
attorney’s fees to respondents.11
Hence, this petition.
Before us, petitioner makes the following assignment of errors:
I.
THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT
THE REVERSION AND APPLICATION BY PHILBANK OF THE
FUND IN PAYMENT OF THE LOAN OBLIGATIONS OF RIVERSIDE
MILLS CORPORATION WERE INVALID.12
II.
THE HONORABLE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR IN DECLARING THAT "BY HAVING

ENTERED INTO AN AGREEMENT WITH THE BOARD,
(PHILBANK) IS NOW ESTOPPED TO QUESTION THE LATTER’S
AUTHORITY AS WELL AS THE TERMS AND CONDITIONS
THEREOF."13
III.
THE HONORABLE COURT COMMITTED REVERSIBLE ERROR IN
AWARDING ATTORNEY’S FEES TO PLAINTIFFS-APPELLEES ON
THE BASIS THAT "[PHILBANK] WAS REMISS IN ITS DUTY TO
TREAT RMCPRF’S ACCOUNT WITH THE HIGHEST DEGREE OF
CARE CONSIDERING THE FIDUCIARY NATURE OF THEIR
RELATIONSHIP, PERFORCE, THE PLAINTIFFS-APPELLEES WERE
COMPELLED TO LITIGATE TO PROTECT THEIR RIGHT."14
The fundamental issue for our determination is whether the proceeds of
the RMCPRF may be applied to satisfy RMC’s debt to Philbank.
Petitioner contends that RMC’s closure in 1984 rendered the RMCPRF
Board of Trustees functus officio and devoid of authority to act on behalf
of RMCPRF. It thus belittles the RMCPRF Board Resolution dated June
2, 1998, authorizing the release of the Fund to several of its supposed
beneficiaries. Without known claimants of the Fund for eleven (11) years
since RMC closed shop, it was justifiable for petitioner to consider the
Fund to have "technically reverted" to, and formed part of RMC’s assets.
Hence, it could be applied to satisfy RMC’s debts to Philbank. Petitioner
also disputes the award of attorney’s fees in light of the efforts taken by
Philbank to ascertain claims before effecting the reversion.
Respondents for their part, belie the claim that petitioner exerted earnest
efforts to ascertain claims. Respondents cite petitioner’s omission to
publish a notice in newspapers of general circulation to locate claims
against the Fund. To them, petitioner’s act of addressing the letter dated
September 27, 1995 to the Board is a recognition of its authority to act for
the beneficiaries. For these reasons, respondents believe that the reversion

of the Fund to RMC is not only unwarranted but unconscionable. For
being compelled to litigate to protect their rights, respondents also defend
the award of attorney’s fees to be proper.
The petition has no merit.
A trust is a "fiduciary relationship with respect to property which involves
the existence of equitable duties imposed upon the holder of the title to the
property to deal with it for the benefit of another." A trust is either express
or implied. Express trusts are those which the direct and positive acts
of the parties create, by some writing or deed, or will, or by words
evincing an intention to create a trust.15
Here, the RMC Provident and Retirement Plan created an express trust to
provide retirement benefits to the regular employees of RMC. RMC
retained legal title to the Fund but held the same in trust for the
employees-beneficiaries. Thus, the allocation under the Plan is directly
credited to each member’s account:
6. Allocation:
a. Monthly Contributions:
1. Employee – to be credited to his account.
2. Employer – to be credited to the respective member’s
account as stated under the contribution provision.
b. Investment Earnings – semestral valuation of the fund shall be
made and any earnings or losses shall be credited or debited, as the
case may be, to each member’s account in proportion to his
account balances based on the last proceeding (sic) [preceding]
accounting period.
c. Forfeitures – shall be retained in the fund.16
(Emphasis
supplied.)

The trust was likewise a revocable trust as RMC reserved the power to
terminate the Plan after all the liabilities of the Fund to the employees
under the trust had been paid. Paragraph 13 of the Plan provided that
"[i]n no event shall any part of the assets of the Fund revert to the
Company before all liabilities of the Plan have been satisfied."
Relying on this clause, petitioner, as the Fund trustee, considered the Fund
to have "technically reverted" to RMC, allegedly after no further claims
were made thereon since November 1984. Thereafter, it applied the
proceeds of the Fund to RMC’s debt with the bank pursuant to Paragraph
9 of Promissory Note No. 1618-8017
which RMC executed on May 12,
1981. The pertinent provision of the promissory note reads:
IN THE EVENT THAT THIS NOTE IS NOT PAID AT MATURITY OR
WHEN THE SAME BECOMES DUE UNDER ANY OF THE
PROVISIONS HEREOF, I/WE HEREBY AUTHORIZE THE BANK AT
ITS OPTION AND WITHOUT NOTICE, TO APPLY TO THE
PAYMENT OF THIS NOTE, ANY AND ALL MONEYS, SECURITIES
AND THINGS OF VALUE WHICH MAY BE IN ITS HAND OR ON
DEPOSIT OR OTHERWISE BELONGING TO ME/US AND, FOR
THIS PURPOSE, I/WE HEREBY, JOINTLY AND SEVERALLY,
IRREVOCABLY CONSTITUTE AND APPOINT THE SAID BANK TO
BE MY/OUR TRUE ATTORNEY-IN-FACT WITH FULL POWER
AND AUTHORITY FOR ME/US AND IN MY/OUR NAME AND
BEHALF, AND WITHOUT PRIOR NOTICE, TO NEGOTIATE, SELL
AND TRANSFER ANY MONEYS, SECURITIES AND THINGS OF
VALUE WHICH IT MAY HOLD, BY PUBLIC OR PRIVATE SALE,
AND APPLY THE PROCEEDS THEREOF TO THE PAYMENT OF
THIS NOTE. (Emphasis supplied.)
Petitioner contends that it was justified in supposing that reversion
had occurred because its efforts to locate claims against the Fund
from the National Labor Relations Commission (NLRC), the lower
courts, the CA and the Supreme Court proved futile.

We are not convinced.
Employees’ trusts or benefit plans are intended to provide economic
assistance to employees upon the occurrence of certain contingencies,
particularly, old age retirement, death, sickness, or disability. They
give security against certain hazards to which members of the Plan may be
exposed. They are independent and additional sources of protection for the
working group and established for their exclusive benefit and for no other
purpose.18
Here, while the Plan provides for a reversion of the Fund to
RMC, this cannot be done until all the liabilities of the Plan have been
paid. And when RMC ceased operations in 1984, the Fund became liable
for the payment not only of the benefits of qualified retirees at the time of
RMC’s closure but also of those who were separated from work as a
consequence of the closure. Paragraph 7 of the Retirement Plan states:
Separation from Service:
A member who is separated from the service of the Company before
satisfying the conditions for retirement due to resignation or any reason
other than dismissal for cause shall be paid the balance of his account as
of the last day of the month prior to separation. The amount
representing the Company’s contribution and income thereon standing to
the credit of the separating member shall be paid to him as follows:
Completed
Years
of Membership
% of Company’s Contribution and Earnings
Thereon Payable
0 – 5 NIL
6 – 10 20%
11 – 15 40%
16 – 20 60%
21 – 25 80%

25 – over 100%
A member who is separated for cause shall not be entitled to withdraw the
total amount representing his contribution and that of the Company
including the earned interest thereon, and the employer’s contribution
shall be retained in the fund.19
(Emphasis supplied.)
The provision makes reference to a member-employee who is
dismissed for cause. Under the Labor Code, as amended, an employee
may be dismissed for just or authorized causes. A dismissal for just
cause under Article 28220
of the Labor Code, as amended, implies that the
employee is guilty of some misfeasance towards his employer, i.e. the
employee has committed serious misconduct in relation to his work, is
guilty of fraud, has perpetrated an offense against the employer or any
immediate member of his family, or has grossly and habitually neglected
his duties. Essentially, it is an act of the employee that sets off the
dismissal process in motion.
On the other hand, a dismissal for an authorized cause under Article
28321 and 28422 of the Labor Code, as amended, does not entail any
wrongdoing on the part of the employee. Rather, the termination of
employment is occasioned by the employer’s exercise of management
prerogative or by the illness of the employee – matters beyond the
worker’s control.
The distinction between just and authorized causes for dismissal lies
in the fact that payment of separation pay is required in dismissals for
an authorized cause but not so in dismissals for just cause. The rationale
behind this rule was explained in the case of Phil. Long Distance
Telephone Co. v. NLRC23
and reiterated in San Miguel Corporation v.
Lao,24
thus:
We hold that henceforth separation pay shall be allowed as a measure of
social justice only in those instances where the employee is validly
dismissed for causes other than serious misconduct or those reflecting on

his moral character. Where the reason for the valid dismissal is, for
example, habitual intoxication or an offense involving moral turpitude,
like theft or illicit sexual relations with a fellow worker, the employer may
not be required to give the dismissed employee separation pay, or financial
assistance, or whatever other name it is called, on the ground of social
justice.
x x x x x x x x x
The policy of social justice is not intended to countenance wrongdoing
simply because it is committed by the underprivileged. At best[,] it
may mitigate the penalty but it certainly will not condone the offense.
In San Miguel Corporation v. Lao, we reversed the CA ruling which
granted retirement benefits to an employee who was found by the Labor
Arbiter and the NLRC to have been properly dismissed for willful breach
of trust and confidence.
Applied to this case, the penal nature of the provision in Paragraph 7 of
the Plan, whereby a member separated for cause shall not be entitled to
withdraw the contributions made by him and his employer, indicates that
the "separation for cause" being referred to therein is any of the just causes
under Article 282 of the Labor Code, as amended.
To be sure, the cessation of business by RMC is an authorized cause
for the termination of its employees. Hence, not only those qualified for
retirement should receive their total benefits under the Fund, but those
laid off should also be entitled to collect the balance of their account
as of the last day of the month prior to RMC’s closure. In addition, the
Plan provides that the separating member shall be paid a maximum
of 40% of the amount representing the Company’s contribution and
its income standing to his credit. Until these liabilities shall have been
settled, there can be no reversion of the Fund to RMC.

