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[ G.R. No. 161298, January 31, 2006 ]

Basic in procedural law is the rule that every action must be prosecuted or defended in the
name of the real party in interest. In the present case, the respondent, who was not a party to
the contracts being sued upon, was not able to prove material interest in the litigation. For his
failure to do so, the trial court cannot be faulted for dismissing the action to rescind the
contracts. His status as trustor remained a bare allegation, as he had failed to rebut the legal
presumption: that there is absence of a trust when the purchase price in a deed of sale is
paid by a parent in favor of a child. Here, the prima facie presumption is "that there is a gift in
favor of the child." Any allegation to the contrary must be proven by clear and satisfactory
evidence, a burden that was not discharged by the plaintiff.
The Case

Before us is a Petition for Review

under Rule 45 of the Rules of Court, assailing the August
26, 2003 Decision
and the November 25, 2003 Resolution
of the Court of Appeals (CA)
in CA-GR CV No. 69386. The challenged Decision disposed as follows:
"WHEREFORE, the order dated October 2, 2000 of the Regional Trial Court, Branch 15,
Ozami[s] City in Civil Case No. OZC 99-14 is hereby REVERSED. The agreement entered
upon by plaintiff-appellant and defendant-appellee Percita L. Oco is hereby RESCINDED.
After returning the agreed purchase amount of P60,000.00 to defendants-appellees, the
Register of Deeds of Ozami[s] City shall issue the new Transfer Certificates of Title in the
name of plaintiff-appellant thereby canceling the TCT Nos. T-22073 and T-22072." 4
The Facts
The pertinent facts are not disputed. Sometime in 1996, Sabas Limbaring subdivided his Lot
2325-D, covered by Transfer Certificate of Title (TCT) No. 5268, into two lots denominated as
Lot Nos. 2325-D-1 and 2325-D-2. 5 He then executed in favor of Jennifer Limbaring a Deed

of Sale for Lot 2325-D-2 for P60,000; and, in favor of Sarah Jane Limbaring, another Deed for
Lot 2325-D-1 for P14,440. Accordingly, TCT No. 5268 was cancelled and TCT Nos. T-21921
and T-21920 were issued in the names of Jennifer and Sarah Jane, respectively.
Sensing some irregularities in the transaction, Percita Oco, the daughter of Sabas Limbaring,
left Puerto Princesa City and went to Ozamis City. 7 She then filed a case of perjury and
falsification of documents against respondent, her uncle who was the father of Jennifer and
Sarah Jane. During the pre-litigation conference called by City Prosecutor Luzminda Uy on
July 1, 1996, the parties agreed that the two parcels of land should be reconveyed to Percita,
who was to pay respondent all the expenses that had been and would be incurred to transfer
the titles to her name. 8
Respondent demanded P30,000 for the estimated expenses for documentation, capital
gains, and documentary stamp taxes; registration fees for the Register of Deeds; and other
incidental expenses for clearances from the Department of Agrarian Reform (DAR). 9
Percita succeeded in lowering the amount to P25,000, for which she executed an
undertaking worded as follows:
"I, Percita Oco, of legal age, and residing at Puerto Princesa, do hereby undertake to give the
full amount of Twenty Five Thousand (P25,000.00) Pesos to my uncle Victor Limbaring after
document No. 230, series of 1996; Transfer Certificate of Title No. T-21920 and Transfer
Certificate of Title No. T-21921 shall have been cancelled and revoked.
"Ozamis City, Philippines, July 1, 1996."


