IMELDA A. NAKPIL, PETITIONER, VS. INTERMEDIATE APPELLATE COURT, CARLOS J. VALDES AND CAVAL REALTY CORPORATION, RESPONDENTS.

PULONG MAULAP, a summer residence in Baguio City along
historic Moran Street, is the subject of this bitter and protracted legal
battle for ownership between two families earlier associated for years in
close, kinship-like relations.

Pinggoy and Charlie were the best of friends, their closeness
dating back to their high school days in La Salle, and later, at the Philippine
Law School. Treating each other more
than just brothers, Charlie easily became Pinggoy’s confidant, and later, his
lawyer, accountant, auditor, and on some occasions, a business and financial
consultant. Their relationship extended
to their families. Pinggoy became the
godfather of Charlie’s second son, while Charlie became the godfather of Pinggoy’s youngest.

But the close relationship had to end. On 8 July 1973, tragedy struck. While the two families were vacationing at the beach house of the
Valdeses in Bagac, Bataan, Pinggoy drowned. As expected, Charlie went to the succor of Pinggoy’s distressed wife
Nena. He acted as the legal counsel and
accountant of Nena, who became the administratrix of her husband’s estate.

However, since then things have changed. In fact, towards the end of 1978, the
question arose as to who between the Nakpils and the Valdeses should own Pulong
Maulap.

On 21 March 1979, petitioner instituted an action for
reconveyance with damages for breach of trust before the Regional Trial Court
of Baguio City against respondents Carlos “Charlie” Valdes and Caval
Realty Corporation. She alleged in her
complaint that her husband Jose “Pinggoy” Nakpil prior to his death
had requested Valdes to purchase Pulong Maulap and thereafter register
the sale and hold the title thereto in trust for him (Pinggoy Nakpil), which
respondent Valdes did. But after her
husband’s death, Valdes concealed and suppressed all information regarding the
trust agreement; instead, he transferred Pulong Maulap in the name of
respondent Caval Realty Corporation, which is 99.7% owned by him, in exchange
for 1,500 shares of stock.

Respondent Valdes, on the other hand, denied the existence of any
trust agreement over Pulong Maulap. He averred that he bought the summer residence for himself with his own
funds and without any participation of the late Nakpil; neither was it bought
in trust for the latter. Valdes claims
that he only informed Pinggoy Nakpil of the acquisition of Pulong Maulap,
and Pinggoy merely showed interest in buying the property if he could have the
money. Meanwhile, considering their
avowed friendship, he (Valdes) offered the usufruct of the property to the
Nakpils who in turn agreed to shoulder its maintenance expenses, real estate
taxes, fire insurance premiums and servicing of interest on the mortgage
obligation constituted on the property.

From the records it appears that the Valdeses bought Pulong
Maulap for P150,000.00 with respondent Valdes giving a
downpayment of P50,000.00 and assuming the vendors’ mortgage obligation
of P100,000.00 with the Philippine National Bank (PNB), which he reduced
to P75,000.00 by paying P25,000.00. On 12 July 1965, a deed of sale was executed and Transfer
Certificate of Title No. T-10247 was thereafter issued in the name of
Valdes. As agreed, in the early part of
May 1965, even before the execution of the deed of sale in favor of the
Valdeses, the Nakpils moved in and stayed at Pulong Maulap even until
after Pinggoy’s death.

Meanwhile, in order to facilitate the servicing of the mortgage
obligation over Pulong Maulap, the loan was transferred to the First
United Bank (FUB) where Pinggoy Nakpil was then a vice-president. Valdes borrowed P75,000.00 from FUB
with which he paid PNB, and at the same time constituted in favor of FUB a
mortgage over Pulong Maulap. He
also borrowed P65,000.00 from FUB to finance the repair and renovation
of Pulong Maulap.

Petitioner submits that respondent Valdes had recognized her late
husband’s ownership of Pulong Maulap on the basis among others of the
following documents: (a) “Exh.
“H,” a letter dated 28 March 1969 sent by Carlos J. Valdes & Co.,
an accounting firm owned by respondent Valdes, to the City Treasurer of Baguio
remitting to the latter, “[o]n behalf of (our) their clients, Mr. Jose Nakpil x
x x the following FUB checks for the payment of their 1969 real estate
taxes” on Pulong Maulap; (b) Exh. “J,” letter of Valdes
to petitioner dated 24 August 1973 with the latter’s handwritten conformé, date
and signature –

“Dear Nena,

At the First United Bank, there are two loans in my name:

PN # ERB-893/73 for P65,000.00

PN # 644/72 for P75,000.00

In addition, there fell due on note # ERB 893/73, P3,976.00
representing interest as of July 22, 1973. On the loan of P75,000.00, there is an interest payable of P750.00
a month.

