EMILIA O’LACO AND HUGO LUNA, PETITIONERS, VS. VALENTIN CO CHO CHIT, O LAY KIA AND COURT OF APPEALS, RESPONDENTS.

History is replete with cases of erstwhile close family relations
put asunder by property disputes. This
is one of them. It involves
half-sisters each claiming ownership over a parcel of land. While petitioner Emilia O’Laco asserts that
she merely left the certificate of title covering the property with private
respondent O Lay Kia for safekeeping, the latter who is the former’s older
sister insists that the title was in her possession because she and her husband
bought the property from their conjugal funds. To be resolved therefore is the issue of whether a resulting trust was
intended by them in the acquisition of the property. The trial court declared that there was no trust relation of any
sort between the sisters.^[1]
The Court of Appeals ruled otherwise.^[2]
Hence, the instant petition for review on certiorari of the decision of
the appellate court together with its resolution denying reconsideration.^[3]

It appears that on 31 May 1943, the Philippine Sugar Estate
Development Company, Ltd., sold a parcel of land, Lot No. 5, Block No. 10, Plan
Psu-10038, situated at Oroquieta St., Sta. Cruz, Manila, with the Deed of
Absolute Sale naming Emilia O’Laco as vendee; thereafter, Transfer Certificate
of Title No. 66456 was issued in her name.

On 17 May 1960, private respondent-spouses Valentin Co Cho Chit
and O Lay Kia learned from the newspapers that Emilia O’Laco sold the same
property to the Roman Catholic Archbishop of Manila for P230,000.00, with
assumption of the real estate mortgage constituted thereon.^[4]

On 22 June 1960, respondent-spouses Valentin Co Cho Chit and O
Lay Kia sued petitioner-spouses Emilia O’Laco and Hugo Luna to recover the
purchase price of the land before the then Court of First Instance of Rizal,
respondent-spouses asserting that petitioner Emilia O’Laco knew that they were
the real vendees of the Oroquieta property sold in 1943 by Philippine Sugar
Estate Development Company, Ltd., and that the legal title thereto was merely
placed in her name. They contend that
Emilia O’Laco breached the trust when she sold the land to the Roman Catholic
Archbishop of Manila. Meanwhile, they
asked the trial court to garnish all the amounts still due and payable to
petitioner-spouses arising from the sale, which was granted on 30 June 1960.^[5]

Petitioner-spouses deny the existence of any form of trust
relation. They aver that Emilia O’Laco
actually bought the property with her own money; that she left the Deed of
Absolute Sale and the corresponding title with respondent-spouses merely for
safekeeping; that when she asked for the return of the documents evidencing her
ownership, respondent-spouses told her that these were misplaced or lost; and,
that in view of the loss, she filed a petition for issuance of a new title, and
on 18 August 1944 the then Court of First Instance of Manila granted her
petition.

On 20 September 1976, finding no trust relation between the
parties, the trial court dismissed the complaint together with the
counterclaim. Petitioners and
respondents appealed.

On 9 April 1981, the Court of Appeals set aside the decision of
the trial court thus –

“x x x x We set aside the decision of the lower court dated
September 20, 1976 and the order of January 5, 1977 and another one is hereby
entered ordering the defendants-appellees to pay plaintiffs-appellants jointly
and severally the sum of P230,000.00 representing the value of the property
subject of the sale with assumption of mortgage to the Roman Catholic
Archbishop of Manila with legal interest from the filing of the complaint until
fully paid, the sum of P10,000.00 as attorney’s fees, plus costs.”

On 7 August 1981, the Court of Appeals denied reconsideration of
its decision, prompting petitioners to come to this Court for relief.

Petitioners contend that the present action should have been
dismissed. They argue that the
complaint fails to allege that earnest efforts toward a compromise were exerted
considering that the suit is between members of the same family, and no trust
relation exists between them. Even
assuming ex argumenti that there is such a relation, petitioners further
argue, respondents are already barred by laches.

We are not persuaded. Admittedly, the present action is between members of the same family
since petitioner Emilia O’Laco and respondent O Lay Kia are half-sisters. Consequently, there should be an averment in
the complaint that earnest efforts toward a compromise have been made, pursuant
to Art. 222 of the New Civil Code,^[6]
or a motion to dismiss could have been filed under Sec. 1, par. (j), Rule 16,
of the Rules of Court.^[7]
For, it is well-settled that the attempt to compromise as well as the inability
to succeed is a condition precedent to the filing of a suit between members of
the same family.^[8]
Hence, the defect in the complaint is assailable at any stage of the proceedings,
even on appeal, for lack of cause of action.^[9]

But, plaintiff may be allowed to amend his complaint to correct
the defect if the amendment does not actually confer jurisdiction on the court
in which the action is filed, i.e., if the cause of action was originally
within that court’s jurisdiction.^[10]
In such case, the amendment is only to cure the perceived defect in the
complaint, thus may be allowed.

