Lopez vs. Court of Appeals

An action for reconveyance based on a constructive implied trust prescribes in ten years from the issuance of the original or transfer certificate of title, which operates as constructive notice to the whole world; repudiation by the trustee is not a condition precedent to the running of the period. Thus, where properties are excluded from an express trust and adjudicated to the trustee as heir by court order, the trust is constructive and the period runs from registration in the trustee’s name.

Juliana Lopez Manzano and Jose Lopez Manzano were spouses who had no children. Juliana owned paraphernal properties, and her will created the Fideicomiso de Juliana Lopez Manzano to be administered by Jose and, upon his death or renunciation, by her nephew Enrique Lopez. Petitioner Richard B. Lopez is the trustee of Juliana’s estate, while respondents are Jose’s heirs.

Juliana Lopez Manzano was married to Jose Lopez Manzano, and their union did not bear any children. Juliana owned several properties, among them the properties subject of this dispute; the disputed properties totaling more than 1,500 hectares consist of six parcels of land in Batangas, and they were the exclusive paraphernal properties of Juliana together with a parcel in Mindoro known as Abra de Ilog and a fractional interest in a residential land on Antorcha St., Balayan, Batangas. On 23 March 1968, Juliana executed a notarial will whereby she wished to constitute a trust fund for her paraphernal properties, denominated as Fideicomiso de Juliana Lopez Manzano, to be administered by her husband; if her husband were to die or renounce the obligation, her nephew Enrique Lopez was to become administrator and executor of the Fideicomiso. Two-thirds of the income from rentals over these properties were to answer for the education of deserving but needy honor students, while one-third was to shoulder the expenses and fees of the administrator. As to her conjugal properties, Juliana bequeathed the portion she could legally dispose to her husband, and after his death said properties were to pass to her biznietos or great grandchildren. Juliana initiated the probate of her will five days after its execution, but she died on 12 August 1968 before the petition for probate could be heard; the petition was pursued instead in Special Proceedings No. 706 by Jose, the designated executor. On 7 October 1968, the Court of First Instance, Branch 3, Balayan, Batangas, acting as probate court, admitted the will to probate and issued letters testamentary to Jose, who then submitted an inventory of Juliana’s real and personal properties with their appraised values, which the probate court approved.

Jose thereafter filed a Report dated 16 August 1969, which included a proposed project of partition. In the report, Jose explained that as the only compulsory heir of Juliana, he was entitled by operation of law to one-half of Juliana’s paraphernal properties as his legitime, while the other one-half was to be constituted into the Fideicomiso. He also alleged that he and Juliana had outstanding debts totaling P816,000.00 excluding interests, secured by real estate mortgages, and noted that if these debts were liquidated, the residuary estate available for distribution would, value-wise, be very small. The project of partition stated that one-half of the properties not burdened with any obligation — the Abra de Ilog lot under TCT No. 540, the one-sixth portion of the Antorcha St. property under TCT No. 1217-A, and all properties to be inherited by the decedent by intestacy from her sister Clemencia Lopez y Castelo — would be constituted into the Fideicomiso and delivered to Jose as trustee, while the other half would be adjudicated to Jose as heir. Jose then listed the properties he alleged were registered in both his and Juliana’s names, totaling 13 parcels, and the disputed properties consisting of six parcels were included in that list.

On 25 August 1969, the probate court issued an order approving the project of partition. As to the properties to be constituted into the Fideicomiso, the probate court ordered that the certificates of title thereto be cancelled and, in lieu thereof, new certificates be issued in favor of Jose as trustee of the Fideicomiso covering one-half of the properties listed under paragraph 14 of the project of partition; regarding the other half, the properties were to be registered in the name of Jose as heir of Juliana. The properties Jose had alleged as registered in his and Juliana’s names, including the disputed lots, were adjudicated to Jose as heir, subject to the condition that Jose would settle the obligations charged on these properties. The probate court directed that new certificates of title be issued in favor of Jose as registered owner in its Order dated 15 September 1969, and on even date the certificates of title of the disputed properties were issued in the name of Jose. The Fideicomiso was constituted in Special Proceedings No. 706 encompassing one-half of the Abra de Ilog lot, the one-sixth portion of the Antorcha St. lot, and all other properties inherited ab intestato by Juliana from her sister Clemencia, in accordance with the probate court’s order; the disputed lands were excluded from the trust.

Jose died on 22 July 1980, leaving a holographic will disposing of the disputed properties to respondents. The will was allowed probate on 20 December 1983 in Special Proceedings No. 2675 before the RTC of Pasay City, and pursuant to Jose’s will the RTC ordered on 20 December 1983 the transfer of the disputed properties to respondents as Jose’s heirs. Consequently, the certificates of title of the disputed properties were cancelled and new ones issued in the names of respondents. Petitioner’s father, Enrique Lopez, also assumed the trusteeship of Juliana’s estate, and on 30 August 1984 the RTC of Batangas, Branch 9, appointed petitioner as trustee of Juliana’s estate in Special Proceedings No. 706.