Under Paragraph 625
of the Agreement, petitioner’s function shall be
limited to the liquidation and return of the Fund to the Board upon
the termination of the Agreement. Paragraph 14 of said Agreement
further states that "it shall be the duty of the Investment Manager to
assign, transfer, and pay over to its successor or successors all cash,
securities, and other properties held by it constituting the fund less any
amounts constituting the charges and expenses which are authorized
[under the Agreement] to be payable from the Fund."26
Clearly, petitioner
had no power to effect reversion of the Fund to RMC.
The reversion petitioner effected also could hardly be said to have
been done in good faith and with due regard to the rights of the
employee-beneficiaries. The restriction imposed under Paragraph 13 of
the Plan stating that "in no event shall any part of the assets of the
Fund revert to the Company before all liabilities of the Plan have been
satisfied," demands more than a passive stance as that adopted by
petitioner in locating claims against the Fund. Besides, the beneficiaries
of the Fund are readily identifiable – the regular or permanent employees
of RMC who were qualified retirees and those who were terminated as a
result of its closure. Petitioner needed only to secure a list of the
employees concerned from the Board of Trustees which was its principal
under the Agreement and the trustee of the Plan or from RMC which was
the trustor of the Fund under the Retirement Plan. Yet, petitioner notified
respondent Board of Trustees only after Philbank’s Board of Directors had
decided to apply the remaining trust assets of RMCPRF to the liabilities of
the company.
Petitioner nonetheless assails the authority of the Board of Trustees to
issue the Resolution of June 2, 1998 recognizing the exclusive ownership
of the Fund by the employees of RMC and authorizing its release to the
beneficiaries as may be ordered by the trial court. Petitioner contends that
the cessation of RMC’s operations ended not only the Board members’
employment in RMC, but also their tenure as members of the RMCPRF
Board of Trustees.

Again, we are not convinced. Paragraph 13 of the Plan states that
"[a]lthough it is expected that the Plan will continue indefinitely, it
may be amended or terminated by the Company at any time on
account of business conditions." There is no dispute as to the
management prerogative on this matter, considering that the Fund
consists primarily of contributions from the salaries of members-
employees and the Company. However, it must be stressed that the RMC
Provident and Retirement Plan was primarily established for the benefit of
regular and permanent employees of RMC. As such, the Board may not
unilaterally terminate the Plan without due regard to any accrued benefits
and rightful claims of members-employees. Besides, the Board is bound
by Paragraph 13 prohibiting the reversion of the Fund to RMC before all
the liabilities of the Plan have been satisfied.
As to the contention that the functions of the Board of Trustees ceased
upon with RMC’s closure, the same is likewise untenable.
Under Section 12227
of the Corporation Code, a dissolved corporation
shall nevertheless continue as a body corporate for three (3) years for the
purpose of prosecuting and defending suits by or against it and enabling it
to settle and close its affairs, to dispose and convey its property and to
distribute its assets, but not for the purpose of continuing the business for
which it was established. Within those three (3) years, the corporation may
appoint a trustee or receiver who shall carry out the said purposes beyond
the three (3)-year winding-up period. Thus, a trustee of a dissolved
corporation may commence a suit which can proceed to final judgment
even beyond the three (3)-year period of liquidation.28
In the same manner, during and beyond the three (3)-year winding-up
period of RMC, the Board of Trustees of RMCPRF may do no more
than settle and close the affairs of the Fund. The Board retains its
authority to act on behalf of its members, albeit, in a limited capacity. It
may commence suits on behalf of its members but not continue managing
the Fund for purposes of maximizing profits. Here, the Board’s act of
issuing the Resolution authorizing petitioner to release the Fund to its

beneficiaries is still part of the liquidation process, that is, satisfaction of
the liabilities of the Plan, and does not amount to doing business. Hence, it
was properly within the Board’s power to promulgate.
Anent the award of attorney’s fees to respondents, we find the same to be
in order. Article 2208(2) of the Civil Code allows the award of attorney’s
fees in cases where the defendant’s act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to protect his
interest. Attorney’s fees may be awarded by a court to one (1) who was
compelled to litigate with third persons or to incur expenses to protect his
or her interest by reason of an unjustified act or omission of the party from
whom it is sought.29
Here, petitioner applied the Fund in satisfaction of the obligation of RMC
without authority and without bothering to inquire regarding unpaid
claims from the Board of Trustees of RMCPRF. It wrote the members of
the Board only after it had decided to revert the Fund to RMC. Upon being
met with objections, petitioner insisted on the reversion of the Fund to
RMC, despite the clause in the Plan that prohibits such reversion before all
liabilities shall have been satisfied, thereby leaving respondents with no
choice but to seek judicial relief.
WHEREFORE, the petition for review on certiorari is hereby DENIED.
The Decision dated November 7, 2006 and the Resolution dated March 5,
2007 of the Court of Appeals in CA-G.R. CV No. 76642 are AFFIRMED.
With costs against the petitioner.
SO ORDERED.
PNB v. Aznar, 649 SCRA 214
G.R. No. 171805 May 30, 2011

PHILIPPINE NATIONAL BANK, Petitioner,
vs.
MERELO B. AZNAR; MATIAS B. AZNAR III; JOSE L. AZNAR
(deceased), represented by his heirs; RAMON A. BARCENILLA;
ROSARIO T. BARCENILLA; JOSE B. ENAD (deceased),
represented by his heirs; and RICARDO GABUYA (deceased),
represented by his heirs, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 172021
MERELO B. AZNAR and MATIAS B. AZNAR III, Petitioners,
vs.
PHILIPPINE NATIONAL BANK, Respondent.
D E C I S I O N
LEONARDO-DE CASTRO, J.:
Before the Court are two petitions for review on certiorari under Rule 45
of the Rules of Court both seeking to annul and set aside the
Decision1
dated September 29, 2005 as well as the Resolution2
dated
March 6, 2006 of the Court of Appeals in CA-G.R. CV No. 75744,
entitled "Merelo B. Aznar, Matias B. Aznar III, Jose L. Aznar (deceased)
represented by his heirs, Ramon A. Barcenilla (deceased) represented by
his heirs, Rosario T. Barcenilla, Jose B. Enad (deceased) represented by
his heirs, and Ricardo Gabuya (deceased) represented by his heirs v.
Philippine National Bank, Jose Garrido and Register of Deeds of Cebu
City." The September 29, 2005 Decision of the Court of Appeals set aside
the Decision3
dated November 18, 1998 of the Regional Trial Court (RTC)
of Cebu City, Branch 17, in Civil Case No. CEB-21511. Furthermore, it
ordered the Philippine National Bank (PNB) to pay Merelo B. Aznar;
Matias B. Aznar III; Jose L. Aznar (deceased), represented by his heirs;
Ramon A. Barcenilla (deceased), represented by his heirs; Rosario T.