Pursuant to their agreement, respondent facilitated the transfer of the titles to her from the
names of his daughters. After the transfer had been effected on July 12, 1996, Percita left for
Puerta Princesa on July 17, 1996, without paying the P25,000. Several demands were made,
but she refused to pay.
On April 6, 1999, respondent filed against Spouses Anthony and Percita Oco a Complaint for
the rescission of the sales contracts, with recovery of possession and ownership of the two
parcels of land.
Among others, he claimed 1) that he was the actual buyer of the lots, but
the vendees whose names appeared on the Deeds were his daughters; 2) that he initially
refused to reconvey the properties because he had paid for them with his hard-earned
money, which was partly used by Sabas Limbaring for medical expenses; 3) that Percita had
prepared the two Deeds of Sale, which his daughters signed despite receiving no
consideration as stated in the Deeds; 4) that because she refused to pay the P25,000, the
Limbaring clan held a meeting on October 26, 1996, during which it was agreed that P1,000
per month would be given to respondent from the rentals of Sabas Limbaring's house; and 5)
that the agreement was not implemented, because Percita had failed to cooperate.
On May 27, 1999, Spouses Oco filed a Motion to Dismiss on the ground that the plaintiff
(herein respondent) was not the real party in interest.
In his Opposition to the Motion to
Dismiss, respondent contended that he was a trustor, whose property was being held in trust
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Dismiss, respondent contended that he was a trustor, whose property was being held in trust
by his daughters. 14 He also averred that, on the assumption that he was not the real party in
interest, he was entitled to an amendment of the pleadings. 15
On August 30, 1999, the RTC issued an Order denying the Motion to Dismiss. It ruled that
evidence was required to resolve the parties' respective allegations.
On October 4, 1999, Spouses Oco filed an Answer with Counterclaim, alleging in the main: 1)
that respondent had tried to secure a DAR clearance and to have a certificate of title issued
in his name, but failed because Republic Act (RA) 6657 prohibited the acquisition of more
than five hectares of agricultural land; 2) that through deceit and manipulation, respondent
was able to convince Sabas Limbaring to execute the two Deeds of Sale, notwithstanding the
lack of any consideration; 3) that Sabas informed Percita that the agricultural land had never
been sold; 4) that she refused to pay the P25,000, because the suspensive conditions stated
in the Promissory Note had not been complied with; 5) that she paid for all the expenses
incurred in their transaction; 6) that for her alleged failure to pay the P25,000 and for "other
deceits," respondent filed a criminal Complaint docketed as Criminal Case No. 2985; 7) that
respondent was guilty of forum shopping for filing that case despite the institution of the civil
aspect in the criminal case; 8) that respondent was not the real party in interest and had no
legal standing to sue; 9) that the lots, which were acquired by Jennifer and Sarah Jane
without paying any consideration, should be returned to Percita without any consideration;
and 10) that the Deeds of Sale reconveying the lots acknowledged receipt of consideration.


Respondent testified on his behalf. He then formally offered his exhibits.

After filing their
Comments to Plaintiff's Formal Offer of Exhibits, Spouses Oco filed a Demurrer to Evidence,
to which he filed his Opposition.
On October 2, 2000, the RTC granted the demurrer and dismissed the Complaint and
on the ground that respondent was not the real party in interest. The trial
court also held that Jennifer and Sarah Jane had already acknowledged receipt of the
consideration for the reconveyance of the lots. It added that the P25,000 was an independent
obligation for the reimbursement of the expenses incurred for the transfer of the titles.
Ruling of the Court of Appeals
The CA held that a trust relationship was created when respondent purchased the lots in
favor of his daughters. 22 Thus, he was a real party in interest.
The appellate court also ruled that the P25,000 was part of the consideration for the
reconveyance of the two parcels of land. 23 The CA held that, since Percita had admitted her
failure to pay the amount, respondent had the right to rescind the contracts of reconveyance.

The assailed November 25, 2003 CA Resolution denied reconsideration. Hence, this Petition.

