Noel vs. Court of Appeals

A surviving spouse who, under the Spanish Civil Code of 1889, holds full ownership over one-half of the conjugal estate and only a usufruct over the other half can validly alienate only her own share; the sale of the collateral heirs' share creates an implied trust under Article 1456 of the Civil Code of the Philippines, and the action to recover that share prescribes in ten years from registration of the deed, neither prescription nor laches barring a timely action filed by the estate's administrator.

Gregorio Nanaman and Hilaria Tabuclin were a legally married, childless couple. Gregorio had an illegitimate son, Virgilio Nanaman, by another woman, and two daughters, Esperanza and Caridad, by yet another woman. Virgilio was reared by the Nanaman spouses from age two and supported through law school. During the marriage, the couple acquired a 34.7-hectare land in Tambo, Iligan City, planted with sugarcane, corn, and bananas, where they lived with Virgilio and fifteen tenants. Gregorio died on October 2, 1945—before the effectivity of the Civil Code of the Philippines on August 30, 1950—so that succession to his estate was governed by the Spanish Civil Code of 1889. Hilaria died on May 15, 1954. The legal question of who could dispose of the conjugal property, and to what extent, turned on the succession regime applicable at the time of Gregorio's death.

Gregorio Nanaman and Hilaria Tabuclin were a childless, legally married couple who, during their marriage, acquired a 34.7-hectare land in Tambo, Iligan City, planted with sugarcane, corn, and bananas. Gregorio had an illegitimate son, Virgilio Nanaman, by another woman; although born out of wedlock, Virgilio was reared by the Nanaman spouses from age two and sent to school until he reached the third year of his law course. Gregorio also had two daughters, Esperanza and Caridad, by yet another woman, and a brother, Juan Nanaman.

On October 2, 1945, Gregorio died. Thereafter, Hilaria administered the conjugal property with Virgilio's help, enjoying the produce of the land to the exclusion of Gregorio's brother Juan and daughters Esperanza and Caridad. In 1953, Virgilio declared the property in his own name for taxation purposes under Tax Declaration No. 5534. On November 1, 1952, Hilaria and Virgilio mortgaged the 34.7-hectare land in favor of private respondent Jose C. Deleste, a doctor of medicine, for P4,800.00. On February 16, 1954, they executed a deed of sale over the same tract of land, also in favor of Deleste, for P16,000.00. The deed was notarized on February 17, 1954 and registered with the Register of Deeds of Iligan City on March 2, 1954. Of the purchase price, P4,000.00 was applied to medical services rendered and medicine administered during Gregorio's illness, and P800.00 was used to pay tax arrears. Virgilio's tax declaration was cancelled and a new one was issued in Deleste's name. Having discovered the property was in arrears for 1952, Deleste paid the taxes for 1952, 1953, and 1954, and continued paying taxes thereafter.

On May 15, 1954, Hilaria died. On October 27, 1954, Esperanza and Caridad filed intestate estate proceedings concerning their father Gregorio's estate, listing the 34.7-hectare land among the estate's assets. The petition was amended on November 26, 1954 to include Hilaria's estate, with Alejo Tabuclin (Hilaria's brother) and Julio Tabuclin (son of Hilaria's deceased brother Jose) as additional petitioners. Juan Nanaman opposed the proceedings and was appointed special administrator; he included the 34.7-hectare land in the list of estate assets. On June 16, 1956, Edilberto Noel took over as regular administrator but could not take possession of the land because it was held by Deleste and some heirs of Hilaria.

On July 18, 1957, Deleste and the heirs of the Nanaman spouses executed an amicable settlement in which Deleste agreed to relinquish his rights to one-half of the land. The probate court initially approved the settlement but later set it aside and declared it null and void when some heirs questioned it. The court then ordered Noel, as regular administrator, to file an action to recover the land from Deleste. On April 30, 1963, Noel filed an action for recovery of title and possession over the 34.7-hectare land, seeking return of the land to the estate and payment of rentals and attorney's fees.

The trial court, on December 14, 1973, held that the action for annulment had prescribed in 1958, that the heirs had slept on their rights, and that Hilaria effectively acted as administratrix and sold the land to pay conjugal partnership debts. Noel appealed to the Court of Appeals, which in its February 18, 1980 Decision ruled that the transaction was indeed a sale and not a mortgage, but that Hilaria could validly sell only her one-half share, declaring the estate and Deleste co-owners in equal shares. Upon both parties' motions for reconsideration, the appellate court issued its Amended Decision on May 14, 1981, applying the doctrine of laches and tacking the possession of Hilaria and Virgilio to that of Deleste, thereby affirming the trial court's decision in all parts.

