Heirs of Tranquilino Labiste vs. Heirs of Jose Labiste

Where property is held under an express trust, prescription and laches run only from the time the trustee performs unequivocal acts of repudiation amounting to an ouster of the beneficiary, makes those acts known to the beneficiary, and the evidence thereof is clear and conclusive; a trustee who obtains a Torrens title over property held in trust cannot repudiate the trust by relying on the registration.

Petitioners are the descendants and heirs of Tranquilino Labiste, while respondents are the descendants and heirs of Jose Labiste; Tranquilino was the uncle of Epifanio Labiste, who acted for the heirs of Jose. The property in controversy, Lot No. 1054, formed part of the Banilad Friar Lands Estate, which the government sold to private purchasers through the Bureau of Lands. The case turns on the legal character of the co-ownership that arose from the funding of the purchase price and the later private conveyance between the two family lines.

On 29 September 1919, Epifanio Labiste, acting on his own behalf and for his brothers and sisters who were the heirs of Jose Labiste, purchased Lot No. 1054 of the Banilad Friar Lands Estate from the Bureau of Lands. The lot, with an area of 13,308 square meters, was located at Guadalupe, Cebu City, and was bought for ₱36.00. On 9 June 1924, then Bureau of Lands Director Jorge B. Vargas executed Deed of Conveyance No. 12536 selling and ceding Lot No. 1054 to Epifanio and his brothers and sisters who were the heirs of Jose.

After full payment of the purchase price but prior to the issuance of the deed of conveyance, Epifanio executed an affidavit in Spanish on 10 July 1923 (the Affidavit of Epifanio) affirming that he, as one of the heirs of Jose, and his uncle and petitioners' predecessor-in-interest, Tranquilino Labiste, then co-owned Lot No. 1054 because the money paid to the government came from the two of them. Tranquilino and the heirs of Jose continued to hold the property jointly. Sometime in 1928, the Register of Deeds of Cebu City issued Original Certificate of Title No. 3878 for Lot No. 1054. On 2 May 1928, Engineer Espiritu Bunagan, Deputy Public Land Surveyor, subdivided Lot No. 1054 into Lot No. 1054-A with an area of 6,664 square meters for Tranquilino and Lot No. 1054-B with an area of 6,664 square meters for Epifanio; the subdivision plan was approved by Jose P. Dans, Acting Director of Lands, on 28 October 1928.

On 18 October 1939, the heirs of Tranquilino purchased the one-half interest of the heirs of Jose over Lot No. 1054 for ₱300.00, as evidenced by the Calig-onan sa Panagpalit executed by the parties in the Visayan dialect. The heirs of Tranquilino immediately took possession of the entire lot.

When World War II broke out, the heirs of Tranquilino fled Cebu City and, upon returning, found their homes and possessions destroyed. The records in the Office of the Register of Deeds, the Office of the City Assessor, and other government offices were also destroyed during the war. Squatters had practically overrun the entire property, such that neither petitioners nor respondents possessed it.

In October 1993, petitioners learned that one of the respondents, Asuncion Labiste, had filed on 17 September 1993 a petition for reconstitution of title over Lot No. 1054. Petitioners opposed the petition at first, but by a compromise agreement between the parties dated 25 March 1994, they withdrew their opposition to expedite the reconstitution process. Under the compromise agreement, petitioners were to be given time to file a complaint so that the issues could be litigated in an ordinary action, and the reconstituted title was to be deposited with the Clerk of Court for sixty days to allow petitioners to file an action for reconveyance and to annotate a notice of lis pendens. The Register of Deeds of Cebu City issued the reconstituted title, TCT No. RT-7853, in the name of "Epifanio Labiste, married to Tomasa Mabitad, his brothers and sisters, heirs of Jose Labiste" on 14 December 1994. Respondents, however, did not honor the compromise agreement.

Petitioners filed a complaint for annulment of title seeking the reconveyance of the property and damages on 13 January 1995, docketed as Civil Case No. CEB-16943, with the RTC of Cebu City. Respondents claimed that the Affidavit of Epifanio and the Calig-onan sa Panagpalit were forgeries and that petitioners' action had long prescribed or was barred by laches. The RTC found the documents genuine and authentic as ancient documents and valid and enforceable, and held that the action had not prescribed because the complaint was filed about a year after the reconstitution of the title by respondents. The Court of Appeals affirmed the findings that the Affidavit and the Calig-onan sa Panagpalit were genuine, authentic, valid, and enforceable, but reversed on the ground that the cause of action had prescribed and that laches had set in.

• Forgery of the Documents: Respondents claimed that the Affidavit of Epifanio and the Calig-onan sa Panagpalit were forgeries.
• Prescription and Laches: Respondents maintained that petitioners' action had long prescribed or was barred by laches.

