Diaz vs. Gorricho

An action to enforce a constructive trust imposed by law upon property erroneously conveyed and Torrens-registered prescribes in ten years from registration, and laches may bar relief without prior repudiation unless the facts giving rise to the trust were concealed.

Lots Nos. 1941 and 3073 of the Cadastral Survey of Cabanatuan were registered in the name of the conjugal partnership of Francisco Diaz and Maria Sevilla under Original Certificates of Title Nos. 3114 and 3396. Francisco Diaz died in 1919, survived by his widow Maria Sevilla and their three children Manuel Diaz, born in 1911, Lolita Diaz, born in 1913, and Constancia Diaz, born in 1918.

Sometime in 1935, Carmen J. Gorricho filed an action against Maria Sevilla in the Court of First Instance of Manila, C.C. No. 43474, and a writ of attachment was issued upon Maria Sevilla's shares in the two lots. The attached interest was thereafter sold at public auction and purchased by Gorricho herself. When Maria Sevilla failed to redeem within one year, the acting provincial sheriff executed a final deed of sale in favor of Gorricho. That deed conveyed the whole of parcels Nos. 1941 and 3073 instead of only Maria Sevilla's half-interest therein. Pursuant to the deed, Gorricho obtained Transfer Certificates of Title Nos. 1354 and 1355 in her name on April 13, 1937, and possessed the lands as owner ever since.

Maria Sevilla died in November 1951. On March 31, 1952, her children Manuel Diaz, Constancia Diaz, and Sor Petra Diaz, formerly Lolita Diaz, filed C.C. No. 926 in the Court of First Instance of Nueva Ecija against Carmen Gorricho and her husband Francisco Aguado to compel reconveyance of the undivided one-half interest corresponding to their deceased father, allegedly held in trust for them. Defendants denied the allegations and pleaded prescription as a special defense. After trial, the lower court factually found that Gorricho took advantage of the sheriff's error to obtain title to the whole, giving rise to a constructive trust in plaintiffs' favor, but that Gorricho had publicly asserted title continuously since 1937 while plaintiffs delayed suit until 1952.

• Implied Trust Under Article 1456: Petitioners argued that the paternal half of the property was acquired by Gorricho through the error of the provincial sheriff and was therefore subject to an implied trust under Article 1456 of the new Civil Code.
• Continuing Trust and Indefeasibility of Torrens Title: Petitioners maintained that since the trust was continuing and subsisting, reconveyance could be compelled despite lapse of time, especially because prescription does not run against titles registered under Act 496.

• Prescription: Respondents countered that plaintiffs' action had long prescribed, denying the allegations of the complaint and invoking lapse of time as a special defense.

• Nature of Constructive Trusts: Whether a constructive trust arising from a sheriff's erroneous conveyance is continuing and imprescriptible like an express trust, so that reconveyance remains demandable despite lapse of time and Torrens registration.
• Prescription and Laches: Whether the action to attack the sheriff's deed and cancel the transfer certificates, filed fifteen years after issuance and recording, was barred by prescription and laches.

• Nature of Constructive Trusts: No. Constructive trusts imposed by law are not continuing technical trusts and are subject to prescription and laches, repudiation being unnecessary unless the trust-generating facts were concealed.
• Prescription and Laches: Yes. The cause of action accrued upon issuance and recording in 1937 and was extinguished by the ten-year extinctive prescription then in force, thirteen to fifteen years having elapsed before the 1952 suit despite public assertion of adverse title.

• Nature of Constructive Trusts: Article 1456 of the new Civil Code, though not retroactive, merely expressed a rule already recognized prior to its promulgation. American trust law, followed locally, distinguishes express trusts created by the parties' intention from implied or constructive trusts exclusively created by law, the latter not being trusts in the technical sense. For unrepudiated express trusts, the trustee's possession is not adverse because of the undertaking or confidential relation, and the old Code of Civil Procedure exempted continuing and subsisting trusts from adverse possession. In constructive trusts there is neither promise nor fiduciary relation and no intent to hold for the beneficiary, so delay is the beneficiary's fault and laches runs from the moment the law creates the trust, without need for repudiation unless concealment is adequately pleaded.
• Prescription and Laches: Although the equitable defense of laches additionally requires proof of unfair injury if the action were not held barred, a requirement not met by appellees, dismissal was still required on prescription. The attack on the sheriff's deed and the certificates issued pursuant thereto accrued from issuance and recording in 1937. Even reckoning minority, the youngest plaintiff born in 1918 attained majority in 1939, leaving more than thirteen years of inaction until 1952 during appellees' public assertion of title. Under the old Code of Civil Procedure then in force, the longest extinctive period was only ten years.