Both of these loans, while in my name, were obtained by Pinggoy for
his person x x x x

As we agreed, I will take over the total loan of P140,000.00
and pay all of the interests due on the notes. It is likewise understood between us that you will continue occupying
the premises at Moran St., free of any encumbrance or payment, for 5 years
starting August 1, 1973.

It is likewise understood that real property taxes will be paid by
us but maintenance expenses shall be shouldered by you.

As I said, this letter is purely for the record.

Sincerely,

(SGD.) CHARLIE
JV,”

and, (c) Exh. “L,” another
letter of Valdes to petitioner dated 17 September 1974 –

“Dear Comadre,

Our records show that the P75,000.00 initially advanced for
the Moran property still remains unpaid.

Under these circumstances, you could add to the present purchase
price, P75,000.00 plus interest therein at 12% for 5 years or:

Present Purchase Price: P255,056.64;
Add: Unpaid account – P75,000.00;
Interest for 5 years at 12% – P45,000.00 = P120,000.00; Total – P375,056.64.

Sincerely,

(SGD.) CHARLIE
JV.”

The records likewise show that on 13 February 1978, Valdes
assigned Pulong Maulap to Caval Realty Corporation, for which Transfer
Certificate of Title No. T-28484 was issued on 23 March 1978. Later, after petitioner allegedly received a
P2,000,000.00-offer for Pulong Maulap from Pasay City Mayor Pablo
Cuneta, she wrote Valdes demanding a reconveyance to enable her to effect the
sale and reimburse the latter from the proceeds thereof for the advances he
made. On 30 December 1978, Valdes
allegedly told petitioner that he could not execute the deed of conveyance
because Pulong Maulap was his and he had no intention of selling it.

On 7 July 1983, the Regional Trial Court^[1]
rendered a decision holding that a trust relationship existed^[2]
–

“From the two letters of Valdes, Exhibits ‘J’ and ‘L’, it would
appear that while the downpayment of P50,000.00 and the further sum of P25,000.00
paid to PNB were paid out of his personal funds, the same were considered by
him as a loan to Nakpil; and while the remaining P75,000.00,
representing the balance of the mortgage indebtedness of the Garcias to the
PNB, was liquidated with the proceeds of a loan from FUB, the said loan,
although in the name of Valdes, was actually Nakpil’s. In other words, the property was acquired with
funds partly loaned by Valdes to Nakpil and partly borrowed by Nakpil from FUB
albeit in Valdes’ name.

“To the mind of the Court, Exhibits ‘J’ and ‘L’ are
confirmatory of a pre-existing express trust relationship between Valdes and
the late Nakpil over the property in dispute, conformably with the theory of
the plaintiff, whereunder Valdes is the trustee and Nakpil, the trustor and, at
the same time, beneficiary x x x x

“Assuming that Exhibits ‘J’
and ‘L’ could not stand as proof of an express trust, still the Court believes
that they could, as they indeed are, proof of an implied trust under Article
1450 of the Civil Code x x x x”

Nevertheless, the trial court dismissed
the petition for reconveyance on the ground that petitioner, by conforming to
Exh. “J” and acquiescing with Exh. “L,” the very documents
she presented to prove the existence of a trust relationship, has waived her
right over Pulong Maulap^[3]
–

“x x x the Court is inclined to believe that the real
agreement between the plaintiff and the defendant Valdes under Exhibits
‘J”‘ or ‘5’ and ‘L’ is that Valdes was to take over the two FUB loans of
the plaintiff’s late husband in consideration of the plaintiff giving up her
claim to the disputed property, but with a right to continued occupancy for a
period of five years, free from any encumbrance or payment, except maintenance
expenses, and under an option yet in favor of the latter to purchase back the
property within the stipulated five years upon the payment of the said FUB
loans, including interests, plus the further sum of P75,000.00 initially
advanced by Valdes on the property, also with interests, or the total amount of
P375,056.64.