In the case before Us, while respondent-spouses did not formally
amend their complaint, they were nonetheless allowed to introduce evidence
purporting to show that earnest efforts toward a compromise had been made, that
is, respondent O Lay Kia importuned Emilia O’Laco and pressed her for the
transfer of the title of the Oroquieta property in the name of spouses O Lay
Kia and Valentin Co Cho Chit, just before Emilia’s marriage to Hugo Luna.^[11]
But, instead of transferring the title as requested, Emilia sold the property
to the Roman Catholic Archbishop of Manila. This testimony was not objected to by petitioner-spouses. Hence, the complaint was deemed accordingly
amended to conform to the evidence,^[12]
pursuant to Sec. 5, Rule 10, of the Rules of Court which reads –

“Sec. 5. Amendment
to conform to or authorize presentation of evidence. — When issues not
raised by the pleadings are tried by express or implied consent of the parties,
they shall be treated in all respects, as if they had been raised in the
pleadings x x x x” (underscoring supplied).

Indeed, if the defendant permits evidence to be introduced without
objection and which supplies the necessary allegations of a defective
complaint, then the evidence is deemed to have the effect of curing the defects
of the complaint.^[13]
The insufficiency of the allegations in the complaint is deemed ipso facto rectified.^[14]

But the more crucial issue before Us is whether there is a trust
relation between the parties in contemplation of law.

We find that there is. By
definition, trust relations between parties may either be express or implied.^[15]
Express trusts are those which are created by the direct and positive acts of
the parties, by some writing or deed, or will, or by words evincing an
intention to create a trust.^[16]
Implied trusts are those which, without being express, 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.^[17]
Implied trusts may either be resulting or constructive trusts, both coming into
being by operation of law.^[18]

Resulting trusts are based on the equitable doctrine that
valuable consideration and not legal title determines the equitable title or
interest^[19]
and are presumed always to have been contemplated by the parties. They arise from the nature or circumstances
of the consideration involved in a transaction whereby one person thereby
becomes invested with legal title but is obligated in equity to hold his legal
title for the benefit of another.^[20]
On the other hand, constructive trusts are created by the construction of
equity in order to satisfy the demands of justice^[21]
and prevent unjust enrichment. They
arise 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.^[22]

Specific examples of resulting trusts may be found in the Civil
Code, particularly Arts. 1448, 1449, 1451, 1452 and 1453,^[23]
while constructive trusts are illustrated in Arts. 1450, 1454, 1455 and 1456.^[24]

Unlike express trusts concerning immovables or any interest
therein which cannot be proved by parol evidence,^[25]
implied trusts may be established by oral evidence.^[26]
However, in order to establish an implied trust in real property by parol
evidence, the proof should be as fully convincing as if the acts giving rise to
the trust obligation were proven by an authentic document.^[27]
It cannot be established upon vague and inconclusive proof.^[28]

After a thorough review of the evidence on record, We hold that a
resulting trust was indeed intended by the parties under Art. 1448 of the New
Civil Code which states –

“Art. 1448. There is
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 purpose of having the
beneficial interest of the property. The former is the trustee, while the latter is the beneficiary x x x
x” (underscoring supplied).

First. As
stipulated by the parties, the document of sale, the owner’s duplicate copy of
the certificate of title, insurance policies, receipt of initial premium
of insurance coverage and real estate tax receipts were all in the possession
of respondent-spouses which they offered in evidence. As emphatically asserted by respondent O Lay Kia, the reason why
these documents of ownership remained with her is that the land in question
belonged to her.^[29]

Indeed, there can be no persuasive rationalization for the
possession of these documents of ownership by respondent-spouses for seventeen
(17) years after the Oroquieta property was purchased in 1943 than that of
precluding its possible sale, alienation or conveyance by Emilia O’Laco, absent
any machination or fraud. This
continued possession of the documents, together with other corroborating
evidence spread on record, strongly suggests that Emilia O’Laco merely held the
Oroquieta property in trust for respondent-spouses.

