G.R. No. 246826 - Moldex Realty, Inc. vs. Spouses Yu

Emilio and Jose Escay were brothers, with Emilio having mortgaged his properties to the Philippine National Bank before his death in 1924.
Emilio’s failure to pay the accumulated mortgage obligation led the bank to initiate a foreclosure suit in 1930 against Emilio’s estate, which was administered by Atty. Eduardo Arboleda.

On April 28, 1933, an original contract was executed between the Philippine National Bank, Jose Escay, Sr., and the estate’s administrator, Atty. Arboleda.
Under this contract, Jose Escay, Sr. assumed the mortgage indebtedness of his deceased brother.
Magdalena Vda. de Escay, the widow of Emilio and guardian ad litem of the heirs, consented to the transaction, thereby giving her conformity to what was then expected to serve as a sale of the mortgaged properties in favor of Jose Escay, Sr.
The original contract, however, failed to expressly state the transfer of ownership in favor of Jose Escay, Sr.

Upon discovering the omission regarding the conveyance of title, the parties executed a supplementary contract (or “contrato suplementario”) among the bank, Atty. Arboleda, and Jose Escay, Sr.
This supplementary contract clarified that all rights over the properties would be transferred to Jose Escay, Sr. in exchange for his assumption of the entire mortgage indebtedness, subject to a repurchase right by the heirs within five years after full payment.
The supplementary contract was subsequently approved by the probate court (noting that notice to the heirs was served via registered mail, albeit with some issues regarding whether the proper written notice was perfect).

In 1941, Magdalena Vda. de Escay, together with Roberto and other heir-children, filed a complaint seeking the recovery of the properties, claiming that the contracts did not truly transfer ownership but merely the possession or administration thereof.
The complaint was provisionally dismissed after the defendants answered and further evidences of adverse possession and subsequent transactions were presented.
By 1939, the titles over the properties had been transferred to Jose Escay, Sr., who had continued to possess and improve the lands, evidencing a continuous, public, and adverse possession.

Whether the original contract and its supplementary counterpart were valid instruments of sale, transferring full ownership of the properties to Jose Escay, Sr. in exchange for the assumption of the mortgage indebtedness.
Whether the failure to include a specific conveyance clause in the original contract, and the corrective measure through a supplementary contract approved by the probate court with notice to the heirs, effectively manifested the parties’ true intention.

Acquisition of the Properties by Adverse Possession (Acquisitive Prescription)

Whether, beyond the contractual effect, the respondents (through Jose Escay, Sr. and his successors) acquired the properties via adverse possession owing to their continuous, exclusive, and public possession.
The significance of the fact that registration of the title in favor of Jose Escay, Sr. occurred in 1939 under the Torrens system.

Whether the contracts created an implied or express trust whereby Jose Escay, Sr. held the properties in trust for the heirs of Emilio Escay.
Whether the failure of the heirs to repurchase within the stipulated five-year period or to take action against the transfer (despite being served notice) extinguished any claim founded on trust.
The effect of prescription on any action for reconveyance based on an implied or express trust.