On 11 December 1984, petitioner instituted an action for reconveyance of parcels of land with sum of money before the RTC of Balayan, Batangas against respondents. The complaint alleged that Jose was able to register in his name the disputed properties, which were the paraphernal properties of Juliana, either during their conjugal union or in the course of the performance of his duties as executor of the testate estate of Juliana, and that upon Jose’s death the disputed properties were included in the inventory as if they formed part of Jose’s estate when in fact Jose was holding them only in trust for the trust estate of Juliana.

• Nature of Trust: Petitioner argued that Juliana’s testamentary intent created an express trust over her paraphernal properties, carried out when the Fideicomiso was established in Special Proceedings No. 706, so Jose’s registration of the disputed properties as trustee could not give rise to prescription against the beneficiary.
• Reckoning of Prescription: Petitioner argued that if prescription applied at all, it should be reckoned from 13 April 1984 when respondents registered the disputed properties in their names, not from 15 September 1969 when Jose registered them pursuant to the probate court’s order.
• Repudiation: Petitioner argued that Jose had not performed any act repudiating the trust or declaring an adverse claim over the disputed properties, so the prescriptive period had not begun.

• Nature of Trust: Whether the trust over the disputed properties was an express trust, as petitioner claimed, or an implied trust.
• Prescription: Whether petitioner’s action for reconveyance prescribed, and whether the ten-year period should be counted from Jose’s registration on 15 September 1969 or from respondents’ registration on 13 April 1984.

• Nature of Trust: No. The disputed properties were expressly excluded from the Fideicomiso and adjudicated to Jose by the probate court; any mistake created a constructive implied trust under Article 1456, not an express trust.
• Prescription: Yes. An action for reconveyance based on constructive implied trust prescribes in ten years from issuance of the certificate of title, which is constructive notice; the period ran from 15 September 1969, so the 1984 action was late.

• Nature of Trust: Juliana’s testamentary intent was to constitute an express trust over her paraphernal properties, and that intent was carried out when the Fideicomiso was established in Special Proceedings No. 706. The disputed properties, however, were expressly excluded from the Fideicomiso. The probate court adjudicated them to Jose as the sole heir of Juliana; if a mistake was made in excluding them from the Fideicomiso and adjudicating them to Jose, the mistake was not rectified because no party opposed or appealed the exclusion, and the exclusion bore the approval of the probate court, whose order enjoys the presumption of regularity. On the premise that the disputed properties were Juliana’s paraphernal properties that should have been included in the Fideicomiso, their registration in Jose’s name would be erroneous and Jose’s possession would be that of a trustee in an implied trust. Implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or which are superinduced on the transaction by operation of law as matters of equity, independently of the particular intention of the parties. Article 1456 of the Civil Code provides that if property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes. In Aznar Brothers Realty Company vs. Aying, the SC differentiated resulting trusts from constructive trusts: resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the equitable title or interest and are presumed always to have been contemplated by the parties, while constructive trusts are created by the construction of equity to satisfy the demands of justice and prevent unjust enrichment, arising contrary to intention against one who, by fraud, duress or abuse of confidence, obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold. The disputed properties were excluded from the Fideicomiso at the outset; Jose registered them in his name partly as his conjugal share and partly as his inheritance from Juliana, which is the complete reverse of petitioner’s claim that the properties were intended for the beneficiaries of the Fideicomiso; the exclusion was approved by the probate court and subsequently by the trial court having jurisdiction over the Fideicomiso; and the registration was pursuant to a court order. The apparent mistake in the adjudication of the disputed properties to Jose created a mere implied trust of the constructive variety in favor of the beneficiaries of the Fideicomiso, not an express trust.

• Prescription: The right to seek reconveyance based on an implied or constructive trust is not absolute; it is subject to extinctive prescription. An action for reconveyance based on implied or constructive trust prescribes in 10 years, reckoned from the date of the issuance of the original certificate of title or transfer certificate of title, because such issuance operates as constructive notice to the whole world and the discovery of the fraud is deemed to have taken place at that time. In this case, the ten-year prescriptive period must be counted from the registration of the disputed properties in Jose’s name on 15 September 1969, when petitioner was charged with constructive notice that Jose adjudicated the disputed properties to himself as the sole heir of Juliana and not as trustee of the Fideicomiso. Jose had also indicated at the outset that the disputed properties did not form part of the Fideicomiso: in the project of partition submitted to the probate court, Jose indicated that the disputed properties were conjugal in nature and thus excluded from Juliana’s Fideicomiso, an act clearly tantamount to repudiating the trust, at which point the period for prescription is reckoned. The rule that a trustee cannot acquire by prescription ownership over property entrusted to him until and unless he repudiates the trust applies only to express trusts and resulting implied trusts; in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship, and repudiation is not a condition precedent to the running of the prescriptive period. Thus, the reckoning point is 15 September 1969, and petitioner’s alternative claim that prescription should run only from respondents’ registration on 13 April 1984 cannot be sustained; the 1984 action was filed after the ten-year period had run.