• Prescription and Laches: Whether petitioners' cause of action for reconveyance had prescribed and whether laches barred the action.
• Recovery of the Other Half: Whether petitioners could recover the other half of the property covered by the private Calig-onan sa Panagpalit and have it registered in their name.

• Prescription and Laches: No. The Court of Appeals erred in applying the rules on prescription and laches, because the relationship between the predecessors-in-interest was an express trust, from whose repudiation alone prescription and laches would run.
• Recovery of the Other Half: No. The action to compel respondents, as heirs of the sellers, to execute a public deed of sale had already prescribed under Section 43 of Act No. 190, the law in force when the Calig-onan sa Panagpalit was executed in 1939.

• Prescription and Laches: The genuineness and authenticity of the Affidavit of Epifanio and the Calig-onan sa Panagpalit were beyond cavil, and review under Rule 45 is confined to errors of law, the findings of fact of the lower courts being conclusive absent palpable error or arbitrariness. The Court of Appeals erred because what was involved was an express trust. Trust is the right to the beneficial enjoyment of property, the legal title to which is vested in another, and it is a fiduciary relationship obliging the trustee to deal with the property for the benefit of the beneficiary. Trust relations may be express or implied; an express trust is created by the intention of the trustor or of the parties, while an implied trust arises by operation of law. Under Article 1444 of the Civil Code, no particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended. The Affidavit of Epifanio was in the nature of a trust agreement: Epifanio affirmed that the lot brought in his name was co-owned by him, as one of the heirs of Jose, and his uncle Tranquilino, and that by agreement each had been in possession of half of the property, an arrangement corroborated by the subdivision plan prepared by Engr. Bunagan and approved by the Acting Director of Lands. As such, prescription and laches run only from the time the express trust is repudiated. For acquisitive prescription to bar the action of the beneficiary against the trustee in an express trust for the recovery of the property held in trust, it must be shown that (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have been made known to the cestui que trust; and (c) the evidence thereon is clear and conclusive. Respondents could not rely on the fact that the Torrens title was issued in the name of Epifanio and the other heirs of Jose, since a trustee who obtains a Torrens title over property held in trust by him for another cannot repudiate the trust by relying on the registration; the rule requires a clear repudiation of the trust duly communicated to the beneficiary. The only act that could be construed as repudiation was the filing of the petition for reconstitution in October 1993, and since petitioners filed their complaint in January 1995, their cause of action had not yet prescribed and laches could not be attributed to them. Laches is a creation of equity whose application is controlled by equitable considerations; it cannot be used to defeat justice or perpetrate fraud and injustice, nor should its application prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another. The equitable remedy of laches was therefore unavailing.
• Recovery of the Other Half: To recover the other half of the property covered by the private Calig-onan sa Panagpalit and to have it registered on the title, petitioners should have filed an action to compel respondents, as heirs of the sellers in the contract, to execute a public deed of sale. A conveyance of land made in a private document does not affect its validity; Article 1358, like its forerunner Article 1280 of the Civil Code of Spain, does not require the accomplishment of the acts or contracts in a public instrument in order to validate the act or contract but only to insure its efficacy, so that after the existence of the contract has been admitted, the party bound may be compelled to execute the proper document. Even assuming that such an action was filed, however, it had already prescribed. Only laws existing at the time of the execution of a contract are applicable thereto, and not later statutes, unless the latter are specifically intended to have retroactive effect. Consequently, the Old Code of Civil Procedure (Act No. 190) applied, since the Calig-onan sa Panagpalit was executed on 18 October 1939 while the New Civil Code took effect only on 30 August 1950. Section 43 of Act No. 190, like its counterpart Article 1144 of the New Civil Code, provides that an action upon a written contract must be filed within ten years.

• Express Trust and the Running of Prescription — An express trust is created by the intention of the trustor or of the parties, by direct and positive acts, by some writing or deed, or by words expressly or impliedly evincing an intention to create a trust. Under Article 1444 of the Civil Code, no particular words are required for its creation, it being sufficient that a trust is clearly intended. Where property is held in an express trust, prescription and laches run only from the time the trust is repudiated. For acquisitive prescription to bar the beneficiary's action against the trustee for recovery of the property held in trust, it must be shown that: (a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have been made known to the cestui que trust; and (c) the evidence thereon is clear and conclusive. In this case, the Affidavit of Epifanio constituted a trust agreement, and the only act construable as repudiation was the filing of the petition for reconstitution in October 1993; the complaint filed in January 1995 was therefore timely.
• Torrens Title as a Means of Repudiating a Trust — A trustee who obtains a Torrens title over property held in trust by him for another cannot repudiate the trust by relying on the registration; the rule requires a clear repudiation of the trust duly communicated to the beneficiary. The issuance of the Torrens title in the name of Epifanio and the other heirs of Jose did not, by itself, operate as a repudiation of the express trust.
• Laches as an Equitable Remedy — Laches is a creation of equity, and its application is controlled by equitable considerations. It cannot be used to defeat justice or perpetrate fraud and injustice, nor should its application prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another. Laches was thus unavailing against petitioners.
• Validity of Conveyances in Private Documents — A conveyance of land made in a private document does not affect its validity. Article 1358 does not require the accomplishment of the acts or contracts in a public instrument in order to validate the act or contract, but only to insure its efficacy, so that after the existence of the contract has been admitted, the party bound may be compelled to execute the proper document. The remedy to compel execution of the public instrument, however, is itself subject to prescription.
• Non-Retroactivity of Laws and the Governing Statute of Limitations — Only laws existing at the time of the execution of a contract are applicable thereto, and not later statutes, unless the latter are specifically intended to have retroactive effect. Because the Calig-onan sa Panagpalit was executed on 18 October 1939 and the New Civil Code took effect only on 30 August 1950, the Old Code of Civil Procedure (Act No. 190) governed, and Section 43 thereof, like Article 1144 of the New Civil Code, required an action upon a written contract to be filed within ten years.