Barcenilla; Jose B. Enad (deceased), represented by his heirs; and Ricardo
Gabuya (deceased), represented by his heirs (Aznar, et al.), the amount of
their lien based on the Minutes of the Special Meeting of the Board of
Directors4
(Minutes) of the defunct Rural Insurance and Surety Company,
Inc. (RISCO) duly annotated on the titles of three parcels of land, plus
legal interests from the time of PNB’s acquisition of the subject properties
until the finality of the judgment but dismissing all other claims of
Aznar, et al. On the other hand, the March 6, 2006 Resolution of the Court
of Appeals denied the Motion for Reconsideration subsequently filed by
each party.
The facts of this case, as stated in the Decision dated September 29, 2005
of the Court of Appeals, are as follows:
In 1958, RISCO ceased operation due to business reverses. In
plaintiffs’ desire to rehabilitate RISCO, they contributed a total amount of
₱212,720.00 which was used in the purchase of the three (3) parcels of
land described as follows:
"A parcel of land (Lot No. 3597 of the Talisay-Minglanilla Estate,
G.L.R.O. Record No. 3732) situated in the Municipality of Talisay,
Province of Cebu, Island of Cebu. xxx containing an area of SEVENTY[-
]EIGHT THOUSAND ONE HUNDRED EIGHTY[-]FIVE SQUARE
METERS (78,185) more or less. x x x" covered by Transfer Certificate of
Title No. 8921 in the name of Rural Insurance & Surety Co., Inc.";
"A parcel of land (Lot 7380 of the Talisay Minglanilla Estate, G.L.R.O.
Record No. 3732), situated in the Municipality of Talisay, Province of
Cebu, Island of Cebu. xxx containing an area of THREE HUNDRED
TWENTY[-]NINE THOUSAND FIVE HUNDRED FORTY[-]SEVEN
SQUARE METERS (329,547), more or less. xxx" covered by Transfer
Certificate of Title No. 8922 in the name of Rural Insurance & Surety Co.,
Inc." and

"A parcel of land (Lot 1323 of the subdivision plan Psd-No. 5988),
situated in the District of Lahug, City of Cebu, Island of Cebu. xxx
containing an area of FIFTY[-]FIVE THOUSAND SIX HUNDRED
FIFTY[-]THREE (55,653) SQUARE METERS, more or less." covered by
Transfer Certificate of Title No. 24576 in the name of Rural Insurance &
Surety Co., Inc."
After the purchase of the above lots, titles were issued in the name of
RISCO. The amount contributed by plaintiffs constituted as liens and
encumbrances on the aforementioned properties as annotated in the
titles of said lots. Such annotation was made pursuant to the Minutes of
the Special Meeting of the Board of Directors of RISCO (hereinafter
referred to as the "Minutes") on March 14, 1961, pertinent portion of
which states:
x x x x
3. The President then explained that in a special meeting of the
stockholders previously called for the purpose of putting up certain
amount of ₱212,720.00 for the rehabilitation of the Company, the
following stockholders contributed the amounts indicated opposite their
names:
CONTRIBUTED SURPLUS
MERELO B. AZNAR ₱50,000.00
MATIAS B. AZNAR 50,000.00
JOSE L. AZNAR 27,720.00
RAMON A. BARCENILLA 25,000.00
ROSARIO T. BARCENILLA 25,000.00
JOSE B. ENAD 17,500.00
RICARDO GABUYA 17,500.00

212,720.00
x x x x
And that the respective contributions above-mentioned shall constitute
as their lien or interest on the property described above, if and when
said property are titled in the name of RURAL INSURANCE &
SURETY CO., INC., subject to registration as their adverse claim in
pursuance of the Provisions of Land Registration Act, (Act No. 496, as
amended) until such time their respective contributions are refunded to
them completely.
x x x x"
Thereafter, various subsequent annotations were made on the same
titles, including the Notice of Attachment and Writ of Execution both
dated August 3, 1962 in favor of herein defendant PNB, to wit:
On TCT No. 8921 for Lot 3597:
Entry No. 7416-V-4-D.B. – Notice of Attachment – By the Provincial
Sheriff of Cebu, Civil Case No. 47725, Court of First Instance of Manila,
entitled "Philippine National Bank, Plaintiff, versus Iluminada Gonzales,
et al., Defendants", attaching all rights, interest and participation of the
defendant Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of
the two parcels of land covered by T.C.T. Nos. 8921, Attachment No. 330
and 185.
Date of Instrument – August 3, 1962.
Date of Inscription – August 3, 1962, 3:00 P.M.
Entry No. 7417-V-4-D.B. – Writ of Execution – By the Court of First
Instance of Manila, commanding the Provincial Sheriff of Cebu, of the
lands and buildings of the defendants, to make the sum of Seventy[-]One

Thousand Three Hundred Pesos (₱71,300.00) plus interest etc., in
connection with Civil Case No. 47725, File No. T-8021.
Date of Instrument – July 21, 1962.
Entry No. 7512-V-4-D.B. – Notice of Attachment – By the Provincial
Sheriff of Cebu, Civil Case Nos. IV-74065, 73929, 74129, 72818, in the
Municipal Court of the City of Manila, entitled "Jose Garrido, Plaintiff,
versus Rural Insurance & Surety Co., Inc., et als., Defendants", attaching
all rights, interests and participation of the defendants, to the parcels of
land covered by T.C.T. Nos. 8921 & 8922 Attachment No. 186, File No.
T-8921.
Date of the Instrument – August 16, 1962.
Entry No. 7513-V-4-D.B. – Writ of Execution – By the Municipal Court
of the City of Manila, commanding the Provincial Sheriff of Cebu, of the
lands and buildings of the defendants, to make the sum of Three Thousand
Pesos (₱3,000.00), with interest at 12% per annum from July 20, 1959, in
connection with Civil Case Nos. IV-74065, 73929, 74613 annotated
above.
File No. T-8921
Date of the Inscription – August 16, 1962, 2:50 P.M.
On TCT No. 8922 for Lot 7380:
(Same as the annotations on TCT 8921)

On TCT No. 24576 for Lot 1328 (Corrected to Lot 1323-c per court
order):
Entry No. 1660-V-7-D.B. – Notice of Attachment – by the Provincial
Sheriff of Cebu, Civil Case No. 47725, Court of First Instance of Manila,
entitled "Philippine National Bank, Plaintiff, versus, Iluminada Gonzales,
et al., Defendants", attaching all rights, interest, and participation of the
defendants Iluminada Gonzales and Rural Insurance & Surety Co., Inc. of
the parcel of land herein described.
Attachment No. 330 & 185.
Date of Instrument – August 3, 1962.
Entry No. 1661-V-7-D.B. – Writ of Execution by the Court of First
Instance of Manila commanding the Provincial Sheriff of Cebu, of the
lands and buildings of the defendants to make the sum of Seventy[-]One
Thousand Three Hundred Pesos (₱71,300.00), plus interest, etc., in
connection with Civil Case No. 47725.
File No. T-8921.
Date of the Instrument – July 21, 1962.
Date of the Inscription – August 3, 1962 3:00 P.M.
Entry No. 1861-V-7-D.B. - Notice of Attachment – By the Provincial
Sheriff of Cebu, Civil Case Nos. IV-74065, 73929, 74129, 72613 &
72871, in the Municipal Court of the City of Manila, entitled "Jose
Garrido, Plaintiff, versus Rural Insurance & Surety Co., Inc., et als.,
Defendants", attaching all rights, interest and participation of the
defendants, to the parcel of land herein described.
Attachment No. 186.

File No. T-8921.
Date of the Instription – August 16, 1962 2:50 P.M.
Entry No. 1862-V-7-D.B. – Writ of Execution – by the Municipal Court of
Manila, commanding the Provincial Sheriff of Cebu, of the lands and
buildings of the Defendants, to make the sum of Three Thousand Pesos
(P3,000.00), with interest at 12% per annum from July 20, 1959, in
connection with Civil Case Nos. IV-74065, 73929, 74129, 72613 & 72871
annotated above.
File No. T-8921.
Date of the Inscription – August 16, 1962 at 2:50 P.M.
As a result, a Certificate of Sale was issued in favor of Philippine
National Bank, being the lone and highest bidder of the three (3)
parcels of land known as Lot Nos. 3597 and 7380, covered by T.C.T.
Nos. 8921 and 8922, respectively, both situated at Talisay, Cebu, and Lot
No. 1328-C covered by T.C.T. No. 24576 situated at Cebu City, for the
amount of Thirty-One Thousand Four Hundred Thirty Pesos (P31,430.00).
Thereafter, a Final Deed of Sale dated May 27, 1991 in favor of the
Philippine National Bank was also issued and Transfer Certificate of Title
No. 24576 for Lot 1328-C (corrected to 1323-C) was cancelled and a
new certificate of title, TCT 119848 was issued in the name of PNB on
August 26, 1991.
This prompted plaintiffs-appellees to file the instant complaint seeking the
quieting of their supposed title to the subject properties, declaratory relief,
cancellation of TCT and reconveyance with temporary restraining order
and preliminary injunction. Plaintiffs alleged that the subsequent
annotations on the titles are subject to the prior annotation of their

