Title
Tongoy vs. Court of Appeals
Case
G.R. No. L-45645
Decision Date
Jun 28, 1983
Simulated property transfers created an implied trust; reconveyance claim upheld as void contracts don’t prescribe. Legitimated heirs granted hereditary rights; attorney’s fees awarded.

Case Summary (G.R. No. L-45645)

Key Dates and Procedural History

Relevant dates: PNB foreclosure instituted June 18, 1931; transfers to Luis D. Tongoy executed in 1934–1935 and TCTs issued November 8, 1935 (Hacienda Pulo) and June 22, 1936 (Cuaycong); mortgages executed by Luis in June 1936; mortgage obligations paid April 17, 1956; release of mortgage recorded May 5, 1958; complaint filed June 2, 1966; trial court decision October 15, 1968 (clarified January 9, 1969); Court of Appeals decision December 3, 1975; petition for certiorari to the Supreme Court, which rendered the questioned disposition.
Procedural posture: Trial court found an implied trust in favor of plaintiffs but dismissed part of the complaint on prescription grounds and ordered reconveyance for certain heirs; Court of Appeals modified and expanded reliefs in favor of plaintiffs-appellants; petitioners sought review before the Supreme Court raising factual and legal challenges.

Undisputed Core Facts

Hacienda Pulo and Cuaycong were co-owned parcels that were mortgaged to the Philippine National Bank when co-owners could not meet amortizations. Family conferences occurred to avoid foreclosure. Several co-owners executed deeds transferring their shares to Luis D. Tongoy in the mid-1930s; TCTs were subsequently issued to Luis and his wife. Luis later mortgaged the properties, paid the bank in full in 1956, and a release was recorded in 1958. After Luis’s death (1966), co-heirs filed suit in 1966 alleging the transfers were simulated and that the properties were held in trust for the co-owners.

Issues Presented on Review

Primary issues presented by petitioners included: (1) whether a trust (express or implied) existed in favor of the plaintiffs; (2) whether transfers constituting the basis of a trust were simulated/fictitious; (3) whether plaintiffs’ claims were barred by prescription or laches; (4) whether certain Tongoy respondents were legitimated by the subsequent marriage of their parents; (5) whether attorney’s fees and execution pending appeal were properly ordered.

Court of Appeals’ Findings and Relief Ordered

The Court of Appeals concluded that the transfers in favor of Luis D. Tongoy were simulated and that an implied (constructive) trust arose for the benefit of the co-owners and their heirs. It ordered reconveyance of specific fractional shares to the Sonoras and Tongoys, required an accounting of income from May 5, 1958 until reconveyance, imposed legal interest from the date of actual demand (January 26, 1966) on the fruits due, awarded attorney’s fees (P20,000) to certain respondents, and ordered costs. Those factual findings and the quantitative relief were then challenged before the Supreme Court.

Standard of Review on Findings of Fact

The Supreme Court emphasized that findings of fact by the Court of Appeals are generally conclusive and not subject to reexamination except under recognized exceptions. Petitioners’ contentions challenging factual determinations — e.g., existence of a trust or whether transfers were simulated — were treated as questions of fact that the Supreme Court would not ordinarily disturb absent clear legal error or proof of the recognized exceptions to finality of factual findings.

Legal Characterization of the Transfers: Simulation and Consequences

The Supreme Court analyzed simulation under Articles 1409 and 1410 of the New Civil Code, observing that contracts which are absolutely simulated or fictitious are void ab initio and that the action or defense for declaration of inexistence does not prescribe. Applying these principles to the facts, the Court concluded that the deeds transferring co-owners’ shares to Luis were simulated to facilitate restructuring of the mortgage and to avoid foreclosure; because simulated contracts are inexistent from the beginning, such transactions conferred no valid title and are not susceptible to ratification or barred by lapse of time.

Prescription and Alternative Analysis if an Implied Trust Exists

Because the Court alternatively considered and accepted the Court of Appeals’ finding of an implied trust, it applied the established rule that actions to enforce constructive or implied trusts are subject to a ten-year prescriptive period (as distinguished from express trusts which may be imprescriptible). The critical issue then became the accrual date for prescription: the Court held that where transfers were simulated and the purpose of the arrangement was to discharge the mortgage, constructive notice based solely on registration in the name of the trustee was inadequate; the ten-year period should be counted from the recording of the mortgage release in the Registry of Deeds (May 5, 1958), because that was the date on which the cestuis were chargeable with knowledge that the trust’s purpose had been accomplished and reconveyance should be expected. Since the complaint was filed June 2, 1966, the action was timely under the ten-year rule.

Accounting, Interest, and Attorney’s Fees

The Supreme Court affirmed the Court of Appeals’ order compelling reconveyance and an accounting of income from May 5, 1958 (date of recorded mortgage release) up to reconveyance, and it approved imposition of legal interest on fruits from the date of actual demand (January 26, 1966). The award of attorney’s fees in the sum of P20,000 to successful plaintiffs-appellants was also upheld as equitable and reasonable given that they were forced to litigate to enforce rights that were acknowledged by the Court of Appe

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