“Under the agreement, the Court is of the view that the
plaintiff has waived whatever right she may have over the property, and she
would be in estoppel to revive or assert the same unless she could prove that
she has complied with the terms and the conditions she agreed on. To hold otherwise would be tantamount to
placing Valdes in a very disadvantagious position x x x x”

Furthermore, petitioner’s letter dated 31 July 1978, the last day
of the five-year period stipulated in Exh. “J,” sent to respondent
Valdes and his wife, which states –

“Dear Aida and Charlie,

I hope that when this letter reaches you it finds you and your
family in the best of health and happiness. My children and I are enjoying these too, thank God. We have also managed to adapt contentedly
through all the various pressures and strains we have been subjected to since
Pinggoy’s death. It is amazing how we
humans can endure so much of these when met with acceptance and humility. Honestly, I cannot claim credit to the
latter virtue. Many times in the past,
during my darkest moments, believe me, humility was farthest from my thoughts.

With regard to our Moran property, a thought occurred to me that if
I may be able to raise the amount necessary to pay back your advances for ‘Pulong
Maulap‘ (this is the name I gave the property, remember?), would you be
willing to reconvey the property to us as soon as I reimburse your advances?

Of course, as I said this is just an idea because at present,
although we are in the final stages of winding-up the estate, the results are
still hazy and uncertain. I understand
from Linda Asuncion that so much will depend on the generosity of my in-laws;
hence, so be it!

Thank you again for the help you have given me and my
children. For you and your family, I
offer to God all the ‘Purgatory’ He gives me here on earth.

Sincerely,

(SGD.) Nena A.
Nakpil,”

was construed by the trial court as
“more an expression of her (petitioner’s) resignation to her having lost
the property than a demand for reconveyance.”^[4]

Not satisfied with the decision of the trial court, both parties
appealed to respondent Intermediate Appellate Court which on 17 December 1985^[5]
reversed the trial court and ruled that “[f]rom the foregoing facts, it is
quite evident there was no trust at all x x x x”^[6]
On 21 April 1986, the motion of herein petitioner to reconsider the decision of
respondent appellate court was denied for “absolute lack of merit.”

Petitioner, in this petition for review, argues that respondent
Intermediate Appellate Court did not only err in holding that the documents she
presented were insufficient to prove the existence of a trust relationship but
it also failed to rule that the trial court’s interpretation of petitioner’s
conformity to Exh. “J” as a waiver was, in essence, a pactum
commissorium, and therefore null and void.

Respondent Valdes, on the other hand, maintains that no direct
proof has been presented to sustain that he was merely instructed by
petitioner’s late husband to purchase the disputed property, and thereafter
register and hold title thereto in trust for the latter; neither could there
have been an implied trust pursuant to Art. 1450 of the Civil Code^[7]
since this provision refers only to instances where the purchase price of the
property sold is paid by the lender for the benefit of the borrower or buyer of
the property. Here, Valdes bought the
disputed property using his own funds. The late Nakpil came into the picture only after the sale to Valdes was
consummated, and only as an offeror to buy the property, not from the former
owners, but from Valdes. Furthermore,
Valdes contends that Exhs. “J” and “L” cannot amount to pactum
commissorium since the elements thereof, i.e., existence of a
creditor-debtor relationship; the obligation is secured by pledge or mortgage
of certain properties over which the debtor has title; and, ownership of the
property passes to the creditor by mere default of debtor, are not present.

Thus, the issues before us are: whether Art. 1450 of the Civil Code applies; and, if it so applies,
whether petitioner can still compel reconveyance of Pulong Maulap from
respondent Valdes.

Implied trusts, which may either be resulting or constructive,
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.^[8]
Article 1450, which petitioner invokes in the case at bar, is an illustration
of an implied trust which is constructive.^[9]

Article 1450 presupposes a situation where a person, using his
own funds, purchases a certain piece of land in behalf of another who, in the
meantime, may not have sufficient funds to purchase the land. The property is then transferred in the name
of the trustee, the person who paid for the land, until he is reimbursed by the
beneficiary, the person for whom the land is purchased. It is only after the beneficiary reimburses
the trustee of the purchase price that the former can compel conveyance of the
purchased property from the latter.

