G.R. No. 27014, October 5, 1927
PAULINA CRISTOBAL, ET AL., plaintiffs-appellees, vs. MARCELINO GOMEZ, defendant-appellant.

Ponente: STREET, J.

FACTS

Epifanio Gomez, husband of Paulina Cristobal and father of the other plaintiffs, sold three parcels of land under a pacto de retro to Luis R. Yangco in 1891. The redemption period expired without repurchase, consolidating title in Yangco. Years later, Yangco allowed repurchase. Epifanio, lacking funds, sought help from his siblings, Marcelino Gomez and Telesfora Gomez. An agreement was reached wherein Bibiano Bañas would lend P7,000 on the credit of Marcelino and Telesfora. This money was used to repurchase the property from Yangco in the names of Marcelino and Telesfora (Exhibit D). A “private partnership in participation” (Exhibit A) was executed between Marcelino and Telesfora, stating that the income from the property would be used to amortize the capital and expenses, and upon full payment, the properties would be returned to Epifanio Gomez or his legitimate children, subject to Epifanio’s “good behavior” as judged by Marcelino and Telesfora. Epifanio died a little over a year later. In 1909, Telesfora, wanting to be released from her obligation to Bañas, conveyed her interest in the properties to Marcelino (Exhibit E), who assumed the entire debt. Marcelino then possessed, managed, and improved the properties for about twenty years, significantly increasing their value. After Marcelino’s death (post-trial), the widow and children of Epifanio sued to recover the properties and their income since 1918.

ISSUE

Did Marcelino Gomez hold the subject properties in trust for the benefit of his deceased brother Epifanio Gomez’s heirs, thereby obliging him to reconvey the properties upon the fulfillment of the conditions of the original agreement?

RULING

YES. The Supreme Court affirmed the trial court’s decision, ordering the heirs of Marcelino Gomez (substituted after his death) to reconvey the properties to the plaintiffs.
1. Existence of a Trust: The agreement embodied in Exhibits A and D created an express trust. Marcelino and Telesfora Gomez did not acquire the properties for their own benefit but to assist their brother Epifanio. They were to hold the title as trustees, administer the property, apply its income to pay off the loan from Bañas, and return it to Epifanio or his heirs once the debt was extinguished. The condition of Epifanio’s “good behavior” was a collateral, potestative condition meant to protect the investment, not a resolutory condition for the trust itself. Epifanio’s death rendered this condition inoperative, as it was personal to him, and did not affect the core obligation to return the property upon payment of the debt.
2. Effect of Telesfora’s Conveyance: Telesfora’s conveyance of her interest to Marcelino (Exhibit E) merely transferred her position as a co-trustee. It did not convert Marcelino’s holding into absolute ownership free of the trust. Marcelino stepped into her shoes, assuming both her share of the obligation to Bañas and her fiduciary duty under the trust.
3. Extinguishment of the Debt and the Trust: The evidence showed that the income from the properties over twenty years was more than sufficient to pay off the P7,000 principal loan and all associated interest and expenses. The trust purposeto secure and repay Bañas’s loanwas therefore accomplished. Upon the fulfillment of this purpose, the trust should terminate, and the property must be conveyed to the *cestui que trust* (beneficiary), i.e., the heirs of Epifanio Gomez.
4. Marcelino’s Improvements and Possession: Marcelino’s long possession, management, and improvements made on the properties were performed in his capacity as trustee and manager under the agreement. His claim of acquiring ownership through prescription fails because his possession was not in the concept of an owner (*en concepto de dueño*) but that of a trustee. Prescription does not run against a beneficiary as long as the trust is recognized. The increase in the property’s value does not entitle the trustee to retain the property; it accrues to the benefit of the rightful owners.
5. Dissenting Opinion (Noted): A dissenting opinion argued that there was no clear trust, that Marcelino acted as and considered himself the owner for twenty years without being called to account, and that he should not be penalized for his thrift and improvements that increased the property’s value. The majority, however, held the express terms of the agreement and the fiduciary relationship paramount.

DISPOSITIVE PORTION:
The judgment of the Court of First Instance was affirmed. The heirs of Marcelino Gomez were ordered to surrender the properties to the plaintiffs and execute the proper deed of conveyance. Costs were taxed against the appellant.