liens and encumbrances. Plaintiffs further contended that the subsequent
writs and processes annotated on the titles are all null and void for
want of valid service upon RISCO and on them, as stockholders. They
argued that the Final Deed of Sale and TCT No. 119848 are null and void
as these were issued only after 28 years and that any right which PNB may
have over the properties had long become stale.
Defendant PNB on the other hand countered that plaintiffs have no right of
action for quieting of title since the order of the court directing the
issuance of titles to PNB had already become final and executory and
their validity cannot be attacked except in a direct proceeding for their
annulment. Defendant further asserted that plaintiffs, as mere stockholders
of RISCO do not have any legal or equitable right over the properties of
the corporation. PNB posited that even if plaintiff’s monetary lien had
not expired, their only recourse was to require the reimbursement or
refund of their contribution.51awphi1
Aznar, et al., filed a Manifestation and Motion for Judgment on the
Pleadings6
on October 5, 1998. Thus, the trial court rendered the
November 18, 1998 Decision, which ruled against PNB on the basis that
there was an express trust created over the subject properties
whereby RISCO was the trustee and the stockholders, Aznar, et al.,
were the beneficiaries or the cestui que trust. The dispositive portion of the
said ruling reads:
WHEREFORE, judgment is hereby rendered as follows:
a) Declaring the Minutes of the Special Meeting of the Board of
Directors of RISCO approved on March 14, 1961 (Annex "E,"
Complaint) annotated on the titles to subject properties on May 15,
1962 as an express trust whereby RISCO was a mere trustee and
the above-mentioned stockholders as beneficiaries being the true
and lawful owners of Lots 3597, 7380 and 1323;

b) Declaring all the subsequent annotations of court writs and
processes, to wit: Entry No. 7416-V-4-D.B., 7417-V-4-D.B., 7512-
V-4-D.B., and 7513-V-4-D.B. in TCT No. 8921 for Lot 3597 and
TCT No. 8922 for Lot 7380; Entry No. 1660-V-7-D.B., Entry No.
1661-V-7-D.B., Entry No. 1861-V-7-D.B., Entry No. 1862-V-7-
D.B., Entry No. 4329-V-7-D.B., Entry No. 3761-V-7-D.B. and
Entry No. 26522 v. 34, D.B. on TCT No. 24576 for Lot 1323-C,
and all other subsequent annotations thereon in favor of third
persons, as null and void;
c) Directing the Register of Deeds of the Province of Cebu and/or
the Register of Deeds of Cebu City, as the case may be, to cancel
all these annotations mentioned in paragraph b) above the titles;
d) Directing the Register of Deeds of the Province of Cebu to
cancel and/or annul TCTs Nos. 8921 and 8922 in the name of
RISCO, and to issue another titles in the names of the plaintiffs;
and
e) Directing Philippine National Bank to reconvey TCT No.
119848 in favor of the plaintiffs.7
PNB appealed the adverse ruling to the Court of Appeals which, in its
September 29, 2005 Decision, set aside the judgment of the trial court.
Although the Court of Appeals agreed with the trial court that a judgment
on the pleadings was proper, the appellate court opined that the
monetary contributions made by Aznar, et al., to RISCO can only be
characterized as a loan secured by a lien on the subject lots, rather
than an express trust. Thus, it directed PNB to pay Aznar, et al., the
amount of their contributions plus legal interest from the time of
acquisition of the property until finality of judgment.lawphil The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the assailed Judgment is hereby SET
ASIDE.

A new judgment is rendered ordering Philippine National Bank to pay
plaintiffs-appellees the amount of their lien based on the Minutes of the
Special Meeting of the Board of Directors duly annotated on the titles,
plus legal interests from the time of appellants’ acquisition of the subject
properties until the finality of this judgment.
All other claims of the plaintiffs-appellees are hereby DISMISSED.8
Both parties moved for reconsideration but these were denied by the Court
of Appeals. Hence, each party filed with this Court their respective
petitions for review on certiorari under Rule 45 of the Rules of Court,
which were consolidated in a Resolution9
dated October 2, 2006.
In PNB’s petition, docketed as G.R. No. 171805, the following assignment
of errors were raised:
I
THE COURT OF APPEALS ERRED IN AFFIRMING THE
FINDINGS OF THE TRIAL COURT THAT A JUDGMENT ON
THE PLEADINGS WAS WARRANTED DESPITE THE
EXISTENCE OF GENUINE ISSUES OF FACTS ALLEGED IN
PETITIONER PNB’S ANSWER.
II
THE HONORABLE COURT OF APPEALS ERRED IN
HOLDING THAT THE RIGHT OF RESPONDENTS TO
REFUND OR REPAYMENT OF THEIR CONTRIBUTIONS
HAD NOT PRESCRIBED AND/OR THAT THE MINUTES OF
THE SPECIAL MEETING OF THE BOARD OF DIRECTORS
OF RISCO CONSTITUTED AS AN EFFECTIVE ADVERSE
CLAIM.
III

THE COURT OF APPEALS ERRED IN NOT CONSIDERING
THE DISMISSAL OF THE COMPLAINT ON GROUNDS OF
RES JUDICATA AND LACK OF CAUSE OF ACTION
ALLEGED BY PETITIONER IN ITS ANSWER.10
On the other hand, Aznar, et al.’s petition, docketed as G.R. No. 172021,
raised the following issue:
THE COURT OF APPEALS ERRED IN CONCLUDING THAT THE
CONTRIBUTIONS MADE BY THE STOCKHOLDERS OF RISCO
WERE MERELY A LOAN SECURED BY THEIR LIEN OVER THE
PROPERTIES, SUBJECT TO REIMBURSEMENT OR REFUND,
RATHER THAN AN EXPRESS TRUST.11
Anent the first issue raised in G.R. No. 171805, PNB argues that a
judgment on the pleadings was not proper because its Answer,12
which it
filed during the trial court proceedings of this case, tendered genuine
issues of fact since it did not only deny material allegations in Aznar, et
al.’s Complaint13
but also set up special and affirmative defenses.
Furthermore, PNB maintains that, by virtue of the trial court’s judgment
on the pleadings, it was denied its right to present evidence and, therefore,
it was denied due process.
The contention is meritorious.
The legal basis for rendering a judgment on the pleadings can be found in
Section 1, Rule 34 of the Rules of Court which states that "[w]here an
answer fails to tender an issue, or otherwise admits the material allegations
of the adverse party’s pleading, the court may, on motion of that party,
direct judgment on such pleading. x x x."
Judgment on the pleadings is, therefore, based exclusively upon the
allegations appearing in the pleadings of the parties and the annexes,
if any, without consideration of any evidence aliunde.14
However,
when it appears that not all the material allegations of the complaint

were admitted in the answer for some of them were either denied or
disputed, and the defendant has set up certain special defenses which,
if proven, would have the effect of nullifying plaintiff’s main cause of
action, judgment on the pleadings cannot be rendered.15
In the case at bar, the Court of Appeals justified the trial court’s resort to a
judgment on the pleadings in the following manner:
Perusal of the complaint, particularly, Paragraph 7 thereof reveals:
"7. That in their desire to rehabilitate RISCO, the above-named
stockholders contributed a total amount of Ph₱212,720.00 which was used
in the purchase of the above-described parcels of land, which amount
constituted liens and encumbrances on subject properties in favor of the
above-named stockholders as annotated in the titles adverted to above,
pursuant to the Minutes of the Special Meeting of the Board of Directors
of RISCO approved on March 14, 1961, a copy of which is hereto
attached as Annex "E".
On the other hand, defendant in its Answer, admitted the aforequoted
allegation with the qualification that the amount put up by the
stockholders was "used as part payment" for the properties. Defendant
further averred that plaintiff’s liens and encumbrances annotated on the
titles issued to RISCO constituted as "loan from the stockholders to pay
part of the purchase price of the properties" and "was a personal obligation
of RISCO and was thus not a claim adverse to the ownership rights of the
corporation." With these averments, We do not find error on the part of
the trial court in rendering a judgment on the pleadings. For one, the
qualification made by defendant in its answer is not sufficient to
controvert the allegations raised in the complaint. As to defendants’
contention that the money contributed by plaintiffs was in fact a "loan"
from the stockholders, reference can be made to the Minutes of the Special
Meeting of the Board of Directors, from which plaintiffs-appellees
anchored their complaint, in order to ascertain the true nature of their
claim over the properties. Thus, the issues raised by the parties can be

resolved on the basis of their respective pleadings and the annexes
attached thereto and do not require further presentation of evidence
aliunde.16
However, a careful reading of Aznar, et al.’s Complaint and of PNB’s
Answer would reveal that both parties raised several claims and
defenses, respectively, other than what was cited by the Court of
Appeals, which requires the presentation of evidence for resolution, to
wit:
Complaint (Aznar, et al.) Answer (PNB)
11. That these subsequent annotations on the titles
of the properties in question are subject to the
prior annotation of liens and encumbrances of the
above-named stockholders per Entry No. 458-V-
7-D.B. inscribed on TCT No. 24576 on May 15,
1962 and per Entry No. 6966-V-4-D.B. on TCT
No. 8921 and TCT No. 8922 on May 15, 1962;
10) Par. 11 is denied as the loan from
the stockholders to pay part of the
purchase price of the properties was a
personal obligation of RISCO and
was thus not a claim adverse to the
ownership rights of the corporation;
12. That these writs and processes annotated on
the titles are all null and void for total want of
valid service upon RISCO and the above-named
stockholders considering that as early as
sometime in 1958, RISCO ceased operations as
earlier stated, and as early as May 15, 1962, the
liens and encumbrances of the above-named
stockholders were annotated in the titles of subject
properties;
11) Par. 12 is denied as in fact notice
to RISCO had been sent to its last
known address at Plaza Goite,
Manila;
13. That more particularly, the Final Deed of Sale
(Annex "G") and TCT No. 119848 are null and
void as these were issued only after 28 years and
5 months (in the case of the Final Deed of Sale)
and 28 years, 6 months and 29 days (in the case of
12) Par. 13 is denied for no law
requires the final deed of sale to be
executed immediately after the end of
the redemption period. Moreover,
another court of competent

