Viloria vs. Court of Appeals

A duly notarized and registered deed of sale may be declared an express trust where the parties intended it merely as a trust agreement and not as a relinquishment of ownership; the trustee cannot repudiate the trust by relying on Torrens registration, and an action to compel the trustee to convey does not prescribe unless the trustee repudiates the trust.

Ruperto L. Viloria and his sisters Nicolasa and Rosaida Viloria, together with the predecessors of private respondents, were co-owners of a commercial lot in Cabua-an Oeste and an orchard in Nalasin, Balaoan, La Union. Nicolasa and Rosaida died single and without issue, survived by their brothers and the heirs of their predeceased sisters. The properties were titled in the name of Ruperto L. Viloria, as trustee for the commercial lot, and in the names of Ruperto, Nicolasa, and Rosaida for the orchard. The dispute concerns whether those properties remained part of the co-ownership and estate of Nicolasa and Rosaida or had been validly conveyed to Ruperto.

Ruperto L. Viloria, Nicolasa Viloria, and Rosaida Viloria were siblings, and along with their other siblings Felicitacion V. Cacanando and Josefina V. Ancheta, they were co-owners in equal shares and pro-indiviso of a commercial lot in Cabua-an Oeste, Balaoan, La Union, and an orchard in Nalasin, Balaoan, La Union. The commercial lot was covered by TCT No. T-29060 in the name of Ruperto L. Viloria as trustee, while the orchard was covered by OCT No. 0-1952 in the names of Ruperto, Nicolasa, and Rosaida, all surnamed Viloria. Nicolasa died in December 1980 and Rosaida died in June 1989; both died single and without issue. They were survived by their brothers Ruperto L. Viloria and Anastacio L. Viloria, by the heirs of Felicitacion V. Cacanando, namely Lida C. Aquino and Manuel V. Cacanando, and by the heirs of Josefina V. Ancheta, namely Rodolfo V. Ancheta, Estrella V. Ancheta, and Carmen A. Nicolasura.

On 18 February 1991 the heirs of Rosaida and Nicolasa filed an action for partition with the Regional Trial Court of Balaoan, La Union against their co-heir Ruperto L. Viloria. They alleged that Nicolasa and Rosaida had been co-owners in equal shares and pro-indiviso with Ruperto of the commercial lot and orchard; that after the sisters died, the heirs demanded partition from Ruperto, who was in possession; and that he refused, claiming that Nicolasa and Rosaida had sold and conveyed to him all their shares, interests, and participation in the properties.

Ruperto alleged that Nicolasa and Rosaida sold the commercial lot to him by a deed of sale executed on 10 August 1965 and duly registered in the Office of the Register of Deeds of La Union, and that the heirs of Josefina V. Ancheta sold and relinquished to him all their claims and ownership over the commercial lot. As to the orchard, he alleged that it came into his possession when Nicolasa sold to him her share of the land and the ancestral house standing thereon by a private agreement written in Ilocano, referred to as “Catulagan,” dated 10 June 1978, while Rosaida sold to him her share by a deed of sale dated 10 September 1987.

Refuting these allegations, the heirs of Nicolasa and Rosaida maintained that the transfer of title of the commercial lot in Ruperto’s name was only for loan purposes and not to convey and relinquish ownership; that Ruperto assured Nicolasa and Rosaida that they would remain co-owners and that the deed of sale would be returned to them; and that Nicolasa and Rosaida exercised acts of administration and dominion over the property and collected rentals from the buildings standing thereon for 25 years or until they died. Through their co-heirs Lida C. Aquino and Atty. Gerardo Viloria, private respondents also asserted that while Rosaida executed a deed of sale conveying her share of the orchard to Ruperto, it was without consideration, and that upon realizing the iniquitous nature of the document, Rosaida immediately executed a deed of revocation of the sale.