Second. It may be
worth to mention that before buying the Oroquieta property, respondent-spouses purchased
another property situated in Kusang-Loob, Sta. Cruz, Manila, where the
certificate of title was placed in the name of Ambrosio O’Laco, older brother
of Emilia, under similar or identical circumstances. The testimony of former counsel for respondent-spouses, then
Associate Justice Antonio G. Lucero of the Court of Appeals, is enlightening –

“Q – In the same conversation he
told you how he would buy the property (referring to the Oroquieta property),
he and his wife?

“A – Yes, Sir, he did.

“Q – What did he say?

xxxx

“A – He said he and his wife has
(sic) already acquired by purchase a certain property located at Kusang-Loob,
Sta. Cruz, Manila. He told me he
would like to place the Oroquieta Maternity Hospital in case the negotiation
materialize(s) in the name of a sister of his wife (O’Laco)”
(underscoring supplied).^[30]

On the part of respondent-spouses, they explained that the reason
why they did not place these Oroquieta and Kusang-Loob properties in their name
was that being Chinese nationals at the time of the purchase they did not want
to execute the required affidavit to the effect that they were allies of the
Japanese.^[31]
Since O Lay Kia took care of Emilia who was still young when her mother died,^[32]
respondent-spouses did not hesitate to place the title of the Oroquieta
property in Emilia’s name.

Quite significantly, respondent-spouses also instituted an action
for reconveyance against Ambrosio O’Laco when the latter claimed the
Kusang-Loob property as his own. A
similar stipulation of facts was likewise entered, i.e., respondent-spouses had
in their possession documents showing ownership of the Kusang-Loob property
which they offered in evidence. In that
case, the decision of the trial court, now final and executory, declared
respondent-spouses as owners of the Kusang-Loob property and ordered Ambrosio
O’Laco to reconvey it to them.^[33]

Incidentally, Ambrosio O’Laco thus charged respondent-spouses Valentin
Co Cho Chit and O Lay Kia before the Anti-Dummy Board, docketed as Case No.
2424, for their acquisition of the Kusang-Loob and Oroquieta properties.^[34]
He claimed that respondent-spouses utilized his name in buying the Kusang-Loob
property while that of petitioner O’Laco was used in the purchase of the
Oroquieta property. In effect, there
was an implied admission by Ambrosio that his sister Emilia, like him, was
merely used as a dummy. However, the
Anti-Dummy Board exonerated respondent-spouses since the purchases were made in
1943, or during World War II, when the Anti-Dummy Law was not enforceable.

Third. The
circumstances by which Emilia O’Laco obtained a new title by reason of the
alleged loss of the old title then in the possession of respondent-spouses cast
serious doubt on the veracity of her ownership. The petitions respectively filed by Emilia O’Laco and Ambrosio
O’Laco for the Oroquieta and the Kusang-Loob properties were both granted on
the same day, 18 August 1944, by the then Court of First Instance of
Manila. These orders were recorded in
the Primary Entry Book of the Register of Deeds of Manila at the same time,
2:35 o’clock in the afternoon of 1 September 1944, in consecutive entries,
Entries Nos. 246117-18.^[35]
This coincidence lends credence to the position of respondent-spouses that
there was in fact a conspiracy between the siblings Ambrosio and Emilia to
defraud and deprive respondents of their title to the Oroquieta and Kusang-Loob
properties.

Fourth. Until the
sale of the Oroquieta property to the Roman Catholic Archbishop of Manila,
petitioner Emilia O’Laco actually recognized the trust. Specifically, when respondent-spouses
learned that Emilia was getting married to Hugo, O Lay Kia asked her to have
the title to the property already transferred to her and her husband Valentin,
and Emilia assured her that “would be arranged (maaayos na)” after
her wedding.^[36]
Her answer was an express recognition of the trust, otherwise, she would have
refused the request outright. Petitioners never objected to this evidence; nor did they attempt to
controvert it.

Fifth. The trial
court itself determined that “Valentin Co Cho Chit and O Lay Kia had some
money with which they could buy the property.”^[37]
In fact, Valentin was the Chief Mechanic of the Paniqui Sugar Mills, was
engaged in the buy and sell business, operated a gasoline station, and owned an
auto supply store as well as a ten-door apartment in Caloocan City.^[38]
In contrast, Emilia O’Laco failed to convince the Court that she was
financially capable of purchasing the Oroquieta property. In fact, she opened a bank account only in
1946 and likewise began filing income tax returns that same year,^[39]
while the property in question was bought in 1943. Respondent-spouses even helped Emilia and her brothers in their
expenses and livelihood. Emilia could
only give a vague account on how she raised the money for the purchase of the
property. Her narration of the
transaction of sale abounds with “I don’t know” and “I don’t
remember.”^[40]

Having established a resulting trust between the parties, the
next question is whether prescription has set in.

