Tala Realty Services Corporation vs.

Banco Filipino Savings and Mortgage

Bank
G.R. No. 137533
Novermber 22, 2002
In 1981, Banco Filipino Savings and Mortgage Bank (The Bank) executed a sale of
nine (9) parcels of land with Tala Realty Services Corporation (TALA) conveying
them to the latter. On the same day, Tala and the bank executed another contract,
this time a contract of lease. The contract initially stated that the Bank would lease
the lands for 20 years at the rate of P9, 800.00/month, renewable for another 20
years at the option of the bank. But according to Tala, it was amended on the same
day changing the lease period to 11 years, renewable for another 9 years, at the
option of the lessee under terms and conditions mutually agreeable to both parties.
The rent rate remained unchanged.
Almost 11 years later, Talas director, Elizabeth Palma (Palma) reminded the bank
that the lease period was almost over and that they were open to discuss a renewal
of the lease under terms and conditions mutual to both parties. When Palma met
with the bank, they submitted a proposal for increased rental rate for P31,
800.00/month. However, it appeared that the bank was not amicable to this
agreement and requested for the documents relevant to the lease to help clarify the
basis of its lease negotiations with the Tala, but the latter failed to produce the
documents requested for. Thus, the bank never gave in to the agreement of Tala to
pay the monthly rentals of P 31, 800.00
From the time the lease expired in August 1992 until March 1994, the Bank
continued to occupy the subject property and only paid rentals of P 9,800.00
instead of the P 31, 800.00 that Tala wanted them to. Then from 1994 onwards, the
bank stopped paying altogether.
In response, Tala repeatedly wrote the bank and demanded payment for the
differences between the old and new rentals from the time of the expiry of the 11
year lease period, goodwill money for the renewal of the contract, lease deposits,
and etc. As the bank did not comply with Talas demands, the latter filed complaints
for ejectment and/or unlawful detainer where the properties were located.
The bank claimed that they were the absolute owners of the lands and demanded
the return or reconveyance of its branch sites on the claim that Tala was only
holding it in trust for them in accordance with the warehousing agreement that
the two parties entered into in 1981. Apparently, investigations yielded the fact that
Tala was a corporation which was established by certain major stock-holders of the
bank in order to circumvent the Rep. Act No. 337 or the General Banking Act, as
amended which limited the amount of land the bank could own. The Republic Act
stated the following:

Sec. 25. Any commercial bank may purchase, hold and convey
real estate for the following purposes:
a. Such as shall be necessary for its immediate acoomodatio in the
transaction of its business: Provided, however, that the total
investment in such real estate and improvements thereof,
including bank equipment, shall not exceed fifty percent (50%)
of net worth: Provided further, That real estate used for the
banks purposes, owned by another corporation in which the
bank owns equity, shall be considered as part of the banks total
investment in real estate.
xxx xxx xxx
Sec. 34. Savings and mortgage banks may purchase, hold and
convey real estate under the same conditions as those
governing commercial banks as specified in Section 25 of this
Act.

So, in order to avoid exceeding the limit set by

program, the Bank had to reduce its branch site
undertaking to a number of major stockholders
corporation, which was Tala Realty to achieve the
in 1981, the bank warehoused the said lands to
the latter leased back the lands to the bank.

law as it pursued its expansion

holdings and thus assigned this
who then established an allied
said expansion plan. As a result,
Tala realty and on the same day,

Talas claim of ownership of the property is based on the contract of sale between
the two parties which they executed back in 1981.
On the other hand, Banco disputes Talas claim of ownership of the property,
alleging that there was an implied trust relationship between them with the bank as
trustor and beneficiary and Tala as trustee. Pursuant to the implied trust, the bank is
now demanding the reconveyance of the property to the Bank as trustor and
Beneficiary.
ISSUES:
1.) Whether or not the trust agreement between the two parties is valid.
HELD:
NO. It is not.
In Tala Realty Services Corporation v. Banco Filipino Savings and Mortgage Bank, the
Court, by Decision dated November 22, 2002, ruling on one of several ejectment
cases filed by Tala Realty against Banco Filipino arising from the same trust