The trial court found that title over the commercial lot was not in reality transferred to Ruperto because the parties to the 1965 deed of sale merely intended to create an express trust; that by admitting the trust and assuring his sisters and private respondents that they would remain co-owners, an express trust had been created; and that Ruperto became only a trustee, incapacitated from acquiring the property for his own benefit. The trial court likewise found no effective conveyance of Rosaida’s 1/3 share in the orchard because the conveyance was nullified by her deed of revocation, and no conveyance by Nicolasa through the “Catulagan” because she had already disposed of the property in favor of Rodolfo Ancheta by a deed of donation. The Court of Appeals modified the trial court’s adjudication, holding that only the 2/3 share of Nicolasa and Rosaida in the commercial lot should be divided because Ruperto already owned 1/3 as co-owner, and that the deed of revocation did not rescind the 1987 deed of sale over the orchard because it was duly notarized and enjoyed the presumption of validity, so only Rosaida’s 1/3 share in the orchard should be divided.

• Nature of the 1965 Deed / Express Trust: Petitioner argued that the Court of Appeals erred in affirming the trial court’s finding that the 1965 deed of sale of the commercial lot was an express trust and not a true conveyance of real property. He maintained that an express trust cannot be deduced from the collection of rentals by Nicolasa and Rosaida because what they collected were merely rentals for the use of the buildings and improvements on the property, as distinguished from rentals for the use of the land itself, nor from their consent and conformity to the waiver of rights because they were not signatories to the actual document, petitioner being the sole signatory thereto.
• Jurisdiction over the Validity of the 1965 Deed: Petitioner contended that the Court of Appeals committed a grave error in law in assuming jurisdiction over the validity of the 1965 deed of sale since it was never raised as an issue in Civil Case No. 417, where private respondents merely asked for partition without praying for annulment of the document.
• Necessity of a Separate Annulment Action: Petitioner asserted that the 1965 deed of sale should not have been declared an express trust in the absence of a court declaration annulling and declaring it as such under Art. 1390 of the New Civil Code, and that the notarized deed should have enjoyed the presumption of validity.
• Torrens Registration: Petitioner argued that under Dino vs. CA, registration under the Torrens system is the operative act that gives validity to the transfer or creates a lien upon the land; since the deed was registered in 1965 and a certificate of title was issued in his name, he acquired valid and legal title that could not thereafter be declared merely an express trust.
• Succession: Petitioner claimed that the ruling that the heirs were entitled to the property was contrary to the law on succession. Citing Locsin vs. CA, he postulated that property transferred or conveyed by one person to another during the lifetime of the former no longer forms part of his estate at the time of his death to which his heirs may lay claim; since the shares of Nicolasa and Rosaida in the commercial lot were already sold to him by the 1965 deed, the heirs had nothing more to inherit.
• Prescription: Petitioner invoked prescription, contending that prescription had already run against co-owners Nicolasa and Rosaida because Ruperto openly, publicly, and continuously owned and possessed the properties for more than 25 years, from 1965 up to the filing of the case in 1991, with good and just title pursuant to Arts. 1117, 1127, and 1134 of the New Civil Code.

• Co-ownership and Loan Purpose: Private respondents maintained that during the lifetime of Nicolasa and Rosaida, they were co-owners in equal shares and pro-indiviso with Ruperto of the commercial lot and orchard; the transfer of title of the commercial lot in Ruperto’s name was only for loan purposes and not to convey and relinquish ownership.
• Assurance of Continued Co-ownership: They asserted that Ruperto assured Nicolasa and Rosaida that they would remain co-owners and that the deed of sale would be returned to them.
• Acts of Administration and Dominion: They claimed that Nicolasa and Rosaida exercised acts of administration and dominion over the property and collected rentals from the buildings standing thereon for 25 years or until they died.
• No Consideration and Revocation: They asserted that while Rosaida executed a deed of sale conveying her share of the orchard to Ruperto, it was without consideration; upon realization of the iniquitous nature of the document, Rosaida immediately executed a deed of revocation of the sale.

