Ramos vs. Court of Appeals

A person who is disqualified from acquiring a PHHC lot cannot enforce a resulting trust under Article 1448 of the Civil Code over property titled in another’s name where the arrangement was intended to evade the PHHC’s qualification and approval rules; such a transaction is void against public policy and barred by the clean hands doctrine.

Herminio Ramos and Lydia Celestino were both employed at the Central Bank of the Philippines; Herminia L. Ramos is Herminio’s surviving spouse, and the other petitioners are his heirs. The PHHC administered housing lots for Central Bank employees under rules limiting awards to qualified employees and requiring PHHC consent to transfers.

Lydia Celestino, married to Hilario Celestino, worked in the economic research department of the Central Bank of the Philippines from 1949 to 1983, while Herminio Ramos worked in the same department until his retirement sometime in 1972. Sometime in 1961, the PHHC awarded rights to buy certain parcels of land to Central Bank employees. Herminio was awarded the rights to buy Lot 25, Block 86 of subdivision plan Psd-68807, with an area of about 400 square meters, in what is now Sikatuna Village, Diliman, Quezon City, for P3,800.00 payable in installments. Herminio then sold and transferred to Lydia his rights to buy the property, and Lydia paid the price in several installments, the last on May 21, 1962.

After acquiring Herminio’s rights, Lydia assumed the obligation to pay the PHHC the purchase price. She paid monthly amortizations of P34.11 for about ten years, ending sometime in 1974 when she paid the last amortization and fully paid the purchase price. During that period and thereafter, Lydia’s friend Cynthia Camacho, who lived at the back of the property, acted as caretaker, and Lydia had the land fenced. When the corresponding TCT No. 204173 was issued after full payment, it was in the name of “HERMINIO T. RAMOS, of legal age, Filipino, married to Herminia L. Ramos.” Herminio and Herminia knew of and consented to the delivery to Lydia of the owner’s duplicate copy of the title, which remained in Lydia’s possession and custody.

On November 26, 1974, Herminio and Herminia executed in Lydia’s favor an irrevocable special power of attorney empowering her to sell, mortgage, or lease the property and dispose of the proceeds as she wanted. It was executed upon the advice of a realty expert, Isidro Gonzales, as a practical means of assuring Lydia that Herminio and Herminia acted in good faith and recognized the existing implied trust relationship, especially because the title carried a restriction that within one year from its issuance no transfer or alienation could be made without the PHHC’s written consent. Lydia later admitted in her testimony that although she was a Central Bank employee, she was not qualified to acquire a PHHC lot because she already owned a lot in Quezon City; she did not submit the transfer of Herminio’s rights to the PHHC for approval.

Herminio died in the early part of 1985. On August 22, 1985, Branch 104 of the RTC of Quezon City, in LRC Case No. Q-3150(85), issued an order upon Herminia’s petition claiming that the original owner’s duplicate copy of TCT No. 204173 was lost and missing; the order cancelled the owner’s duplicate copy and directed the Register of Deeds of Quezon City to issue another owner’s duplicate copy. A new owner’s duplicate copy with a memorandum of the order was issued. Lydia belatedly learned of the order and, on March 21, 1986, filed LRC Case No. Q-3387(86) to declare the order null and void and to cancel the new owner’s duplicate copy, alleging that Herminia secured it through fraud and misrepresentation because she knew the supposedly lost owner’s duplicate copy was in Lydia’s possession.

After verifying that Herminio had died in early 1985 and that Herminia and his successors-in-interest were disputing ownership of the property and the building thereon, Lydia and Hilario Celestino filed Civil Case No. Q-49272 for reconveyance. They prayed that they be declared lawful owners of Lot 25, that the defendants execute a deed of absolute sale, remove improvements, vacate the lot, deliver possession, and pay actual, moral, and exemplary damages, attorney’s fees, and costs. The RTC found that an implied or resulting trust arose because Lydia paid the purchase price out of her funds after buying Herminio’s rights, that Herminia knew and consented as shown by the special power of attorney, and that Herminia’s claim that her signature was not hers could not prevail over the notarial acknowledgment and the similarity with her specimen signatures. It also found that Herminia secured tax declarations and paid realty taxes only after Herminio’s death in 1985, indicating that she had regarded the property as held in trust for Lydia until the trust was repudiated after Herminio’s death.

• Authenticity of the Special Power of Attorney: Petitioners maintained that the CA erred in holding Herminia Ramos’s signature on the special power of attorney genuine; they alleged forgery, that the copy was a mere photocopy not admissible under the best evidence rule, and that the notary before whom it was acknowledged was not a duly commissioned notary public for Manila.
• Resulting Trust and Validity of the Transfer: Petitioners argued that no implied trust was established because the PHHC imposed a restriction requiring its written consent to any transfer within one year; Lydia was disqualified from acquiring a PHHC lot because she already owned a residential lot in Quezon City; the PHHC did not consent; the sale circumvented the policy of awarding PHHC lots to qualified Central Bank employees and was contrary to law and public policy; Herminio had no right to sell without his wife’s consent; and the alleged sale was unenforceable under the Statute of Frauds, Article 1403(2)(e), and no express trust was shown under Article 1443.
• Prescription: Petitioners argued that the action for reconveyance had prescribed or was barred by laches.

• Validity of Transfer and Resulting Trust: Whether Lydia Celestino may enforce a resulting trust under Article 1448 of the Civil Code over the PHHC lot where she was disqualified from acquiring a PHHC lot, the transfer lacked PHHC approval, and the arrangement was intended to evade the PHHC’s qualification and approval rules.
• Refund of Payments: Whether private respondents may recover the amounts Lydia paid to Herminio and to the PHHC despite the transaction being void for being contrary to public policy.

