FIRST DIVISION

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

Spouses ANTHONY and PERCITA OCO, petitioners, vs. VICTOR

LIMBARING, respondent.

DECISION

PANGANIBAN, C.J : p

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 1 under Rule 45 of the Rules of Court, assailing
the August 26, 2003 Decision 2 and the November 25, 2003 Resolution 3 of the
Court of Appeals (CA) in CA-G.R. 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Percita L. Oco is hereby RESCINDED.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. 6
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. THDIaC

"Ozamis City, Philippines, July 1, 1996." 10

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. 11 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.
12

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. 13 In his Opposition
to the Motion to 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. 16

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. 17

Respondent testified on his behalf. He then formally offered his exhibits. 18 After
filing their Comments to Plaintiff's Formal Offer of Exhibits, Spouses Oco filed a
Demurrer to Evidence, to which he filed his Opposition. 19

On October 2, 2000, the RTC granted the demurrer and dismissed the Complaint
and Counterclaim, 20 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. 21

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. 24

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

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." 26

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. DTIaHE

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, 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. 29 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. 30

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. 34 Only the contracting parties are bound by the
stipulations in the contract; 35 they are the ones who would benefit from and could
violate it. 36 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. 37

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. 38 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. 39
Contracts pour autrui are covered by this exception. 40 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.

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. 43

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. 44 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. 45

Trusts may be either express or implied. 46 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. 47

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."
ESDcIA

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. 49 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 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.

SO ORDERED.

Yñares-Santiago, Austria-Martinez, Callejo, Sr. and Chico-Nazario, JJ., concur.

Footnotes

1. Rollo, pp. 10-23.

2. 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).

3. Id., p. 55.

4. Id., p. 53.

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

6. Ibid.

7. Ibid.

8. Ibid.

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

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

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

12. Id., pp. 3 & 36.

13. Ibid.

14. Id., pp. 4 & 37.

15. Ibid.

16. Ibid.

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

18. Id., pp. 8 & 41.

19. Ibid.

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

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

23. Id., pp. 16 & 49.

24. Id., pp. 17 & 50.

25. 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.

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

27. Id., pp. 17 & 135.

28. Id., pp. 18 & 136.

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

30. 67 CJS Parties §10, 910 (1950).

31. 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.

32. 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.

33. 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.

34. 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 Compañia Naviera,
S.A. v. Court of Appeals , 156 SCRA 368, 378, December 14, 1987.

35. 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. . . . ."

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

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

38. Sustiguer v. Tamayo, supra at note 34; Ibañez v. Hongkong and Shanghai
Banking Corporation, 22 Phil. 572, 588, February 26, 1912.
39. 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, 1989.

40. 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."

41. 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."

42. 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)

43. Respondent's Memorandum, p. 8; rollo, p. 105.

44. Cuenco v. Manguerra, 440 SCRA 252, 262, October 13, 2004; Spouses Rosario
v. Court 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).

45. Art. 1440 of the Civil Code.

46. Art. 1441 of the Civil Code.

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

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

49. I n 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.