agreement in the reconveyance cases subject of the present petitions, held that the
trust agreement is void and cannot thus be enforced.
An implied trust could not have been formed between the Bank and Tala as the
Court has held that "where the purchase is made in violation of an existing statute
and in evasion of its express provision, no trust can result in favor of the party who
is guilty of the fraud."
The bank cannot use the defense of nor seek enforcement of its alleged implied
trust with Tala since its purpose was contrary to law. As admitted by the Bank, it
"warehoused" its branch site holdings to Tala to enable it to pursue its expansion
program and purchase new branch sites including its main branch in Makati, and at
the same time avoid the real property holdings limit under Sections 25(a) and 34 of
the General Banking Act which it had already reached.
Clearly, the Bank was well aware of the limitations on its real estate holdings under
the General Banking Act and that its "warehousing agreement" with Tala was a
scheme to circumvent the limitation. Thus, the Bank opted not to put the agreement
in writing and call a spade a spade, but instead phrased its right to reconveyance of
the subject property at any time as a "first preference to buy" at the "same transfer
price." This agreement which the Bank claims to be an implied trust is contrary to
law. Thus, while the Court finds the sale and lease of the subject property genuine
and binding upon the parties, the Court cannot enforce the implied trust even
assuming the parties intended to create it. In the words of the Court in the Ramos
case, "the courts will not assist the payor in achieving his improper purpose by
enforcing a resultant trust for him in accordance with the clean hands doctrine."
The Bank cannot thus demand reconveyance of the property based on its alleged
implied trust relationship with Tala.

Land Bank of the Philippines vs. Republic

G.R. No. 150824
February 4, 2008
This case revolves around a parcel of land situated in Davao City which is 4.1
hectares large. This land is covered under OCT No. P-2823 (OCT) which was
issued to one, Bugayong in 1969 by virtue of a sale between the latter and the
Director of lands.
The land was initially subdivided into four lots (Lot A,B,C, and D) by Bugayong who
then sold it to different persons. Lot A was sold to Spouses Du and TCT T-42166
(TCT-A) was issued to them in their favor. Subsequently, the spouses Du subdivided
the lot further into two more lots and transferred one of the lots to spouses Dayola,
who were then issued TCT No. T-45586 (TCT-AA). The remaining lot under the
spouses Du was retained by them. However, they had the TCT of their remaining lot
cancelled and a new one registered under the name of Lourdes Farms, Inc. under
TCT T-57348 (TCT-AB).
Lourdes Farms, Inc in turn, mortgaged their property to petitioner Land Bank of
the Philippines (LBP) in 1980.
The validity of OCT-A remained undisturbed until some residents of the land it
covered filed a formal petition before the bureau of lands in 1981. An investigation
yielded the fact that the sales patent which caused OCT-A in favor of Bugayong,
covered land which was classified as a FORESTED ZONE and which was only
released as alienable and disposable in 1981, years after the sale between the
Director of lands and Bugayong. In view of the foregoing findings, the Bureau of
Lands resolved that the sales patent in favor of Bugayong was improperly and

illegally issued and that the Director of Lands had no jurisdiction to dispose of the
subject land.
The complaint was filed against Bugayong and other present owners and
mortgagees of the land, such as Lourdes Farms and LBP. In its answer and crossclaim, LBP claimed that it is a mortgagee in good faith and for value. It prayed
that should TCT-AB be annulled by he court, Lourdes Farms, Inc. should be ordered
to pay its outstanding obligations to LBP or to provide a new collateral security.
ISSUES:
1.) Does LBP have a valid and subsisting mortgagees interest over the land
covered by TCT-AB?
HELD:
NO. The Supreme Court Held that despite the arguments of LBP, it still has no valid
and subsisting mortgagees interest over the lands because the mortgagor, Lourdes
Farms, Inc., from which LBP supposedly obtained its alleged interest, has never
been the owner of the subject land. Acquisition over the subject land by
Lourdes Farms, Inc would be legally impossible as the land was released as
alienable and disposable only in 1981. Even at present, no one could have
possessed the same under a claim of ownership for the period of (30) years required
under Section 48(b) of Commonwealth Act No. 141, as amended/ PD 1529, Section
14.
Under Article 2085 of the CC, it is essential that the mortgagor be the absolute
owner of the thing mortgaged. Since Lourdes Farms, Inc. is no the owner of the
land, it does not have the capacity to mortgage it to LBP.
Also, the SC discussed that the argument of LBP that they have a constitutional
guarantee of non-impairment of contract fails because there is a valid exercise of
police power of the State. It was said that Forests constitute an essential and
vital part of our countrys resources and it is of paramount national interest that
they be preserved, cultivated, and protected. So, because of the importance of
forests to the nation, the States police power has been wielded to regulate the use
and occupancy of forest and forest reserves, thus, lands which are classified as so
cannot be alienated unless there is a declaration that they are alienable and
disposable.