TCT 119848) from the invalid auction sale on
December 27, 1962, hence, any right, if any,
which PNB had over subject properties had long
become stale;
jurisdiction has already ruled that
PNB was entitled to a final deed of
sale;
14. That plaintiffs continue to have possession of
subject properties and of their corresponding
titles, but they never received any process
concerning the petition filed by PNB to have TCT
24576 over Lot 1323-C surrendered and/or
cancelled;
13) Par. 14 is denied as plaintiffs are
not in actual possession of the land
and if they were, their possession was
as trustee for the creditors of RISCO
like PNB;
15. That there is a cloud created on the
aforementioned titles of RISCO by reason of the
annotate writs, processes and proceedings caused
by Jose Garrido and PNB which were apparently
valid or effective, but which are in truth and in
fact invalid and ineffective, and prejudicial to said
titles and to the rights of the plaintiffs, which
should be removed and the titles quieted.17
14) Par. 15 is denied as the court
orders directing the issuance of titles
to PNB in lieu of TCT 24576 and
TCT 8922 are valid judgments which
cannot be set aside in a collateral
proceeding like the instant case.18
Furthermore, apart from refuting the aforecited material allegations made
by Aznar, et al., PNB also indicated in its Answer the special and
affirmative defenses of (a) prescription; (b) res judicata; (c) Aznar, et al.,
having no right of action for quieting of title; (d) Aznar, et al.’s lien being
ineffective and not binding to PNB; and (e) Aznar, et al.’s having no
personality to file the suit.19
From the foregoing, it is indubitably clear that it was error for the trial
court to render a judgment on the pleadings and, in effect, resulted in
a denial of due process on the part of PNB because it was denied its
right to present evidence. A remand of this case would ordinarily be
the appropriate course of action. However, in the interest of justice
and in order to expedite the resolution of this case which was filed
with the trial court way back in 1998, the Court finds it proper to

already resolve the present controversy in light of the existence of
legal grounds that would dispose of the case at bar without necessity
of presentation of further evidence on the other disputed factual
claims and defenses of the parties.
A thorough and comprehensive scrutiny of the records would reveal that
this case should be dismissed because Aznar, et al., have no title to quiet
over the subject properties and their true cause of action is already barred
by prescription.
At the outset, the Court agrees with the Court of Appeals that the
agreement contained in the Minutes of the Special Meeting of the RISCO
Board of Directors held on March 14, 1961 was a loan by the therein
named stockholders to RISCO. We quote with approval the following
discussion from the Court of Appeals Decision dated September 29, 2005:
Careful perusal of the Minutes relied upon by plaintiffs-appellees in
their claim, showed that their contributions shall constitute as "lien or
interest on the property" if and when said properties are titled in the
name of RISCO, subject to registration of their adverse claim under the
Land Registration Act, until such time their respective contributions
are refunded to them completely.
It is a cardinal rule in the interpretation of contracts that if the terms
of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulation shall control.
When the language of the contract is explicit leaving no doubt as to the
intention of the drafters thereof, the courts may not read into it any other
intention that would contradict its plain import.
The term lien as used in the Minutes is defined as "a discharge on
property usually for the payment of some debt or obligation. A lien is
a qualified right or a proprietary interest which may be exercised
over the property of another. It is a right which the law gives to have a
debt satisfied out of a particular thing. It signifies a legal claim or charge

on property; whether real or personal, as a collateral or security for the
payment of some debt or obligation." Hence, from the use of the word
"lien" in the Minutes, We find that the money contributed by plaintiffs-
appellees was in the nature of a loan, secured by their liens and interests
duly annotated on the titles. The annotation of their lien serves only as
collateral and does not in any way vest ownership of property to
plaintiffs.20
(Emphases supplied.)
We are not persuaded by the contention of Aznar, et al., that the
language of the subject Minutes created an express trust.
Trust is the right to the beneficial enjoyment of property, the legal
title to which is vested in another. It is a fiduciary relationship that
obliges the trustee to deal with the property for the benefit of the
beneficiary. Trust relations between parties may either be express or
implied. An express trust is created by the intention of the trustor or
of the parties. An implied trust comes into being by operation of law.21
Express trusts, sometimes referred to as direct trusts, are intentionally
created by the direct and positive acts of the settlor or the trustor - by some
writing, deed, or will or oral declaration. It is created not necessarily by
some written words, but by the direct and positive acts of the
parties.22
This is in consonance with Article 1444 of the Civil Code,
which states that "[n]o particular words are required for the creation of
an express trust, it being sufficient that a trust is clearly intended."
In other words, the creation of an express trust must be manifested
with reasonable certainty and cannot be inferred from loose and
vague declarations or from ambiguous circumstances susceptible of
other interpretations.23
No such reasonable certitude in the creation of an express trust
obtains in the case at bar. In fact, a careful scrutiny of the plain and
ordinary meaning of the terms used in the Minutes does not offer any

indication that the parties thereto intended that Aznar, et al., become
beneficiaries under an express trust and that RISCO serve as trustor.
Indeed, we find that Aznar, et al., have no right to ask for the quieting
of title of the properties at issue because they have no legal and/or
equitable rights over the properties that are derived from the previous
registered owner which is RISCO, the pertinent provision of the law is
Section 2 of the Corporation Code (Batas Pambansa Blg. 68), which
states that "[a] corporation is an artificial being created by operation of
law, having the right of succession and the powers, attributes and
properties expressly authorized by law or incident to its existence."
As a consequence thereof, a corporation has a personality separate and
distinct from those of its stockholders and other corporations to which
it may be connected.24
Thus, we had previously ruled in Magsaysay-
Labrador v. Court of Appeals25
that the interest of the stockholders over
the properties of the corporation is merely inchoate and therefore does not
entitle them to intervene in litigation involving corporate property, to wit:
Here, the interest, if it exists at all, of petitioners-movants is indirect,
contingent, remote, conjectural, consequential and collateral. At the very
least, their interest is purely inchoate, or in sheer expectancy of a right in
the management of the corporation and to share in the profits thereof and
in the properties and assets thereof on dissolution, after payment of the
corporate debts and obligations.
While a share of stock represents a proportionate or aliquot interest in the
property of the corporation, it does not vest the owner thereof with any
legal right or title to any of the property, his interest in the corporate
property being equitable or beneficial in nature. Shareholders are in no
legal sense the owners of corporate property, which is owned by the
corporation as a distinct legal person.26
In the case at bar, there is no allegation, much less any proof, that the
corporate existence of RISCO has ceased and the corporate property has

been liquidated and distributed to the stockholders. The records only
indicate that, as per Securities and Exchange Commission (SEC)
Certification27
dated June 18, 1997, the SEC merely suspended RISCO’s
Certificate of Registration beginning on September 5, 1988 due to its non-
submission of SEC required reports and its failure to operate for a
continuous period of at least five years.
Verily, Aznar, et al., who are stockholders of RISCO, cannot claim
ownership over the properties at issue in this case on the strength of
the Minutes which, at most, is merely evidence of a loan agreement
between them and the company. There is no indication or even a
suggestion that the ownership of said properties were transferred to them
which would require no less that the said properties be registered under
their names. For this reason, the complaint should be dismissed since
Aznar, et al., have no cause to seek a quieting of title over the subject
properties.
At most, what Aznar, et al., had was merely a right to be repaid the
amount loaned to RISCO. Unfortunately, the right to seek repayment or
reimbursement of their contributions used to purchase the subject
properties is already barred by prescription.
Section 1, Rule 9 of the Rules of Court provides that when it appears from
the pleadings or the evidence on record that the action is already barred by
the statute of limitations, the court shall dismiss the claim, to wit:
Defenses and objections not pleaded either in a motion to dismiss or in the
answer are deemed waived. However, when it appears from the pleadings
or the evidence on record that the court has no jurisdiction over the subject
matter, that there is another action pending between the same parties for
the same cause, or that the action is barred by a prior judgment or by
statute of limitations, the court shall dismiss the claim. (Emphasis
supplied.)
In Feliciano v. Canoza,28
we held:

We have ruled that trial courts have authority and discretion to
dismiss an action on the ground of prescription when the parties’
pleadings or other facts on record show it to be indeed time-barred x
x x; and it may do so on the basis of a motion to dismiss, or an answer
which sets up such ground as an affirmative defense; or even if the ground
is alleged after judgment on the merits, as in a motion for reconsideration;
or even if the defense has not been asserted at all, as where no statement
thereof is found in the pleadings, or where a defendant has been declared
in default. What is essential only, to repeat, is that the facts
demonstrating the lapse of the prescriptive period, be otherwise
sufficiently and satisfactorily apparent on the record; either in the
averments of the plaintiffs complaint, or otherwise established by the
evidence.29
(Emphasis supplied.)
The pertinent Civil Code provision on prescription which is applicable to
the issue at hand is Article 1144(1), to wit:
The following actions must be brought within ten years from the time the
right of action accrues:
1. Upon a written contract;
2. Upon an obligation created by law;
3. Upon a judgment. (Emphasis supplied.)
Moreover, in Nielson & Co., Inc. v. Lepanto Consolidated Mining
Co.,30
we held that the term "written contract" includes the minutes of
the meeting of the board of directors of a corporation, which minutes
were adopted by the parties although not signed by them, to wit:
Coming now to the question of prescription raised by defendant Lepanto,
it is contended by the latter that the period to be considered for the
prescription of the claim regarding participation in the profits is only four
years, because the modification of the sharing embodied in the
management contract is merely verbal, no written document to that effect

having been presented. This contention is untenable. The modification
appears in the minutes of the special meeting of the Board of Directors of
Lepanto held on August 21, 1940, it having been made upon the authority
of its President, and in said minutes the terms of modification had been
specified. This is sufficient to have the agreement considered, for the
purpose of applying the statute of limitations, as a written contract even if
the minutes were not signed by the parties (3 A.L.R., 2d, p. 831). It has
been held that a writing containing the terms of a contract if adopted
by two persons may constitute a contract in writing even if the same is
not signed by either of the parties (3 A.L.R., 2d, pp. 812-813). Another
authority says that an unsigned agreement the terms of which are
embodied in a document unconditionally accepted by both parties is a
written contract (Corbin on Contracts, Vol. I, p. 85).31
Applied to the case at bar, the Minutes which was approved on March 14,
1961 is considered as a written contract between Aznar, et al., and RISCO
for the reimbursement of the contributions of the former. As such, the
former had a period of ten (10) years from 1961 within which to
enforce the said written contract. However, it does not appear that
Aznar, et al., filed any action for reimbursement or refund of their
contributions against RISCO or even against PNB. Instead the suit
that Aznar, et al., brought before the trial court only on January 28,
1998 was one to quiet title over the properties purchased by RISCO
with their contributions. It is unmistakable that their right of action to
claim for refund or payment of their contributions had long prescribed.
Thus, it was reversible error for the Court of Appeals to order PNB to pay
Aznar, et al., the amount of their liens based on the Minutes with legal
interests from the time of PNB’s acquisition of the subject properties.
In view of the foregoing, it is unnecessary for the Court to pass upon the
other issues raised by the parties.
WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is
DENIED for lack of merit. The petition of PNB in G.R. No. 171805 is

GRANTED. The Complaint, docketed as Civil Case No. CEB-21511,
filed by Aznar, et al., is hereby DISMISSED. No costs.
Salao v. Salao, 70 SCRA 65 (1976)
G.R. No. L-26699 March 16, 1976
BENITA SALAO, assisted by her husband, GREGORIO
MARCELO; ALMARIO ALCURIZA, ARTURO ALCURIZA,
OSCAR ALCURIZA and ANITA ALCURIZA, the latter two being
minors are represented by guardian ad litem, ARTURO
ALCURIZA, plaintiffs-appellants,
vs.
JUAN S. SALAO, later substituted by PABLO P. SALAO,
Administrator of the Intestate of JUAN S. SALAO; now MERCEDES
P. VDA. DE SALAO, ROBERTO P. SALAO, MARIA SALAO VDA.
DE SANTOS, LUCIANA P. SALAO, ISABEL SALAO DE SANTOS,
and PABLO P. SALAO, as successors-in-interest of the late JUAN S.
SALAO, together with PABLO P. SALAO, Administrator, defendants-
appellants.
Eusebio V. Navarro for plaintiffs-appellants.
Nicolas Belmonte & Benjamin T. de Peralta for defendants-appellants.
AQUINO, J.:
This litigation regarding a forty-seven-hectare fishpond located at Sitio
Calunuran, Hermosa, Bataan involves the law of trusts and prescription.
The facts are as follows:
The spouses Manuel Salao and Valentina Ignacio of Barrio Dampalit,
Malabon, Rizal begot four children named Patricio, Alejandra, Juan

(Banli) and Ambrosia. Manuel Salao died in 1885. His eldest son, Patricio,
died in 1886 survived by his only child. Valentin Salao.
There is no documentary evidence as to what, properties formed part of
Manuel Salao's estate, if any. His widow died on May 28, 1914. After her
death, her estate was administered by her daughter Ambrosia.
It was partitioned extrajudicially in a deed dated December 29, 1918
but notarized on May 22, 1919 (Exh. 21). The deed was signed by her
four legal heirs, namely, her three children, Alejandra, Juan and Ambrosia,
and her grandson, Valentin Salao, in representation of his deceased father,
Patricio.
The lands left by Valentina Ignacio, all located at Barrio Dampalit
were as follows:
Nature of Land

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

To each of the legal heirs of Valentina Ignacio was adjudicated a
distributive share valued at P8,135.25. In satisfaction of his
distributive share, Valentin Salao (who was then already forty-eight
years old) was given the biggest fishpond with an area of 50,469 square
meters, a smaller fishpond with an area of 6,989 square meters and
the riceland with a net area of 9,905 square meters. Those parcels of
land had an aggregate appraised value of P13,501 which exceeded
Valentin's distributive share. So in the deed of partition he was directed to
pay to his co-heirs the sum of P5,365.75. That arrangement, which was
obviously intended to avoid the fragmentation of the lands, was beneficial
to Valentin.
In that deed of partition (Exh. 21) it was noted that "desde la muerte de
Valentina Ignacio y Mendoza, ha venido administrando sus bienes la
referida Ambrosia Salao" "cuya administracion lo ha sido a satisfaccion de
todos los herederos y por designacion los mismos". It was expressly
stipulated that Ambrosia Salao was not obligated to render any
accounting of her administration "en consideracion al resultado
satisfactorio de sus gestiones, mejoradas los bienes y pagodas por ella las
contribusiones (pages 2 and 11, Exh. 21).
By virtue of the partition the heirs became "dueños absolutos de sus
respectivas propiedadas, y podran inmediatamente tomar posesion de sus
bienes, en la forma como se han distribuido y llevado a cabo las
adjudicaciones" (page 20, Exh. 21).
The documentary evidence proves that in 1911 or prior to the death of
Valentina Ignacio her two children, Juan Y. Salao, Sr. and Ambrosia

Salao, secured a Torrens title, OCT No. 185 of the Registry of Deeds of
Pampanga, in their names for a forty-seven-hectare fishpond located at
Sitio Calunuran, Lubao, Pampanga (Exh. 14). It is also known as Lot No.
540 of the Hermosa cadastre because that part of Lubao later became a
part of Bataan.
The Calunuran fishpond is the bone of contention in this case.
Plaintiffs' theory is that Juan Y. Salao, Sr. and his sister Ambrosia had
engaged in the fishpond business. Where they obtained the capital is not
shown in any documentary evidence. Plaintiffs' version is that Valentin
Salao and Alejandra Salao were included in that joint venture, that the
funds used were the earnings of the properties supposedly inherited from
Manuel Salao, and that those earnings were used in the acquisition of the
Calunuran fishpond. There is no documentary evidence to support that
theory.
On the other hand, the defendants contend that the Calunuran fishpond
consisted of lands purchased by Juan Y. Salao, Sr. and Ambrosia
Salao in 1905, 1906, 1907 and 1908 as, shown in their Exhibits 8, 9, 10
and 13. But this point is disputed by the plaintiffs.
However, there can be no controversy as to the fact that after Juan Y.
Salao, Sr. and Ambrosia Salao secured a Torrens title for the
Calunuran fishpond in 1911 they exercised dominical rights over it to
the exclusion of their nephew, Valentin Salao.
Thus, on December 1, 1911 Ambrosia Salao sold under pacto de
retro for P800 the Calunuran fishpond to Vicente Villongco. The
period of redemption was one year. In the deed of sale (Exh19) Ambrosia
confirmed that she and her brother Juan were the dueños proindivisos of
the said pesqueria. On December 7, 1911 Villongco, the vendee a retro,
conveyed the same fishpond to Ambrosia by way of lease for an anual
canon of P128 (Exh. 19-a).