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The Issues
Petitioners state the issues in this wise:
"I. The Honorable Court of Appeals gravely erred in finding respondent the trustor of the
subject properties and in declaring respondent the real party in interest for the rescission of
the two deeds of absolute sale executed by Jennifer Limbaring and Sarah Jane Limbaring in
favor of the petitioners.
"II. The Honorable Court of Appeals gravely erred in declaring that respondent has fully
complied [with] his obligation in the undertaking executed by petitioner after the ownership of
the subject properties were transferred to petitioners.
"III. The Honorable Court of Appeals gravely erred and gravely abused [its] discretion in
ordering the rescission of the Deed of Absolute Sale executed by Jennifer Limbaring and
Sarah Jane Limbaring in favor of the petitioners involving the subject properties.
"IV. The Honorable Court of Appeals gravely abused [its] discretion when it ignored the
pending case before the Fourth Division of the Honorable Court of Appeals with the same
transaction, essential facts and circumstances in this case."
The threshold issue is whether respondent, who was the plaintiff in the trial court, was a real
party in interest in the suit to rescind the Deeds of Reconveyance.
The Court's Ruling
The Petition is meritorious.
Main Issue:
Real Party in Interest
Petitioners contend that respondent was not a trustor, and therefore not the real party in
interest and had no legal right to institute the suit. 27 The real parties in interest were Jennifer
and Sarah Jane, to whom the subject properties had been given as gifts. 28
The controversy centers on Rule 3 of the Rules of Court, specifically an elementary rule in
remedial law, which is quoted as follows:
"Sec. 2. Parties in interest. A real party in interest is the party who stands to be benefited or
injured by the judgment in the suit, or the party entitled to the avails of the suit. Unless
otherwise authorized by law or these Rules, every action must be prosecuted or defended in
the name of the real party in interest."
As applied to the present case, this provision has two requirements: 1) to institute an action,
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the plaintiff must be the real party in interest; and 2) the action must be prosecuted in the
name of the real party in interest.
Necessarily, the purposes of this provision are 1) to
prevent the prosecution of actions by persons without any right, title or interest in the case; 2)
to require that the actual party entitled to legal relief be the one to prosecute the action; 3) to
avoid a multiplicity of suits; and 4) to discourage litigation and keep it within certain bounds,
pursuant to sound public policy.
Interest within the meaning of the Rules means material interest or an interest in issue to be
affected by the decree or judgment of the case, as distinguished from mere curiosity about
the question involved. 31 One having no material interest to protect cannot invoke the
jurisdiction of the court as the plaintiff in an action. 32 When the plaintiff is not the real party in
interest, the case is dismissible on the ground of lack of cause of action. 33
Action on Contracts
The parties to a contract are the real parties in interest in an action upon it, as consistently
held by the Court.
Only the contracting parties are bound by the stipulations in the
they are the ones who would benefit from and could violate it.
Thus, one who
is not a party to a contract, and for whose benefit it was not expressly made, cannot maintain
an action on it. One cannot do so, even if the contract performed by the contracting parties
would incidentally inure to one's benefit.
As an exception, parties who have not taken part in a contract may show that they have a
real interest affected by its performance or annulment.
In other words, those who are not
principally or subsidiarily obligated in a contract, in which they had no intervention, may show
their detriment that could result from it.
Contracts pour autrui are covered by this
In this latter instance, the law requires that the "contracting parties must have
clearly and deliberately conferred a favor upon a third person." A "mere incidental benefit is
not enough."
Action on the Contracts
Presently Involved
Respondent's Complaint, entitled "Rescission of Contract & Recovery of Possession &
Ownership of Two Parcels of Land," is clearly an action on a contract. The agreements sought
to be rescinded 41 clearly show that the parties to the Deeds of Absolute Sale were Jennifer
and Sarah Jane Limbaring 42 as vendors and Percita Oco as vendee. Clearly then, the
action upon the contracts may -- as a rule -- be instituted only by Jennifer and Sarah Jane
against Percita.
Respondent is not a real party in interest. He was not a party to the contracts and has not
demonstrated any material interest in their fulfillment. Evidently, the allegations in the
Complaint do not show that the properties would be conveyed to him, even if Percita were to
be proven to have committed a breach of the subject agreements.
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Trust Relationship
To show material interest, respondent argues that a trust was created when he purchased the
properties from Sabas Limbaring in favor of his daughters. As trustor, he allegedly stands to
be benefited or injured by any decision in the case.
Trust is the legal relationship between one person who has equitable ownership of a property
and another who owns the legal title to the property.
The trustor is the one who establishes
the trust; the beneficiary, the person for whose benefit the trust was created; and the trustee,
the one in whom, by conferment of a legal title, confidence has been reposed as regards the
property of the beneficiary.