From the evidence adduced, it may be concluded that respondent
Valdes, using his own funds, purchased Pulong Maulap in behalf of the
late Nakpil. This is based on the
letters to petitioner of Valdes where he categorically admitted that
“[b]oth of these loans, while in my (respondent Valdes’) name, were
obtained by Pinggoy (the late Napkil)
for his person,”^[10]
and that the “P75,000.00 initially advanced for the Moran property
still remains unpaid.”^[11]

It is evident from these letters that while the balance of P75,000.00
on the mortgage of the vendors with PNB was liquidated from the proceeds of a
loan respondent obtained from FUB, such loan was actually secured by the late
Nakpil by merely using Valdes’ name. Such is also the case with respect to another FUB loan amounting to P65,000.00,
the proceeds of which were used to finance the repair and renovation of Pulong
Maulap. And, while the downpayment
of P50,000.00 and the partial payment of P25,000.00 to PNB came
from the personal funds of Valdes, he considered them as advances to the late
Nakpil. Otherwise, Valdes would never
have deemed the amount as “unpaid” in his letter to petitioner of 17
September 1974.

The letter of Valdes to the City Treasurer of Baguio made while
remitting payment of real estate taxes is also enlightening. It provided therein that the payment being
tendered was “[o]n behalf” of the Nakpils,^[12]
which is an express recognition of the implied trust.

Consequently, respondent Valdes is estopped from claiming that he
bought Pulong Maulap for himself, and not merely in trust for the late
Nakpil, as this contention is belied by the facts. Hence, we rule that constructive trust under Art. 1450 of the New
Civil Code existed between the parties.

However, petitioner cannot as yet redeem and compel conveyance of
the property. For, Valdes must still be
reimbursed for the advances he made on the disputed property, such
reimbursement being a conditio sine qua non for
compelling conveyance under Art. 1450.

The period within which to compel conveyance of Pulong Maulap
is not imprescriptible. The rule is
well-settled that an action for reconveyance based on an implied or
constructive trust prescribes in ten (10) years.^[13]
But, in the case before us, petitioner could still compel conveyance of the
disputed property from respondent provided the former reimburses the latter for
all his expenses. After all, Valdes
never repudiated the constructive trust during the lifetime of the late Jose
Nakpil. On the contrary, he expressly
recognized it. The prescriptive period
therefore did not begin to run until after he repudiated the trust.^[14]
And such repudiation came when Valdes excluded Pulong Maulap from the
list of properties of the late Jose Nakpil submitted to the intestate court^[15]
in 1973. Even then, the present action
for conveyance was filed in 1979 or well within the ten-year period.

At first blush, it may seem that after the death of Jose Nakpil
on 8 July 1973, petitioner ceded ownership of Pulong Maulap to Valdes by
way of dacion en pago^[16]
as shown by her acquiescence to Exh. “J”. A careful examination of said Exh. “J” does not show however
that petitioner, as administratrix of the estate of the late Jose Nakpil,
released or surrendered the latter’s interest over Pulong Maulap to
respondent. Thus, there can be no dacion
en pago to speak of since ownership of the thing delivered was never
transferred to the creditor.^[17]
The trust relations between the parties was therefore never extinguished. Besides, petitioner could not have waived
the interest of her children with the late Jose M. Nakpil who are her co-heirs
to the Nakpil estate.

The fact that there was no transfer of ownership intended by the
parties under their arrangement during the five-year period to pay can further
be bolstered by Exh. “I?2”,^[18]
an annex to the claim filed against the estate proceedings of the late Jose
Nakpil by his brother, Angel Nakpil, which was prepared by Carlos J. Valdes
& Co., the accounting firm of herein respondent. Exhibit “I-2”, which is a list of the application of
the proceeds of various FUB loans contracted as of 31 December 1973 by the late
Jose Napkil, whether in his name or that of others, contains the two (2) loans
contracted in the name of respondent. If ownership of Pulong Maulap was already transferred or ceded to
Valdes, these loans should not have been included in the list.