• Laches and Prescription: Petitioner (Pinito W. Mercado, as new administrator of the estate) questioned the Court of Appeals' Amended Decision applying the doctrine of laches and equating laches with acquisitive prescription.
• Equitable Mortgage: Petitioner (Atty. Bonifacio Legaspi, representing the heirs of Hilaria in G.R. No. 60636) argued that the sale to private respondent should be declared an equitable mortgage.
• Authority to Sell: Petitioner (Noel, as administrator representing the heirs of Gregorio) maintained that Hilaria could not validly sell the entire 34.7-hectare land because it was conjugal property, and she could dispose of only her one-half share thereof.

• Affirmance of Trial Court: Respondent Deleste filed a motion for reconsideration of the Court of Appeals' February 18, 1980 Decision, praying for the total affirmance of the trial court's decision upholding the validity of the sale in its entirety.

• Nature of the Contract: Whether the 1954 transaction between Hilaria and Virgilio on one hand and Deleste on the other was a sale or an equitable mortgage.
• Authority to Alienate: Whether Hilaria and Virgilio could validly dispose of the entire 34.7-hectare conjugal property, or only Hilaria's one-half share.
• Implied Trust: Whether an implied trust was created over the undivided one-half interest belonging to the collateral heirs of Gregorio.
• Prescription: Whether the action for recovery of title or possession over the land had prescribed when the complaint was filed on April 30, 1963.
• Laches: Whether the doctrine of laches applied to bar the estate's action for recovery.

• Nature of the Contract: The transaction was a sale, not a mortgage. The Court of Appeals' factual finding on this point was binding, there being no showing of grave abuse of discretion, and the absence of gross inadequacy of price did not convert the sale into a mortgage.

• Authority to Alienate: No. Hilaria could validly alienate only her undivided one-half share of the conjugal property, over which she had full ownership under Article 493 of the Spanish Civil Code of 1889; she held only a usufruct over the other half under Article 953 thereof. Virgilio had no hereditary rights under the Spanish Civil Code and could transfer no ownership.

• Implied Trust: Yes. An implied trust was created over the undivided one-half interest in favor of the collateral heirs of Gregorio under Article 1456 of the Civil Code of the Philippines, the sale having been attended by mistake as to ownership.

• Prescription: No. The ten-year prescriptive period accrued only on March 2, 1954, when the deed was registered; the complaint filed on April 30, 1963 was within ten years, and the action had not prescribed.

• Laches: No. The administrator filed the recovery action upon orders of the probate court without unreasonable delay, and the doctrine of laches was not applicable to defeat the rights of the collateral heirs.

• Nature of the Contract: The Court found no cogent reason to deviate from the Court of Appeals' ruling that the contract was a sale. Two separate instruments had been executed—a mortgage on November 1, 1952 and a sale on February 16, 1954—and the appellate court found no fraud, mistake, or misrepresentation attending the deed of sale's execution, nor any proof that the contract was merely a mortgage. The price of P16,000.00, while possibly appearing inadequate, did not constitute gross inadequacy sufficient to characterize the transaction as an equitable mortgage, following the rule in Askay vs. Cosalan that inadequate consideration alone does not make a contract one of mortgage.

• Authority to Alienate: Gregorio died on October 2, 1945, before the effectivity of the Civil Code of the Philippines on August 30, 1950. Under Article 2263 of the Civil Code of the Philippines, rights to the inheritance of a person who died before the Code's effectivity are governed by the Spanish Civil Code of 1889. Under Article 953 of that Code, a surviving spouse like Hilaria, when survived by brothers or sisters or children of brothers or sisters of the decedent, was entitled only to a usufruct over the portion of the inheritance pertaining to those collateral heirs. She had full ownership, however, over the undivided half of the conjugal estate under Article 493 of the Spanish Civil Code. It was only this undivided half-interest that she could validly alienate. Virgilio, as an illegitimate child who was not "natural" under the Spanish Civil Code, was disqualified from inheriting from Gregorio (Cid vs. Burnaman). Article 998 of the Civil Code of the Philippines, which grants hereditary rights to illegitimate children, could not benefit Virgilio because the collateral heirs' rights had already vested upon Gregorio's death under Article 2253 of the Civil Code of the Philippines (Uson vs. Del Rosario). Since Virgilio had no ownership to transfer, his participation in the sale was void as to the collateral heirs' share, under the principle nemo dat quod non habet.