• Nature of the 1965 Deed: Whether the Court of Appeals erred in affirming that the 1965 deed of sale over the commercial lot was an express trust and not a true conveyance of real property.
• Jurisdiction to Rule on Validity: Whether the Court of Appeals exceeded its jurisdiction in ruling on the validity of the 1965 deed of sale when the partition complaint did not pray for its annulment.
• Necessity of Separate Annulment: Whether the 1965 deed of sale could be declared an express trust without a prior court action annulling it under Art. 1390 of the New Civil Code.
• Notarization and Presumption of Validity: Whether the notarized 1965 deed of sale enjoyed a presumption of validity that precluded its characterization as an express trust.
• Torrens Registration: Whether registration of the deed and issuance of a Torrens title in petitioner’s name vested ownership in him and barred the trust characterization.
• Succession: Whether the ruling that the heirs are entitled to the property violated the law on succession because the shares had already been conveyed during the lifetime of Nicolasa and Rosaida.
• Prescription: Whether prescription had run against private respondents, petitioner having possessed the properties openly, publicly, and continuously for more than 25 years.

• Nature of the 1965 Deed: No. The finding that the 1965 deed of sale was in fact an express trust, not a true conveyance, is a factual finding of the lower courts that is conclusive absent palpable error; the parties intended a trust and Nicolasa and Rosaida remained co-owners.
• Jurisdiction to Rule on Validity: No. In a partition case, ownership must be definitely resolved before partition; because petitioner denied co-ownership by asserting the 1965 deed of absolute sale, the validity of that deed had to be resolved.
• Necessity of Separate Annulment: No. Art. 1390 concerns voidable contracts due to absence or infirmity of consent, not simulated contracts; the issue is the nature of the contract, and the trial court already assumed jurisdiction over the deed’s validity.
• Notarization and Presumption of Validity: No. Notarization gives a presumption of regularity but does not validate or make binding an instrument never intended to have binding legal effect.
• Torrens Registration: No. A trustee who obtains a Torrens title over property held in trust for another cannot repudiate the trust by relying on registration.
• Succession: No. The succession argument assumes a true conveyance, but the 1965 deed was an express trust and no actual conveyance took place; the shares remained part of the estate and passed to the heirs.
• Prescription: No. Nicolasa and Rosaida were in possession and exercised acts of ownership; an action to compel the trustee to convey does not prescribe unless the trustee repudiates the trust, and Ruperto never openly repudiated.

