G.R. No. 150712 ; May 2, 2006
ESTRELLA PIGAO, ROMEO PIGAO, EMMANUEL PIGAO, ISABELITA ABAD, PURITA SARTIGA, CESAR PIGAO, TERESITA PIGAO, VIRGILIO PIGAO and EVANGELINE KIUNISALA, Petitioners, vs. SAMUEL RABANILLO, Respondent.

FACTS

Eusebio Pigao, petitioners’ father, applied to purchase a 240-sqm lot from the People’s Homesite and Housing Corporation (PHHC) in 1947. In 1959, Eusebio executed a Deed of Assignment of his rights over one-half of the lot in favor of respondent Samuel Rabanillo for P1,000. Respondent occupied the front half, built a house, and paid amortizations. In 1970, Eusebio also mortgaged the same half to respondent. After full payment, PHHC issued a deed of sale to Eusebio in 1973, and a title was issued in his name. Respondent annotated an adverse claim on this title in 1978.
Upon Eusebio’s death, petitioners, his heirs, executed an extrajudicial settlement in 1992, securing a new title in their names which omitted the adverse claim. They then filed an action to quiet title, seeking to nullify the Deed of Assignment and recover possession of the front half. The Regional Trial Court ruled for petitioners, declaring the deed void. The Court of Appeals reversed, ordering the cancellation of petitioners’ title and the issuance of a new one co-naming respondent for the front half.

ISSUE

The core issues are: (1) whether the Deed of Assignment was void under the Public Land Act’s prohibition on alienation, and (2) whether an implied trust was created over the half-portion assigned to respondent.

RULING

The Supreme Court denied the petition and affirmed the CA decision. On the first issue, the Court held that Commonwealth Act No. 141 (the Public Land Act) and its five-year prohibition on alienation apply only to lands acquired through free patent or homestead grants. The subject lot was not acquired via patent but was sold by the PHHC, a government corporation, under a contract to sell. Thus, the statutory prohibition was inapplicable, and the assignment of rights was valid.
On the second issue, the Court found that an implied trust was created in favor of respondent. When Eusebio assigned half of his rights for valuable consideration and allowed respondent to occupy, improve, and pay for that portion, Eusebio held the legal title to the entire lot as a trustee for respondent’s one-half share. This trust relationship was not extinguished by the subsequent issuance of the title solely in Eusebio’s name. Upon Eusebio’s death, petitioners, as heirs, stepped into his shoes as trustees and were bound to reconvey the corresponding half to the beneficiary, respondent. Their act of excluding his claim from the reconstituted and new titles constituted clear repudiation of the trust, but respondent’s action was filed within the prescriptive period from such repudiation.