FACTS: Court, the trial court should have
dismissed the case motu
Spouses Jose Tad-y and Patricia
proprio because the prescription of the
Toledanes Tad-y (spouses Tad-y)
Tad-ys' cause of action is apparent on
obtained an agricultural sugar crop
the face of the complaint.
loan from PNB. To secure the loan, PNB
and the spouses Tad-y executed a Real RATIO:
Estate Mortgage (REM)[6] over six (6)
A. The essential elements of
parcels of land located at Himamaylan
laches are the following: (1)
City and Hinigaran, both in Negros
conduct on the part of the
Occidental.
defendant, or of one under
In 1988, Lots 778 and 788,[12] were whom he claims, giving rise to
sold on auction by the provincial the situation of which complaint
treasurer of Negros Occidental, for is made and for which the
failure to pay real property taxes complaint seeks a remedy; (2)
thereon.[13] PNB participated in the delay in asserting the
auction and won as the sole bidder. complainant's rights, the
complainant having had
In 1995, the spouses Tad-y availed of
knowledge or notice of the
the loan restructuring provisions of
defendant's conduct and having
Republic Act No. 7202.[17] A year later,
been afforded an opportunity to
the spouses completed the payments
institute a suit; (3) lack of
on the two loans.[18] Accordingly, on
knowledge or notice on the part
March 6, 1996, PNB executed a deed
of the defendant that the
of release of the REM.[19] However, PNB
complainant would assert the
excluded Lots 778 and 788 from the
right on which he bases his suit;
release,[20] claiming that it had already
and (4) injury or prejudice to the
acquired title to said lots by virtue of
defendant in the event relief is
the auction sale.
accorded to the complainant, or
The RTC and CA ruled that citing the the suit is not held barred.
last sentence of paragraph (c) of the
REM, which provides that "the The act of defendant-appellant
Mortgagee shall advance the taxes Bank in purchasing the subject
and insurance premiums due in case properties in the auction sale
the Mortgagor shall fail to pay gave rise to the complaint of
them,"[27] the RTC ruled that PNB herein plaintiffs-appellees.
should have paid real property taxes However, the latter delayed the
on the disputed lots in default of the assertion of their supposed right
Tad-ys. Instead, PNB refused to to annul the sale for a period of
perform its obligation under the REM over sixteen (16) years despite
and allowed the lots to become knowledge or notice of such
delinquent so that it may acquire them sale. They had all the
for a below-market price at the opportunity within that period of
delinquency auction sale. While PNB 's time to take action to set aside
participation in the auction sale was or annul the sale or bring an
not illegal, it was an actionable abuse action for the alleged breach of
of right under Article 19 of the Civil contract. Defendant-appellant
Code that prejudiced the Tad-ys.[28] Bank was never appraised of
any intention on the part of
Furthermore, pursuant to paragraph plaintiffs-appellees to annul the
(d) of the REM, which provides for the sale or to bring an action for
automatic appointment of PNB as breach of contract from August
attorney-in-fact of the spouses Tad-y in 9, 1988, the time of the alleged
case of violation or breach of any breach, until July 19, 2001 when
condition contained therein, PNB's they made their written
purchase of the disputed lots should demand. As a matter of fact,
inure to the benefit of the Tad-ys plaintiffs-appellees never
showed any effort during this
PNB argues that the CA erred in period to recover their property.
refusing to consider the defense of Lastly, it cannot be denied that
prescription. PNB argues that pursuant defendant-appellants' right will
to Rule 9, Section 1 of the Rules of be prejudiced in the event that
relief shall be granted to the now claims that assuming the ten-year
plaintiffs-appellees or if the suit period under Article 1144(1) of the
shall not be deemed barred.[59] Civil Code is not applicable; the
complaint is still barred under Article
95) Despite having paid their 1144(2), since the action would now
restructured loan in 1995 and be based on the CA's finding that a
obtained a Release of Real constructive trust arose between PNB
Estate Mortgage (on the 4 other and the Tad-ys.
mortgaged properties) in 1996,
2) Relative to the lack of clarity on the
respondent and his principals
basis of prescription, the allegations of
did not seek judicial redress
the complaint and the relief sought
until 2004, when they probably
thereby open the possibility of the
realized the incremental
application of other statutes of
increase in land values affecting
limitation. The complaint, which is
the subject properties. This is
captioned as one for "BREACH OF
clear in the Complaint.