• Nature of the 1965 Deed: The Court began by noting that petitioner’s arguments on the express trust would require examination of the probative value of the evidence presented before the trial court. Under Rule 45, judicial review of Court of Appeals decisions is confined to errors of law, and findings of fact by the lower court are conclusive absent palpable error or arbitrariness. After examining the records, the Court found no reason to depart from this principle. The trial court had found that the 1965 deed of sale was in fact an express trust; that the parties intended merely to create a trust; that petitioner admitted the trust and assured his sisters and private respondents they would remain co-owners; and that petitioner became only a trustee incapacitated from acquiring the property for his own benefit. The Court thus left the factual findings untouched.
• Jurisdiction to Rule on Validity: The contention that the Court of Appeals exceeded jurisdiction was without merit. In the partition action, private respondents claimed they were co-owners entitled to their share, while petitioner denied their claim by asserting that their rights were supplanted by the deed of absolute sale. As a result, the issue of co-ownership and the legality of the 1965 sale had to be resolved in the partition case. Citing Catapusan vs. CA, the Court stated that until and unless the issue of ownership is definitely resolved, it would be premature to effect a partition. Thus, the appellate court did not exceed the limits of its jurisdiction when it ruled on the validity of the 1965 sale.
• Necessity of Separate Annulment: Art. 1390 of the New Civil Code has no bearing. The provision alludes to contracts that could be voided by reason of absence or infirmity of consent, not to simulated contracts. The parties freely gave their consent to the 1965 deed of sale but intended it to be merely a trust agreement and not a relinquishment of rights. The nature of the contract, not the character of consent, was in issue. A separate declaration of nullity was no longer necessary because the trial court already assumed jurisdiction over the validity of the 1965 deed in determining whether co-ownership existed and whether partition was proper.
• Notarization and Presumption of Validity: The fact that a deed of sale is notarized does not necessarily justify the conclusion that the sale is a true conveyance to which the parties are irrevocably and undeniably bound. Although notarization vests in the deed a presumption of regularity, it does not validate nor make binding an instrument never intended, in the first place, to have any binding legal effect upon the parties. The Court applied this to reject petitioner’s reliance on notarization.
• Torrens Registration: Petitioner could not rely on the registration of the land and the issuance of a certificate of title in his name as vesting ownership in him because the trial court found the deed of sale to be in fact an express trust. The Court held that 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. Thus, Dino vs. CA did not aid petitioner.
• Succession: The claim that the ruling was contrary to the law on succession proceeded from the assumption that the deed of sale was a true conveyance. However, the Court found that the 1965 deed of sale was in fact an express trust and hence no actual conveyance took place. The owners Nicolasa and Rosaida did not relinquish their claim of ownership over the commercial lot but continued to exercise acts of administration and dominion over it; hence, it continued to form part of their estate and devolved upon their demise on their heirs. Locsin vs. CA was therefore not applicable.
• Prescription: The prescriptive period for an action for reconveyance of real property based on implied or constructive trust, counted from the date of registration of the property, applies when the plaintiff is not in possession of the contested property. Moreover, an action to compel the trustee to convey property registered in his name for the benefit of the cestui que trust does not prescribe unless the trustee repudiates the trust. Nicolasa and Rosaida were in possession of the land and were exercising acts of ownership and administration over the property consistent with their responsibility as co-owners. At no time did Ruperto openly repudiate the claims of his co-owners but continued to assure them of their rights regarding the property. Hence, the prescriptive period did not commence to run against private respondents.

• Express Trust — An express trust may arise where the parties freely consent to a deed of sale but intend it merely as a trust agreement and not as a relinquishment of rights. The trustee holds the property for the benefit of the cestui que trust and cannot acquire it for his own benefit. In this case, the 1965 deed of sale was found to be an express trust, with Ruperto as trustee and Nicolasa and Rosaida remaining co-owners.
• Notarization Does Not Validate an Instrument Never Intended to Have Legal Effect — Notarization vests a presumption of regularity in a deed, but it does not necessarily prove that the deed is a true conveyance. It cannot validate nor make binding an instrument that the parties never intended to have binding legal effect. The Court applied this to reject petitioner’s reliance on the notarized 1965 deed.
• Torrens Registration Cannot Defeat a Trust — A trustee who obtains a Torrens title over property held in trust for another cannot repudiate the trust by relying on the registration. The Court applied this to hold that petitioner’s registered title did not vest ownership in him as against the trust beneficiaries.
• Partition Requires Prior Resolution of Ownership — Until and unless the issue of ownership is definitely resolved, it is premature to effect a partition of the properties. Because petitioner denied co-ownership by asserting the 1965 deed, the Court held that the validity of that deed had to be resolved in the partition case.
• Non-Prescription of an Action to Compel a Trustee to Convey — An action to compel the trustee to convey property registered in his name for the benefit of the cestui que trust does not prescribe unless the trustee repudiates the trust. Since Ruperto never openly repudiated the trust and continued to assure the co-owners of their rights, prescription did not run against private respondents.
• Reconveyance Based on Implied or Constructive Trust and Possession — The prescriptive period for an action for reconveyance based on implied or constructive trust, counted from the date of registration, applies when the plaintiff is not in possession of the contested property. Here, Nicolasa and Rosaida were in possession and exercised acts of ownership and administration, so the period did not commence.
• Article 1390 Inapplicable to Simulated Contracts — Art. 1390 of the New Civil Code concerns contracts voidable by reason of absence or infirmity of consent, not simulated contracts where the issue is the nature of the contract. The Court held that a separate annulment action was unnecessary because the trial court already assumed jurisdiction over the deed’s validity.
• Lifetime Conveyance and Succession — Property transferred or conveyed during the lifetime of a person no longer forms part of his estate only if the conveyance is true and effective. Where the deed was in fact an express trust and no actual conveyance took place, the property remains part of the estate and passes to the heirs. The Court applied this to reject petitioner’s succession argument.