As differentiated from constructive trusts, where the settled
rule is that prescription may supervene, in resulting trust, the rule of
imprescriptibility may apply for as long as the trustee has not repudiated the
trust.^[41]
Once the resulting trust is repudiated, however, it is converted into a
constructive trust and is subject to prescription.

A resulting trust is repudiated it the following requisites
concur: (a) the trustee has performed
unequivocal acts of repudiation amounting to an ouster of the cestui gui
trust; (b) such positive acts of repudiation have been made known to the cestui
gui trust; and, (c) the evidence thereon is clear and convincing.^[42]

In Tale v. Court of Appeals^[43]
the Court categorically ruled that an action for reconveyance based on an
implied or constructive trust must perforce prescribe in ten (10) years, and
not otherwise, thereby modifying previous decisions holding that the
prescriptive period was four (4) years.

Neither the registration of the Oroquieta property in the name of
petitioner Emilia O’Laco nor the issuance of a new Torrens title in 1944 in her
name in lieu of the alleged loss of the original may be made the basis for the
commencement of the prescriptive period. For, the issuance of the Torrens title in the name of Emilia O’Laco
could not be considered adverse, much less fraudulent. Precisely, although the property was bought
by respondent-spouses, the legal title was placed in the name of Emilia O’Laco. The transfer of the Torrens title in her
name was only in consonance with the deed of sale in her favor. Consequently, there was no cause for any
alarm on the part of respondent-spouses. As late as 1959, or just before she got married, Emilia continued to
recognize the ownership of respondent-spouses over the Oroquieta property. Thus, until that point, respondent-spouses
were not aware of any act of Emilia which would convey to them the idea that
she was repudiating the resulting trust. The second requisite is therefore absent. Hence, prescription did not begin to run until the sale of the
Oroquieta property, which was clearly an act of repudiation.

But immediately after Emilia sold the Oroquieta property which is
obviously a disavowal of the resulting trust, respondent-spouses instituted the
present suit for breach of trust. Correspondingly, laches cannot lie against them.

After all, so long as the trustee recognizes the trust, the
beneficiary may rely upon the recognition, and ordinarily will not be in fault
for omitting to bring an action to enforce his rights.^[44]
There is no running of the prescriptive period if the trustee expressly
recognizes the resulting trust.^[45]
Since the complaint for breach of trust was filed by respondent-spouses two (2)
months after acquiring knowledge of the sale, the action therefore has not yet
prescribed.

WHEREFORE, the Petition for Review on Certiorari is
DENIED. The Decision of the
Court of Appeals of 9 April 1981, which reversed the trial court, is AFFIRMED. Costs against petitioners.

SO ORDERED.

Cruz, (Chairman), Griño-Aquino, and
Quiason, JJ., concur.

^[1]
Penned by Judge Guardson R. Lood, Court of First Instance of Rizal, Br. VI,
stationed in Pasig.

^[2]
Penned by Justice Mariano A. Zosa, concurred in by Justices Venicio Escolin and
Edgardo L. Paras; Annex “A”, Petition; Rollo, pp. 53-72.

^[3]
Annex “B”, Petition; Rollo, pp. 73-75.

^[4]
Record on Appeal of Defendant-Appellee, p. 15.

^[5]
Id., pp. 12-18.

^[6]
Art. 222. No suit shall be filed or maintained between members of the same family
unless it should appear that earnest efforts toward a compromise have been
made, but that the same have failed, subject to the limitations in article
2035.

^[7]
The Family Code took effect on 4 August 1988 and does not apply to the present
petition. Nonetheless, Art. 151 of the
Family Code provides that suits between members of the same family must be
dismissed if it is not shown that earnest efforts toward a compromise have been
made.

^[8]
Mendoza v. Court of Appeals, No. L-23102, 24 April 1967, 19 SCRA 756.

^[9]
Id, p. 759.

^[10]
Versoza v. Versoza, No. L-25609, 27 November 1968, 26 SCRA 78.

^[11]
TSN, 15 January 1968, pp. 12-14.

^[12]
Metropolitan Waterworks and Sewerage System v. Court of Appeals, No.
L-54526, 26 August 1986, 143 SCRA 623.