CONTRACT AND RECONVEYANCE OF
Moreover, there was no new
PROPERTIES COVERED BY TRANSFER
issue of fact that arose in
CERTIFICATE [of Title]"[54] states in
connection with the question of
part:
prescription when petitioner
PNB raised the same on appeal.
[60]
11. Sometime on August 9, 1988,
defendant-mortgagee-bank, the PNB,
It bears repeating that PNB made
instead of advancing the amounts of P
these arguments for the first time
9,461.54 and P 1,148.09 and pay the
on appeal. The trial court, which is the
Provincial Treasurer of Negros
judicially-designated primary
Occidental for the unpaid taxes of
factfinder in our legal system, was
Transfer Certificate of Title No. 23350,
unable to pass upon these arguments
Lot No. 788, and Transfer Certificate of
which involve matters of fact. Given
Tide No. T-2524, now T-161298, Lot
these circumstances, the CA's refusal
778, and in violation of the law, R.A.
to pass upon the defense of
2612, as amended, and contrary to
prescription was justified.
Paragraph I, of the covering Real
Estate Mortgage, opted to participate
in as lone and only bidder in the public
well settled is the rule that the
auction sale of the said property;
elements of laches must be proven
positively. Laches is evidentiary in
xxxx
nature, a fact that cannot be
established by mere allegations in the
14. The act of participating in as lone
pleadings and cannot be resolved in a
and only bidder by defendant-
motion to dismiss.
mortgagee-bank, the PNB, affecting
In the case at bar, we find that the the above-mentioned-properties, is in
issue of prescription can no longer be legal contemplation, the act of buy
raised on appeal, for the following and sell of property, which is not
reasons: authorized by the PNB Charter under
Republic Act No. 2612, as amended
1) The statutory basis for prescription and operating under the provisions of
is unclear. The applicable statute of Presidential Decree No. 694, as
limitations which bars the complaint amended;
must appear clearly and sufficiently on
the record. (PNB's Corporate Powers and
Purposes, Section 3, p. 264)
When PNB raised the issue for the first
time in its appeal brief, it cited the 15. The act of participation as lone
ten-year period for bringing actions and only bidder by the defendant-
upon a written contract under Article mortgagee-bank, the PNB, is also not
1144(1) of the Civil Code.[52] PNB did authorized by the PNB Board of
not replead prescription in its motion Directors;
for reconsideration; instead it raised
the issue for only the second time in xxxx
its petition before the Court, where it
18. Being contrary to law, the public he ought not, in equity and
auction sale of these properties of good conscience, to hold.
plaintiff-mortgagor sometime in
August 9, 1988 is NULL and VOID AB In the case at bar, we find PNB
INITIO; guilty of constructive fraud for
breaching its fiduciary duty to
(Article 1409-chapter 9 - void or
the spouses Tad-y under the
Inexistent Contracts - the following are
REM, when it refused to release
inexistent and void from the very
the disputed lots. It has been
beginning:
established that PNB acquired
the disputed lots through the
1) those whose cause, object or
1988 auction sale on behalf of
purpose is contrary to law, morals,
the spouses Tad-y, pursuant to
good customs, public order or public
the power-of-attorney provisions
policy; these contracts cannot be
under paragraph (d) of the REM.
ratified, neither can the right to set up
As earlier mentioned, when the
the defense of illegality be waived.