• Implied Trust: Because the sale was made in 1954, it was governed by the Civil Code of the Philippines. Under Article 1456, property acquired through mistake or fraud creates an implied trust in favor of the person from whom the property comes. While no fraud attended the sale, there was clearly a mistake on the part of Hilaria and Virgilio in selling an undivided interest that belonged to the collateral heirs of Gregorio. The Court relied on Diaz vs. Gorricho, which recognized Article 1456 as expressing the rule earlier applied in Gayondato vs. Insular Treasurer, where a buyer at a public auction acquired only the widow's share, with the other half impressed with a constructive trust in favor of the heirs.

• Prescription: The action for recovery of title or possession had not prescribed. Under the law in force in 1945, the surviving spouse was given management of the conjugal property and became a trustee with respect to the other half for the benefit of the legal heirs. As a trustee of the highest order, the surviving spouse could not acquire title by prescription against those for whose benefit the law imposed the duty of administration (Pamittan vs. Lasam). Virgilio's possession, tax declaration, and enjoyment of produce appeared as acts to help Hilaria manage the property, not as adverse claims of ownership. The action was based on Article 1456, which created an implied trust and an obligation created by law; under Article 1144, such actions prescribe in ten years. The prescriptive period accrued only on March 2, 1954, when the deed was registered with the Register of Deeds. From March 2, 1954 to April 30, 1963, less than ten years had elapsed, so the action was timely filed.

• Laches: The doctrine of laches did not apply. Upon orders of the probate court, Noel as administrator immediately filed the action to recover possession and ownership. There was no evidence of failure or neglect for an unreasonable and unexplained length of time (Cristobal vs. Melchor). The doctrine of stale demands applies only where the lapse of time would make enforcement inequitable (Z.E. Lotho, Inc. vs. Ice and Cold Storage Industries of the Philippines, Inc.). The Court, except for very strong reasons, is not disposed to sanction laches to prejudice or defeat the right of an owner or original transferee (Raneses vs. Intermediate Appellate Court).

• Nemo dat quod non habet — The principle that nobody can dispose of that which does not belong to him. Applied to hold that Virgilio, having no hereditary rights under the Spanish Civil Code of 1889, could not transfer ownership over the collateral heirs' share of the conjugal property.

• Implied trust under Article 1456 — When property is acquired through mistake or fraud, the person obtaining it is considered a trustee of an implied trust for the benefit of the person from whom the property comes. Applied because Hilaria and Virgilio mistakenly sold the collateral heirs' undivided one-half interest, impressing a constructive trust on that portion in favor of the real owners.

• Vested rights under Article 2253 — Rights to the inheritance of a person who died before the effectivity of the Civil Code of the Philippines are governed by the previous law in force at the time of death. The collateral heirs' rights vested upon Gregorio's death in 1945 under the Spanish Civil Code of 1889, and Article 998 of the new Civil Code could not retroactively confer hereditary rights on Virgilio.

• Trustee status of surviving spouse — The surviving spouse who manages the conjugal property occupies the position of a trustee of the highest order and cannot acquire title by prescription adversely to the heirs for whose benefit the law imposes the duty of administration and liquidation. Applied to hold that Hilaria's possession could not be adverse to the collateral heirs, and prescription did not run during her administration.

• Laches distinguished from prescription — Laches is the failure or neglect for an unreasonable and unexplained length of time to do that which, by exercising due diligence, could or should have been done earlier, rendering enforcement inequitable. Applied: the administrator's prompt filing upon court order negated laches; the Court is reluctant to apply laches to defeat the right of an owner or original transferee except for very strong reasons.

• "While it cannot be said that fraud attended the sale to private respondent, clearly there was a mistake on the part of Hilaria and Virgilio in selling an undivided interest in the property which belonged to the collateral heirs of Gregorio." — This passage establishes the factual basis for the implied trust under Article 1456, the doctrinal anchor of the ruling.

• "The surviving husband as the administrator and liquidator of the conjugal estate occupies the position of a trustee of the highest order and is not permitted by the law to hold that estate or any portion thereof adversely to those for whose benefit the law imposes upon him duty of administration and liquidation." — Quoted from Pamittan vs. Lasam, this formulation explains why prescription could not run against the collateral heirs during Hilaria's administration of the conjugal property.