• Express Trusts vs. Constructive Trusts — Express trusts are created by the intention of the parties and involve an undertaking or confidential relation to hold for the beneficiary; the trustee's possession remains non-adverse while the trust stands unrepudiated and made known. Constructive or implied trusts are imposed by law, as where property is acquired through error, without promise or fiduciary relation and without intent to hold for another. Applied here, the sheriff's erroneous conveyance of the whole parcels created only a constructive trust, not an imprescriptible continuing express trust.
• Laches in Constructive or Resulting Trusts — Laches constitutes a defense to suits to declare and enforce a constructive trust; repudiation is not required and time runs from when the law creates the trust, which is when the cause of action arises. Laches does not exist while the trustee fraudulently and successfully conceals the facts giving rise to the trust, provided concealment is adequately pleaded. Applied here, no concealment having been shown and title having been publicly asserted since 1937, delay barred relief.
• Estoppel by Laches Requiring Unfair Injury — The equitable doctrine requires the invoker to show not only unjustified inaction but that some unfair injury would result unless the action is held barred. Applied here, appellees failed to make that showing and were therefore bereft of the protection of laches as estoppel, though prescription independently sustained dismissal.
• Prescription of Action to Reconvey Registered Property — An action to attack an erroneous sheriff's deed and cancel Torrens certificates accrues from issuance and recording, and is extinguished by the ten-year longest extinctive period under the old Code of Civil Procedure. Applied here, fifteen years from 1937 to 1952, or thirteen years from the youngest heir's majority in 1939, extinguished the claim despite registration under Act 496.

• "The American law on trusts has always maintained a distinction between express trusts created by intention of the parties, and the implied or constructive trusts that are exclusively created by law, the latter not being trusts in their technical sense (Gayondato vs. Insular Treasurer, supra )." — States the controlling classification that subjects the sheriff's erroneous conveyance to prescription rather than the imprescriptibility of unrepudiated express trusts.
• "In express trusts, the delay of the beneficiary is directly attributable to the trustee who undertakes to hold the property for the former, or who linked to the beneficiary by confidential or fiduciary relations." — Explains why delay is excused for express trusts but not for constructive trusts where no undertaking or fiduciary link exists.
• "Of course the equitable doctrine of estoppel by laches requires that the one invoking it must show, not only the unjustified inaction, but that some unfair injury would result to him unless the action is held barred (Go Chi Gun vs. Co Cho, 96 Phil., 622; Mejia vs. Gamponia, * 53 Off. Gaz., 677)." — Defines the additional injury requisite for laches as estoppel, found unsatisfied by appellees in this case.

• Gayondato vs. Insular Treasurer, 49 Phil. 244 — Cited as prior recognition that Article 1456 merely expressed existing law and that express trusts differ from implied or constructive trusts, which are not trusts in the technical sense.
• Claridad vs. Benares, 97 Phil. 973 — Cited in support of the rule on laches as a bar to enforcement of constructive trusts.
• Go Chi Gun vs. Co Cho, 96 Phil. 622 — Cited for the requirement that estoppel by laches demands proof of unjustified inaction plus prospective unfair injury.
• Mejia vs. Gamponia, 53 Off. Gaz. 677 — Cited for the same laches-as-estoppel injury requirement.
• Stianson vs. Stianson, 6 ALR 287 — Cited among American authorities on trusts and restitution supporting the laches rule for constructive trusts.

• Article 1456, New Civil Code — Provides for implied trust where property is acquired through error; held to be non-retroactive but declaratory of prior jurisprudence, and to create only a constructive trust subject to prescription in this case.
• Act 190, Old Code of Civil Procedure, Chapter III — Declared adverse-possession rules inapplicable to continuing and subsisting express trusts and fixed ten years as the longest extinctive prescription period; applied to extinguish the 1952 action accruing from 1937 registration.
• Act 496, Land Registration Act — Invoked by appellants for the proposition that prescription does not run against registered title; held not to preserve the reconveyance action after the prescriptive period had run against the erroneous registration.

Paras, C.J., Bengzon, Padilla, Montemayor, Reyes, A., Concepcion, Endencia and Felix, JJ., concur; Bautista Angelo, J., concurs in the result.