^[13]
Pascua v. Court of Appeals, G.R. No. 76851, 19 March 1990, 183 SCRA 262.

^[14]
See City of Manila v. Bucay, Nos. L-19358-60, 31 March 1964, 10 SCRA
629.

^[15]
Art. 1441, New Civil Code.

^[16]
Ramos v. Ramos, No. L-19872, 3 December 1974, 61 SCRA 284, citing 89
C.J.S. 722.

^[17]
89 C.J.S. 724.

^[18]
Salao v. Salao, No. L-26699, 16 March 1976, 70 SCRA 65.

^[19]
Tolle v. Sawtelle, Civ. App., 246 S.W. 2d 916.

^[20]
76 Am Jur 2d 429.

^[21]
89 C.J.S. 726-27.

^[22]
76 Am Jur 2d 446.

^[23]
Art. 1448. There is 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 purpose of having the beneficial interest of
the property. The former is the
trustee, while the latter is the beneficiary. However, if the person to whom the title is conveyed is a child,
legitimate or illegitimate, of the one paying the price of the sale, no trust
is implied by law, it being disputably presumed that there is a gift in favor
of the child.

Art. 1449. There is also an implied trust when a
donation is made to a person but it appears that although the legal estate is
transmitted to the donee, he nevertheless is either to have no beneficial
interest or only a part thereof.

Art. 1451. When land passes by succession to any person
and he causes the legal title to be put in the name of another, a trust is
established by implication of law for the benefit of the true owner.

Art. 1452. If two or more persons agree to purchase
property and by common consent the legal title is taken in the name of one of
them for the benefit of all, a trust is created by force of law in favor of the
others in proportion to the interest of each.

Art. 1453. When property is conveyed to a person in
reliance upon his declared intention to hold it for, or transfer it to another
or the grantor, there is an implied trust in favor of the person whose benefit
is contemplated.

^[24]
Art. 1450. If the price of a sale of
property is loaned or paid by one person for the benefit of another and the
conveyance is made to the lender or payor to secure the payment of the debt, a
trust arises by operation of law in favor of the person to whom the money is
loaned or for whom it is paid. The
latter may redeem the property and compel a conveyance thereof to him.

Art. 1454. If an
absolute conveyance of property is made in order to secure the performance of
an obligation of the grantor toward the grantee, a trust by virtue of law is
established. If the fulfillment of the
obligation is offered by the grantor when it becomes due, he may demand the reconveyance
of the property to him.

Art. 1455. When any
trustee, guardian or other person holding a fiduciary relationship uses trust
funds for the purchase of property and causes the conveyance to be made to him
or to a third person, a trust is established by operation of law in favor of
the person to whom the funds belong.

Art. 1456. 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.

^[25]
Art. 1443, New Civil Code.

^[26]
Art. 1457, id.

^[27]
Santa Juana v. Del Rosario, 50 Phil 110 (1927).

^[28]
Suarez v. Tirambulo, 59 Phil 303 (1933).

^[29]
Motion for New Trial, p. 4, citing TSN, 29 June 1967, pp. 22-25.

^[30]
TSN, 23 April 1971, pp. 12-13.

^[31]
TSN, 15 January 1968, pp. 4-8.

^[32]
Motion for New Trial, p. 20, citing TSN, 29 June 1967, pp. 7-9.

^[33]
Exhibit “S”, Memorandum of Exhibits for Plaintiff.

^[34]
Exhibit “R”, id.

^[35]
Exhibit “L”, id.

^[36]
See Note 11.

^[37]
Decision, Court of First Instance of Pasig, p. 9; Record on Appeal, p. 270.

^[38]
TSN, 29 September 1970, p. 50; TSN, 29 April 1975, pp. 13-15.

^[39]
Exhibits “13” and “15”, Memorandum of Exhibits for Defendants.

^[40]
TSN, 13 October 1971, pp. 71-82.

^[41]
Heirs of Candelaria v. Romero, 109 Phil 500 (1960).

^[42]
Ramos v. Ramos, supra.

^[43]
G.R. No. 101028, 23 April 1992, 208 SCRA 266.

^[44]
Crawley v. Crawley, 72 N.H. 241; Lufkin v. Jakeman, 188 Mass 528,
74 N.E. 933.

^[45]
Miller v. Saxton, 75 S.C. 237, 55 S.E. 310; Kohl v. Noble, 63 Tex
432; Segura v. Segura, No. L­-29320, 19 September 1988, 165 SCRA 369.