• Validity of Transfer and Resulting Trust: No. The transaction was void for being contrary to public policy; Lydia, knowing she was disqualified, used Herminio as a dummy to evade PHHC rules, so she could not enforce a resulting trust under Article 1448 because the clean hands doctrine barred relief.
• Refund of Payments: Yes. Although the contract was void, equity allowed private respondents to recover the P3,800.00 paid to Herminio and the P34.11 monthly installments paid to the PHHC, with legal interest from the filing of Civil Case No. Q-49272.

• Validity of Transfer and Resulting Trust: The SC framed the decisive issue as the validity of the transaction between Herminio and Lydia. A resulting trust under Article 1448 arises when property is sold and the legal estate is granted to one party but the price is paid by another for the beneficial interest of the latter. But the SC held that the trust could not be enforced because Lydia admitted she was not qualified to acquire a PHHC lot, having already owned a lot in Quezon City, and she did not submit the transfer to the PHHC for approval. The PHHC policy, supported by law and by Ibay vs. Intermediate Appellate Court, limited awards to qualified employees and required PHHC approval for transfers. Lydia’s use of Herminio’s title was an attempt to get indirectly what she could not get directly. A resulting trust is an intent-enforcing trust, but if the payor’s purpose was to evade a rule of law, courts will not assist the payor under the clean hands doctrine. A trust whose enforcement is against public policy is invalid, and parties cannot do indirectly through a resulting trust what they cannot do expressly under Article 1306. The trial court and CA therefore erred in assuming the transaction valid and in enforcing the trust.
• Refund of Payments: Although the SC voided the contract for being contrary to public policy, it deemed it equitable to allow private respondents to recover what they had paid for the land, with legal interest from the filing of the complaint in Civil Case No. Q-49272. Lydia was entitled to the return of the P3,800.00 she paid to Herminio and the refund of the installments she paid to the PHHC at P34.11 monthly for ten years, with 6% per annum interest from filing until payment.

• Resulting Trust under Article 1448 — A resulting trust arises when property is sold and the legal estate is granted to one party but the price is paid by another for the purpose of having the beneficial interest of the property. The SC held that Lydia could not enforce such a trust because her purpose was to evade the PHHC’s rule disqualifying her from acquiring a lot, so the trust was invalid as against public policy.
• Clean Hands Doctrine — Courts will not assist a payor who placed title in another’s name to evade a rule of law by enforcing a resulting trust for the payor. The SC applied this because Lydia, knowing she was disqualified, used Herminio as a dummy to acquire a PHHC lot indirectly.
• Public Policy Bar on Trusts — A trust or provision in a trust is invalid if its enforcement would be against public policy, even if performance does not involve a criminal or tortious act. The SC held that what the parties cannot expressly provide in a contract because it is contrary to law and public policy, they cannot do indirectly through a resulting trust.
• PHHC Qualification and Approval Rules — PHHC awards were limited to qualified Central Bank employees, and transfers of rights required PHHC approval. The SC held that Lydia’s failure to obtain approval and her admitted disqualification made the transfer void, following Ibay vs. Intermediate Appellate Court.

• “The inevitable conclusion then is that Lydia Celestino, knowing of her disqualification to acquire a lot from the PHHC at the subdivision reserved for qualified Central Bank employees, tried to get one through the backdoor. Otherwise stated, she wanted to get indirectly that which she could not do so directly.” — The SC concludes that Lydia’s arrangement with Herminio was an evasion of the PHHC’s qualification rules.
• “However, if the purpose of the payor of the consideration in having title placed in the name of another was to evade some rule of the common or statute law, the courts will not assist the payor in achieving his improper purpose by enforcing a resulting trust for him in accordance with the "clean hands" doctrine.” — This states the exception to resulting trusts that defeats Lydia’s claim.
• “What the parties then cannot expressly provide in their contracts for being contrary to law and public policy, they cannot impliedly or implicitly do so in the guise of a resulting trust.” — The SC refuses to let the parties use a trust to accomplish what a contract cannot lawfully do.
• “Although the contract should be voided for being contrary to public policy, we deem it equitable to allow the private respondents to recover what they had paid for the land with legal interest thereon commencing from the date of the filing of the complaint in Civil Case No. Q-49272.” — This supports the SC’s order of refund despite voiding the transaction.

• Ibay vs. Intermediate Appellate Court, 209 SCRA 510, 517 [1992] — The SC followed this precedent, which also involved a transfer of a PHHC lot right to a party disqualified to acquire a PHHC lot; it held that PHHC approval is necessary for the transfer to be valid and effective, and that the policy prohibited sale of more than one lot per person.

• Article 1448, Civil Code — Defines an implied trust when property is sold and the legal estate is granted to one party but the price is paid by another for the beneficial interest of the latter; the SC held it could not be applied to enforce Lydia’s claim because the arrangement was intended to evade PHHC rules and was against public policy.
• Article 1306, Civil Code — Parties may establish stipulations not contrary to law, morals, good customs, public order, or public policy; the SC used it to hold that what cannot be done expressly cannot be done indirectly through a resulting trust.
• Rule 45, Rules of Court — The petitioners invoked this rule in filing the petition for review on certiorari; the SC gave due course to the petition.
• PHHC Resolution No. 82 (May 23, 1951) — Prohibited the sale of more than one lot per person; the SC cited it through Ibay vs. Intermediate Appellate Court to support the policy against Lydia’s acquisition.
• PHHC Resolution No. 558 (April 16, 1962) — Allowed only one residential lot per family; the SC cited it in footnote as part of the policy intended to distribute PHHC benefits to as many needy families as possible.