• "No particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended." — The Court invoked Article 1444 of the Civil Code to hold that the Affidavit of Epifanio, though not styled as a trust agreement, sufficed to create an express trust over the property.
• "(a) the trustee has performed unequivocal acts of repudiation amounting to an ouster of the cestui que trust; (b) such positive acts of repudiation have been made known to the cestui que trust, and (c) the evidence thereon is clear and conclusive." — This is the Court's canonical formulation of the requisites for acquisitive prescription to bar a beneficiary's action against a trustee in an express trust, drawn from Pilapil vs. Heirs of Maximino R. Briones.
• "a trustee who obtains a Torrens title over property held in trust by him for another cannot repudiate the trust by relying on the registration." — The Court used this rule to reject respondents' reliance on the Torrens title issued in the name of Epifanio and the other heirs of Jose as the act of repudiation.
• "Laches cannot be used to defeat justice or perpetrate fraud and injustice." — The Court applied this equitable principle to hold that laches could not bar the rightful owners from recovering property fraudulently registered in the name of another.

• Pilapil vs. Heirs of Maximino R. Briones, G.R. No. 150175, February 5, 2007, 514 SCRA 197 — Source of the three requisites for acquisitive prescription to bar a beneficiary's action against a trustee in an express trust; relied upon and applied by the Court.
• Sotto vs. Teves, 175 Phil. 343 (1978) — Controlling precedent for the rule that a trustee who obtains a Torrens title over property held in trust cannot repudiate the trust by relying on the registration.
• Heirs of Clemente Ermac vs. Heirs of Vicente Ermac, 451 Phil. 368 (2003) — Cited for the principle that laches should not prevent the rightful owners of a property from recovering what has been fraudulently registered in the name of another.
• Jimenez vs. Fernandez, G.R. No. 46364, 6 April 1990, 184 SCRA 190 — Cited for the doctrine that laches is a creation of equity and its application is controlled by equitable considerations.
• Ramos vs. Ramos, No. L-19872, 3 December 1974, 61 SCRA 284 — Cited for the rule that express trusts are created by direct and positive acts of the parties.
• Osorio vs. Tan Jongko, 98 Phil. 35 (1955) — Cited for the ten-year prescriptive period under Section 43 of Act No. 190 for actions upon a written contract.
• Manotok Realty, Inc. vs. Court of Appeals, 233 Phil. 178 (1987) — Cited for the rule that Article 1358 does not require a public instrument to validate a contract but only to insure its efficacy.

• Article 1444, Civil Code — Provides that no particular words are required for the creation of an express trust, it being sufficient that a trust is clearly intended; applied to hold that the Affidavit of Epifanio created an express trust.
• Article 1441, Civil Code — Defines express trusts as created by the intention of the trustor or of the parties, and implied trusts as arising by operation of law; cited in distinguishing the nature of the trust involved.
• Article 1144, Civil Code — Requires an action upon a written contract to be brought within ten years; cited by the Court of Appeals but held inapplicable to the express trust aspect of the case.
• Article 1358, Civil Code — Does not require the accomplishment of acts or contracts in a public instrument in order to validate the act or contract but only to insure its efficacy; applied to hold that the private Calig-onan sa Panagpalit was valid, though a public deed could be compelled.
• Article 1357, Civil Code — Allows contracting parties to compel each other to observe the required form once the contract has been perfected; cited in relation to the remedy to compel execution of a public deed of sale.
• Section 43, Act No. 190 (Old Code of Civil Procedure) — Provides that an action upon a written contract must be filed within ten years; held to govern the action to compel execution of a public deed of sale, the Calig-onan sa Panagpalit having been executed on 18 October 1939, before the effectivity of the New Civil Code on 30 August 1950.

Conchita Carpio Morales (Acting Chairperson), Presbitero J. Velasco, Jr., Teresita Leonardo De Castro, and Arturo D. Brion.