• "This Court, except for every strong reasons, is not disposed to sanction the application of the doctrine of laches to prejudice or defeat the right of an owner or original transferee." — This statement articulates the Court's restrictive approach to laches in property recovery actions, distinguishing it from the Court of Appeals' expansive application.

• Andres vs. Manufacturers Hanover & Trust Corporation, 177 SCRA 618 (1989) — Cited for the rule that factual findings of the Court of Appeals are binding absent a showing that they are totally devoid of support or glaringly erroneous.

• Askay vs. Cosalan, 46 Phil. 179 (1924) — Cited for the proposition that inadequate consideration alone does not convert a sale into a mortgage absent gross inadequacy of price.

• Cid vs. Burnaman, 24 SCRA 434 (1968) — Cited for the rule that illegitimate children who were not "natural" were disqualified from inheriting under the Spanish Civil Code of 1889.

• Uson vs. Del Rosario, 92 Phil. 530 (1953) — Cited for the principle that rights of ownership that vested upon a decedent's death under the prior law cannot be impaired by the subsequent Civil Code, pursuant to Article 2253.

• Diaz vs. Gorricho, 103 Phil. 261 (1958) — Cited for recognizing Article 1456 as expressing the rule on implied trusts earlier applied in Gayondato vs. Insular Treasurer.

• Gayondato vs. Insular Treasurer, 49 Phil. 244 (1926) — Cited as the antecedent case where a buyer at public auction acquired only the widow's share, with the other half impressed with a constructive trust for the heirs.

• Pamittan vs. Lasam, 60 Phil. 908 (1934) — Cited for the doctrine that a surviving spouse as administrator of the conjugal estate is a trustee of the highest order and cannot acquire title by prescription adversely to the heirs.

• Cristobal vs. Melchor, 78 SCRA 175 (1977) — Cited for the definition of laches as failure or neglect for an unreasonable and unexplained length of time to do what should have been done earlier.

• Raneses vs. Intermediate Appellate Court, 187 SCRA 397 (1990) — Cited for the Court's reluctance to apply laches to prejudice or defeat the right of an owner or original transferee except for very strong reasons.

• Corporacion de PP. Agustinos Recoletos vs. Crisostomo, 32 Phil. 427 (1915) — Cited for the rule that the ten-year prescriptive period for acquisitive prescription of real estate is reckoned from registration of the deed.

• Article 2263, Civil Code of the Philippines — Provides that rights to the inheritance of a person who died before the effectivity of the Civil Code shall be governed by the Civil Code of 1889 and other previous laws. Applied to determine that succession to Gregorio's estate was governed by the Spanish Civil Code of 1889, as Gregorio died in 1945.

• Article 2253, Civil Code of the Philippines — Provides that if a right is vested under a prior law, the new Code cannot impair it. Applied to hold that the collateral heirs' rights vested upon Gregorio's death under the Spanish Civil Code and could not be impaired by Article 998 of the new Civil Code.

• Article 953, Spanish Civil Code of 1889 — Provides that a surviving spouse, when survived by brothers or sisters or children of brothers or sisters of the decedent, is entitled to a usufruct over the portion of the inheritance pertaining to said heirs. Applied to limit Hilaria's rights over Gregorio's share to a usufruct.

• Article 493, Spanish Civil Code of 1889 — Provides that the surviving spouse has full ownership over the undivided half of the conjugal estate. Applied to confirm that Hilaria could validly alienate her one-half share.

• Article 1456, Civil Code of the Philippines — Provides that property acquired through mistake or fraud creates an implied trust in favor of the person from whom the property comes. Applied to impress a constructive trust on the collateral heirs' undivided one-half interest.

• Article 1458, Civil Code of the Philippines — Provides that the principal obligation of a seller is to transfer ownership of the property sold. Applied to underscore that a seller must own what he sells.

• Article 1144, Civil Code of the Philippines — Provides that actions based upon an obligation created by law prescribe in ten years. Applied to set the ten-year prescriptive period for the implied trust action, reckoned from registration of the deed on March 2, 1954.

• Article 998, Civil Code of the Philippines — Grants illegitimate children certain hereditary rights. Discussed but held inapplicable to Virgilio because the collateral heirs' rights had already vested under the prior law.

Padilla, Davide, Jr., Bellosillo, and Kapunan, JJ., concurred.