RUPERTO L. VILORIA, PETITIONER, VS. COURT OF APPEALS, LIDA C. AQUINO, ASSISTED BY HER HUSBAND GREGORIO AQUINO, MANUEL V. CACANANDO, AS HEIRS OF THE LATE FELICITACION V. CACANAND…

Viloria versus Court of Appeals

The Case

This is a petition for review on certiorari brought by Ruperto Viloria against the Court of Appeals and his own co-heirs, led by Lida Aquino and Manuel Cacanando. The heirs of Nicolasa and Rosaida Viloria sued Ruperto for partition of a commercial lot and an orchard, claiming that the three sisters and their brother were co-owners. Ruperto resisted, insisting that his sisters had sold him their shares. The case matters because the Supreme Court treats a notarized and registered deed of sale as, in truth, an express trust — and holds that a trustee who takes a Torrens title in his own name cannot use that title to repudiate the trust.

Procedural History

On 18 February 1991 the heirs of Rosaida and Nicolasa filed an action for partition before the Regional Trial Court of Balaoan, La Union. On 6 April 1992 the trial court ruled that the 1965 deed of sale over the commercial lot merely created an express trust, with Ruperto as trustee and his sisters remaining co-owners. It also held that Rosaida's share in the orchard was not effectively conveyed, because she had revoked the deed, and that the private agreement written in Ilocano, the Catulagan, did not convey Nicolasa's share. The trial court ordered both properties divided into four equal parts, one fourth for Ruperto and three fourths for the other heirs.

Ruperto appealed to the Court of Appeals, which affirmed with modification. The appellate court declared the parties co-owners of only two thirds of the commercial lot, since Ruperto already owned one third, and co-owners of only one third of the orchard, since Rosaida's 1987 deed of sale stood unless annulled by proper judicial action. Ruperto then came to the Supreme Court by petition for review on certiorari under Rule 45.

Facts

Ruperto Viloria and his sisters Nicolasa, Rosaida, Felicitacion and Josefina were co-owners of a commercial lot in Cabua-an Oeste, Balaoan, La Union, and an orchard in Nalasin. Nicolasa died in December 1980 and Rosaida in June 1989, both single and without issue. Felicitacion and Josefina had predeceased them, leaving the private respondents as heirs.

In 1965 Ruperto caused a deed of sale over the commercial lot to be executed in his favor and registered, and a certificate of title was issued in his name. The sisters later claimed the transfer was only for loan purposes, that Ruperto promised they would remain co-owners, and that they continued to administer the property and collect rentals from the buildings for twenty five years until they died. For the orchard, Ruperto relied on the Catulagan of 1978 for Nicolasa's share and a deed of sale of 1987 for Rosaida's share. Rosaida promptly executed a deed of revocation of that sale.

When the heirs demanded partition, Ruperto refused, claiming he had bought all their shares. The trial court found the 1965 deed to be an express trust, found the Catulagan ineffective because Nicolasa had already donated her share to Rodolfo Ancheta, and found Rosaida's revocation effective. The Court of Appeals modified the shares but affirmed the trust.

Issues

• Whether or not the 1965 deed of sale was a true conveyance or merely an express trust, despite its notarization and registration.
• Whether or not the Court of Appeals could rule on the validity of the 1965 deed of sale in a partition case where annulment was never prayed for.
• Whether or not a separate judicial declaration of nullity was required under Article 1390 of the New Civil Code before the deed could be treated as a trust.
• Whether or not registration under the Torrens system vested ownership in Ruperto.
• Whether or not prescription had run against the co-owners Nicolasa and Rosaida.

Applicable Provisions

Article 1390 of the New Civil Code provides:

The following contracts are voidable or annullable, even though there may have been no damage to the contracting parties: (1) Those where one of the parties is incapable of giving consent to a contract; (2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud. These contracts are binding, unless they are annulled by a proper action in court. They are susceptible of ratification.

The Court holds this article inapplicable, because it concerns contracts voidable for absence or infirmity of consent, not simulated contracts whose nature is in issue.

Article 1117 of the New Civil Code provides:

Acquisitive prescription of dominion and other real rights may be ordinary or extraordinary. Ordinary acquisitive prescription requires possession of things in good faith and with just title for the time fixed by law.

Ruperto invoked this to claim he had acquired the properties by long possession.

Article 1127 of the New Civil Code provides:

The good faith of the possessor consists in the reasonable belief that the person from whom he received the thing was the owner thereof, and could transmit his ownership.

This defines the good faith on which Ruperto's claim of ordinary prescription rested.

Article 1134 of the New Civil Code provides:

Ownership and other real rights over immovable property are acquired by ordinary prescription through possession of ten years.

Ruperto argued that more than twenty five years of open possession brought him within this period.

Ruling

On the first issue, the Court declined to disturb the factual findings of the lower courts, since review under Rule 45 is confined to errors of law and the findings were supported by the record. The collection of rentals and the sisters' continued acts of administration showed that the parties intended a trust, not a relinquishment of rights.

On the second issue, the Court held that the appellate court did not exceed its jurisdiction. In a partition case the issue of co-ownership must be resolved, and until ownership is definitely settled it would be premature to partition. The validity of the 1965 sale was therefore necessarily within the case.

On the third issue, the Court held that Article 1390 has no bearing, because the parties freely gave their consent but intended a trust agreement. It is the nature of the contract that is in issue, not the character of the consent. No separate declaration of nullity was needed, since the trial court already passed on the validity of the deed.

On the fourth issue, the Court held that notarization does not make an instrument binding when the parties never intended it to have legal effect. Registration did not help Ruperto either, for a trustee who obtains a Torrens title over property held in trust cannot repudiate the trust by relying on the registration.

On the fifth issue, the Court held that prescription did not run. An action to compel a trustee to convey property held for the beneficiary does not prescribe unless the trustee repudiates the trust, and Ruperto never openly repudiated his sisters but continued to assure them of their rights.

Doctrine

A deed of sale, though notarized and registered, may be shown to be in truth an express trust; notarization raises only the presumption of regularity and does not validate an instrument the parties never intended to bind them. A trustee who secures a Torrens title in his own name holds it subject to the trust and cannot repudiate the trust by relying on registration. The issue of ownership is necessarily litigated in a partition case, so no separate action for annulment is required. Finally, an action to compel a trustee to convey trust property does not prescribe unless and until the trustee repudiates the trust.

Disposition

The Court affirmed the decision of the Court of Appeals, declaring the parties co-owners of two thirds of the commercial lot and one third of the orchard, to be divided into four equal parts, one fourth for Ruperto and three fourths for the private respondents.

Remember This

Memorize the line that a trustee who obtains a Torrens title over property held in trust cannot repudiate the trust by relying on the registration. Examiners use this case to test express trusts disguised as deeds of sale, the limits of notarization and registration, and the rule that a trustee's trust does not prescribe absent repudiation.