• "The parties in the instant case freely gave their consent to the 1965 deed of sale but intended it to be merely a trust agreement and not a relinquishment of rights. It is therefore the nature of the contract that is in issue and not the character of the consent given." — This passage states the ratio for rejecting the Art. 1390 argument and for treating the 1965 deed as an express trust rather than a voidable contract.
• "The fact that a deed of sale is notarized does not necessarily justify the conclusion that the sale is a true conveyance to which the parties thereto are irrevocably and undeniably bound." — This is the Court’s controlling statement on the limited effect of notarization in determining the true nature of a deed.
• "It has been held that 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." — This is the Court’s key ruling against petitioner’s Torrens registration argument.
• "Moreover, an action to compel the trustee to convey property registered in his name for the benefit of the cestui que trust does not prescribe unless the trustee repudiates the trust." — This is the Court’s key ruling on prescription, explaining why the action had not prescribed.

• Catapusan vs. CA, G.R. No. 109262, 21 November 1996, 264 SCRA 534 — Cited for the rule that until and unless ownership is definitely resolved, it is premature to effect a partition; used to uphold the Court of Appeals’ authority to rule on the validity of the 1965 deed in the partition case.
• Favor vs. Court of Appeals, G.R. No. 80821, 21 February 1991, 194 SCRA 308 — Cited in connection with the notarization and presumption of validity argument; the Court did not allow it to validate an instrument never intended to have binding legal effect.
• Suntay vs. CA, G.R. No. 114950, 19 December 1995, 251 SCRA 430 — Cited for the principle that notarization does not necessarily make a deed a true conveyance and does not validate an instrument never intended to have binding legal effect.
• Dino vs. CA, G.R. No. 95921, 2 September 1992, 213 SCRA 422 — Petitioner relied on it for the Torrens registration rule; the Court held it did not permit a trustee to repudiate an express trust by relying on registration.
• Sotto vs. Teves, No. L-38018, 31 October 1978, 86 SCRA 178 — Cited for the rule that a trustee who obtains a Torrens title over property held in trust for another cannot repudiate the trust by relying on the registration.
• Locsin vs. CA, G.R. No. 89783, 19 February 1992, 206 SCRA 383 — Petitioner cited it on succession; distinguished because the 1965 deed was an express trust and no actual conveyance took place.
• Huang vs. CA, G.R. No. 10825, 13 September 1994, 236 SCRA 420 — Cited for the rule that an action to compel the trustee to convey property registered in his name for the benefit of the cestui que trust does not prescribe unless the trustee repudiates the trust.

• Article 1390, New Civil Code — Lists contracts that are voidable or annullable by reason of incapacity to give consent or vitiated consent. The Court held it had no bearing because the issue was the nature of the contract as an express trust, not the character of the consent given.
• Article 1117, New Civil Code — Provides for ordinary and extraordinary acquisitive prescription of dominion and other real rights; ordinary acquisitive prescription requires possession in good faith and with just title for the time fixed by law. Petitioner invoked it, but the Court held prescription did not run.
• Article 1127, New Civil Code — Defines good faith of the possessor as the reasonable belief that the person from whom the thing was received was the owner and could transmit ownership. Petitioner invoked it, but the Court held it did not support prescription against private respondents.
• Article 1134, New Civil Code — Provides that ownership and other real rights over immovable property are acquired by ordinary prescription through possession of ten years. Petitioner invoked it, but the Court held the prescriptive period did not commence.
• Rule 45 — Judicial review of Court of Appeals decisions is confined to errors of law; findings of fact by the lower court are conclusive absent palpable error or arbitrariness. The Court applied this to leave intact the factual finding that the 1965 deed was an express trust.

Puno, Mendoza, Quisumbing, and Buena, JJ., concurred.