Indeed, as we view it, what the parties merely agreed to under
the arrangement outlined in Exh. “J” was that respondent Valdes would
undertake to “take over the total loan of P140,000.00 and pay all
of the interests due on the notes” while the heirs of the late Jose Napkil
would continue to live in the disputed property for five (5) years without any
remuneration save for regular maintenance expenses.^[19]
This does not mean, however, that if at the end of the five-year period
petitioner failed to reimburse Valdes for his advances, which respondent
computed to be P375,056.64 as of 31 July 1978 per his letter to
petitioner of 17 September 1974, Valdes could already automatically assume
ownership of Pulong Maulap. Instead, the remedy of respondents Carlos J. Valdes and Caval Realty
Corporation was to proceed against the estate of the late Jose M. Nakpil and/or
the property itself.

The arrangement entered into between the parties, whereby Pulong
Maulap was to be “considered sold to him (respondent) x x x”^[20]
in case petitioner fails to reimburse Valdes, must then be construed as
tantamount to a pactum commissorium^[21]
which is expressly prohibited by Art. 2088 of the Civil Code.^[22] For, there was to be automatic appropriation
of the property by Valdes in the event of failure of petitioner to pay the
value of the advances. Thus, contrary
to respondent’s manifestations, all the elements of a pactum commissorium
were present: there was a
creditor-debtor relationship between the parties; the property was used as
security for the loan; and, there was automatic appropriation by respondent of Pulong
Maulap in case of default of petitioner.

In fine, we conclude that there was a constructive trust between
the parties under Art. 1450 of the New Civil Code. Consequently, petitioner may redeem and compel conveyance of the
disputed property but only after reimbursing respondent the sum of P375,056.64,
with legal interest from 31 July 1978, the amount advanced by Valdes for the
purchase of the Pulong Maulap.

WHEREFORE, the petition is GRANTED. The assailed decision of the then
Intermediate Appellate Court which affirmed that of the Regional Trial Court is
SET ASIDE.

Private respondents Carlos J. Valdes and Caval Realty Corporation
are ordered jointly and severally to RECONVEY Pulong Maulap to petitioner
Imelda A. Nakpil and the heirs of the late Jose M. Nakpil upon reimbursement by
the latter of the advances of private respondent Carlos J. Valdes amounting to P375,056.64,
with legal interest from 31 July 1978 until fully paid.

Private respondents are further ordered to pay the costs of suit.

SO ORDERED.

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

^[1]
Judge Salvador J. Valdez, Jr., RTC, Br. 5, Baguio City.

^[2]
Decision, RTC, p. 15.

^[3]
Ibid., p. 22.

^[4]
Ibid., p. 24.

^[5]
Penned by Presiding Justice Ramon G. Gaviola, Jr., and concurred in by
Associate Justices Eduardo P. Caguioa and Ma. Rosario Quetulio-Losa, First
Civil Cases Division.

^[6]
Decision, Intermediate Appellate Court, p. 7.

^[7]
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.

^[8]
O’Laco v. Co Cho Chit, G.R. No. 58010, 30 March 1993, citing 89 C.J.S.
724, and Salao v. Salao, G.R. No. L-26699, 16 March 1976, 70 SCRA 65.

^[9]
Paras, Edgardo L., Civil Code of the Philippines Annotated, Vol. IV, 11th Ed.,
1985, p. 751.

^[10]
Exhibit “J”.

^[11]
Exh. “L”.

^[12]
Exh. “H”.

^[13]
Tale v. Court of Appeals, G.R. No. 101028, 23 April 1992, 208 SCRA 266.

^[14]
See Segura v. Segura, G.R. No. L-29320, 19 September 1988, 165 SCRA 369.

^[15]
Sp. Proc. No. 202564 before the then Court of First Instance of Manila.

^[16]
The alienation of property to the creditor in satisfaction of a debt in money;
Art. 1245, New Civil Code.

^[17]
See Philippine National Bank v. Pineda, G.R. No. L-46658, 13 May 1991,
197 SCRA 1.

^[18]
Annex “C-1”, Petition; Rollo, p. 65.

^[19]
See Note 10.

^[20]
RTC Decision, p. 21.

^[21]
Pactum commisorium is an additional provision in a pledge, mortgage,
antichresis or any similar contract wherein the creditor can automatically
appropriate the thing given as security if the debt is not paid within the
stipulated period (Art. 2088).

^[22]
Aquino, Ramon C., Civil Code, Vol. III, 1990 Ed., p. 536, citing, among others,
Mahoney v. Tuason, 39 Phil. 952; Puig v. Sellner, 45 Phil. 286;
Northern Motors v. Herrera, 49 SCRA 392.