• Express trust vs. implied trust — An express trust is created by the direct intention of the parties, while implied trusts are those which, without being expressed, are deducible from the nature of the transaction as matters of intent or are superinduced by operation of law as matters of equity. The SC found that Juliana’s will intended an express trust over her paraphernal properties, but the disputed properties were expressly excluded from the Fideicomiso, so no express trust covered them.
• Resulting trust vs. constructive trust — Resulting trusts rest on the equitable doctrine that valuable consideration, not legal title, determines equitable title and are presumed contemplated by the parties; constructive trusts are created by equity to satisfy justice and prevent unjust enrichment, against one who by fraud, duress, or abuse of confidence obtains or holds legal title he ought not in equity and good conscience to hold. The SC classified the trust over the disputed properties as constructive because Jose registered them as his conjugal share and inheritance under a court-approved partition, not as trustee.
• Implied trust under Article 1456 — If property is acquired through mistake or fraud, the person obtaining it is by force of law a trustee of an implied trust for the benefit of the person from whom the property comes. The SC applied this to the apparent mistake in adjudicating the disputed properties to Jose, creating a constructive implied trust for the Fideicomiso beneficiaries.
• Prescription of reconveyance based on constructive trust — An action for reconveyance based on an implied or constructive trust prescribes in ten years from the issuance of the original or transfer certificate of title, which is constructive notice to the whole world. The SC counted the period from Jose’s 15 September 1969 registration.
• Repudiation in constructive implied trusts — The rule that a trustee cannot acquire by prescription until he repudiates the trust applies only to express trusts and resulting implied trusts; in constructive implied trusts, prescription may run even without repudiation, which is not a condition precedent. The SC rejected petitioner’s argument that Jose’s lack of repudiation kept the action alive.

• “The right to seek reconveyance based on an implied or constructive trust is not absolute. It is subject to extinctive prescription.” — The SC used this to reject the premise that a beneficiary may recover trust property at any time; reconveyance is subject to prescription.
• “An action for reconveyance based on implied or constructive trust prescribes in 10 years. This period is reckoned from the date of the issuance of the original certificate of title or transfer certificate of title. Since such issuance operates as a constructive notice to the whole world, the discovery of the fraud is deemed to have taken place at that time.” — This fixes the ten-year period and the reckoning point at registration of title.
• “in constructive implied trusts, prescription may supervene even if the trustee does not repudiate the relationship. Necessarily, repudiation of said trust is not a condition precedent to the running of the prescriptive period.” — The SC used this to reject petitioner’s argument that Jose’s failure to repudiate kept the action alive.
• “If property is acquired through mistake or fraud, the person obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes.” — This is Article 1456, the basis for treating Jose’s registration of the excluded properties as a constructive implied trust.

• Aznar Brothers Realty Company vs. Aying, G.R. No. 144773, 16 May 2005, 458 SCRA 496 — Relied on to distinguish resulting trusts from constructive trusts and to hold that repudiation is not required for constructive implied trusts.
• Heirs of Yap vs. Court of Appeals, 371 Phil. 523, 530 (1999) — Cited for the definition of implied trusts.
• Spouses Bejoc vs. Cabreros, G.R. No. 145849, 22 July 2005, 464 SCRA 78 — Cited for the rule that an action for reconveyance based on implied or constructive trust prescribes in ten years and that the period runs from issuance of title.
• Policarpio vs. Court of Appeals, 336 Phil. 329, 342 (1997) — Cited for constructive trust as an equity raised against property acquired by fraud or retained against equity.
• O’Lao vs. Co Cho Chit, G.R. No. 58010, 31 March 1993, 220 SCRA 656, 663-4 — Cited for examples of implied trusts under the Civil Code.

• Article 1456, Civil Code — If property is acquired through mistake or fraud, the person obtaining it is by force of law a trustee of an implied trust for the benefit of the person from whom the property comes. The SC applied this to Jose’s registration of the disputed properties after they were excluded from the Fideicomiso and adjudicated to him, creating a constructive implied trust.
• Articles 1448–1455, Civil Code — Cited to illustrate resulting trusts (Articles 1448, 1449, 1451, 1452, and 1453) and constructive trusts (Articles 1450, 1454, 1455, and 1456). The SC used the distinction to classify the trust over the disputed properties.
• Rule 45, 1997 Rules of Civil Procedure — Basis for the petition for review on certiorari. The SC entertained and denied the petition.
• Rule 131, Section 3, Rules of Court — Disputable presumption that official duty has been regularly performed and that a court or judge acted in the lawful exercise of jurisdiction. The SC cited this to support the presumption of regularity of the probate court’s order adjudicating the disputed properties to Jose.