loans were fully paid in 1996,
19. Being a contract VOID AB INITIO, without PNB having exercised
the action or defense of inexistence of its right to foreclose on the
a contract does not prescribe; x x x mortgaged properties, PNB lost
any interest it had in the
(it is elementary that a VOID contract disputed properties; and should
produces no effect either against or in have perforce turned them over
favor of anyone. It cannot create, to the Tad-ys.
modify, or extinguish the juridical
relation to which it refers. Facts:
20. Being a contract VOID AB INITIO, In 1975, spouses Jose and
laches has not also set in; x x x Patricia Tad-y obtained
agricultural loans from the
21. Being a contract VOID AB INTIO, Philippine National Bank (PNB),
plaintiff cannot be said to be in secured by a Real Estate
ESTOPPEL Mortgage (REM) on six parcels
of land in Negros Occidental.
----// Due to non-payment of real
property taxes, two of these
parcels (Lots 778 and 788) were
B. Article 1456 of the Civil Code auctioned in 1988. PNB, as the
provides that a person who sole bidder, acquired the
acquires property through properties.
mistake or fraud is considered a The Tad-y spouses restructured
trustee of a trust created by their loans under Republic Act
force of law for the benefit of No. 7202 and completed
the person from whom the payments by 1996. PNB
property comes. The trust executed a release of the REM
relation created by this but excluded Lots 778 and 788,
provision is called a constructive claiming ownership from the tax
trust, which jurisprudence sale.
defines as: Patricia Tad-y requested the
release of these lots and offered
a trust not created by any to reimburse PNB for the
words, either expressly or auction price, but PNB refused.
impliedly, evincing a direct Consequently, the Tad-y family
intention to create a trust but filed a complaint for breach of
by the construction of equity in contract and reconveyance of
order to satisfy the demands of property.
justice and prevent unjust Issues:
enrichment. It does not arise by 1. Whether PNB was obligated
agreement or intention but by under the REM to advance
operation of law against one payment of real property taxes
who, by fraud, duress, or abuse upon the mortgagors' failure to
of confidence obtains or holds pay.
the legal right to property which
2. Whether PNB acted as an Creation of constructive trust
attorney-in-fact for the Tad-y by virtue of PNB's acquisition
spouses during the tax of the disputed lots by
delinquency auction, making delinquency auction sale
the purchase of the properties
beneficial to the Tad-y family. Finally, PNB argues that the CA
3. Whether the Tad-y family's erred in ruling that a
cause of action had prescribed. constructive trust was created
Rulings: over the disputed properties by
1. Obligation to Pay Real operation of law. PNB argues
Property Taxes: that its conduct with respect to
o The Court held that PNB's the disputed lots did not
obligation to pay taxes amount to actual or
arises only during judicial constructive fraud which
foreclosure proceedings. creates a constructive trust by
Since no foreclosure operation of law.
occurred, PNB was not
required under the REM
to advance the real
property taxes.
2. Acting as Attorney-in-Fact:
o The Court determined
that PNB's purchase of
Lots 778 and 788 at the
tax auction inured to the
benefit of the Tad-y
family. The REM granted
PNB broad administrative
powers as an attorney-in-
fact upon breach of its
conditions, including
actions to preserve the
mortgaged property.
3. Prescription:
o The Court ruled that the
issue of prescription
could not be raised for
the first time on appeal,
as it was not initially
presented in PNB's
answer or during pre-trial.
Doctrine:
Abuse of Rights (Article 19,
Civil Code): The exercise of a
legal right must be done within
the bounds of equity and
fairness. PNB's actions
constituted an abuse of rights
under this provision.
Constructive Trusts (Article
1456, Civil Code): Property
acquired through wrongful
means is held in trust for the
benefit of the original owner.
The Supreme Court affirmed the
decisions of the lower courts,
ordering PNB to reconvey the
titles of Lots 778 and 788 to the
Tad-y family upon
reimbursement of the auction
price plus interest.