Trusts may be either express or implied.

Express trusts are those created by direct and
positive acts of the parties, such as by some writing, deed or will; or by words either
expressly or impliedly evidencing an intention to create a trust. Implied trusts are those that,
without being expressed, are deducible from the nature of the transaction as matters of
intent; or that are super-induced in the transaction by operation of law as a matter of equity,
independently of the particular intention of the parties.
Respondent has presented only bare assertions that a trust was created. Noting the need to
prove the existence of a trust, this Court has held thus:
"As a rule, the burden of proving the existence of a trust is on the party asserting its
existence, and such proof must be clear and satisfactorily show the existence of the trust and
its elements. While implied trusts may be proved by oral evidence, the evidence must be
trustworthy and received by the courts with extreme caution, and should not be made to rest
on loose, equivocal or indefinite declarations. Trustworthy evidence is required because oral
evidence can easily be fabricated." 48
On this point, the Civil Code states as follows:
"ART. 1448. There is an implied trust when property is sold, and the legal estate is granted to
one party but the price is paid by another for the purpose of having the beneficial interest of
the property. The former is the trustee, while the latter is the beneficiary. However, if the
person to whom the title is conveyed is a child, legitimate or illegitimate, of the one paying the
price of the sale, no trust is implied by law, it being disputably presumed that there is a gift in
favor of the child."
Under the last sentence of Article 1448, respondent's alleged acts paying the price of the
subject properties and, in the titles, naming his children as owners raise the presumption
that a gift was effected in their favor. Respondent failed to rebut this presumption. Absent any
clear proof that a trust was created, he cannot be deemed a real party in interest.
That he
should be deemed a trustor on the basis merely of having paid the purchase price is plainly
contradicted by the presumption based on Article 1448 of the Civil Code "that there is a gift in
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favor of the child," not a trust in favor of the parent.

Other Issues
Having found that respondent is not a real party in interest, this Court deems it no longer
necessary to rule on the other issues raised by petitioner.
WHEREFORE, the Petition is GRANTED, and the assailed Decision and Resolution are SET
ASIDE. Civil Case No. OZC99-14, entitled "Victor Limbaring v. Spouses Percita L. Oco and
Anthony Oco,'" is DISMISSED. No pronouncement as to costs.
Ynares-Santiago, Austria-Martinez, Callejo, Sr., and Chico-Nazario, JJ., concur.

Rollo, pp. 10-23.

Id., pp. 34-54. Special Fourth Division. Penned by Justice Remedios A. Salazar-Fernando
(acting chairperson), with the concurrence of Justices Mercedes Gozo-Dadole and Edgardo
F. Sundiam (members).

Id., p. 55.

Id., p. 53.

RTC Order, dated October 2, 2000, p. 1; rollo, p. 31.




Id., p. 2; rollo, p. 32.


Undertaking, dated July 1, 1996; rollo, p. 26.


Assailed Decision, pp. 1-2; rollo, pp. 34-35.


Id., pp. 3 & 36.




Id., pp. 4 & 37.


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Id., pp. 6-8 & 39-41.


Id., pp. 8 & 41.




RTC Order, p. 3; rollo, p. 33.




Assailed Decision, pp. 10-11; rollo, pp. 43-44.


Id., pp. 16 & 49.


Id., pp. 17 & 50.


The case was deemed submitted for decision on April 21, 2005, upon this Court's receipt
of petitioner's Memorandum, signed by Atty. Procopio C. Lao VII. Respondent's
Memorandum -- signed by Attys. Amelia C. Garchitorena, Marvin R. Osias and Josie Christina
T. Dugay of the Public Attorney's Office -- was received by this Court on March 9, 2005.

