* 2 petitions for review both seeking to annul and set aside CA’s decision in Aznar et al v.

PNB
Case Citation: GR Nos. 171805 & 172021

Date: May 30, 2011

Petitioners: PNB

Respondents: Aznar, et al

Antecedent  Rural Insurance and Surety Company (RISCO) ceased operation due to business
Facts: revenues. With this, Aznar, et al in order to rehabilitate RISCO, contributed a sum
of money which was used in the purchase of 3 parcels of land
 After the purchase of the 3 lots, titles were issued in the name of RISCO. The
amount contributed by Aznar et al constituted as liens and encumbrances on the
real properties as annotated in the titles of the 3 lots. Such annotation was made
pursuant to the Minutes of the Special Meeting of the Board of Directors of RISCO.
 Thereafter, various subsequent annotations were made on the same titles,
including several Notices of Attachment and Writs of Execution.
 With said annotations, a Certificate of Sale was issued in favor of PNB, being the
lone and highest bidder of the 3 parcels of land. A Final Deed of Sale was also
issued in favor of PNB and a new transfer certificate of title was issued in the name
of the bank.
 This prompted Aznar et al s to file a complaint seeking the quieting of their
supposed title to the subject properties, declaratory relief, cancellation of PNB’s
TCT and reconveyance against PNB.

Aznar et al’s o The subsequent annotations on the titles are subject to the prior annotation of their
Contentions: liens and encumbrances
o The subsequent writs and processes annotated on the titles are all null and void for
want of valid service upon RISCO and on them, as stockholders.
o The Final Deed of Sale and PNB’s TCT are null and void as these were issued only
after 28 years and that any right which PNB may have over the properties had long
become stale.

PNB’s o Aznar et al have no right of action for quieting of title since the order of the court
contentions: directing the issuance of titles to PNB had already become final and executory and
their validity cannot no longer be attacked
o Aznar et al as mere RISCO’s stockholders do not have any legal or equitable right
over the properties of the corporation.
o Aznar et al’s only recourse was to require the reimbursement of their contribution

MTC/RTC Ruling: Granted Aznar et al’s complaint against PNB; it ruled that there was an express trust
created over the 3 lots whereby RISCO was the trustee and Aznar, et al, the
stockholders were the beneficiaries; directed PNB to reconvey its TCT in favor of
Aznar et al

CA Ruling: Set aside RTC’s ruling; the monetary obligations made by Aznar et al to RISCO are
characterized as a loan secured by a lien on the subject lots, rather than an express
trust; it directed PNB to pay Aznar et al the amount of their contribution

(Here, both parties moved for reconsideration of CA’s decision and filed their own
petitions before SC; Aznar’s petition is only relevant to the present discussion of Trust)

Issue: W/N CA erred in ruling that the contributions made by Aznar et al as stockholders of
RISCO were merely a loan secured by their lien over the 3 lots rather than an express
trust? NO.
SC Ruling: A thorough and comprehensive scrutiny of the records would reveal that this
case should be dismissed because Aznar, et al., have no title to quiet over the
subject properties and their true cause of action is already barred by
prescription.

SC agreed with CA that the agreement contained in the Minutes of the Special Meeting
of the RISCO Board of Directors was a loan by Aznar et al as stockholders to RISCO.

“The Minutes showed that their contributions shall constitute as ‘lien or interest
on the property" if and when said properties are titled in the name of RISCO
until such time their respective contributions are refunded to them completely.
x x x The term lien as used in the Minutes is defined as "a discharge on
property usually for the payment of some debt or obligation. It is a right which
the law gives to have a debt satisfied out of a particular thing. " Hence, from
the use of the word "lien" in the Minutes, We find that the money contributed
by plaintiffs-appellees was in the nature of a loan, secured by their liens and
interests duly annotated on the titles. The annotation of their lien serves only
as collateral and does not in any way vest ownership of property to plaintiffs.”

SC rejected Aznar et al’s claim that there was an express trust.

As a rule, trust is the right to the beneficial enjoyment of property, the legal title to which
is vested in another. It is a fiduciary relationship that obliges the trustee to deal with the
property for the benefit of the beneficiary. Trust relations between parties may either be
express or implied. An express trust is created by the intention of the trustor or of the
parties. An implied trust comes into being by operation of law.

Express trusts are intentionally created by the direct and positive acts of the settlor or
the trustor - by some writing, deed, or will or oral declaration. It is created not
necessarily by some written words, but by the direct and positive acts of the parties.

In the present case, there was no express trust that was created. It was observed by
SC that the plain and ordinary meaning of the terms used in the Minutes does not
offer any indication that the parties thereto intended that Aznar, et al., become
beneficiaries under an express trust and that RISCO serve as trustor. SC found
that Aznar, et al., have no right to ask for the quieting of title of the properties at
issue because they have no legal and/or equitable rights over the properties that
are derived from the previous registered owner which is RISCO, the pertinent
provision of the law is Section 2 of the Corporation Code which states that "[a]
corporation is an artificial being created by operation of law, having the right of
succession and the powers, attributes and properties expressly authorized by law or
incident to its existence."

In said provision, a corporation has a personality separate and distinct from those of its
stockholders and other corporations to which it may be connected. Thus, the interest of
the stockholders over the properties of the corporation is merely inchoate and therefore
does not entitle them to intervene in litigation involving corporate property. As already
established in a jurisprudence:

“While a share of stock represents a proportionate or aliquot interest in the

property of the corporation, it does not vest the owner thereof with any legal
right or title to any of the property, his interest in the corporate property being
equitable or beneficial in nature. Shareholders are in no legal sense the
owners of corporate property, which is owned by the corporation as a distinct
legal person.”
In the case at bar, there is no allegation that the corporate existence of RISCO has
ceased and the corporate property has been liquidated and distributed to the
stockholders. The records only indicate that SEC merely suspended RISCO's
Certificate of Registration due to its non-submission of SEC required reports and its
failure to operate for a continuous period of 5 years.

Therefore, Aznar et al who are stockholders of RISCO, cannot claim ownership over
the properties on the strength of the Minutes which is merely evidence of a loan
agreement between them and the company. There is no indication that the ownership
of said properties were transferred to them which would require no less that the said
properties be registered under their names. Thus, the complaint should be
dismissed since Aznar, et al., have no cause to seek a quieting of title over the
subject properties.

At most, what Aznar, et al., had was merely a right to be repaid the amount loaned to
RISCO. Unfortunately, the right to seek repayment or reimbursement of their
contributions used to purchase the subject properties is already barred by
prescription. Aznar et al had a period of 10 years from 1961 within which to enforce
the said written contract. However, they did not filed any action for reimbursement or
refund of their contributions against RISCO or even against PNB. Instead the suit that
Aznar, et al., brought before RTC was one to quiet title over the properties purchased
by RISCO with their contributions. It is unmistakable that their right of action to claim for
refund or payment of their contributions had long prescribed. Thus, CA erred in ordering
PNB to pay Aznar et al, the amount of their liens based on the Minutes with legal
interests from the time of PNB's acquisition of the subject properties.

WHEREFORE, the petition of Aznar, et al., in G.R. No. 172021 is DENIED for lack
of merit.