After the fishpond was redeemed from Villongco or on June 8, 1914
Ambrosia and Juan sold it under pacto de retro to Eligio Naval for the
sum of P3,360. The period of redemption was also one year (Exh. 20).
The fishpond was later redeemed and Naval reconveyed it to the vendors a
retro in a document dated October 5, 1916 (Exh. 20-a).
The 1930 survey shown in the computation sheets of the Bureau of Lands
reveals that the Calunuran fishpond has an area of 479,205 square meters
and that it was claimed by Juan Salao and Ambrosia Salao, while the
Pinanganacan fishpond (subsequently acquired by Juan and Ambrosia) has
an area of 975,952 square meters (Exh. 22).
Likewise, there is no controversy as to the fact that on May 27, 1911
Ambrosia Salao bought for four thousand pesos from the heirs of Engracio
Santiago a parcel of swampland planted to bacawan and nipa with an area
of 96 hectares, 57 ares and 73 centares located at Sitio Lewa, Barrio
Pinanganacan, Lubao, Pampanga (Exh. 17-d).
The record of Civil Case No. 136, General Land Registration Office
Record No. 12144, Court of First Instance of Pampanga shows that
Ambrosia Salao and Juan Salao filed an application for the
registration of that land in their names on January 15, 1916. They
alleged in their petition that "han adquirido dicho terreno por partes
iguales y por la compra a los herederos del finado, Don Engracio
Santiago" (Exh. 17-a).
At the hearing on October 26, 1916 before Judge Percy M. Moir,
Ambrosia testified for the applicants. On that same day Judge Moir
rendered a decision, stating, inter alia, that the heirs of Engracio
Santiago had sold the land to Ambrosia Salao and Juan Salao. Judge
Moir "ordena la adjudicacion y registro del terreno solicitado a nombre de
Juan Salao, mayor de edad y de estado casado y de su esposa Diega
Santiago y Ambrosia Salao, de estado soltera y mayor de edad, en
participaciones iguales" (Exh. 17-e).

On November 28, 1916 Judge Moir ordered the issuance of a decree for
the said land. The decree was issued on February 21, 1917. On March 12,
1917 Original Certificate of Title No. 472 of the Registry of Deeds of
Pampanga was issued in the names of Juan Salao and Ambrosia Salao.
That Pinanganacan or Lewa fishpond later became Cadastral Lot No. 544
of the Hermosa cadastre (Exh. 23). It adjoins the Calunuran fishpond (See
sketch, Exh. 1).
Juan Y. Salao, Sr. died on November 3, 1931 at the age of eighty years
(Exh. C). His nephew, Valentin Salao, died on February 9, 1933 at the age
of sixty years according to the death certificate (Exh. A. However, if
according to Exhibit 21, he was forty-eight years old in 1918, he would be
sixty-three years old in 1933).
The intestate estate of Valentin Salao was partitioned extrajudicially on
December 28, 1934 between his two daughters, Benita Salao-Marcelo and
Victorina Salao-Alcuriza (Exh. 32). His estate consisted of the two
fishponds which he had inherited in 1918 from his grandmother, Valentina
Ignacio.
If it were true that he had a one-third interest in the Calunuran and
Lewa fishponds with a total area of 145 hectares registered in 1911
and 1917 in the names of his aunt and uncle, Ambrosia Salao and Juan
Y. Salao, Sr., respectively, it is strange that no mention of such interest
was made in the extrajudicial partition of his estate in 1934.
It is relevant to mention that on April 8, 1940 Ambrosia Salao
donated to her grandniece, plaintiff Benita Salao, three lots located at
Barrio Dampalit with a total area of 5,832 square meters (Exit. L). As
donee Benita Salao signed the deed of donation.
On that occasion she could have asked Ambrosia Salao to deliver to her
and to the children of her sister, Victorina, the Calunuran fishpond if it

were true that it was held in trust by Ambrosia as the share of Benita's
father in the alleged joint venture.
But she did not make any such demand. It was only after Ambrosia Salao's
death that she thought of filing an action for the reconveyance of the
Calunuran fishpond which was allegedly held in trust and which had
become the sole property of Juan Salao y Santiago (Juani).
On September 30, 1944 or during the Japanese occupation and about a
year before Ambrosia Salao's death on September 14, 1945 due to senility
(she was allegedly eighty-five years old when she died), she donated her
one-half proindiviso share in the two fishponds in question to her
nephew, Juan S. Salao, Jr. (Juani) At that time she was living with
Juani's family. He was already the owner of the the other half of the said
fishponds, having inherited it from his father, Juan Y. Salao, Sr. (Banli)
The deed of denotion included other pieces of real property owned by
Ambrosia. She reserved for herself the usufruct over the said properties
during her lifetime (Exh. 2 or M).
The said deed of donation was registered only on April 5, 1950 (page 39,
Defendants' Record on Appeal).
The lawyer of Benita Salao and the Children of Victorina Salao in a letter
dated January 26, 1951 informed Juan S. Salao, Jr. that his clients had a
one-third share in the two fishponds and that when Juani took possession
thereof in 1945, he refused to give Benita and Victorina's children their
one-third share of the net fruits which allegedly amounted to P200,000
(Exh. K).
Juan S. Salao, Jr. in his answer dated February 6, 1951 categorically stated
that Valentin Salao did not have any interest in the two fishponds and that
the sole owners thereof his father Banli and his aunt Ambrosia, as shown
in the Torrens titles issued in 1911 and 1917, and that he Juani was the
donee of Ambrosia's one-half share (Exh. K-1).

Benita Salao and her nephews and niece filed their original complaint
against Juan S. Salao, Jr. on January 9, 1952 in the Court of First Instance
of Bataan (Exh. 36). They amended their complaint on January 28, 1955.
They asked for the annulment of the donation to Juan S. Salao, Jr. and for
the reconveyance to them of the Calunuran fishpond as Valentin Salao's
supposed one-third share in the 145 hectares of fishpond registered in the
names of Juan Y. Salao, Sr. and Ambrosia Salao.
Juan S. Salao, Jr. in his answer pleaded as a defense the indefeasibility of
the Torrens title secured by his father and aunt. He also invoked the
Statute of Frauds, prescription and laches. As counter-claims, he asked for
moral damages amounting to P200,000, attorney's fees and litigation
expenses of not less than P22,000 and reimbursement of the premiums
which he has been paying on his bond for the lifting of the receivership
Juan S. Salao, Jr. died in 1958 at the age of seventy-one. He was
substituted by his widow, Mercedes Pascual and his six children and by
the administrator of his estate.
In the intestate proceedings for the settlement of his estate the two
fishponds in question were adjudicated to his seven legal heirs in equal
shares with the condition that the properties would remain under
administration during the pendency of this case (page 181, Defendants'
Record on Appeal).
After trial the trial court in its decision consisting of one hundred ten
printed pages dismissed the amended complaint and the counter-claim. In
sixty-seven printed pages it made a laborious recital of the testimonies of
plaintiffs' fourteen witnesses, Gregorio Marcelo, Norberto Crisostomo,
Leonardo Mangali Fidel de la Cruz, Dionisio Manalili, Ambrosio
Manalili, Policarpio Sapno, Elias Manies Basilio Atienza, Benita Salao,
Emilio Cagui Damaso de la Peña, Arturo Alcuriza and Francisco
Buensuceso, and the testimonies of defendants' six witnesses, Marcos
Galicia, Juan Galicia, Tiburcio Lingad, Doctor Wenceslao Pascual,
Ciriaco Ramirez and Pablo P. Salao. (Plaintiffs presented Regino
Nicodemus as a fifteenth witness, a rebuttal witness).

The trial court found that there was no community of property among Juan
Y. Salao, Sr., Ambrosia Salao and Valentin Salao when the Calunuran and
Pinanganacan (Lewa) lands were acquired; that a co-ownership over the
real properties of Valentina Ignacio existed among her heirr after her death
in 1914; that the co-ownership was administered by Ambrosia Salao and
that it subsisted up to 1918 when her estate was partitioned among her
three children and her grandson, Valentin Salao.
The trial court surmised that the co-ownership which existed from 1914 to
1918 misled the plaintiffs and their witnesses and caused them to believe
erroneously that there was a co-ownership in 1905 or thereabouts. The
trial court speculated that if valentin had a hand in the conversion into
fishponds of the Calunuran and Lewa lands, he must have done so on a
salary or profit- sharing basis. It conjectured that Valentin's children and
grandchildren were given by Ambrosia Salao a portion of the earnings of
the fishponds as a reward for his services or because of Ambrosia's
affection for her grandnieces.
The trial court rationalized that Valentin's omission during his lifetime to
assail the Torrens titles of Juan and Ambrosia signified that "he was not a
co-owner" of the fishponds. It did not give credence to the testimonies of
plaintiffs' witnesses because their memories could not be trusted and
because no strong documentary evidence supported the declarations.
Moreover, the parties involved in the alleged trust were already dead.
It also held that the donation was validly executed and that even if it were
void Juan S. Salao, Jr., the donee, would nevertheless be the sole legal heir
of the donor, Ambrosia Salao, and would inherit the properties donated to
him.
Both parties appealed. The plaintiffs appealed because their action for
reconveyance was dismissed. The defendants appealed because their
counterclaim for damages was dismissed.