Petitioners' Memorandum, pp. 16-17; rollo, pp. 134-135. Uppercase in the original.


Id., pp. 17 & 135.


Id., pp. 18 & 136.


Moran, 1 Comments on the Rules of Court 213 (1995).


67 CJS Parties 10, 910 (1950).


Abella v. Civil Service Commission, 442 SCRA 507, 521, November 17, 2004; Mathay v.
Court of Appeals, 378 Phil. 466, 482, December 15, 1999; Rebollido v. Court of Appeals, 170
SCRA 800, 806, February 28, 1989.

Abella v. Civil Service Commission, ibid.; Borlongan v. Madrideo, 380 Phil. 215, 224,
January 25, 2000; Ralla v. Ralla, 199 SCRA 495, 499, July 23, 1991.

Pascual v. Court of Appeals, 409 SCRA 105, 117, August 15, 2003; Bank of America NT &
SA v. Court of Appeals, 448 Phil. 181, 194-195, March 31, 2003.

Uy v. Court of Appeals, 372 Phil. 743, 754, September 9, 1999; Earth Minerals Exploration,
Inc. v. Macaraig, 194 SCRA 1, February 11, 1991; Sustiguer v. Tamayo, 176 SCRA 579, 590,
August 21, 1989; Baliwag Transit, Inc. v. Court of Appeals, 169 SCRA 849, 854, January 31,
1989; Marimperio Compaia Naviera, S.A. v. Court of Appeals, 156 SCRA 368, 378,
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December 14, 1987.


The first paragraph of Article 1311 of the Civil Code provides:

"Contracts take effect only between the parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. x x x."

Marimperio Compaia Naviera, S.A. v. Court of Appeals, supra at note 34.


House International Building v. Intermediate Appellate Court, 151 SCRA 703, 707, June
30, 1987.

Sustiguer v. Tamayo, supra at note 34; Ibaez v. Hongkong and Shanghai Banking
Corporation, 22 Phil. 572, 588, February 26, 1912.

Earth Minerals Exploration Inc. v. Macaraig, supra at note 34; Sustiguer v. Tamayo, ibid.;
Dilson Enterprises Inc. v. Intermediate Appellate Court, 170 SCRA 676, 679, February 27,

Moran, supra at note 29, p. 218; Herrera, 1 Remedial Law 243 (1994).

The second paragraph of Article 1311 of the Civil Code states the rule on contract pour
autrui, as follows:
"If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is not sufficient. The contracting parties must
have clearly and deliberately conferred a favor upon a third person."

The remedy of rescission is provided by the following article of the Civil Code:

"Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
"The injured party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible."

Notably, Jennifer and Sarah Jane Limbaring were both of legal age when they executed
the respective Deeds. (Deeds of Absolute Sale; rollo, pp. 27 & 29)

Respondents Memorandum, p. 8; rollo, p. 105.


Cuenco v. Manguerra, 440 SCRA 252, 262, October 13, 2004; Spouses Rosario v. Court
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of Appeals, 369 Phil. 729, 740-741, July 19, 1999; Morales v. Court of Appeals, 274 SCRA
282, 297, June 19, 1997; Buan Vda. de Esconde v. Court of Appeals, 323 Phil. 81, 88-89,
February 1, 1996. See Tolentino, IV Commentaries and Jurisprudence on the Civil Code of
the Philippines 669 (1991).

Art. 1440 of the Civil Code.


Art. 1441 of the Civil Code.


De Romero v. Court of Appeals, 377 Phil. 189, 199, November 25, 1999; Morales v. CA,
supra at note 44, p. 298.

Id., p. 300, per Davide, J. (later Chief Justice).


In Morales v. Court of Appeals, supra at note 44, the Court rebutted the existence of an
implied trust by applying the presumption under the last sentence of Article 1448. See also
Tolentino, supra at note 44, p. 678.

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