The appeals, which deal with factual and legal issues, were made to the
Court of Appeals. However, as the amounts involved exceed two hundred
thousand pesos, the Court of Appeals elevated the case to this Court in its
resolution of Octoter 3, 1966 (CA-G.R. No. 30014-R).
Plaintiffs' appeal. — An appellant's brief should contain "a subject index
index of the matter in the brief with a digest of the argument and page
references" to the contents of the brief (Sec. 16 [a], Rule 46, 1964 Rules of
Court; Sec. 17, Rule 48, 1940 Rules of Court).
The plaintiffs in their appellants' brief consisting of 302 pages did not
comply with that requirement. Their statements of the case and the facts
do not contain "page references to the record" as required in section 16[c]
and [d] of Rule 46, formerly section 17, Rule 48 of the 1940 Rules of
Court.
Lawyers for appellants, when they prepare their briefs, would do well to
read and re-read section 16 of Rule 46. If they comply strictly with the
formal requirements prescribed in section 16, they might make a
competent and luminous presentation of their clients' case and lighten the
burden of the Court.
What Justice Fisher said in 1918 is still true now: "The pressure of work
upon this Court is so great that we cannot, in justice to other litigants,
undertake to make an examination of the voluminous transcript of the
testimony (1,553 pages in this case, twenty-one witnesses having
testified), unless the attorneys who desire us to make such examination
have themselves taken the trouble to read the record and brief it in
accordance with our rules" (Palara vs. Baguisi 38 Phil. 177, 181). As
noted in an old case, this Court decides hundreds of cases every year and
in addition resolves in minute orders an exceptionally considerable
number of petitions, motions and interlocutory matters (Alzua and Arnalot
vs. Johnson, 21 Phil. 308, 395; See In re Almacen, L-27654, February 18,
1970, 31 SCRA 562, 573).

Plaintiffs' first assignment of error raised a procedural issue. In paragraphs
1 to 14 of their first cause of action they made certain averments to
establish their theory that Valentin Salao had a one-third interest in the
two fishponds which were registrered in the names of Juan Y. Salao, Sr.
(Banli) and Ambrosia Salao.
Juan S. Salao, Jr. (Juani) in his answer "specifically" denied each and all
the allegations" in paragraphs I to 10 and 12 of the first cause of action
with the qualification that Original certificates of Title Nos. 185 and 472
were issued "more than 37 years ago" in the names of Juan (Banli) and
Ambrosia under the circumstances set forth in Juan S. Salao, Jr.'s "positive
defenses" and "not under the circumstances stated in the in the amended
complaint".
The plaintiffs contend that the answer of Juan S. Salao, Jr. was in effect tin
admission of the allegations in their first cause of action that there was a
co-ownership among Ambrosia, Juan, AIejandra and Valentin, all
surnamed Salao, regarding the Dampalit property as early as 1904 or
1905; that the common funds were invested the acquisition of the two
fishponds; that the 47-hectare Calunuran fishpond was verbally
adjudicated to Valentin Salao in the l919 partition and that there was a
verbal stipulation to to register "said lands in the name only of Juan Y.
Salao".
That contention is unfounded. Under section 6, Rule 9 of the 1940 of
Rules of Court the answer should "contain either a specific denial a
statement of matters in accordance of the cause or causes of action
asserted in the complaint". Section 7 of the same rule requires the
defendant to "deal specifically with each material allegation of fact the
truth of wihich he does not admit and, whenever practicable shall set forth
the substance of the matters which he will rely upon to support his denial".
"Material averments in the complaint, other than those as to the amount
damage, shall be deemed admitted when specifically denied" (Sec. 8).
"The defendant may set forth set forth by answer as many affirmative
defenses as he may have. All grounds of defenses as would raise issues of

fact not arising upon the preceding pleading must be specifically pleaded"
(Sec. 9).
What defendant Juan S. Salao, Jr. did in his answer was to set forth in his
"positive defenses" the matters in avoidance of plaintiffs' first cause of
action which which supported his denials of paragraphs 4 to 10 and 12 of
the first cause of action. Obviously, he did so because he found it
impracticable to state pierceneal his own version as to the acquisition of
the two fishponds or to make a tedious and repetitious recital of the
ultimate facts contradicting allegations of the first cause of action.
We hold that in doing so he substantially complied with Rule 9 of the
1940 Rules of Court. It may be noted that under the present Rules of Court
a "negative defense is the specific denial of t the material fact or facts
alleged in the complaint essential to plaintiff's cause of causes of action".
On the other hand, "an affirmative defense is an allegation of new matter
which, while admitting the material allegations of the complaint, expressly
or impliedly, would nevertheless prevent or bar recovery by the plaintiff."
Affirmative defenses include all matters set up "by of confession and
avoidance". (Sec. 5, Rule 6, Rules of Court).
The case of El Hogar Filipino vs. Santos Investments, 74 Phil. 79 and
similar cases are distinguishable from the instant case. In the El
Hogar case the defendant filed a laconic answer containing the statement
that it denied "generally ans specifically each and every allegation
contained in each and every paragraph of the complaint". It did not set
forth in its answer any matters by way of confession and avoidance. It did
not interpose any matters by way of confession and avoidance. It did not
interpose any affirmative defenses.
Under those circumstances, it was held that defendant's specific denial was
really a general denial which was tantamount to an admission of the
allegations of the complaint and which justified judgment on the
pleadings. That is not the situation in this case.

The other nine assignments of error of the plaintiffs may be reduced to the
decisive issue of whether the Calunuran fishpond was held in trust for
Valentin Salao by Juan Y. Salao, Sr. and Ambrosia Salao.
That issue is tied up with the question of whether plaintiffs' action for
reconveyance had already prescribed.
The plaintiffs contend that their action is "to enforce a trust which
defendant" Juan S. Salao, Jr. allegedly violated. The existence of a trust
was not definitely alleged in plaintiffs' complaint. They mentioned trust
for the first time on page 2 of their appelants' brief.
To determine if the plaintiffs have a cause of action for the
enforcement of a trust, it is necessary to make some exegesis on the
nature of trusts (fideicomosis). Trusts in Anglo-American jurisprudence
were derived from the fideicommissa of the Roman law (Government of
the Philippine Islands vs. Abadilla, 46 Phil. 642, 646).
"In its technical legal sense, a trust is defined as the right, enforceable
solely in equity, to the beneficial enjoyment of property, the legal title
to which is vested in another, but the word 'trust' is frequently
employed to indicate duties, relations, and responsibilities which are
not strictly technical trusts" (89 C.J.S. 712).
A person who establishes a trust is called the trustor; one in whom
confidence is reposed as regards property for the benefit of another
person is known as the trustee; and the person for whose benefit the
trust has been created is referred to as the beneficiary" (Art. 1440,
Civil Code). There is a fiduciary relation between the trustee and
the cestui que trust as regards certain property, real, personal, money or
choses in action (Pacheco vs. Arro, 85 Phil. 505).
"Trusts are either express or implied. Express trusts are created by the
intention of the trustor or of the parties. Implied trusts come into being by
operation of law" (Art. 1441, Civil Code). "No express trusts concerning

an immovable or any interest therein may be proven by parol evidence. An
implied trust may be proven by oral evidence" (Ibid, Arts. 1443 and 1457).
"No particular words are required for the creation of an express trust,
it being sufficient that a trust is clearly intended" (Ibid, Art. 1444;
Tuason de Perez vs. Caluag, 96 Phil. 981; Julio vs. Dalandan, L-19012,
October 30, 1967, 21 SCRA 543, 546). "Express trusts are those which
are created by the direct and positive acts of the parties, by some
writing or deed, or will, or by words either expressly or impliedly
evincing an intention to create a trust" (89 C.J.S. 72).
"Implied trusts are those which, without being expressed, are
deducible from the nature of the transaction as matters of intent, or
which are superinduced on the transaction by operation of law as
matter of equity, independently of the particular intention of the
parties" (89 C.J.S. 724). They are ordinarily subdivided into resulting and
constructive trusts (89 C.J.S. 722).
"A resulting trust is broadly defined as a trust which is raised or created
by the act or construction of law, but in its more restricted sense it is a
trust raised by implication of law and presumed to have been
contemplated by the parties, the intention as to which is to be found in
the nature of their transaction, but not expressed in the deed or
instrument of conveyance (89 C.J.S. 725). Examples of resulting trusts
are found in articles 1448 to 1455 of the Civil Code. (See Padilla vs.
Court of Appeals, L-31569, September 28, 1973, 53 SCRA 168, 179;
Martinez vs. Graño 42 Phil. 35).
On the other hand, a constructive trust is -a trust "raised by
construction of law, or arising by operation of law". In a more
restricted sense and as contra-distinguished from a resulting trust, a
constructive trust is "a trust not created by any words, either expressly or
impliedly evincing a direct intension to create a trust, but by the
construction of equity in order to satisfy the demands of justice." It does

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